```

[Senate Hearing 111-484]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 111-484
 
                          ADVERTISING TRENDS 
                        AND CONSUMER PROTECTION

=======================================================================

                                HEARING

                               before the

   SUBCOMMITTEE ON CONSUMER PROTECTION, PRODUCT SAFETY, AND INSURANCE

                                 of the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 22, 2009

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation

                  U.S. GOVERNMENT PRINTING OFFICE
55-980                    WASHINGTON : 2010
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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii             KAY BAILEY HUTCHISON, Texas, 
JOHN F. KERRY, Massachusetts             Ranking
BYRON L. DORGAN, North Dakota        OLYMPIA J. SNOWE, Maine
BARBARA BOXER, California            JOHN ENSIGN, Nevada
BILL NELSON, Florida                 JIM DeMINT, South Carolina
MARIA CANTWELL, Washington           JOHN THUNE, South Dakota
FRANK R. LAUTENBERG, New Jersey      ROGER F. WICKER, Mississippi
MARK PRYOR, Arkansas                 JOHNNY ISAKSON, Georgia
CLAIRE McCASKILL, Missouri           DAVID VITTER, Louisiana
AMY KLOBUCHAR, Minnesota             SAM BROWNBACK, Kansas
TOM UDALL, New Mexico                MEL MARTINEZ, Florida
MARK WARNER, Virginia                MIKE JOHANNS, Nebraska
MARK BEGICH, Alaska
                    Ellen L. Doneski, Chief of Staff
                   James Reid, Deputy Chief of Staff
                   Bruce H. Andrews, General Counsel
   Christine D. Kurth, Republican Staff Director and General Counsel
              Brian M. Hendricks, Republican Chief Counsel
                                 ------                                

   SUBCOMMITTEE ON CONSUMER PROTECTION, PRODUCT SAFETY, AND INSURANCE

MARK PRYOR, Arkansas, Chairman       ROGER F. WICKER, Mississippi, 
BYRON L. DORGAN, North Dakota            Ranking
BARBARA BOXER, California            OLYMPIA J. SNOWE, Maine
BILL NELSON, Florida                 JIM DeMINT, South Carolina
CLAIRE McCASKILL, Missouri           JOHN THUNE, South Dakota
AMY KLOBUCHAR, Minnesota             JOHNNY ISAKSON, Georgia
TOM UDALL, New Mexico                DAVID VITTER, Louisiana

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 22, 2009....................................     1
Statement of Senator Pryor.......................................     1
Statement of Senator Wicker......................................     2
Statement of Senator Klobuchar...................................    45
Statement of Senator McCaskill...................................    51

                               Witnesses

David Vladeck, Director, Bureau of Consumer Protection, Federal 
  Trade Commission...............................................     4
    Prepared statement...........................................     6
Sally Greenberg, Executive Director, National Consumers League...    14
    Prepared statement...........................................    16
Urvashi Rangan, Ph.D., Director of Technical Policy, Consumers 
  Union of U.S. Inc..............................................    21
    Prepared statement...........................................    23
C. Lee Peeler, President and CEO, National Advertising Review 
  Council and Executive Vice President, Advertising Self-
  Regulation Council of Better Business Bureaus..................    25
    Prepared statement...........................................    27
Greg Renker, Co-Chair, Guthy-Renker LLC..........................    32
    Prepared statement...........................................    33
Jon Congdon, President and Co-Founder, Product Partners LLC/
  Beachbody......................................................    35
    Prepared statement...........................................    38

                                Appendix

Hon. John D. Rockefeller IV, U.S. Senator from West Virginia, 
  prepared statement.............................................    59
Response to written questions submitted by Hon. Tom Udall to:
    Sally Greenberg..............................................    59
    David Vladeck................................................    61

                          ADVERTISING TRENDS 
                        AND CONSUMER PROTECTION

                              ----------                              

                        WEDNESDAY, JULY 22, 2009

                                U.S. Senate
      Subcommittee on Consumer Protection, Product 
                             Safety, and Insurance,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:04 a.m. in 
room SR-253, Russell Senate Office Building, Hon. Mark Pryor, 
Chairman of the Subcommittee, presiding.

           OPENING STATEMENT OF HON. MARK L. PRYOR, 
                   U.S. SENATOR FROM ARIZONA

    Senator Pryor. I'll go ahead and call our meeting to order, 
here.
    Thank you all for being here in our Subcommittee today. And 
I just want to say, I appreciate the prepared testimony and the 
efforts all of you made to get here, and also members of the 
audience for being here and paying attention to these important 
issues.
    Today, we're talking about advertising trends and consumer 
protection, in our Subcommittee. And we will have a few 
Senators who will be coming in and out, due to activities on 
the floor, and various other committees that are meeting right 
now. We're going to have a group of Senators that are coming 
and going, and it looks like were going to have a little bit of 
that as we go.
    What I'd like to say is, we have assembled a very strong 
panel of witnesses today representing the Federal Trade 
Commission, the consumer advocacy community, and the 
advertising community. And I think we all look forward to their 
testimony.
    And during last week's hearing on frauds and scams tied to 
the economic downturn, we focused on the FTC's enforcement 
actions and statutory authority. Today, we'll examine current 
trends in deceptive advertising and the Federal Government's 
effort to protect consumers.
    Over and over again, consumers purchase products from 
companies that claim to make us a little trimmer, stronger, or 
healthier. If these advertising claims were just about 
eliminating pimples or fat, it would be one thing. However, 
many of the deceptive practices employed today are increasingly 
putting safety at risk.
    I particularly want to commend the FTC and the FDA's sweep, 
last year, that brought down several companies advertising a 
fake cancer cure. These companies preyed on vulnerable 
patients, and sometimes desperate patients, to put these 
individuals' lives on the line just to make a quick buck. 
Today, companies are even more desperate for sales, as families 
cling a little tighter to their dollars.
    Today, we'll explore the negative impact deceptive 
advertising can have on customers in the marketplace. We'll 
hear about new trends in advertising, including bait-and-switch 
techniques, advertisements portrayed as news articles, bloggers 
paid by advertisers to publish positive reviews, false or 
``testimonial'' advertising, free-product advertising, and 
false or deceptive advertising of ``green'' products.
    I hope that, through testimony and questioning, we can 
determine the extent that consumers are harmed by deceptive 
advertising, whether the connections between the advertisers 
and endorsers are transparent enough for consumers, how to 
improve the coordination between Federal and State governments, 
and, finally, what Congress can do to strengthen the FTC's 
ability to protect consumers all across the Nation.
    We cannot allow the customer in the marketplace to be in 
confusion. If dishonest companies insist on bogus claims about 
their products, the Federal Government must step up and ensure 
information on our airwaves or the Internet is accurate and 
truthful. This allows individuals to make informed decisions, 
and it preserves the overall integrity of our marketplace.
    Again, I want to thank our panel. I want to introduce our 
panel, here, in just a few moments, but first I'd like to ask 
Senator Wicker to make his opening statement.

              STATEMENT OF HON. ROGER F. WICKER, 
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Wicker. Thank you, Mr. Chairman, and thank you all.
    The Federal Trade Commission has protected American 
consumers for almost a century. In 1914, Congress created the 
Commission by passing the Federal Trade Commission Act, and 
tasked the new entity with authority over anticompetitive 
practices. Later, Congress expanded the authority of the 
Commission to include the issue most Americans associate with 
the Federal Trade Commission: the authority to prohibit unfair 
and deceptive acts or practices. Today's hearing will focus on 
trends in the advertisement industry, and steps the Commission 
has taken over the years related to these advertisement 
practices.
    Americans have seen an explosion in the available 
advertising venues over the past two decades. The Internet 
helped create a number of different options for advertising, 
including ad placement on websites, product-related websites, 
YouTube, and blogs. Additionally, the advertisement industry 
has expanded its use of certain types of ads, based on 
parameters established by the FTC.
    While the increased opportunity for marketing is a win for 
industry, this development has raised concerns related to the 
practices used to sell products to American consumers. The FTC 
plays a vital role in this area by actively pursuing bad 
actors. If an advertisement is deceptive or misleading, the 
Commission has broad authority to stop these activities.
    Additionally, the industry must also answer to the National 
Advertising Review Council's Electronic Retailing Self-
Regulation Program. This program, which has significant 
coverage over the advertising and marketing industries, 
provides oversight, and brings enforcement action against those 
who violate the program's requirements. I understand the FTC 
regularly cites this self-regulatory program as an effective 
and efficient model for industry self-regulation.
    While updating of FTC guidelines and self-regulatory 
principles are important, a balance must remain between good 
government and personal responsibility. On the other hand, we 
must not limit the consumers' ability to judge products and 
advertisements for themselves, and apply commonsense principles 
to their purchasing decisions. If true fraud or attempts to 
deceive consumers occur, then the FTC and the self-regulatory 
program must act quickly to address the problem.
    I look forward to hearing from Mr. Renker and Mr. Congdon 
on how the FTC's proposed changes would impact the industry, as 
well as possible solutions that might further protect consumers 
without limiting an effective advertisement tool. I'm also 
eager to hear how their business practices conform to the FTC's 
related guidelines, and what disclosures they include in their 
advertisements.
    Additionally, we've seen an increase in advertisements 
related to green and environmentally friendly products, as the 
Chairman just stated. The Commission is currently reviewing 
established guides on green advertising. I look forward to 
hearing more about this progress today.
    So, Mr. Chairman, thank you for assembling this outstanding 
panel, and I look forward to hearing their testimony.
    Senator Pryor. Thank you, Senator Wicker, and I appreciate 
your attention to this issue.
    Before I introduce the panel, let me just say one last 
thing that I should've said during my opening statement, and 
that is, when it comes to the area of advertising, you know, 
the vast majority of advertisers are the good guys. And I think 
what we are most interested in is, How do you find that balance 
in going after the bad guys, but also not punishing all the 
good guys for doing what they do?
    So, we really appreciate this group of witnesses coming 
here today. We're going to hear different perspectives on that, 
and we're going to talk about some of the challenges that are 
going on in the marketplace, and some of the things that the 
Federal Trade Commission either can do, or can't do, and talk 
about what we can do to help and make this a better 
marketplace.
    So, let me just run through the panel real quickly, and 
then I'll just call on each of you for a 5-minute opening 
statement. I really hope that you all can keep it to 5 minutes, 
because we're going to have questions, and we'll try to keep 
our questions brief, as well.
    First we have Mr. David Vladeck. He's the Director of the 
Consumer Protection Bureau, Federal Trade Commission. Next, we 
have Ms. Sally Greenberg. She's the Executive Director of the 
National Consumers League. Next, we have Dr. Urvashi Rangan, 
Director of Technical Policy, Consumers Union. Next, we have 
Mr. C. Lee Peeler, President and CEO of the National 
Advertising Review Council. Next, we have Mr. Greg Renker, Co-
Chairman, Guthy-Renker. And last, and certainly not least, we 
have Mr. Jon Congdon, President of Product Partners, LLC.
    Mr. Vladeck, would you lead off for us, please?

   STATEMENT OF DAVID VLADECK, DIRECTOR, BUREAU OF CONSUMER 
              PROTECTION, FEDERAL TRADE COMMISSION

    Mr. Vladeck. Good morning, Chairman Pryor, Ranking Member 
Wicker. I am David Vladeck. I'm the Director of the Bureau of 
Consumer Protection at the Federal Trade Commission. I'm 
pleased to be here this morning, again this week. I'm glad to 
make a repeat appearance so quickly.
    The written statement submitted by the Commission reflects 
the views of the Commission. My oral statement today, and 
responses to questions, reflect my own.
    The Commission statement shows a--the broad array of 
advertising matters the agency has handled over the past year 
or so--deceptive ads for products making health and safety 
claims, bogus environmental and green claims, and, these days, 
advertising that preys on those suffering because of the 
economic downturn. Today, I will focus principally on the FTC 
work to protect consumers from false and deceptive ads relating 
to products that claim to improve the consumers' health, but do 
not do so.
    The Internet makes it much easier for marketers of dietary 
supplements and other health-related products to sell their 
wares. At the same time, these sellers have been emboldened to 
make claims not approved by the Dietary Supplement Health and 
Education Act, DSHEA, or by the Food and Drug and Cosmetic Act; 
make claims that their products actually can prevent, treat, or 
cure diseases. These are the so-called ``drug'' claims. These 
claims place consumers at great risk, putting their faith in 
unproven remedies in lieu of getting established therapies. As 
our recent enforcement actions show, the diseases for which 
such claims are being made range from the common cold to 
cancer.
    In a major law enforcement initiative last year, the 
Commission brought 11 actions against marketers of products 
such as laetrile, black salve, coral calcium, shark cartilage, 
in various herbal mixtures, for deceptively claiming that their 
products would cure cancer. These cases were the result of an 
Internet surf conducted by the FTC, the Food and Drug 
Administration, and the Competition Bureau of Canada.
    An important adjunct to our law enforcement actions are 
consumer education, and we, at the same time, launched a 
campaign called ``Cure-ious? Ask.'' to warn consumers about 
bogus cancer-cure claims. The Commissioner's partners in this 
endeavor include the American Society of Clinical Oncology, the 
Cleveland Clinic, and the National Association of Free Clinics, 
all of whom distribute the FTC's information to both patients 
and medical-care practitioners.
    I'd like, with your permission, to take a minute to show 
you a short video from that campaign.
    [Video presentation.]
    Mr. Vladeck. Thank you. This video shows the importance we 
place on consumer education. Those who succeed in selling 
products based on fear or unsubstantiated claims that they will 
treat or cure serious diseases prey on the fear and desperation 
of the sick, the elderly, or those without the means to afford 
conventional medical care. Law enforcement cases can only take 
us part of the way. Consumer education is really vital, here.
    Let me quickly discuss some of the other actions that we're 
taking. Other enforcement efforts target supplement sellers' 
advertising remedy to purport--purported to treat, prevent, or 
reduce the risk of diabetes, HIV/AIDS, Alzheimer's disease, 
heart disease, and others. Sometimes these products are 
marketed through so-called ``infomercials'' or force--false--
fake news broadcasts. And we are quite alert to those kinds of 
scams.
    It is not often clear to viewers that what they are 
watching is a very long sales pitch and not an independent 
television program about an amazing breakthrough new 
technology. In those cases, we try to obtain redress that not 
only takes the--not only takes the product off the market, but 
also takes these false advertisements off the air.
    Given the skyrocketing rates of obesity and diabetes, we 
are also expending considerable resources to get the weight-
loss industry to shed its excess pounds of false or grossly 
exaggerated weight-loss claims. Over the last 10 years, we've 
brought 77 cases involving weight-loss products. The heavily 
promoted weight-loss ingredient du jour changes with 
regularity, which complicates enforcement. Each time we bring a 
series of cases targeting claims for one kind of purported 
remedy, a new one is suddenly discovered. We've sought help 
from the media with some media screening ads to eliminate what 
we call our ``red-flag claims''; that is, claims that are 
always false, such as a statement that a product will cause 
weight loss, no matter how much a person eats, without diet and 
without exercise.
    Many deceptive weight-loss claims are made through consumer 
testimonials. For example, a trim and attractive individual 
proclaiming, ``I lost 50 pounds in 6 months.'' As demonstrated 
in the video we've just shown, patient testimonials are often 
used to promote cancer cures.
    The Commission's guides concerning the use of endorsement 
and testimonials in advertising, last modified in 1980, made 
clear that endorsement should not be used to make ad claims 
that could not be substantiated if made directly by the 
advertiser. In addition, the guides advise that the consumer 
testimonial on a key product attribute is, in fact, a 
representation that the endorser's experience is typical of 
what consumers would generally achieve. The guides say that if 
the advertiser cannot substantiate the typicality claim, the ad 
can disclose what the general expected performance of the 
product would be, or, alternatively, the limited applicability 
of the endorser experience.
