February 04, 2010

Trade Association Settles FTC Charges of Misleading Advertising: Industry Promotion Can Result in a Requirement to Disclose Product Risks

7 min

A recent Federal Trade Commission (“FTC”) law enforcement action underscores that trade associations are expected to follow the basic tenants of advertising law as commercial advertisers, particularly when making health and safety claims.

On January 26, 2010, the FTC announced it had entered into a voluntary settlement, subject to final approval, with the Indoor Tanning Association (the “ITA”) over allegations that the ITA made misleading representations in its advertising and marketing for indoor tanning.[1]  Under the consent order, the ITA is restricted in the claims it may make in its future advertising, must send a notice to its members and recipients of its advertising materials, and must adopt a record keeping program.[2] 

The proposed order is significant in several respects. First, it makes clear an association’s obligation to adhere to advertising and marketing law. Second, the order illustrates how an association’s own advertising claims can result in obligations to disclose material risks. The FTC accused the ITA of failing to disclose facts related to health and safety risks that would be material to consumers in their purchase or use of the advertised product in light of the representations made. Third, the order focuses on point-of-sale and other consumer-facing advertising by the association that falls squarely in the commercial realm. The order does not cover representations made in non-commercial settings or contexts, such as communications to legislative or executive bodies.

The FTC Enforcement Action

The ITA is a nonprofit trade association that is exempt from federal income taxation under section 501(c)(6) of the Internal Revenue Code. The ITA represents tanning facilities and suppliers of tanning equipment. According to the FTC complaint, in March 2008, the ITA launched an advertising campaign designed to portray indoor tanning as safe and beneficial. The campaign included two national newspaper ads, television and video advertising, two websites, a communications guide, and point-of-sale materials that were provided to association members for distribution in local markets.

The FTC’s complaint charges the ITA with unfair and deceptive acts or practices under Section 5(a) of the Federal Trade Commission Act (the “FTC Act”). According to the FTC, the ITA allegedly made false and unsubstantiated claims that tanning, including indoor tanning, poses no danger. The FTC also alleged that the campaign made several false claims, including about the results of scientific studies, and failed to disclose material facts in its advertising that would be material to consumers in their purchase or use of indoor tanning services. Rather than litigate, the FTC and the ITA entered into a consent order that was published for public comment.

Under the terms of the proposed consent order, which are broadly stated, the ITA is barred from any further deception. The proposed order covers representations made in connection with the manufacturing, labeling, advertising, promotion, offering for sale, sale, or distribution of any covered product or service, in or affecting commerce, as defined by federal regulation.

The proposed order, among other things:

  • Prohibits the ITA from making several specific representations, as fencing-in relief, such as that tanning, including indoor tanning, is safe.

     

  • Requires that future ITA ads that make safety or health benefit claims for indoor tanning may not be misleading and must be substantiated.

     

  • Prohibits the ITA from misrepresenting the existence, contents, validity, results, conclusions, or interpretations of any test, study, survey, or research.

     

  • Prohibits the ITA from making any representation about the safety or health benefits of any covered product or service unless it makes specified disclosures.

Underscoring the notion that advertising by trade or professional associations is not just for the organization’s benefit, ITA must send a notice about the FTC’s law enforcement action to all of its members and all other entities to which it provided point-of-sale advertising. The proposed order requires ITA to keep copies of relevant advertisements and materials substantiating claims made in its future advertisements; to provide copies of the order to its employees; to notify the FTC of changes in corporate structure that might affect compliance obligations under the order; and to file compliance reports with the FTC. The proposed order would terminate after 20 years, with certain exceptions.

Analysis of ITA’s Settlement with the FTC

An important part of the mission of most trade associations is to advertise to develop and defend markets important to its membership. This settlement reemphasizes the need for trade association staff to be well-educated in advertising and marketing law to ensure that their advertising claims are truthful and not misleading. In addition, claims must be substantiated, especially when they concern health, safety, or performance.

It is also important for associations to be cognizant of the advertising risks inherent in advertising and promoting member products and services and to work to minimize those risks by implementing safeguards, such as asking for material to back up claims, rather than merely repeating what a member or industry participant says about a product or service, and appropriately characterizing scientific studies.

The FTC and state Attorneys General enforce laws that prohibit false or deceptive advertising claims (e.g., the FTC Act, 15 U.S.C. §§ 41-58). If advertisements do not comply with the law, the association can risk federal and state enforcement actions and/or civil lawsuits, as well as reputational risk.

In addition, association staff and legal counsel should consider the following pointers:

  • Sellers are responsible for claims they make about their products and services. Third parties – such as advertising agencies or website designers – also may be liable for making or disseminating deceptive representations if they participate in the preparation or distribution of the advertising, or know about the deceptive claims.

     

  • Stick to claims that can be supported. The type of evidence may depend on the product, the claims, and what experts believe is necessary. For example, if an advertisement specifies a certain level of support for a claim – “tests show X” – the advertiser must have at least that level of support.

     

  • Avoid disclaimers and disclosures that are difficult to notice, read or hear. However, remember that a disclaimer cannot remedy a false or deceptive claim.

     

  • Product and service demonstrations should show how the product will perform under normal use.

     

  • FTC guidance suggests that endorsements by associations “must be reached by a process sufficient to ensure that the endorsement fairly reflects the collective judgment of the organization.”

     

  • Certain regulated products and services trigger specific laws (e.g., Textile and Wool Acts, various consumer financial products and services) and regulations. Moreover, certain forms of advertising and marketing are subject to specific guidance (e.g., FTC Guide on Environmental Advertising, FTC Guides Concerning the Use of Endorsements and Testimonials in Advertising).

     

  • Competitors may challenge advertising claims under self-regulatory programs, such as the Council of Better Business Bureau’s National Advertising Division, as well as under section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a).

     

  • Obtain appropriate insurance for advertising and marketing activity.

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Many associations engage in advertising and marketing promotion on behalf of their members. Trade associations, to protect their investment, members and reputation, should make advertising claims only after careful consideration of applicable federal and state law and regulations, and their own particular situation. Key to this last point is working with legal counsel to implement a compliance program that addresses the specific risks faced by the association and the industry or profession it represents.

 

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Jonathan L. Pompan, an attorney in the Washington, DC office of Venable LLP, represents nonprofit organizations and others in regulated industries in a wide variety of areas, including advertising and marketing law compliance, as well as in connection with Federal Trade Commission and state investigations and law enforcement actions. Prior to joining Venable, Mr. Pompan was an in-house counsel at a trade association where he reviewed advertising and marketing in advance of publication. For more information, please contact Mr. Pompan at 202.344.4383 or [email protected].

For more information about this and related industry topics, see http://www.Venable.com/associations/publications.

This article is not intended to provide legal advice or opinion and should not be relied on as such. Legal advice can only be provided in response to a specific fact situation.


[1]  The FTC’s news release, draft complaint, agreement containing the consent order, and analysis of the proposed consent order are available at http://www.ftc.gov/os/caselist/0823159/index.shtm.

[2] The agreement states it is for settlement purposes only and does not constitute an admission by the ITA that the law has been violated as alleged in the FTC’s draft complaint, or that the facts as alleged in the draft complaint, other than the jurisdictional facts, are true.