    We've seen that many advertisers take advantage of this 
``safe harbor'' by using small-print footnotes or fleeting 
superscripts on TV that simply state ``results may vary,'' or 
that ``results are not typical.'' But, the Commission's own 
research and law enforcement efforts have made clear that so-
called disclaimers of typicality are not effective in 
preventing consumer deception. Consumers generally believe that 
they, too, will be able to achieve the dramatic, but atypical, 
results depicted.
    The Commission is now reviewing the guides, as the Chairman 
noted. It has sought public comment twice, and has proposed 
certain provisions, one of which--and this is the controversial 
one--would remove the guides' safe-harbor provision for 
disclaimers of typicality.
    Now, let me be clear, the proposed revision would not bar 
their use, it would, instead, make the advertiser responsible 
for ensuring that consumers are not misled by the ad, 
considered in its entirety. In other words, the proposed 
revision would restore the same substantiation standard that is 
applied to all advertisers making similar claims without the 
use of testimonial. Simply level the playing field. But, as 
might be expected, this proposal has triggered a fair amount of 
controversy.
    Another proposed revision involves the application of the 
guides to consumer-generated media, such as consumer blogs. 
Based on the well-established principle that consumers have a 
right to know when they are the target of a sales pitch, 
proposed new examples in the guide would make it clear that a 
connection, such as compensation, between a consumer promoting 
the product and the company that sells the product should be 
disclosed. This, too, has generated controversy. We will give 
consideration--careful consideration to all of the comments 
before issuing final guides, hopefully by the end this year.
    Let me close by saying this. The FTC's task of monitoring 
and pursuing false and deceptive advertising claims has grown 
more daunting and more complex over the past few decades. It 
will only grow more complicated as new technologies give 
marketers more tools, and more sophisticated tools, to sell 
their products. But, the Commission's resources are not keeping 
pace. Increased resources would provide more effective consumer 
protection, especially in this critical area.
    Thank you for your time and indulgence. I appreciate it.
    [The prepared statement of Mr. Vladeck follows:]

            Prepared Statement of David Vladeck, Director, 
        Bureau of Consumer Protection, Federal Trade Commission

I. Introduction
    Chairman Pryor, Ranking Member Wicker, and Members of the 
Subcommittee, I am David Vladeck, Director of the Bureau of Consumer 
Protection at the Federal Trade Commission (``FTC'' or 
``Commission'').\1\ I appreciate the opportunity to appear before you 
today to discuss the Commission's efforts to combat fraudulent and 
deceptive advertising.
---------------------------------------------------------------------------
    \1\ The written statement presents the views of the Federal Trade 
Commission. My oral testimony and responses to questions reflect my 
views, and do not necessarily reflect the views of the Commission or 
any individual Commissioner.
---------------------------------------------------------------------------
    Deceptive advertising cases have always been at the core of the 
Commission's consumer protection law enforcement agenda. In 1972, 
however, the FTC revolutionized advertising law when it held that an 
advertiser violates the FTC Act by making an affirmative product claim 
without having a reasonable basis of support for that claim.\2\ In the 
37 years since that groundbreaking decision, advertising substantiation 
has been a key focus of the Commission's consumer protection mission--
and never more so than at the present time. Developments in science and 
technology, as well as in marketing strategies, have led to a 
proliferation of products and services and a parallel burgeoning of 
advertising claims about how these products will make us thinner, 
better looking, and healthier; improve the quality of our lives; make 
us richer; and even improve our environment. The substantiation of 
advertising claims has itself become a business opportunity, with a 
variety of labs and testing facilities--some legitimate and others less 
so--offering this service. For the FTC, assessing the adequacy of 
support for a claim also has grown more complex, sometimes requiring 
analysis by multiple experts.
---------------------------------------------------------------------------
    \2\ Pfizer, Inc., 81 F.T.C. 23, 62 (1972).
---------------------------------------------------------------------------
    Likewise, the venues for advertising messages have multiplied. In 
the 1970s, FTC staff looked at ads printed in newspapers and magazines, 
pasted on billboards, and broadcast by radio and television stations. 
Today, we also have cable television, the Internet, cell phones, and 
other hand-held electronic devices, with growing opportunities for 
techniques like viral and word-of-mouth marketing. It seems that we are 
continually learning about new and creative methods to get promotional 
messages out to consumers. Consequently, the work of monitoring 
advertising for compliance with the law has greatly expanded.
    Today, this testimony will focus on a few areas that are of 
particular importance to the Commission's current advertising 
enforcement agenda: health and safety claims, issues raised by the use 
of endorsements and testimonials, environmental marketing or ``green'' 
claims, and advertising that preys on victims of the economic downturn, 
including offers of ``free'' products. Of course, these are not the 
only areas of focus in the Commission's advertising program. Other 
important FTC priorities, such as advertising to children and 
behavioral targeting, are not addressed in this testimony.

II. Health and Safety Claims
    Americans have become far more health conscious over the past two 
decades. Not surprisingly, the marketplace has seen a steady stream of 
new or reformulated products purporting to help consumers get and stay 
healthy. Just within the past year, the FTC has challenged advertising 
claims for weight loss, cold prevention, improved concentration, and 
even the cure of very serious diseases, such as diabetes and cancer.
    In a major law enforcement initiative targeting bogus cancer cures, 
the FTC announced 11 actions charging that a number of companies and 
individuals made false or unsubstantiated claims that their products--
including laetrile, black salve, essiac tea and other herbal mixtures, 
coral calcium, and shark cartilage--cure or treat cancer, and, in some 
cases, that clinical or scientific evidence proves the products 
work.\3\ One seller also was charged with deceptive use of a consumer 
testimonial about the product's efficacy because the ad failed to 
disclose the connection between the endorser and the company: the 
``consumer'' endorser was, in fact, the owner of the company.\4\ Most 
of these actions have been resolved through settlements that bar future 
false or unsubstantiated claims and require notification to purchasers 
that little or no scientific evidence exists to demonstrate product 
effectiveness and urging them to consult with their doctors. Four of 
the settlements also required a monetary payment. Two cases remain in 
litigation before an administrative law judge.\5\ The cancer cure cases 
were the result of an Internet surf coordinated among the FTC, the U.S. 
Food and Drug Administration (FDA), and the Competition Bureau Canada.
---------------------------------------------------------------------------
    \3\ See Press release, FTC Sweep Stops Peddlers of Bogus Cancer 
Cures (Sept. 18, 2008), available at http://www.ftc.gov/opa/2008/09/
boguscures.shtm.
    \4\ Holly A. Bacon d/b/a Cleansing Time Pro., Docket No. C-4238 
(Oct. 22, 2008).
    \5\ A default judgment was entered in another matter, and one case 
was dismissed without prejudice because the individual lives in Mexico 
and cannot be served.
---------------------------------------------------------------------------
    As an important adjunct to the law enforcement initiative, the 
Commission launched Cure-ious? Ask, a consumer education campaign to 
raise awareness about bogus cancer treatment claims. The Commission's 
partners in this effort are the American Society of Clinical Oncology, 
the Cleveland Clinic, and the National Association of Free Clinics, all 
of whom are disseminating campaign information to both patients and 
medical care practitioners. In addition, the campaign is mentioned in 
numerous blogs related to health or cancer.
    As demonstrated by the Internet research that resulted in the 
cancer cure sweep, marketers of dietary supplements and other products 
have become very bold in the medical-benefit claims they are making to 
sell their goods. Many are going far beyond the basic structure/
function claims that are permitted under the Dietary Supplement Health 
and Education Act.\6\ Last year, for example, the Commission settled 
actions against two companies marketing supplements purported to 
prevent and treat diabetes.\7\ Earlier this year it accepted a 
settlement that included $3 million in consumer redress to resolve 
charges of false and deceptive claims that an infrared sauna could 
treat cancer and that various nutritional supplements could treat, 
reduce the risk of, or prevent diseases including cancer, HIV/AIDS, 
diabetes, Alzheimer's disease, Parkinson's disease, heart attacks, and 
strokes.\8\ The products were sold on the Internet and through print 
media, but the primary marketing vehicle was a live, hour-long radio 
call-in program called ``The Truth About Nutrition.'' In another case, 
filed in 2004, the Commission charged marketers of two supplements with 
falsely claiming that their products can prevent or cure cancer, heart 
disease, diabetes, and arthritis.\9\ In addition, the defendants were 
charged with failing to disclose that the infomercial promoting one of 
these products was a paid commercial advertisement, not an independent 
television program.
---------------------------------------------------------------------------
    \6\ Dietary Supplement Health and Education Act of 1994, Pub. L. 
No. 103-417, 108 Stat. 4325. ``Structure/function'' claims are 
representations about a dietary supplement's effect on the structure or 
function of the body for maintenance of good health and nutrition. 
These claims are not subject to pre-authorization by the Food and Drug 
Administration.
    \7\ See Press release, Marketers of Dietary Supplements Ordered to 
Halt False Claims About Diabetes Prevention and Treatment (Nov. 6, 
2008), available at http://www.ftc.gov/opa/2008/11/glucorell.shtm.
    \8\ See Press release, Marketers of Dietary Supplements and Devices 
Agree to Pay $3 Million to Settle FTC Charges of Deceptive Advertising 
(Mar. 6, 2009), available at http://www.ftc.gov/opa/2009/03/roex.shtm.
    \9\ See Press release, Marketers of ``Supreme Greens'' and ``Coral 
Calcium Daily'' Come Under Fire from the FTC (June 3, 2004), available 
at http://www.ftc.gov/opa/2004/06/dma.shtm.
---------------------------------------------------------------------------
    Supplements to prevent or treat the common cold have been another 
recent target of FTC enforcement activity. The Commission settled 
charges that Airborne Health, Inc. disseminated false and 
unsubstantiated claims that Airborne effervescent tablets prevent or 
treat colds, protect against exposure to germs in crowded environments, 
and offer a clinically proven cold remedy.\10\ The settlement required 
the defendants to add funds to a consumer redress program already 
established to resolve a private class action lawsuit, bringing the 
total amount available for consumers to $30 million. The Commission 
then turned its attention to Airborne copycat products. The agency is 
in litigation against the supplier of a copycat formula widely marketed 
under various retailer private label brand names, and last week 
announced a settlement with Rite Aid resolving charges that it made 
unsubstantiated claims for its Germ Defense products.\11\ A consumer 
redress program will coincide with the onset of the cold and flu season 
this fall.
---------------------------------------------------------------------------
    \10\ See Press release, Makers of Airborne Settle FTC Charges of 
Deceptive Advertising; Agreement Brings Total Settlement Funds to $30 
Million (Aug. 14, 2008), available at www.ftc.gov/opa/2008/08/
airborne.shtm.
    \11\ See Press release, Rite Aid to Pay $500,000 in Consumer 
Refunds to Settle FTC Charges of False and Deceptive Advertising (July 
13, 2009), available at http://www.ftc.gov/opa/2009/07/riteaide.shtm.
---------------------------------------------------------------------------
    In another area important to the health of Americans, the 
Commission has expended substantial resources to get the weight-loss 
industry to shed its excess pounds of false or grossly exaggerated 
weight loss claims. In fact, over the past 10 years, the Commission has 
brought 77 cases dealing with weight-loss claims alleged to be untrue 
and/or not substantiated.
    The heavily promoted weight-loss ingredient du jour changes with 
regularity. Each time the Commission brings a series of cases targeting 
claims for one kind of purported remedy, a new one emerges. Hoodia is 
one of the current weight-loss remedy favorites, and recently the 
Commission charged a supplement seller with falsely claiming its 
product was FDA-approved and would suppress appetite sufficiently to 
cause a user to cut calorie intake in half, from 2,000 to 1,000 
calories per day. In addition, the complaint alleges that the product 
itself, supposedly derived from a rare South African plant, is not what 
it is purported to be.\12\
---------------------------------------------------------------------------
    \12\ See Press release, FTC Charges Marketers of `Hoodia' Weight 
Loss Supplements With Deceptive Advertising (Apr. 27, 2009), available 
at http://www.ftc.gov/opa/2009/04/nutra
ceuticals.shtm. The case currently is in litigation.
---------------------------------------------------------------------------
    Earlier this year, a Federal district court judge, who had 
previously granted an FTC motion for summary judgment, ordered a 
payment of more than $15.8 million and issued a permanent injunction 
against sellers of three supplements. Two of the substances were 
promoted as the equivalent of prescription weight-loss products and 
touted as causing a 19 percent loss in total body weight, while a third 
product was extolled as a remedy for erectile dysfunction.\13\ In 
addition, the court ordered the defendants' medical expert to pay 
$15,454 for his deceptive endorsement of one of the weight-loss 
products.
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    \13\ See Press release, Court Rules in Favor of FTC in National 
Urological Group Case; Orders Marketers of Thermalean, Lipodreme, and 
Spontane-ES to Pay More Than $15 Million (Jan. 15, 2009), available at 
www.ftc.gov/opa/2009/01/nug.shtm. The case is currently on appeal.
---------------------------------------------------------------------------
    In an order enforcement action brought by the Department of Justice 
on behalf of the FTC, home shopping channel QVC agreed to pay $6 
million for consumer redress, with an additional $1.5 million in civil 
penalties, to settle allegations that it violated a prior FTC 
order.\14\ QVC was charged with making false and unsubstantiated 
claims, on 200 of its programs, for weight-loss pills, food bars, and 
shakes, as well as energy claims for its Bee-Alive supplement concocted 
from a substance secreted by bees.
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    \14\ See Press release, QVC to Pay $7.5 Million to Settle Charges 
that It Aired Deceptive Claims (Mar. 19, 2009), available at http://
www.ftc.gov/opa/2009/03/infomercials.shtm.
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    The Commission considers its work in the dietary supplement and 
weight-loss area to be a high priority. Obesity is epidemic in the 
United States, causing a dramatic increase in related diseases, such as 
diabetes. False claims engender false hopes of an easy solution and may 
deter consumers from making necessary serious efforts to get their 
weight under control. Marketers using such claims simply prey on the 
hardships people face when they need to lose weight.
    Health claims are becoming more prevalent in food marketing, and 
therefore, the FTC is giving increased scrutiny to food advertising. In 
April, Kellogg Company agreed to settle charges that its advertising--
appearing in print and on TV, the Internet, and packages--falsely 
claimed that a breakfast of Frosted Mini-Wheats was shown clinically to 
improve children's attentiveness by nearly 20 percent when compared to 
children who ate no breakfast.\15\ The case provides a lesson to 
advertisers on the importance of careful and accurate portrayal of 
research findings when they are transformed into advertising claims.
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    \15\ See Press release, Kellogg Settles FTC Charges That Ads for 
Frosted Mini-Wheats Were False (Apr. 20, 2009), available at http://
www.ftc.gov/opa/2009/04/kellogg.shtm.
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    Finally, a notable case in the health and safety area was announced 
in June. A major U.S. alcohol supplier agreed to settle FTC charges 
that it deceptively claimed a caffeinated alcohol drink would enable 
users to remain alert when consuming alcohol.\16\ The unsubstantiated 
claims--which appeared in print ads, Web videos, and other Internet 
advertising--fueled the common but erroneous perception that mixing 
alcohol and caffeine helps people stay alert when drinking. Obviously, 
this kind of deceptive claim is of concern given the many ways people 
can and do injure themselves and others if they misjudge their alcohol 
intake.
---------------------------------------------------------------------------
    \16\ See Press release, Constellation Brands Settles FTC Charges 
That Ads for `Wide Eye' Caffeinated Alcohol Beverage Were Deceptive 
(June 10, 2009), available at http://www.ftc.gov/opa/2009/06/
consbrands.shtm.
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III. Endorsements and Testimonials in Advertising
    Based on the prevalent--and sometimes deceptive--use of third-party 
endorsements in advertising, and after receiving extensive public 
comment on the issues, the Commission, in 1980, adopted Guides to 
assist advertisers in using endorsements in a lawful and non-misleading 
way.\17\ Broadly defined, endorsements and testimonials encompass any 
advertising messages that consumers are likely to believe reflects the 
honest opinion, beliefs, findings, or experience of a party other than 
the sponsoring advertiser. Endorsements should not contain express or 
implied representations that would be deceptive, or could not be 
substantiated, if made directly by the advertiser. In addition, the 
1980 Guides advised that a consumer testimonial on a key product 
attribute would be interpreted as representing that the endorser's 
experience is typical of what consumers generally will achieve. If the 
advertiser did not have substantiation to support this claim of 
typicality, the advertisement should disclose either what the generally 
expected performance of the product would be in the depicted 
circumstances or the limited applicability of the endorser's experience 
to what consumers can expect to achieve. With respect to endorsements 
by experts, the Guides advised that the expert must in fact have the 
qualifications he or she is represented to possess, and the endorsement 
must be supported by the appropriate exercise of that expertise. In 
addition, connections between endorsers and product sellers should be 
disclosed if they would not reasonably be expected by the audience and 
might affect the credibility of the endorsement.
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    \17\ Guides Concerning the Use of Endorsements and Testimonials in 
Advertising, 16 C.F.R. Part 255. Guides are not rules; rather they are 
advisory in nature--informing businesses and others how the Commission 
would seek to apply Section 5 of the FTC Act, 15 U.S.C.  45, to 
specific representations and conduct. As such, they provide the basis 
for voluntary compliance with the law by advertisers.
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    As part of its ongoing process of reviewing all of its rules and 
guides, the FTC initiated review of the Endorsement Guides in 2007.\18\ 
Based on comments received in response to that first Federal Register 
notice, as well as its own independent research, the Commission 
proposed revisions to the Guides in late 2008.\19\ The staff is 
analyzing comments received in response to those proposed changes and 
formulating final recommendations to the Commission. The process has 
elicited some strongly held views from those who submitted comments.
---------------------------------------------------------------------------
    \18\ 72 Fed. Reg. 2214 (Jan. 18, 2007).
    \19\ 73 Fed. Reg. 72,374 (Nov. 28, 2008).
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    The 1980 Guides were adopted in a world that was quite different 
from the one in which advertisers and marketers promote their goods and 
services today. The Guides were created to cover endorsements and 
testimonials in print media and 30- or 60-second radio or television 
commercials. Although the basic principles of the Guides remain valid, 
the specific applications and examples were not developed, obviously, 
within a context of program-length infomercials, Internet advertising, 
word of-mouth or viral marketing, and consumer blogs. In 1980, the 
advertiser always disseminated the advertisement. With the advent of 
advertiser-promoted consumer blogging, the advertiser is not always 
disseminating the endorsement, although it certainly expects to profit 
from the message.
    Moreover, the Commission's enforcement history with false or 
deceptive advertising using consumer endorsements, as well as its own 
research, have made it increasingly clear that in one key aspect--
disclaimers of typicality--the Guides are not working as intended to 
prevent consumer deception. The misuse of testimonials and endorsements 
has been particularly prevalent in the promotion of weight-loss 
products, as described in the FTC staff's 2002 report, Weight-Loss 
Advertising: An Analysis of Current Trends.\20\ A review of 300 weight-
loss ads revealed that two-thirds used consumer testimonials, and those 
testimonials rarely described realistic achievements, instead 
proclaiming extraordinary weight loss. Of the ads featuring 
testimonials, 30 percent reported weight losses exceeding 70 pounds, 
while 20 percent reported losses of more than 100 pounds. In many 
instances, the testimonials reported results that, in all likelihood, 
are not achievable--e.g., weight loss of nearly one pound daily for two 
or more weeks. With few exceptions, advertisers did not disclose the 
actual weight loss consumers could expect to achieve with the 
product.\21\ Furthermore, the usual disclaimers--e.g., ``results may 
not be typical'' or ``your results may vary''--did not adequately 
inform consumers that the reported weight losses were, at best, 
outliers or extreme cases.
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    \20\ The Report is available at http://www.ftc.gov/bcp/reports/
weightloss.pdf.
    \21\ The current Endorsement Guides provide that if an advertiser 
does not have substantiation that the experience described by an 
endorser is representative of what consumers generally will achieve, 
the advertiser can either clearly and conspicuously disclose: (1) what 
the generally expected performance would be in the depicted 
circumstances, or (2) the limited applicability of the endorser's 
experience to what consumers can generally expect to achieve, i.e., 
that the depicted results are not typical. With regard to the latter 
option--disclosing that the depicted results are not typical--the FTC 
report found that only 36 percent of the testimonial ads contained any 
disclosure regarding the atypicality of the advertised results, and 
only 25 percent of those disclaimers were conspicuous or proximate to 
the testimonials. Often the disclaimer was buried in a fine-print 
footnote or flashed as a video superscript too quickly to be read.
---------------------------------------------------------------------------
    The Commission has also conducted consumer research regarding the 
messages conveyed to consumers through consumer endorsements and the 
effect of disclaimers of typicality. These reports were placed on the 
public record in connection with the request for comments on the 
Endorsement Guides. In general, the research showed that even with 
prominent disclaimers of typicality--in fact more prominent than is 
usually the case in actual ads--significant numbers of consumers 
believed that at least half of product users would achieve results 
similar to those stated in the ads. By contrast, disclosure of actual 
expected results with the product significantly altered consumer 
expectations that the endorser's experience was representative of what 
others could achieve.
    When it promulgated the Endorsement Guides, the Commission clearly 
intended that advertisers usually would accompany atypical result 
testimonials with disclosure of the generally expected results.\22\ 
However, as documented by the 2002 report, this has not been the 
practice. The testimonial of a slim individual in a bathing suit that 
``I lost 50 pounds in 6 months with X's weight loss pills'' likely 
conveys to the consumer that other users of the product will achieve 
similar results. If the advertiser cannot substantiate that claim, a 
fine print or fleeting superscript disclosure of atypicality is 
unlikely to cure the deception--as demonstrated by the Commission's 
research. For this reason, the Commission has proposed removing the 
``safe harbor'' for disclaimers of typicality. However, the proposal 
does not bar the use of these disclaimers--as some comments have 
suggested--but merely makes the advertiser responsible for ensuring 
that consumers are not misled by the ad in its entirety. In other 
words, advertisers who use such disclaimers would be subject to the 
same standards, under Section 5 of the FTC Act, as advertisers making 
similar claims without use of testimonials. As might be expected, this 
was one of the most controversial of the proposed revisions.
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    \22\ 45 Fed. Reg. 3870, 3871 (Jan. 18, 1980). Generally, a 
disclaimer of typicality alone probably will not be considered 
sufficient to dispel the representation that the experience is typical.
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    Another controversial proposed revision involves the application of 
the Guides to consumer-generated media. The proposed revisions include 
several new examples using such media. These examples are based on the 
general principle, applicable to other advertising, that consumers have 
a right to know when they are being subjected to a sales pitch. A 
material connection between a consumer promoting a product and the 
company that makes the product might affect the weight or credibility 
of the consumer endorsement, and therefore should be disclosed. 
Admittedly, the issues are difficult and complex, and the Commission 
will give careful consideration to all of the comments received before 
it issues revised Endorsement Guides sometime later this year.

IV. Environmental Marketing Claims
    In the past few years, there has been a proliferation of 
environmental marketing. Businesses in various industry sectors are 
proclaiming the ``green'' attributes of their products and services, 
and several major retailers have launched their own green product 
lines. Consumers have become increasingly concerned about the 
environmental impact of the products they use. Green claims can help 
them make better choices--but only when those claims are true and 
adequately substantiated. Therefore, the FTC has launched its own green 
initiative, including review of its Green Guides \23\ and law 
enforcement actions targeting false or deceptive green claims.
---------------------------------------------------------------------------
    \23\ Guides for the Use of Environmental Marketing Claims, 16 
C.F.R. Part 260.
---------------------------------------------------------------------------
    The Commission's Green Guides are the centerpiece of the agency's 
environmental marketing program.\24\ The Guides help marketers avoid 
making green claims that are ``unfair or deceptive'' in violation of 
the FTC Act.\25\ The Guides also describe how to substantiate certain 
green claims and explain how consumers understand commonly used 
environmental claims, such as ``recyclable'' and ``biodegradable.'' In 
response to the explosion of green marketing in recent years, the 
agency initiated a review of its Green Guides to ensure that they are 
responsive to today's marketplace.\26\
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    \24\ The Commission issued the Guides in 1992 to address confusion 
surrounding the meaning and proper use of proliferating green claims. 
57 Fed. Reg. 36363 (Aug. 13, 1992). The Commission revised the Guides 
in 1996 and in 1998. 61 Fed. Reg. 53311 (Oct. 11, 1996); 63 Fed. Reg. 
24240 (May 1, 1998).
    \25\ 15 U.S.C.  45(a).
    \26\ 72 Fed. Reg. 66091 (Nov. 27, 2007).
---------------------------------------------------------------------------
    To develop a robust record upon which to base its guidance, the 
Commission also held a series of public workshops on emerging green 
marketing issues, bringing together representatives from industry, 
government, consumer groups, environmental organizations, and the 
academic community to explore the marketing of carbon offsets and 
renewable energy, green packaging claims, and claims for green building 
and textiles.\27\ The Commission sought additional public comment in 
connection with each workshop \28\ and solicited consumer perception 
data on consumer understanding of green claims. Because little consumer 
perception data was submitted, the Commission plans to conduct its own 
research.\29\ This study will focus on consumers' understanding of 
particular green marketing claims, such as ``eco-friendly,'' 
``sustainable,'' and ``carbon neutral.'' \30\
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    \27\ Information about the review, including the workshop 
transcripts and written comments, is available online at www.ftc.gov/
green.
    \28\ 72 Fed. Reg. 66094 (Nov. 27, 2007); 73 Fed. Reg. 11371 (Mar. 
3, 2008); 73 Fed. Reg. 32662 (June 10, 2008). The comments are 
available at http://www.ftc.gov/os/comments/greengudes
regreview/index.shtm.
    \29\ See 74 Fed. Reg. 22396 (May 12, 2009) (requesting comment on 
the FTC's consumer perception study, as required by the Paperwork 
Reduction Act).
    \30\ Because many currently used green claims, such as 
``sustainable'' and ``carbon neutral,'' were not common when the 
Commission last revised the Guides, FTC staff also is reviewing the 
state of green marketing claims by conducting an Internet surf to 
analyze the nature and incidence of particular claims. FTC staff plans 
to issue its findings in the near future.
---------------------------------------------------------------------------
    The Commission is actively prosecuting companies making deceptive 
green claims. The latest enforcement actions charged three companies 
with disseminating false and unsubstantiated claims that their 
products, such as disposable plates, wipes, and towels, were 
``biodegradable.'' \31\ According to the complaints, the companies 
could not substantiate that their ``biodegradable'' products would 
decompose into elements found in nature within a reasonably short 
period of time after customary disposal,\32\ because the substantial 
majority of solid waste is disposed in landfills, incinerators, and 
recycling facilities--disposal methods that do not afford the 
conditions to allow decomposition. Two of the cases have settled, with 
orders that bar deceptive ``degradable'' product claims, as well as 
other environmental claims not supported by competent and reliable 
scientific evidence. A third case is in administrative litigation.
---------------------------------------------------------------------------
    \31\ See Press release, FTC Announces Actions Against Kmart, Tender 
and Dyna-E Alleging Deceptive `Biodegradable' Claims (June 9, 2009), 
available at http://www.ftc.gov/opa/2009/06/kmart.shtm.
    \32\ See 16 C.F.R.  260.7(b).
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    In addition, the Commission has brought two Federal court actions 
against marketers of ``miracle'' devices advertised to dramatically 
increase gas mileage in ordinary cars. Earlier this year, the FTC filed 
a case alleging that the defendant falsely advertised in major 
magazines that its Hydro-Assist Fuel Cell could boost automobile gas 
mileage by at least 50 percent and ``turn any vehicle into a hybrid.'' 
\33\ Last year, the FTC won a contempt action against another defendant 
for falsely advertising that its NanoDetonator would allow ordinary 
passenger cars to harness the power of nuclear fusion, thereby 
eliminating the need for gasoline.\34\ In both cases, the Commission 
charged that the claims for the devices violate basic scientific 
principles. Through litigation, the Commission is seeking to halt 
unsubstantiated gas savings claims and reimburse consumers who have 
purchased the devices.
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    \33\ FTC v. Dutchman Enterprises, LLC, et al., No. 2:09-cv-00141-
FSH (D.N.J. Jan. 14, 2009) (granting stipulated injunction order).
    \34\ FTC v. Five Star Auto Club, Inc. et al., No. 99-CV-1693 
(S.D.N.Y. Feb. 23, 2009) (order granting temporary restraining order to 
be converted to a preliminary injunction).
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V. Economic Assistance Claims
    Offers that are too good to be true, such as help obtaining 
government grants, get-richquick plans, promises of new jobs or 
business opportunities, and free gifts attract a great deal of consumer 
interest, but may also serve as traps for the most vulnerable and 
unwary consumers--especially during challenging economic times. As part 
of a collaborative law enforcement sweep with other agencies, dubbed 
Operation Short Change, the Commission recently filed multiple lawsuits 
targeting businesses that preyed on financially vulnerable 
consumers.\35\
---------------------------------------------------------------------------
    \35\ The Operation Short Change law enforcement sweep included 15 
FTC cases, 44 law enforcement actions by the Department of Justice, and 
actions by approximately 13 states and the District of Columbia.
---------------------------------------------------------------------------
    In one action, the defendants were charged with bilking hundreds of 
thousands of consumers into paying $300 million for get-rich-quick 
systems, marketed through nationwide infomercials and websites with 
promises that substantial amounts of money could be earned through real 
estate transactions and Internet businesses.\36\ According to the 
complaint, a system, called ``John Beck's Free & Clear Real Estate 
System,'' consisting of CDs, DVDs and written materials that sold for 
nearly $40, was advertised as enabling consumers to earn thousands of 
dollars by purchasing homes at local government tax sales ``free and 
clear'' for just ``pennies on the dollar'' and re-selling them at large 
profits. One featured consumer endorser claimed she made a profit of 
more than $50,000 in 3 months. Purchasers were automatically enrolled 
in a 30-day free-trial membership program, supposedly affording them 
access to seminars and advisors. Unknown to many consumers, however, 
the ``free trial'' was actually a continuity program, and they were 
subject to recurring automatic and unauthorized charges every month. 
Consumers also found the financial promises of the program to be empty 
ones.
---------------------------------------------------------------------------
    \36\ Economic Downturn (July 1, 2009), avail Down at n Scammers 
Trying to Take Advantage of the http://www.ftc.gov/opa/2009/07/
shortchange.shtm.
---------------------------------------------------------------------------
    The FTC also filed a lawsuit against related business entities that 
allegedly pretended to be affiliated with Google, using trade names 
such as Google Money Tree and Google Pro, and peddled low-cost home 
business opportunity kits.\37\ The defendants' websites advertised that 
the kits would enable consumers to earn over $100,000 in 6 months by 
simply filling out forms and running Internet searches on Google and 
Yahoo. The complaint alleged that the defendants tricked consumers into 
divulging debit or credit card information, for supposedly nominal 
shipping and handling charges, but then used the account information to 
charge them a recurring monthly fee for a membership program. The court 
granted the FTC's request for a temporary restraining order to halt the 
defendants' practices.
---------------------------------------------------------------------------
    \37\ Id.
---------------------------------------------------------------------------
    In addition, the FTC has cracked down on companies making bogus 
claims that they can assist consumers in obtaining grants from the 
government and other sources.\38\ For example, the Commission obtained 
a temporary restraining order against a company that launched robocalls 
telling consumers they were qualified to receive grants to help them 
overcome their financial problems. Consumers were directed to visit 
particular websites, which referred them to yet another website that 
charged a fee.
---------------------------------------------------------------------------
    \38\ Id.
---------------------------------------------------------------------------
    Finally, ``free gift'' offers are always enticing, but often are 
not what they appear to be. In late 2007 and early 2008, the FTC 
settled actions against three companies charged with promising 
consumers free gifts, including iPods, flat screen televisions, and 
store gift cards, but failing to live up to these promises.\39\ Online 
advertising and spam e-mail misled consumers into believing they had 
won a contest, earned a gift for correctly answering a trivia question, 
or were otherwise eligible for a valuable ``free'' prize. Consumers who 
took the bait by visiting the websites to which they were directed 
quickly learned that their ``free'' gift was available only if they 
participated in a series of sponsor offers. These offers were tiered so 
that inexpensive ones appeared first, giving consumers the impression 
that the desired gift could be obtained for a minimal expenditure. By 
the time consumers arrived at the last tier of offers, they discovered 
that only by purchasing hundreds of dollars worth of goods, or by 
committing to a car or home loan, could they actually obtain their so-
called ``gift.'' The FTC settlements required the companies to post 
clear and conspicuous disclosures of the true costs of the ``gifts,'' 
and also required the payment of $3.75 million in combined civil 
penalties for violations of the CAN-SPAM Act.\40\
---------------------------------------------------------------------------
    \39\ See Press releases, ValueClick to Pay $2.9 Million to Settle 
FTC Charges (Mar. 17, 2008), available at http://www.ftc.gov/opa/2008/
03/vc.shtm; Online Advertiser Settles FTC Charges. ``Free'' Products 
Weren't Free; Settlement Calls for $200,000 Civil Penalty (Jan. 30, 
2008), available at http://www.ftc.gov/opa/2008/01/media.shtm; Major 
Online Advertiser Settles FTC Charges. ``Free'' Gifts Weren't Free; 
Settlement Calls for $650,000 Civil Penalty (Nov. 28, 2007), available 
at http://www.ftc.gov/opa/2007/11/free.shtm.
    \40\ The CAN-SPAM Act of 2003, 15 U.S.C.  7701-7713, prohibits 
deceptive sender and subject lines in commercial e-mail and provides 
consumers the right to opt out of future commercial e-mail campaigns.
---------------------------------------------------------------------------
VI. The FTC Advertising Enforcement Program
    Thirty years ago, the Commission's ad monitoring program primarily 
involved perusing major publications and viewing story boards for 
advertisements on the television networks. Today, of course, the 
Commission staff has additional marketing venues to track, as well as 
far more sophisticated means at its disposal to identify false and 
deceptive advertising. The Internet has caused a vast increase in the 
amount of advertising, but it has also facilitated the task of 
monitoring ads to detect issues and problems. Internet surfs--where 
staff members search for particular kinds of product claims--are 
conducted on a regular basis. In addition, the FTC's Consumer Response 
Center was established in 1997 to handle and respond to complaints and 
inquiries. The CRC staff receive, respond to, and collect information 
from the thousands of consumer and business complaints or inquiries 
received each week. The complaints are made available to FTC staff and 
other law enforcement agencies in the U.S. and abroad through the 
Consumer Sentinel Network, a secure online database that includes 
complaints received not only by the FTC, but also by other selected 
government agencies and non-governmental entities. The Network is 
accessible only to law enforcement agencies, and about 1,700 such 
organizations in the U.S., Canada, and Australia are members. The 
Network has enabled the Commission to join forces with its law 
enforcement partners to bring multiple actions at one time to address a 
particular problem.
    At one time, most advertising cases were brought as administrative 
proceedings. Violators of administrative orders could be subject to 
civil penalties through Federal district court enforcement actions 
brought by the Department of Justice on the FTC's behalf. With the 
development of the Commission's fraud program during the 1980s, 
however, the agency relied increasingly on its authority pursuant to 
Section 13(b) of the FTC Act \41\ to initiate its own actions in 
Federal district court seeking preliminary and permanent injunctions, 
as well as consumer redress or disgorgement of ill-gotten gains. The 
Federal court option is not limited to cases of blatant fraud, but is 
being used increasingly for advertising substantiation actions.
---------------------------------------------------------------------------
    \41\ 15 U.S.C.  53(b).
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VII. Conclusion
    The areas of focus described above--health and safety claims, 
endorsements and testimonials, environmental benefit claims, and 
economic assistance claims--are current and future priorities for the 
Commission's advertising program. As noted at the outset, the task of 
monitoring and pursuing false and deceptive advertising claims has 
grown larger and more complex over the past few decades. Significantly, 
however, the Commission's resources to tackle deceptive advertising, as 
well as the other important consumer issues addressed by the agency's 
Bureau of Consumer Protection, have not increased enough. The FTC has a 
highly competent and dedicated staff that is used to being asked to do 
more with less. However, increased resources would provide more 
effective consumer protection.
    Self-regulatory programs, such as those initiated and ably 
administered by the National Advertising Division/National Advertising 
Review Council of the Council of Better Business Bureaus are a welcome 
adjunct to the FTC's advertising enforcement program, and clearly their 
work has served to lighten the load for the Commission. With respect to 
deceptive weight-loss claims, the FTC has enlisted the help of the 
media to screen advertising. It published a guide describing seven 
weight-loss product claims that should raise ``red flags'' because they 
are always false (e.g., a claim that one can lose weight without diet 
or exercise).\42\ Former Chairman Muris and former Commissioner Leary 
met with media members and asked them to refuse to run ads making the 
``red flag'' claims. While there was initial resistance to the 
suggestion, some media members have responded to the challenge, and 
there was a significant decline in those particular claims.\43\ The 
``red flags'' initiative was a step in the right direction, although 
obviously it has not solved the problem of deceptive weight loss 
advertising. Much more needs to be done by both the industry and the 
media.
---------------------------------------------------------------------------
    \42\ FTC, Deception in Weight-Loss Advertising Workshop: Seizing 
Opportunities and Building Partnerships to Stop Weight-Loss Fraud 
(2003), available at http://www.ftc.gov/os/2003/12/
031209weightlossrpt.pdf.
    \43\ FTC Staff Report, Weight-Loss Advertising Survey (2005), 
available at http://www.ftc.gov/os/2005/04/
050411weightlosssurvey04.pdf.
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    Thank you for providing the Commission the opportunity to appear 
before the Subcommittee to describe the agency's advertising 
enforcement program.

    Senator Pryor. Thank you.
    Ms. Greenberg?

  STATEMENT OF SALLY GREENBERG, EXECUTIVE DIRECTOR, NATIONAL 
                        CONSUMERS LEAGUE

    Ms. Greenberg. Yes, good morning, Mr. Chairman and Senator 
Wicker, Members of the Subcommittee, who we hope to see in a 
few moments.
    My name is Sally Greenberg. I'm Executive Director of the 
National Consumers League. And we greatly appreciate the 
opportunity to be here with you this morning to talk about 
consumer protections against deceptive advertising.
    Over more than--over our more than 100-year history, the 
National Consumers League has been a fierce critic of 
misleading advertisement, deceptive labeling, and other anti-
consumer marketing practices. And, in fact, going back so far 
as the 1904 St. Louis World's Fair, volunteers from our 
organization demonstrated to fairgoers that canned green beans, 
touted by food processors as labor-saving home improvements, 
were adulterated with green dye.
    Our testimony today will focus on proposed revisions to the 
Federal Trade Commission's guides concerning use of 
endorsements and testimonials in advertising, which are 
currently under final review.
    TV-watchers turning on their sets at nearly any time of the 
day or night have grown accustomed to advertisements claiming 
that, by taking a pill or eating a certain type of submarine 
sandwich, they can expect to shed pounds and achieve a desired 
weight. Other advertisements trumpet that, with a minimal 
investment and only part-time work from home, consumers can 
achieve financial wealth in as little as 6 months. These 
advertisements are typically accompanied by small print quickly 
flashed at the bottom of the screen, indicating that, quote, 
``results are not typical,'' end quote, or that ``your results 
may vary.''
    Advertisers rely on these techniques for one simple reason: 
they work. For example, in 2005, when Subway, the sandwich 
empire, briefly ceased using everyman Jared Fogel in its 
advertising, same-store sales decreased 10 percent until Fogel 
was reinstated. This is not an isolated incident. An FTC study 
found that 65 percent of weight-loss advertisements used 
consumer testimonials, and 42 percent contained before-and-
after pictures.
    Expert testimonies are similarly effective at swaying 
consumer opinion. Many weight-loss ads attempt to bolster their 
credibility by depicting doctors or scientists using phrases 
like ``clinically tested'' or ``studies confirm.'' A July 2006 
Temple University study examined how teenage girls interpret 
weight-loss advertisements, and found that most of these girls 
viewed with trust the image of a white-coated doctor.
    The National Consumers League supports the proposed FTC 
guides and the changes to those guides--improvements, in our 
view--regarding consumer and expert endorsements. We believe 
that the overuse of consumer testimonials and expert 
endorsement has crossed the line from aggressive marketing to 
outright deception.
    The Commission has also proposed changes to the guides that 
would require bloggers compensated by advertisers to disclose 
their relationship. In addition, bloggers--and the advertisers 
who pay them--would be explicitly held liable for false or 
misleading representations made through an endorsement on a 
blog or other platform.
    We acknowledge that protecting consumers online presents 
special challenges for regulators. However, we fear that 
injecting advertiser dollars into consumer-to-consumer blog--
into the consumer-to-consumer blogosphere, without proper 
guidelines, could give rise to rampant consumer deception. We 
believe that consumers have a right to know if a product 
endorsement is paid for by a company. Therefore, we support the 
FTC rules requiring disclosure when a blogger is compensated 
for voicing his or her opinions on a particular product or 
service.
    Finally, we believe that consumer trust has been endangered 

by the misuse of video news releases, or VNRs. VNRs are 
corporate-, government-, or nonprofit-produced videos made to 
resemble news segments, but, in reality, are advertisements 
designed to promote a product, service, public image, or point 
of view of the entity that funded them. The typical newsroom 
may have 10--may be sent 10 to 15 VNRs every single day. We 
find the rampant lack of disclosure by broadcasters that they 
are being paid to air VNRs extremely troubling. We support 
vigorous FCC enforcement of relevant regulations in this area. 
And we would further argue that the FTC should continue 
investigating whether the producers of VNRs, themselves, should 
be subject to terms of the FTC guides on endorsement and 
testimonial advertising.
    In conclusion, the proliferation of advertising has made 
pitches for products and services an inescapable fact of modern 
life. The FTC has rightfully sought to ensure that 
advertisements are accurate and not deceptive.
    Finally, we should be assured that a free and independent 
media is not passing off advertisements as hard news. NCL fully 
supports the FTC's review of, and proposed changes to, the 
guides, and we further urge the Commission to undertake an 
investigation of the applicability of the guides to the use of 
video news releases.
    Thank you, Mr. Chairman, Senator Wicker, for giving the 
National Consumers League this opportunity to comment on the 
impact of advertising trends on consumer protection. We applaud 
you for your proconsumer leadership in this area, and look 
forward to answering any questions you may have.
    [The prepared statement of Ms. Greenberg follows:]

      Prepared Statement of Sally Greenberg, Executive Director, 
                       National Consumers League

Introduction
    Good morning, Mr. Chairman, Mr. Ranking Member and members of the 
Subcommittee. My name is Sally Greenberg and I am the Executive 
Director of the National Consumers League (NCL).\1\ I appreciate this 
opportunity to appear before the Subcommittee on Consumer Protection, 
Product Safety, and Insurance of the Senate Commerce, Science, and 
Transportation Committee to discuss the issue of consumer protections 
against deceptive advertising.
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    \1\ The National Consumers League, founded in 1899, is America's 
pioneer consumer organization. Our non-profit mission is to protect and 
promote social and economic justice for consumers and workers in the 
United States and abroad. For more information, visit www.nclnet.org.
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    Over its more than one hundred years of existence, NCL has been a 
fierce critic of misleading advertising, deceptive labeling, and other 
anti-consumer marketing practices. At the 1904 St. Louis World's Fair, 
NCL volunteers demonstrated to fairgoers that canned green beans touted 
by food processors as a labor-saving home product were adulterated with 
green dye. More recently, NCL's advocacy prompted the FDA in 2001 to 
investigate misleading claims by tomato juice manufacturers that their 
products were ``fresh.'' \2\ In 2008, we supported legislation 
introduced by Senator Bill Nelson of Florida aimed at curbing the use 
of deceptive advertising practices in the prepaid calling card 
industry.\3\ Earlier this year, in response to an NCL letter to the 
agency, the Food and Drug Administration (FDA) warned General Mills to 
stop printing misleading health claims on box of their Cheerios 
cereal.\4\
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    \2\ National Consumers League. ``National Consumers League Asks FDA 
to Crack Down on Companies that Violate Labeling Laws,'' Press Release. 
October 11, 2001. Online: http://www.nclnet.org/freshpr1001.htm.
    \3\ National Consumers League. ``Testimony of Sally Greenberg, 
Executive Director, National Consumers League on S. 2998, the `Prepaid 
Calling Card Consumer Protection Act of 2008' Before the U.S. Senate 
Commerce, Science and Transportation Committee.'' September 10, 2008. 
Online: http://www.nclnet.org/news/2008/prepaid_testimony_09102008.htm.
    \4\ National Consumers League. ``National Consumers League Applauds 
FDA for Warning General Mills for Misbranding Cheerios,'' Press 
Release. May 13, 2009. Online: http://www.nclnet.org/news/2009/
fda_cheerios_05132009.htm.
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    NCL believes that knowledgeable consumers can participate more 
fully and effectively in the marketplace. The more consumers know about 
their rights and responsibilities with regards to the goods and 
services they buy, the better they are able to protect themselves and 
make sound purchasing decisions. For this reason, it is imperative that 
the advertising consumers receive is accurate and transparent.
    In 2008 alone, more than $141 billion was spent on advertising in 
the United States, despite reduced corporate advertising budgets 
dragged down by the souring economy.\5\ Omnicom Group Inc., one of the 
largest advertising agencies in the world, last year made nearly $1.7 
billion in profits on more than $13.3 billion in revenues.\6\ The 
advertising business is a large industry in its own right and its 
vitality affects virtually every other sector of the economy. NCL 
believes that the advertising industry plays a special role in both 
informing and persuading consumers to buy products and services. The 
reliability and transparency of advertising therefore requires special 
scrutiny by policymakers to ensure that the industry meets its 
obligations to the public.
---------------------------------------------------------------------------
    \5\ TNS Media Intelligence. ``TNS Media Intelligence Reports U.S. 
Advertising Expenditures Declined 4.1 Percent in 2008,'' Press Release. 
May 4, 2009. Online: http://www.tns-mi.com/news/05042009.htm.
    \6\ Omnicom Group Inc. 2008 Annual Report. Online: http://
files.omnicomgroup.com/
ReportManagement/UploadedFiles/128836875883178750.pdf.
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    Our testimony today will focus on proposed revisions to the Federal 
Trade Commission's (FTC) Guides Concerning Use of Endorsements and 
Testimonials in Advertising (``the Guides''),\7\ proposed by the 
Commission in November 2008 and currently under final review.\8\ In 
addition, we will discuss the issue of video news releases (VNRs), and 
whether the use of such advertising should fall under the jurisdiction 
of the Guides.
---------------------------------------------------------------------------
    \7\ Available online at http://www.ftc.gov/bcp/guides/endorse.htm.
    \8\ Federal Trade Commission. ``16 C.F.R. Part 255: Guides 
Concerning the Use of Endorsements and Testimonials in Advertising: 
Notice of Proposed Changes to the Guides, and Request For Public 
Comments,'' November 21, 2008. Online: http://www.ftc.gov/os/2008/11/
P034520endorsementguides.pdf.
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Deceptive Testimonial Ads and Bogus ``Expert'' Endorsements Distort the 
        Market
    Consumers turning on their televisions at nearly any time of the 
day or night have grown accustomed to advertisements claiming that 
simply by taking a pill or eating a certain type of submarine sandwich 
they can expect to shed pounds and achieve a desired weight. Other 
advertisements trumpet that with a minimal investment and only part-
time work from home, consumers can achieve financial wealth ``in as 
little as 6 months!'' \9\ These advertisements are typically 
accompanied by small print, quickly flashed at the bottom of the screen 
indicating that ``results are not typical,'' or that ``your results may 
vary.'' Such advertisements frequently feature a ``noted expert'' on 
the topic of the advertisement, often clothed in a trust-inducing white 
medical coat.\10\ It does not take a Ph.D. to realize that through the 
use of such examples of success--which tend to be outliers if they 
exist at all--and the reputations of supposed ``experts,'' advertisers 
are attempting to persuade consumers that they can easily and quickly 
get rich or resemble the attractive person on the screen. The 
advertising industry does not generally release data on the 
effectiveness of testimonial advertisements. However, the impact of one 
of the most famous testimonial advertising pitchmen, Subway's Jared 
Fogle, is illustrative. When Subway briefly ceased using Fogle in its 
advertising in 2005, same store sales decreased by 10 percent until 
Fogle was reinstated.\11\ Clearly, Jared's crediting of his substantial 
weight loss to Subway's sandwiches in the company's advertisements had 
a large impact on consumers' preference for Subway.
---------------------------------------------------------------------------
    \9\ Federal Trade Commission. ``FTC Cracks Down on Scammers Trying 
to Take Advantage of the Economic Downturn,'' Press Release. July 1, 
2009. Online: http://www.ftc.gov/opa/2009/07/shortchange.shtm.
    \10\ See: Hobbs, Renee et al. ``How adolescent girls interpret 
weight-loss advertising,'' Health Education Research. Pg. 723. July 
2006. Online: http://her.oxfordjournals.org/cgi/reprint/21/5/719: ``By 
contrast, only 17 percent of participants in our study recognized the 
persuasive technique of claiming that products are `doctor-endorsed and 
scientifically proven'. Many weight-loss ads attempt to bolster their 
own credibility by depicting `doctors' or `scientists' using phrases 
like `clinically tested' or `studies confirm. . . .' This strategy is 
particularly manipulative considering that most consumers rarely 
question the advice of their doctors. Most girls in this study viewed 
with trust the image of the white-coated doctor, seeing it as a sign of 
credibility. For example, one participant said, `If I had a weight 
problem, then I'd probably be more confident in that product because 
the specialist was in it.' ''
    \11\ York, Emily Bryson. ``Subway Can't Stop Jonesing for Jared,'' 
Advertising Age. Pg.1. February 18, 2008.
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    We believe that the proliferation of such ads \12\ clearly 
highlights three factors pertaining to deceptive advertising. First, 
the present ubiquity of the use of such testimonials indicates that the 
spirit of the FTC's Guides--last revised in 1980--has been thoroughly 
circumvented by advertisers. Second, such advertising practices are 
proving to be very successful for advertisers and their clients. Were 
this not the case, advertisers would be unlikely to invest in the 
broadcast of such ads. Third, consumers are being harmed by these ads. 
Indeed, the two FTC staff reports \13\ \14\ examining this issue 
concluded that current efficacy and typicality disclosure practices 
(the ``results not typical'' and ``your results may wary,'' 
disclaimers) were insufficient in adequately warning consumers that 
they were not likely to enjoy the same results highlighted by these 
testimonials.
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    \12\ According to Cleland, Richard et al. [Weight-loss advertising: 
An Analysis of Current Trends. Federal Trade Commission. September 
2002.], weight-loss advertisements in magazines more than doubled 
between 1992 and 2001. Among the magazines sampled, 65 percent of 
weight-loss advertisements utilized consumer testimonials and 42 
percent contained before-and-after pictures.
    \13\ Hastak, Manoj and Mazis, Michael. ``The Effect of Consumer 
Testimonials and Disclosures on Ad Communication for a Dietary 
Supplement,'' Report submitted to the Federal Trade Commission. 
September 30, 2003. Online: http://www.ftc.gov/reports/endorsements/
study1/report.pdf.
    \14\ Hastak, Manoj and Mazis, Michael. ``Effects of Consumer 
Testimonials in Weight Loss, Dietary Supplement and Business 
Opportunity Advertisements,'' Report submitted to the Federal Trade 
Commission. September 22, 2004. Online: http://www.ftc.gov/reports/
endorsements/study2/report.pdf
---------------------------------------------------------------------------
    To address this issue, the Commission has proposed several 
revisions to Sections 255.2 (``Consumer Endorsements'') and 255.3 
(``Expert Endorsements'') of the Guides.
    First, the proposed revisions to Section 255.2 would require that 
advertisers who use consumer testimonials be able to substantiate 
claims made by the endorsement. The revision would prohibit the use of 
consumer testimonials as a replacement for clear scientific evidence 
when quantifiable claims are made in the advertisement. The proposed 
revisions would also make the use of the ``results not typical,'' 
``your results may vary,'' and similar disclaimers insufficient to meet 
disclosure requirements. Instead, the proposed guideline would require 
``clear and conspicuous'' notification of the results that consumers 
can generally expect to see from the use of the advertised product or 
service. Second, the Commission's proposed changes to Section 255.3 
would clarify two important requirements--(i) that the experts 
endorsing a particular product or service must be qualified and have 
exercised their expertise in their decision to endorse and (ii) that 
endorsements made by experts ``certified'' by advertiser-connected 
institutions are inherently deceptive.
    NCL applauds these proposed changes. The threat of consumer 
deception is high when an advertisement promises extraordinary results 
and such claims are reinforced by ``experts'' or ``people just like 
you.'' Given the troubling increase in the use of such tactics in 
advertisements, we support action by the FTC to clamp down on these 
practices via the proposed revisions to the Guides. We believe that 
approval of the revisions to Sections 255.2 and 255.3 of the Guides 
would encourage advertisers to be more truthful in their advertising, 
help ensure that consumers get more accurate information from 
advertisements, and ultimately increase consumer confidence in the 
marketplace.

Enhanced Blogger Disclosure Requirements Strengthen Consumer 
        Confidence
    The Commission has proposed significant revisions to section 255.1 
(``General Consideration'') and 255.5 (``Disclosure of Material 
Connection'') of the Guides to address the growing problem of bloggers 
and other users of social media platforms failing to disclose 
compensatory relationships in product and service reviews and 
endorsements.\15\ The proposed changes to the Guides would require 
bloggers compensated (either monetarily or in the form of free samples 
or gifts) for their roles in advertising campaigns to disclose the 
relationship. In addition, bloggers and the advertisers who pay them 
would explicitly be held liable for false or misleading representations 
made through an endorsement on a blog or other online platform.
---------------------------------------------------------------------------
    \15\ This practice is commonly known as ``blogola,'' a variation on 
the term ``payola,'' an illegal business practice in which record 
companies compensate radio stations in return for airplay of the 
company's artists.
---------------------------------------------------------------------------
    Blogging, by its nature, is a communications medium open to any 
consumer with access to the Internet. This openness has encouraged an 
unprecedented explosion in consumer discourse about practically every 
category of consumer product available. The inherently open qualities 
of the blogosphere suggest that the inclusion of bloggers as parties 
subject to the revised guidelines could present unique challenges for 
regulators.
    There are those who argue that the blogosphere is and should remain 
a place where consumer-bloggers are free to say what they wish without 
fear of government regulators or of law enforcement holding them liable 
for their statements. Another argument against the change is that the 
blogosphere is inherently self-regulating and thus not in need of 
government oversight. Those making such arguments frequently cite cases 
where the credibility of blogs reviewing products was reduced when it 
was discovered that the bloggers had not disclosed a financial benefit 
given in return for a review. A third argument against the revisions 
maintains that given the dynamic nature of the social Web--where anyone 
can voice an opinion on a blog or via Twitter, Facebook, or other 
platform--it will be practically impossible for the FTC to effectively 
administer the proposed rule.
    We reject all these arguments in the name of consumer protection. 
As with any emerging means of communication, ``rules of the road'' must 
govern to protect against deceptive advertising. With regard to the 
first critique of the proposed changes, we believe that the need for 
consumer confidence online outweighs any potential ``chilling effect'' 
that FTC review might produce. Indeed, reasonable disclosure 
requirements could provide much needed guidance to bloggers unfamiliar 
with the ethics guidelines commonly adhered to by professional 
journalists in product reviews produced for ``traditional'' media 
outlets.
    Second, consumer groups generally do not believe that self-
regulation works in highly competitive, financially lucrative marketing 
environments. The effectiveness of the blogosphere and other social 
media platforms as consumer empowerment tools is built on trust. 
Without trust, such tools lose their value to consumers. The increasing 
frequency of revelations that bloggers did not disclose that they were 
compensated for their endorsements suggests that the self-regulatory 
model is breaking down in the face of relentless monetary inducements 
from the advertising industry.\16\ Marketers all-too-frequently 
fabricate ``spontaneous'' Internet ``buzz'' around products and 
services by paying for endorsements by influential bloggers and other 
``e-celebrities.'' With each new news story of such incidents, the 
trust that has made the blogosphere such a powerful consumer tool is 
eroded. Given that the blogosphere is growing more sophisticated and 
influential by the day, and that advertisers are investing significant 
resources in trying to tap that influence, we believe that FTC 
guidelines and oversight in this area are appropriate and needed.
---------------------------------------------------------------------------
    \16\ For example, in 2006, Microsoft sent laptop computers 
preloaded with its Vista operating system to bloggers on highly-
trafficked blogs, asking them to review the then-new operating system. 
The company only vaguely encouraged the bloggers to disclose that they 
had received the laptop computer as a gift. See: Solis, Brian. ``This 
is Not a Sponsored Post: Paid Conversations, Credibility & the FTC,'' 
TechCrunch.com. May 24, 2009. Online: http://www.techcrunch.com/2009/
05/24/this-is-not-a-sponsored-post-paid-conversations-credibility-the-
ftc/.
---------------------------------------------------------------------------
    Third, we acknowledge that there are practical difficulties in 
policing the ever-changing social Web. Any consumer with an Internet 
connection can quickly and easily create a blog, Facebook Page, and/or 
Twitter account dedicated to reviewing products and services. We 
believe that the practical difficulties of policing blogs and other 
social media platforms can be addressed by focusing enforcement on the 
most egregious violators of the proposed guidelines and the advertisers 
that provide them with compensation. The FTC has similarly voiced an 
intention to narrowly target its enforcement efforts at repeat 
offenders of the proposed guidelines.\17\
---------------------------------------------------------------------------
    \17\ Yao, Deborah. ``FTC plans to monitor blogs for claims, 
payments,'' Associated Press. June 21, 2009. Online: http://
tech.yahoo.com/news/ap/20090621/ap_on_hi_te/us_tec_bloggers
_freebie_disclosures.
---------------------------------------------------------------------------
    Over time, consumers have developed a healthy skepticism of 
traditional print, radio, and television advertising. Properly enforced 
disclosure requirements in Federal statutes and regulations help build 
consumer confidence in the marketplace, enabling them to make informed 
decisions about the products and services they purchase for themselves 
and their families. NCL supports FTC rules requiring disclosure when a 
blogger is compensated for voicing his or her opinions on a particular 
product or service. Consumers have a right to know if a product 
endorsement is paid for by the company. We do not want to see the viral 
spread of word-of-mouth recommendations enabled by social media 
technologies give rise to rampant consumer deception.

Video News Releases Damage Consumer Trust in the Fourth Estate
    We believe that the same consumer trust that has helped consumer-
oriented blogs flourish has been endangered by the use of video news 
releases (VNRs) that purport to be news but are really paid 
advertising.
    VNRs are corporate, government, or non-profit-produced video made 
to resemble ``news'' segments but which in reality are advertisements 
designed to promote a product, service, public image, and/or point of 
view of the client(s) who funded them.\18\ While exact figures on the 
scope of VNR use are difficult to obtain, one of the largest VNR 
production agencies, Medialink Worldwide, reported that it produced 
approximately 1,000 VNRs per year.\19\ The typical newsroom may have 
ten to fifteen VNRs available per day.\20\
---------------------------------------------------------------------------
    \18\ Center for Media and Democracy. ``Fake TV News: Frequently 
Asked Questions.'' Online: http://www.prwatch.org/fakenews/faq.
    \19\ Barstow, David and Stein, Robert. ``Under Bush, a New Age of 
Prepackaged TV News,'' The New York Times. March 13, 2005. Online: 
http://www.nytimes.com/2005/03/13/politics/
13covert.html?_r=1&pagewanted=print&position=.
    \20\ Center for Media and Democracy. ``Fake TV News: Frequently 
Asked Questions.'' Online: http://www.prwatch.org/fakenews/faq.
---------------------------------------------------------------------------
    It is easy to see why VNRs are so popular with advertisers and news 
organizations. First, newsrooms are under increasing pressure to 
provide expanded news coverage but lack additional staff resources to 
make that happen. The use of VNRs is a time and cost-saving way to 
address this pressure. In addition, news agencies are under enormous 
financial strain due to the proliferation of news outlets competing for 
advertising dollars. VNRs bring in additional revenue beyond ads sold 
to fill the time between news segments. Production and airtime costs 
typically range from $25,000 to $75,000 for a VNR, making them 
significantly cheaper than traditional advertisements. The cost for a 
traditional 30-second advertisement can easily run into the tens of 
millions of dollars.\21\ VNRs also benefit from the implicit trust that 
consumers place in news programs. The average viewer places a healthy 
dose of skepticism on claims made in traditional ads. In contrast, 
media stories are expected to be free of conflicts of interest. The 
lack of disclosure of the source and payments involved in the airing of 
VNRs preys on that trust and deceives consumers.
---------------------------------------------------------------------------
    \21\ Mandese, Joe. ``The Art of Manufactured News,'' Broadcasting & 
Cable. March 27, 2005. Online: http://www.broadcastingcable.com/
article/156596-The_Art_of_Manufactured_News.
php.
---------------------------------------------------------------------------
    Regulation of VNRs has traditionally been the purview of the 
Federal Communications Commission (FCC). The FCC exercised this 
authority in 2007 when it fined Comcast repeatedly for failing to 
disclose VNRs that aired on its CN8 channel promoting products from 
companies like General Mills, Allstate, and Trend Micro.\22\
---------------------------------------------------------------------------
    \22\ The FCC's 2007 Notice of Apparent Liability for Forfeiture in 
this case is available online at http://fjallfoss.fcc.gov/edocs_public/
attachmatch/DA-07-4075A1.pdf
---------------------------------------------------------------------------
    As a consumer organization, NCL finds the rampant lack of 
disclosure by broadcasters that they are being paid to air VNRs 
extremely troubling. We support vigorous FCC enforcement of relevant 
regulations in this area. We would further argue that the FTC should 
consider investigating whether the use of VNRs should be subject to the 
terms of the FTC's Guides. In particular, we believe that when a VNR 
airs on a media program without sufficient disclosure, it could 
constitute a de facto endorsement of the product or service advertised 
by the news organization, thus invoking Section 255.4 requirements. In 
addition, we would urge the Commission to investigate whether a news 
organization's failure to disclose their compensatory arrangement with 
the providers of VNRs should invoke sanctions under Section 255.5 of 
the Guides.

Conclusion
    The proliferation of advertising has made pitches for products and 
services an inescapable fact of modern life. Recognizing the singular 
power of the advertising industry to affect consumer attitudes and 
behavior, the FTC has rightfully sought to ensure that advertisements 
are accurate and not deceptive. When the Guides were last revised in 
1980, the means for disseminating advertisements were largely limited 
to traditional print, radio, and television outlets. Cable television 
was in its infancy and the World Wide Web was virtually unknown. In the 
nearly three decades since, cable television has exploded in variety 
and viewership and Internet advertising has reached dizzyingly complex 
heights of sophistication. Both trends were fueled by an increasing 
abundance of advertising dollars. Given these facts, NCL fully supports 
the FTC's review of and proposed changes to the Guides. In addition, we 
would urge the Commission to undertake an investigation of the 
applicability of the Guides' rules to the use of video news releases.
    Now more than ever, consumers need to be assured that products and 
services advertised to them deliver on what they promise. Where extreme 
results are promoted, typical results should be clearly disclosed. When 
an ``expert'' unequivocally stakes her or his reputation on an 
endorsement of a product, consumers should be informed whether that 
person is qualified to make the statement. Readers of a product review 
on a blog or Facebook page deserve to know if the reviewer's opinion 
may have been swayed by a free gift or a hefty check. Finally, citizens 
of a democratic society should have confidence that the media is not 
passing off advertisements as hard news.
    Thank you, Mr. Chairman, for giving the National Consumers League 
this opportunity to comment on the impact of advertising trends on 
consumer protection. We applaud you for your leadership in this area 
and look forward to answering any questions you or other members of the 
Subcommittee may have.

    Senator Pryor. Thank you. You timed that perfectly, by the 
way. Thank you.
    [Laughter.]
    Senator Pryor. We love that about you.
    [Laughter.]
    Senator Pryor. Dr. Rangan?

URVASHI RANGAN, Ph.D., DIRECTOR OF TECHNICAL POLICY, CONSUMERS 
                       UNION OF U.S. INC.

    Dr. Rangan. Good morning Chairman Pryor, Ranking Member 
Wicker, and Members of the Subcommittee. We thank you for 
providing us the opportunity to come before you today to share 
our perspective on deceptive marketing in advertising of green 
products.
    My name is Urvashi Rangan. I am the Technical Director of--
I am the Director of Technical Policy for Consumers Union. 
We're the nonprofit publisher of Consumer Reports magazine. I'm 
an environmental-health scientist, and I provide technical 
support to our research and testing, and help develop advice 
and policy recommendations on advocacy issues, on a wide array 
of environmental and public health issues.
    We believe there are both broad and specific challenges in 
defining a fair green marketing practice, and we believe that 
the government, including the Federal Trade Commission, has a 
very important role to play in guiding and protecting this 
marketplace.
    Consumers are faced with a dizzying array of labels, some 
of which are very specific and discrete, like ``no 
phthalates,'' to those that are vague and not well defined, 
like ``natural'' and ``green.'' This marketplace is incredibly 
confusing for consumers, and filled with a lot of noise that 
can be misleading and, at times, deceptive. Too often, 
consumers are presented with claims that sound better than they 
are, like ``carbon-negative,'' or have minimal standards, like 
``natural,'' on virtually every product, and--as well as claims 
that have no standards, like ``nontoxic.'' And yet, consumers 
misinterpret those claims to have much more meaning than they 
actually do.
    Consumers can also choose products with meaningful labels. 
And there are many certified label programs out there. The 
administration of the certification can vary by model. There 
are public, private, nonprofit, for-profit models. That 
information is of interest to some consumers, and it is not of 
interest to other consumers. But, a consumer cannot tell, by 
just looking at a product, whether a claim is certified or not, 
whether it is verified or not; and therefore, it is impossible 
for them to make accurate assessments of ``green'' claims in 
the marketplace at the point of purchase.
    The Federal Trade Commission's role in reducing deceptive 
marketing practices, we feel, is necessary, and should be 
broadened, and, at the same time, a baseline for good marketing 
practices and minimum standards for common claims, we believe, 
should be established.
    Consumers Union has been rating the meaning of ``green'' 
labels for consumers for the last 10 years. We measure the 
value of green claims over conventional production practices in 
order to help consumers make the most informed decisions.
    We look at six main criteria. And there are more details in 
the written testimony, but they are: Is the label meaningful? 
Is it verified? Is it consistent in meaning from product to 
product? Are the standards transparent? And are--is information 
about the labeling organization and verification organization 
transparent? Is there an opportunity for stakeholder input? And 
finally, is the label independent? That is, were the decisions 
made, for both the standards and the verification, free from 
conflict of interest?
    Conflicts of interest do not automatically render an 
advertising or marketing claim false or misleading; however, 
when conflicts of interest are not fully disclosed, 
transparency is compromised, in a way that can undermine even 
the most truthful claims. And that applies to testimonial 
advertisements, marketing, as well as label claims on products.
    Based on our experience of rating and monitoring label 
claims in the green marketplace, we have identified a few 
trends. Comprehension and accessibility are challenges for all 
green claims. Whether specific or broad, the maintenance and 
evolution of those standards over time also need to be 
addressed.
    We have several recommendations that we would like to see 
made, both at the government and the Federal Trade Commission 
level. We think that eliminating or better defining meaningless 
claims in the marketplace is necessary, so that claims like 
``natural,'' ``carbon-negative,'' ``nontoxic,'' ``free-range,'' 
which have little or--little definition and no verification, 
really should either be banned, or specifics should be required 
to back those claims up.
    The type of verification, or lack thereof, should also be 
disclosed on a product, so that, if it is, indeed, a voluntary 
claim, not a certified claim, that consumers are able to 
distinguish between those types of claims on a particular 
product.
    We also think that baseline practices should be set for all 
green marketing claims. We think that there does need to be a 
floor established, in terms of transparency. And we think that, 
in order to reduce confusion between claims, like ``natural'' 
and ``organic,'' for example, the more information consumers 
have at the point of purchase, the better they will be able to 
make those distinctions. At the current time, consumers are not 
able to adequately differentiate between those two claims. And 
yet, there is a large discrepancy in the meaning between them.
    We think that there should be mandatory ingredient 
labeling. The cleaning product industry is currently not 
required to disclose ingredients. Green claims that are made on 
those products cannot be verified, either by the consumer or by 
a group like Consumer Reports, without basic product 
information on the package. We do not believe green claims 
should be used on top of that.
    We also think that, where there are green government 
labeling programs, that the FTC has a role to play in ensuring 
the high meaning, and consistency of that meaning, across 
product categories. So, for example, where certain phthalates 
have been banned by the Consumer Product Safety Improvement 
Act, perhaps those phthalates, under similar exposure 
scenarios, should also be banned for children's personal-care 
products like baby wipes. So, we would like to see more 
consistency brought into the application of those particular 
standards across the board.
    And finally, we do think that it is important for the FTC 
to have a role in supervising the variety of different claims 
coming out of the various different agencies. So, whether it's 
``FDA'' and ``natural,'' whether it's ``USDA'' and ``free-
range,'' we believe that the Federal Trade Commission has a 
larger role to play in ensuring that there is a baseline, and a 
consistent application and meaning, behind the claims that are 
overseen by the government itself.
    Thank you.
    [The prepared statement of Dr. Rangan follows:]

  Prepared Statement of Urvashi Rangan, Ph.D., Director of Technical 
                  Policy, Consumers Union of U.S. Inc.

    Good morning Chairman Pryor, Ranking Member Wicker, and 
distinguished members of the Committee. Thank you for providing me the 
opportunity to come before you today to share our perspective on 
deceptive marketing and advertising of green products. I am Urvashi 
Rangan, Ph.D. and Director of Technical Policy for Consumers Union, 
non-profit publisher of Consumer ReportsTM. I am an 
Environmental Health Scientist and provide technical support to our 
research and testing and help develop advice, policy recommendations 
and advocacy initiatives on a wide array of environmental and public 
health issues. I also direct Consumer Reports' Greenerchoices.org, a 
free, public-service website, which disseminates wide ranging reports 
on the green marketplace, including an eco-labels data base, that gives 
consumers our evaluation and ratings of more than 150 environmental 
claims including those found on food, personal care products and 
cleaners. We also advocate for stronger labeling standards across a 
wide range of products.
    There are both broad and specific challenges in defining fair green 
marketing practices, and we believe that the government, including the 
Federal Trade Commission, has a very important role to play in guiding 
and protecting this marketplace. Consumers are faced with a dizzying 
array of labels--some which are very specific and discreet, like ``no 
phthalates'' to those that are vague and not well defined, like 
``natural'' and ``green.'' This marketplace is incredibly confusing for 
consumers and filled with a lot of noise that can be misleading and, at 
times, deceptive. Too often, consumers are presented with claims that 
sound better than they are (e.g. ``carbon negative''), have minimal 
standards (e.g. ``natural'') or no standards (e.g. ``non-toxic'').
    In contrast, consumers can also choose products with meaningful, 
certified labels. Of the certified label programs, the administration 
of the certification can vary, including by public, private, non-profit 
or for-profit organizations. Some claims have comprehensive standards 
behind them with robust verification (certified labels) while many do 
not (general claims). But it is difficult to impossible for consumers 
to make accurate assessments of green claims in the marketplace on 
their own. The Federal Trade Commission's role in reducing deceptive 
marketing practices therefore is necessary and should be broadened. At 
the same time, the baseline for good marketing practices and minimum 
standards for common claims should be established.
    Consumers are currently faced with a huge learning task that better 
guidance and regulation could reduce. Requirements for transparency in 
standards and product information, such as ingredient lists, should be 
standard for all products being sold with green claims. Government 
regulation and guidance would be helpful in maintaining universal 
requirements for credible green marketing practices.
    Consumers Union has been rating the meaning of green labels for 
consumers for the last 10 years. We measure the value of green claims 
over conventional production practices in order to help consumers make 
the most informed purchasing decisions, especially where the may be an 
associated premium. The following is list of criteria and typical 
questions or issues we consider, with the first two (meaning and 
verification) as the most important:

        1. Meaning: How meaningful is the label (with ratings of 
        highly, somewhat, or not)
                --are the standards credible?
                --have the standards progressed over time?
                --does the claim accurately represent the standards 
                behind it?

        2. Verification: Is the label verified (rating: yes/no)
                --many general claims are on the market which are not 
                verified but impossible for consumers to know
                --types of verification can range from none to onsite 
                inspection

        3. Consistency: In meaning across products (rating: yes/no)
                --does the claim mean the same thing across products 
                that it is found?

        4. Transparency: Are the standards and labeling organization 
        information publicly available? (rating: yes/no)
                --is enough product information disclosed so claims can 
                be analyzed effectively?

        5. Stakeholder input: Were the standards developed with broad 
        public and industry input? (rating: yes/no)

        6. Independence: Were the decisionmaking bodies within both the 
        standard-setting and verification arms free from conflict of 
        interest? (rating: yes/no)

    Conflicts of interest do not automatically render an advertising or 
marketing claim false or misleading. However, when conflicts of 
interest are not fully disclosed, transparency is compromised in a way 
that can undermine even the most truthful claims.
    In evaluating claims, we provide consumers with comparative rating 
snapshots. Examples of these comparisons can be seen in a recent 
presentation made to the American National Standards Institute on 
sustainable product standard setting.\1\
---------------------------------------------------------------------------
    \1\ Rangan, Urvashi. A purchaser's/consumer's perspective on 
setting product standards for sustainability. American National 
Standards Institute meeting, April 8, 2009.
---------------------------------------------------------------------------
    Based on our experience of rating and monitoring label claims in 
the green marketplace, we have identified a few trends. Comprehension 
and accessibility are challenges for all green claims. Whether specific 
or broad, the maintenance and evolution of standards over time must be 
addressed. Consistency in the meaning of standards across different 
product categories can also be a challenge. And the ability to respond 
and incorporate emerging marketplace issues, especially around health 
and/or safety (e.g., bisphenol-A (``BPA''), phthalates, mad cow) is 
another hurdle for label standards and programs. All of these 
challenges increase with the complexity of a label.
    Yet, the green-ness or sustainability of a product is a complex 
subject. There are often many attributes to a product's sustainability 
like the social, environmental, and health aspects from production 
through to disposal. Green marketing claims can be very specific or 
very broad (with the latter being much more difficult and challenging), 
requiring more consumer education to launch and more maintenance 
(standards development and evolution) to keep current over time--which 
then requires additional consumer education. For these reasons, 
consumers tend to better understand labels that are discreet and can 
better decipher the meaning of a group of discreet labels compared to a 
single large multi-attribute label. When a set of sustainability 
practices has become defined and well understood, then combining labels 
or standards can be accomplished more coherently. For example, there 
are labels that address well-understood and defined practices, like 
energy or water usage, and newer, innovative labels that may need to 
compete in the marketplace until well understood or defined practices 
evolve, like the elimination of toxic materials within a given 
production system or manufacturing that allows for the easiest 
recycling.
    Consumers Union believes that the government could help provide 
guidance for green marketing in five main areas including:

        1. Eliminating or better defining meaningless label claims in 
        the marketplace.

      Voluntary, general claims like ``natural,'' ``carbon negative,'' 
            ``non-toxic,'' or free range,'' have little to no 
            definition and no verification. There should be minimum 
            meaningful requirements that these claims should have to 
            meet (and perhaps disclosures about what the claims do not 
            represent). The type of verification or lack thereof should 
            also be disclosed on the product. In some cases, like 
            ``natural,'' the term is so vague and difficult to 
            establish standard meaning that prohibiting the use of 
            certain label claims may also be necessary toward reducing 
            green noise in the marketplace.

        2. Setting baseline practices for all green marketing claims.

      We believe that the best labels meet all of our criteria for good 
            labeling. However, there should be a floor established that 
            ensures full transparency in the marketing and advertising 
            of green products regarding both who is making the claim 
            and how the product achieves the claim. In order to reduce 
            confusion between claims like ``natural'' and ``organic,'' 
            consumers should be able to differentiate between voluntary 
            claims made by the manufacturer from claims that require 
            independent certification. The Federal Trade Commission's 
            Green Marketing Guide should be updated to discourage or 
            ban the new wave of vague, unsubstantiated claims in the 
            marketplace, including those that are loosely addressed by 
            other agencies, like ``natural.'' Other considerations for 
            baseline practices could include verification requirements, 
            accreditations (oversight of programs), and meeting minimum 
            claim definitions.

        3. Mandate disclosure of basic product information.

      Without basic information on products, it is impossible for 
            consumers to make informed purchasing decisions, especially 
            where additional green marketing claims are being made. We 
            believe that all product categories, like cleaners, should 
            be required to disclose ingredient information. There 
            currently is no requirement for cleaning labels to disclose 
            all ingredients. Despite this fact, the green cleaning 
            marketplace is filled with claims. We also believe that 
            plastic recycling numbers should be required to be listed 
            so consumers can recycle effectively and better 
            differentiate among plastics offered, including consumers 
            who wish to avoid BPA from polycarbonate plastic (e.g., #7 
            PC should be required).

        4. Hold government labeling programs to high standards with 
        regard to practice and standard setting and ensure independence 
        of standards and verification.

      Government-based green labeling programs should be independent, 
            and represent input from a broad range of stakeholders. 
            They should also have rigorous standards that evolve over 
            time. Where a premium is associated, for example with 
            Energy Star or Design for the Environment, standards 
            required should have to go beyond the minimum requirements 
            set by law and only a certain small percentage of a product 
            market should be awarded premium labels. As more of a 
            production market can meet a particular claim, it should 
            signal an indication that standards need to improve. 
            Marketing claim programs should have appropriate 
            accreditations, oversight and adequate verification. There 
            should be full transparency of information including how 
            individual products are certified, whether all product 
            ingredients are disclosed to allow consumers to make the 
            most informed purchasing decisions, especially where they 
            are paying a premium. This is not currently the case for 
            EPA's Design for the Environment label. The label should 
            have consistency in meaning across product types, which may 
            require multiple agency coordinated efforts when product 
            label claims straddle fall under multiple agency 
            jurisdictions.

        5. Provide consistency in label meaning across jurisdictions.

      Where policies lead to laws or regulations in one product area--
            like the removal of certain phthalates from children's 
            products under the jurisdiction of the U.S. Consumer 
            Product Safety Commission--Congress should take steps to 
            ensure that other products, especially those with similar 
            exposure profiles, also are required to meet similar 
            standards. For example, in the case of certain phthalates, 
            children's personal care products, such as lotion and baby 
            wipes, should not be allowed to contain those specific 
            phthalates. These steps would impart consistency to laws 
            based upon important health and safety policy 
            recommendations. In addition, it also will help to level 
            the playing field for the use of green claims.

    We appreciate the work of this Subcommittee to identify and address 
problems and challenges in green marketing. Consumers Union believes 
that the Federal Trade Commission has an important role in maintaining 
fairness in this market and that decisions made in one sector could 
benefit claims made in another.
    I thank the Chairman, Ranking Member Wicker, and the Committee for 
the opportunity to testify, and I look forward to any questions you may 
have.

    Senator Pryor. Thank you.
    Mr. Peeler?

         STATEMENT OF C. LEE PEELER, PRESIDENT AND CEO,

       NATIONAL ADVERTISING REVIEW COUNCIL AND EXECUTIVE

      VICE PRESIDENT, ADVERTISING SELF-REGULATION COUNCIL

                   OF BETTER BUSINESS BUREAUS

    Mr. Peeler. Chairman Pryor and Senator Wicker, on behalf of 
the National Advertising Review Council and the Council of 
Better Business Bureaus, I want to thank you for inviting me to 
appear before you today to discuss the ongoing work of the 
industry's system of self-regulation.
    Advertising self-regulation plays a critical role as part 
of a comprehensive system of preventing misleading advertising. 
That system includes enforcement at the Federal level by the 
Federal Trade Commission, enforcement at the State level by 
State attorneys general, private litigation under the Lanham 
Act, active prescreening of ads by broadcast networks, and 
local advertising review by many of the 125 bureaus that 
compose the National Better Business Bureau system.
    There are three main self-regulatory investigative bodies 
in the self-regulatory process. Each of the these investigative 
units monitors advertising, hand-reviews complaints from 
consumers and competitors to identify potentially misleading 
advertising. If challenged, the advertising claims are--
determined to be misleading or unsubstantiated, advertisers are 
required to halt such claims in future advertising and correct 
all material, including packaging and labeling.
    And I would particularly commend the staff for the seating 
today. The--our position, right between the consumer groups and 
the government and the industry, is exactly the place where 
self-regulation falls on that spectrum.
    [Laughter.]
    Mr. Peeler. And, in fact, the significant number of our 
cases do come from companies that question the truth and 
accuracy of a competitor's advertising claims. Competitors are 
in a unique position to monitor the marketplace and their 
competitors' claims. Competitive challenges are a very healthy 
sign of self-policing in the marketplace. It's good for the 
consumers, it's good for competitors, and it's good for the 
integrity of advertising.
    In other instances, discrete industries have come forward 
to support broader scrutiny of advertising. For example, the 
Council of Responsible Nutrition has initiated a special 
program for the monitoring of dietary supplement advertising, 
which has increased the number of cases the self-regulation 
body is able to bring. And, as you will hear more about today, 
the Electronic Retailing Association has funded a special 
program devoted to examining claims made in electronic 
retailing ads.
    Although compliance with self-regulatory decisions is 
voluntary, the program has a voluntary compliance rate of well 
over 90 percent. This is a remarkable record and a strong 
indication of the industry's support for self-regulation. 
Advertisers that refuse to participate in the process, or 
refuse to comply with the recommendations to modify or 
discontinue their ads, are referred to the appropriate 
government agency, usually the Federal Trade Commission.
    The advertising self-regulatory system receives strong 
support from the FTC. The referral of advertising to the FTC 
often prompts the advertiser to either discontinue the claim or 
return to the system; in other cases, referrals to the FTC have 
resulted in FTC lawsuits, often resulting in the payment of 
significant monetary penalties.
    There are a number of trends that we see in our competitive 
advertising challenges and monitoring cases. One growing area, 
as referred to by the previous witness, has been green 
marketing cases. Here, building on the FTC's green guides, the 
self-regulatory system is building a body of precedent that can 
help advertisers avoid misleading or unsubstantiated 
advertising claims.
    In the current economy, we are also seeing a growing number 
of savings claims and value claims coming through the system. 
Here again, our decisions give guidance on appropriate 
substantiation for these claims. And reflecting the Nation's 
aging population, we see a steady number of health and 
appearance claims often targeted to the Boomer Market, and we 
are active is separating truthful claims from nontruthful 
claims.
    Our Electronic Retailing Self-Regulation Program, which 
monitors direct-response advertising, all electronic media, 
including the Internet, reports seeing a growth in questionable 
weight-loss claims and in efficacy claims for health products 
and dietary supplements. And of particular concern here is the 
prevalence of what we call ``affiliate marketing,'' where 
you'll see the same exact type of claim being made on what--on 
seemingly a host of unrelated Websites. And our recent alert to 
consumers about acai berry claims is an example of that.
    Also, our BBB system reports a proliferation of claims--of 
complaints about free trial-type programs, negative-option 
plans, where you're offered a free product, but then are 
subject to repetitive billing.
    All of our self-regulatory programs are working to examine 
advertising in the new media context, including claims on the 
Internet, YouTube, and in virtual-reality worlds. In addition, 
we continue to see example of paid advertising presented in 
formats that can be confused as editorial content. And the most 
recent iteration of that is the posting--is the paid-for 
posting of reviews on websites for the products without 
disclosing that the reviewer is actually an employee of the 
company.
    In conclusion, the advertising industry has a strong, 
longstanding commitment to self-regulation as a tool to foster 
high standards of truth and accuracy in advertising. Each year 
hundreds of advertisers participate in our system. Hundreds 
more scrutinize our decisions. Despite this high level of 
support and commitment, there is still significant work to be 
done to prevent misleading advertising. And self-regulation has 
a very important role in that effort.
    Thank you for your time.
    [The prepared statement of Mr. Peeler follows:]

   Prepared Statement of C. Lee Peeler, President and CEO, National 
 Advertising Review Council and Executive Vice President, Advertising 
           Self-Regulation Council of Better Business Bureaus

    Thank you for inviting me to appear before you today.
    I appreciate the opportunity to describe for the Subcommittee the 
ongoing work of the advertising industry's system of self-regulation.
    Advertising self-regulation, as described below, monitors and 
reviews national advertising in all media to foster high standards of 
truth and accuracy. In addition to programs requiring all advertising 
to be truthful and accurate, the self-regulatory system maintains 
special programs to address claims made in electronic direct-response 
advertising and in the advertising of dietary supplements; has a unit 
that focuses exclusively on children's advertising, and supports a new 
program that addresses concerns about food advertising and childhood 
obesity.
    For almost 40 years, and with the support of the advertising 
industry, these programs have provided expert, impartial, transparent 
and accountable oversight of national advertising. The process is 
independent and expert, relying on skilled professional staff to 
examine advertising claims and substantiation; expeditious, with 
decisions normally made in 60 to 90 business days; and efficient, 
resolving cases at a fraction of the time and cost of private 
litigation or government investigations.
    The decisions reached by the investigative units of the self-
regulatory system provide a comprehensive body of guidance that 
advertisers regularly consult in constructing advertising claims. 
Despite the fact that decisions often require that advertisers modify 
or discontinue claims, well over 90 percent of participants voluntarily 
comply with our decisions.
    In short, the system is a highly effective means of fostering truth 
and accuracy in advertising. It has frequently been cited by the 
Federal Trade Commission as a model of effective industry self-
regulation and the principles underlying the system's success can be 
looked to in deploying self-regulatory efforts in other areas. We are, 
for example, using this model to build an accountability program for 
the behavioral advertising self-regulatory principles announced earlier 
this month.\1\
---------------------------------------------------------------------------
    \1\ Principles on Collection and Use of Behavioral Advertising Data 
Released
    http://www.bbb.org/us/behavioral-advertising-principles/
---------------------------------------------------------------------------
National Advertising Review Council
    The advertising industry's self-regulatory system was created in 
1971 when three leading advertising trade organizations--the American 
Advertising Federation (AAF), American Association of Advertising 
Agencies (AAAA) and Association of National Advertisers (ANA)--together 
with the Council of Better Business Bureaus (CBBB), announced a new 
alliance to promote truthful and accurate advertising. That alliance, 
the National Advertising Review Council (NARC), sets policies and 
procedures for advertising industry self-regulation.
    In addition to the founding partners, the NARC Board now includes 
the chief executives of the Direct Marketing Association, Electronic 
Retailing Association and Interactive Advertising Bureau, giving NARC 
significant reach throughout the advertising and marketing community.
Administration by the Council of Better Business Bureaus
    To ensure the impartiality and independence of the self-regulatory 
process, the system is administered by the CBBB. The CBBB is the 
network hub of the 125-member Better Business Bureau system in the 
United States and Canada, which works to promote trust in the 
marketplace.

NARC Self-Regulation Programs
    The self-regulatory system includes three investigative units, the 
National Advertising Division of the Council of Better Business Bureaus 
(NAD), the CBBB's Children's Advertising Review Unit (CARU), and the 
Electronic Retailing Self-Regulation Program (ERSP). It also maintains 
the National Advertising Review Board, the appellate unit. In addition, 
the CBBB provides ongoing oversight and compliance reporting for the 
NARC-endorsed Children's Food and Beverage Advertising Initiative 
(CFBAI). As exemplified by these programs, NARC has, throughout its 
history, adapted its programs to respond to new public and policy 
concerns.

National Advertising Division
    The National Advertising Division of the Council of Better Business 
Bureaus (NAD) was chartered in 1971 in response to concerns about truth 
and accuracy in advertising. NAD examines advertising that is national 
in scope to assure that it is truthful and that claims are fully 
substantiated. NAD opens cases as result of its own monitoring, and in 
response to consumer complaints and to challenges filed by companies 
that question the truth and accuracy of a competitor's advertising 
claims.
    Through its decisions, NAD has provided invaluable guidance on 
appropriate advertising and advertising claims substantiation in all 
forms of national media.\2\ NAD attorneys have examined advertising for 
products as diverse as infant formula, over-the-counter medications, 
nuclear energy, weight-loss supplements, tires, plastics, consumer 
electronics, building supplies and products that claim a ``green'' or 
environmental benefit.
---------------------------------------------------------------------------
    \2\ NAD/CARU/NARB Procedures http://www.narcpartners.org/about/
procedures.aspx.
---------------------------------------------------------------------------
    In 2008, NAD closed 134 cases, including 98 challenges filed by 
companies to their competitors' advertising claims.
    Overall, NAD has produced well over 5,000 decisions on the 
truthfulness and accuracy of advertising claims, perhaps the Nation's 
largest body of advertising decisions.
The Children's Advertising Review Unit
    The CBBB's Children's Advertising Review Unit was created in 1974. 
CARU sets high standards to assure that advertising directed to 
children under 12 is not deceptive, unfair or inappropriate for its 
intended audience. The standards take into account the special 
vulnerabilities of children, including their inexperience, immaturity, 
susceptibility to being misled or unduly influenced, and their lack of 
cognitive skills needed to evaluate the credibility of advertising.\3\
---------------------------------------------------------------------------
    \3\ Self-Regulatory Program for Children's Advertising http://
www.caru.org/guidelines/guidelines.pdf.
---------------------------------------------------------------------------
    CARU's standards are embodied in principles and guidelines that 
were adopted in 1975 and have been periodically updated to address 
changes in the marketing and media landscape. In 1996, for example, 
CARU added a new section of the guidelines to address concerns about 
online data collection practices, and, in 2006, the guidelines were 
comprehensively updated and new provisions were added addressing food 
advertising, blurring of advertising and editorial content and unfair 
advertising practices.\4\
---------------------------------------------------------------------------
    \4\ New Food, Beverage Initiative to Focus Kids' Ads on Healthy 
Choices; Revised Guidelines Strengthen CARU's Guidance to Food 
Advertisers http://www.bbb.org/us/article/672.
---------------------------------------------------------------------------
    In 2008, CARU handled 84 cases. About one-third of these cases 
focused on provisions of the CARU guidelines governing the collection 
of personal information on child-directed websites.

The Electronic Retailing Self-Regulation Program
    The Electronic Retailing Self-Regulation Program was developed in 
2004 at the request and with the support of the Electronic Retailing 
Association--which represents retailers selling goods and services 
online, on television and on radio--to monitor advertising claims made 
in electronic direct-response marketing, including infomercials, home-
shopping channels, Website advertising and e-mail advertising.
    Since its founding, ERSP has examined thousands of hours of 
infomercials and thousand of Websites, and issued more than 200 
decisions on the core advertising claims made in direct-response 
advertising across a broad range of formats, including streaming video 
and in the virtual world of Second Life.

Dietary-Supplement Advertising Review Program
    In 2007, the NAD, with the support of the Council for Responsible 
Nutrition--an association of manufacturers and suppliers of dietary 
supplements and their ingredients--expanded its review of advertising 
for dietary supplements. That program is aimed at assuring that 
advertising claims for dietary supplements, particularly health claims, 
are substantiated by scientific evidence. In the past 2 years, NAD has 
reviewed advertising for and issued decisions regarding more than 50 
separate dietary-supplement products, including Resveratrol, Omega-3 
oil, green-tea extract and glucosamine, substantially increasing NAD 
oversight in this important area.

National Advertising Review Board
    The policies and procedures that govern advertising industry self-
regulation provide advertisers with an automatic right to appeal NAD or 
CARU decisions to a review panel of their peers. The procedures allow 
challengers to request an appeal.
    These appeals are heard by five-member panels of the National 
Advertising Review Board (NARB) which is composed of advertisers, 
advertising agencies and public members, including academics. NARB 
members are nominated for their stature and experience in their 
respective fields.

Children's Food and Beverage Advertising Initiative
    In 2006, the CBBB worked with its NARC partners and leading food 
companies to develop the Children's Food and Beverage Advertising 
Initiative--a program that monitors food advertising to children to 
assure that participants abide by the terms of their commitments. The 
NARC-endorsed and CBBB-led initiative currently has 15 participants. Of 
these, four companies have elected not to engage in advertising 
primarily directed to children under 12. The other 11 have pledged that 
100 percent of their advertisements to children under 12 in measured 
media (television, print, radio, and third-party Internet sites) will 
be better-for-you foods, as defined by nutrition standards based on 
government or other scientific standards.\5\
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    \5\ Changing the Landscape of Food an d Beverage Advertising http:/
/www.bbb.org/us/storage/16/documents/CFBAI/ChildrenF&BInit_Sept21.pdf.
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Operation of the Self-Regulatory System
    Advertising self-regulation is a fast, effective, industry-
supported system that acts in the interests of both consumers and the 
advertising industry. Through monitoring, complaints and competitor-
initiated challenges, the system identifies and expeditiously examines 
potentially misleading or unsubstantiated advertising claims and seeks 
prompt voluntary correction. Advertisers are required to halt such 
claims in future advertising and correct all materials, including 
labels, that display the claims at issue in the self-regulatory review. 
The self-regulatory system does not impose fines or penalties.
    The system is fast and efficient. Our goal is to close each review 
within 60 business days. The system is transparent. All decisions--
regardless of the findings--are publicly reported so that the public 
and the industry can judge the process.
    NAD, CARU and ERSP each have a voluntary compliance rate of 90 
percent or better. This is a remarkable record of voluntary compliance 
and a strong indication of the industry's respect for the self-
regulatory process.
    Companies that refuse to participate in the process or refuse to 
comply with recommendations to modify or discontinue advertising claims 
are publicly identified and the advertising at issue is referred to the 
appropriate government agency, usually the Federal Trade Commission 
(FTC).

FTC Support for Self-Regulation
    During the nearly 40 years of its existence, the advertising self-
regulatory system has received strong support from the FTC.\6\ The FTC 
also has consistently supported Remarks of Commissioner Jon Leibowitz 
at The National Advertising Division Annual Conference--September 24, 
2007 self-regulation by committing to give a priority to examining 
referrals from the advertising self-regulatory process. Referrals to 
the FTC of advertisers that refused to participate in the self-
regulatory process have resulted in FTC lawsuits and significant 
monetary penalties.\7\
---------------------------------------------------------------------------
    \6\ ``Truth or Consequences: The FTC Approach to Advertising'' 
Remarks of Commissioner Jon Leibowitz at The National Advertising 
Division Annual Conference--September 24, 2007.
    ``All of us at the FTC appreciate the NAD's advertising review 
work. It is more important today than it has ever been. . . . It really 
helps to have an alternative procedure that is quick, fair, and well-
respected.'' http://www.ftc.gov/speeches/leibowitz/
070924bbbremarks.pdf.
    The Federal Trade Commission at 100: Into Our Second Century: The 
Continuing Pursuit of Better Practices: A Report by Federal Trade 
Commission Chairman William E. Kovacic--January 2009.
    ``Meaningful self-regulation is an important complement to the 
Commission's law enforcement efforts--particularly in the area of 
deceptive marketing practices. For example, the program administered by 
the National Advertising Division/National Advertising Review Council 
(``NARC'') arm of the Council of Better Business Bureaus (``CBBB'') has 
worked well to obviate the need for Commission action in some 
instances.'' http://www.ftc.gov/ftc/workshops/ftc100/docs/
ftc100rpt.pdf.
    Self-Regulation in the Infomercial Industry: Deborah Platt Majoras, 
Chairman, Federal Trade Commission Before the Electronic Retailers 
Self-regulatory Program--April 2006 (Footnote No. 3, listing FTC 
statements in support of self-regulation since 1978.) http://
www.ftc.gov/speeches/majoras/060503eraspeech.pdf.
    \7\ Court Orders Spammers to Give Up $3.7 Million--http://
www.ftc.gov/opa/2009/07/spear.shtm; Oregano Supplement Marketers Agree 
to Pay $2.5 Million to Settle FTC Charges for False Advertising 
Claims--http://www.ftc.gov/opa/2008/08/naherb.shtm.
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    The FTC's support has been critical to the success of self-
regulation. The self-regulatory process has provided benefits to the 
FTC, in turn. Self-regulation quickly and efficiently resolves many 
issues that might otherwise come before the agency, thus freeing FTC 
resources to focus on consumer fraud and other priority issues. In the 
context of truth and accuracy, self-regulation acts as one important 
part of an comprehensive system for preventing misleading advertising. 
That system includes Federal enforcement by the FTC, enforcement at the 
state level by states' attorneys general, private litigation under the 
Lanham Act, and active pre-screening of advertising by broadcast 
networks.

Advertising Trends
    As the advertising industry's principal self-regulatory body, NARC 
and the CBBB are positioned to identify trends both in the challenges 
filed and in the cases that we monitor. In addition, the 125 bureaus of 
the BBB system review advertising in their geographic areas and seek 
voluntary correction of misleading claims.
    Over the past 2 years, the leading product categories for NAD's 
self-regulatory decisions have been food and beverages, dietary 
supplements, household products, cosmetics, pet products, 
telecommunications services, consumer electronics.
    By far the most common issues that we examine are whether claims 
about the efficacy or performance of a product are adequately 
substantiated, whether the advertised product is superior to its 
competition and whether material information, necessary to avoid 
misleading consumers, is clearly and adequately communicated.
    NAD has experienced an increase in cases involving green marketing 
claims, value claims (savings claims from using a particular product or 
retailer), health claims and claims for products targeted at the 
Nation's aging population. It is important to remember that many cases 
are competitive challenges. An increasing number of challenges within 
an industry signals that members of an industry are moving proactively 
to police themselves, a healthy trend.
    The ERSP program, which monitors electronic direct-response 
advertising in a variety of media, reports growth in weight-loss 
claims, efficacy claims for health products, advertising claims that 
state a product's benefits are ``clinically proven,'' claims regarding 
``credit rescue'' and work-at-home opportunities and ``affiliate 
marketing programs'' in which deceptive claims are made at multiple and 
seemingly unrelated websites. Marketing for acaiberry products is a 
recent example of this.
    All of our self-regulatory programs are working to examine 
advertising in a new-media context. Recent cases address claims made in 
advertising videos and ``viral'' videos, posted at YouTube, advertising 
claims made in virtual worlds, such as Second Life, and through 
objective claims in product placements on television.\8\ In addition, 
despite longstanding prohibitions, the self-regulatory system continues 
to see examples of paid advertising presented in formats that can be 
confused as editorial content and the self-regulatory units have issues 
decisions addressing such'' blurring'' of advertising and editorial 
content.\9\
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    \8\ NAD Case #4934, Cardo Systems www.narcpartners.org; ERSP 
Photoblocker Spray www.narcpartners.org; NAD Case #4611, Perfect Match 
www.narcpartners.org.
    \9\ NAD Case #5038, PatentHEALTH www.narcpartners.org; NAD Case 
#4677, Renaissance Health Publishing www.narcpartners.org; CARU Case 
#4525, Activision www.narcpartners.org.
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BBB Advertising Reviews
    Many local BBBs maintain active advertising monitoring programs in 
their communities under the BBB Code of Advertising.\10\ BBBs handle 
thousands of advertising review cases, including pricing claims, 
inadequate disclosures and qualifications, superiority claims, rebates 
and warranty and guarantee claims.
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    \10\ BBB Code of advertising http://www.bbb.org/us/code-of-
advertising.
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    BBBs also work to resolve complaints about business practices and 
are in a unique position to identify potential scams--both locally and 
nationally--and warn consumers about fraud. BBB scam alerts include 
alerts related to acaiberry weight-loss products, Twitter-based money-
making schemes, ``robocalls'' that promise easy credit repair or rescue 
and scams related to swine-flu fears.\11\
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    \11\ Weight-loss Berry Claiming Oprah Endorsement Makes Wallets 
Slim and Consumers Angry, Warns BBB--http://www.bbb.org/us/BBB-Press-
Releases; BBB Warns Against Twitter Money-Making Schemes, http://
www.bbb.org/us/BBB-Press-Releases; BBB, Schumer Warn Consumers of 
Robocalls Promising to Lower Their Credit Card Interest Rate--http://
www.bbb.org/us/BBB-Press-Releases; BBB Warns Against Swine Flu Scams: 
Scammers are creating their own epidemic of spam e-mails--http://
www.bbb.org/us/BBB-Press-Releases.
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    BBBs report geographic variations in the types advertising issues 
they see. The Better Business Bureau of Utah, for example, reports a 
high number of negative option complaints--low-cost trial offers that 
are accompanied by inadequately disclosed monthly billing commitments 
at a much higher price, deceptive rebate offers and questionable claims 
for nutritional products. The Better Business Bureau of Metropolitan 
New York reports a similar increase in ``free trial'' offers followed 
by surprising monthly bills, along with advance-fee mortgages and 
concern about misleading advertising for apartments. Recently, the New 
York BBB worked with the New York State Attorney General to identify 
and stop seven electronic retailers who allegedly advertised low prices 
for consumer electronics over the Internet and then would not ship 
products unless consumers ordered more expensive goods--classic bait 
and switch practices transferred to the Internet.\12\
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    \12\ AG Reaches Agreement with Seven Electronics Companies in NY, 
BBB to Administer Restitution Fund http://www.newyork.bbb.org/article/
ag-reaches-agreement-with-seven-electronics-companies-in-ny-bbbto-
adminis-11186.
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Conclusion
    The advertising industry has a strong, longstanding commitment to 
self-regulation as a tool to foster high standards of truth and 
accuracy in national advertising. These CBBB-administered programs 
provide an expert, fast and effective mechanism to address concerns 
about a wide range of advertising claims, and are supplemented by the 
work of BBBs to promote truthful advertising in their communities.
    The system represents a substantial benefit to consumers and it has 
earned the support of the advertising industry and the FTC.
    We work every day to assure, through the quality of our decisions 
and clarity of our guidance, that we continue to deserve that support.

    Senator Pryor. Thank you.
    Mr. Renker?

              STATEMENT OF GREG RENKER, CO-CHAIR, 
                        GUTHY-RENKER LLC

    Mr. Renker. Thank you, Chairman Pryor, Senator Wicker, 
Members of the Subcommittee. My name is Greg Renker. I 
appreciate the opportunity to testify today. I'm one of the co-
founders of Guthy-Renker. We're one of the world's largest 
direct-response television companies. Starting from scratch, we 
have built annual sales of a billion and a half dollars per 
year, and we spend up to $200 million a year in advertising.
    I've had the privilege and pleasure of serving as Chairman 
of what was the National Infomercial Marketing Association. And 
I am currently Chairman Emeritus of the Electronic Retailing 
Association, the successor to NIMA.
    As Chairman of NIMA, I presided over the formation of the 
association's self-regulatory program, which currently works 
hand-in-hand with Mr. Peeler.
    The Electronic Retailing Self-Regulation Program reflects 
my firm belief that consumers and our industry benefit from 
clear and fair rules enforced, initially, by self-regulatory 
action, and, if necessary, action by the Federal Trade 
Commission, to ensure that our customers have confidence in the 
integrity of direct-response marketers.
    I testified on this topic 19 years ago, and many of the 
things that I'm hearing and reading are very similar. I 
acknowledge that it is more complex, but it's remarkable how 
the claims and promises made by marketers have not changed 
much.
    The success and ongoing growth of the direct-response 
industry--and broader advertising industry--is due, in large 
part, to the effectiveness of consumer testimonials and 
endorsements. I've seen, firsthand over the past 20 years, that 
our testimonials provide hope and motivation to our consumers' 
lives and well-being, and we are proud of it.
    As part of its periodic review of all of its guides, the 
Commission has proposed changes to its longstanding standards 
for testimonials, with the goal of limiting deception to 
consumers. There's no question that those intentions are 
laudable, and we share the goals of the Subcommittee and the 
Commission for a fair and healthy marketplace, and for 
responsible use of endorsements and testimonials.
    But we have concerns that the proposed modification could 
have negative consequences on both advertising and consumers, 
and we think there are more direct and equally effective 
solutions to address the concerns the Commission is grappling 
with.
    Specifically, the basis of the Commission's concern in this 
area is the belief that a statement made in a consumer 
testimonial, regarding the particular results of an individual 
using the product or service being advertised, may be 
understood by some consumers as a representation that they can 
expect the same result. The existing guides have always allowed 
the marketer of a product using a testimonial that ``they may 
not be typical,'' to state ``your experience will vary,'' or 
similarly disclaim the typicality of the testimonial's 
experience. These disclosures have obviously become vary 
familiar to all of us over the years.
    The Commission has identified a concern with the use of 
these typicality disclaimers, because they apparently do not 
believe that consumers understand even simple and conspicuous 
disclaimers. To address this concern, there is a proposed 
modification, which would require marketers to disclose the 
average results of consumers that use the product or service.
    This cuts to the heart of the matter, I think, of what Mr. 
Congdon and I hope to address today, if we have the 
opportunity, regarding the consumer averages, because the 
current disclaimer language, and ``your results may vary'' 
attempts to hide it and pop it up quickly and make it disappear 
as quickly as possible, we think, is inappropriate and 
inauthentic. And we are fully in support of clear, and 
unambiguous, and conspicuous, and ubiquitous disclaimers 
regarding products.
    And I also want to just briefly touch on net impression, 
because I think the overall final impression that the consumer 
or viewer takes from these programs or commercials is 
ultimately what we think matters most, in terms of how they are 
presented, how they are disclaimed, how often these disclaimers 
run, et cetera.
    Finally, and most importantly, I just want to say that I 
think we are all singing from the same hymnal here at the 
table, because, I know, on behalf of our industry and speaking 
for Mr. Congdon, we are completely in support of a strong 
Federal Trade Commission, strongly enforcing the guidelines 
that have already been in place, and we are anxious to see that 
beefed up even more. And we are supportive of additional 
resources, because we are competing against marketers who are 
making false and misleading claims that they cannot 
substantiate. They are causing our costs to rise, not only in 
terms of the media that we buy, but in terms of the consumers 
we're trying to attract, thus, causing our credibility to 
diminish. And we support trying to make a move.
    Thank you for giving me the opportunity to speak today.
    [The prepared statement of Mr. Renker follows:]

      Prepared Statement of Greg Renker, Co-Founder, Guthy-Renker

    Chairman Pryor, Members of the Subcommittee, my name is Greg 
Renker. Thank you for the opportunity to testify today. I am one of the 
co-founders of Guthy-Renker, one of the world's largest direct response 
television companies with annual sales of approximately $1.5 billion. 
We are known as the leading producer of high-quality commercials and 
company-owned products designed for direct response television sales. 
We are headquartered in California, but have offices in Europe, Asia 
and Australia, and market throughout the world.
    I have been active in the direct response industry since the 
founding of Guthy-Renker in 1988. I have had the privilege and pleasure 
of serving as Chairman of what was the National Infomercial Marketing 
Association (``NIMA''), and am currently Chairman Emeritus of the 
Electronic Retailing Association, NIMA's successor. In addition, Guthy-
Renker serves on the Board of Directors of the Direct Marketing 
Association. As Chairman of NIMA, I presided over the formation of the 
Association's self-regulatory program, which currently works hand-in-
hand with the National Advertising Review Council, represented here 
today by Lee Peeler. The Electronic Retailing Self-Regulation Program 
reflects my firm belief that consumers and our industry benefit from 
clear and fair rules enforced initially by self-regulatory action and, 
if necessary, action by the Federal Trade Commission (``FTC'' or 
``Commission'') to ensure that our customers have confidence in the 
integrity of direct response marketers.
    According to a recent report by the DMA, the direct response 
industry generated $2.058 trillion in sales in 2008 and is projected to 
grow 5.3 percent over the next 5 years, which is particularly 
impressive given the current economic climate. Direct response 
marketing supports 10.9 million U.S. jobs. Advertising continues, even 
in these tough times, to be a leading contributor to the U.S. economy. 
Advertising and marketing have proven their unparalleled value in 
connecting consumers with products and services that they are likely to 
be interested in purchasing and using.
    The success and ongoing growth of the direct response industry and 
broader advertising industry is due in large part to the effectiveness 
of consumer testimonials and endorsements. Testimonials by users of our 
products and services are a very powerful form of communication, and 
studies have found that consumers find statements by other consumers to 
be, in many cases, more credible than direct statements about products 
by the advertiser. That is why testimonials are so widely used, not 
only on television, but throughout advertising in all sorts of media. 
Testimonials are crucial to the success of this industry and to the 
success of consumer products such as our ProActiv Solution product, the 
largest selling non-prescription acne treatment product in the world, 
as well as our other well-known skin care, exercise, and entertainment 
products. I have seen first hand over the past twenty years that our 
testimonials provide hope and motivation to our consumers' lives and 
well-being.
    With that background, I want to discuss the standards that apply to 
testimonials and provide my perspective with respect to one of the 
proposed modifications to the FTC's Guides Concerning the Use of 
Endorsements and Testimonials in Advertising, which are currently 
pending at the Commission. The current Guides have for many years set 
the standard for the use of endorsements and testimonials in 
advertising. As part of its periodic review of all of its Guides, the 
Commission has proposed changes to its longstanding standards for 
testimonials with the goal of limiting deception of consumers. There is 
no question that the Commission's intentions are laudable, and that the 
Commission has been very successful in combating the use of fraudulent 
and deceptive endorsements and testimonials. But I and my colleagues in 
the legitimate and leading segment of the direct response industry are 
concerned that the proposed modification would have significant 
negative consequences on both advertising and consumers. We believe 
that there are other, more direct and equally effective, solutions to 
address the concerns the Commission is grappling with.
    The current Guidelines have been out in the advertising world since 
1980, and a whole industry has grown up following these ``rules of the 
game.'' The Commission's interest in the use of testimonials is 
appropriate considering the public's widespread acceptance of 
testimonials and reliance on information obtained through testimonials 
when making purchase decisions. To be clear, we at Guthy-Renker share 
the goals of the Subcommittee and the Commission for a fair and healthy 
marketplace and for responsible use of endorsements and testimonials.
    As I understand it, the basis of the Commission's concern in this 
area is the belief that a statement made in a consumer testimonial 
regarding the particular results of an individual using the product or 
service being advertised may be understood by some consumers as a 
representation that they can expect the same result. To use a common 
example to illustrate the Commission's concern, if a consumer 
testimonial reports that by running on a treadmill he/she lost 30 
pounds over a six-month period, the Commission believes that the 
advertiser is representing that the ordinary consumer who purchases 
that product will achieve the same or similar results.
    In many cases, it is difficult or impossible to say what the 
``average'' experience of a consumer using their product may be. The 
treadmill is a good example. We all know that regular use of a 
treadmill can result in weight loss, but the marketer of the treadmill 
does not know whether the purchaser will use it 1 day, 3 days, or 5 
days a week, or how many minutes the purchaser will spend on the 
treadmill or how fast he/she will run. Consequently, the existing 
Guides have always allowed the marketer of a product using a 
testimonial that may not be typical to state ``Your Experience Will 
Vary,'' or similarly disclaim the typicality of the testimonial's 
experience. These disclosures have become familiar to consumers over 
the years.
    The Commission has identified a concern with the use of such so-
called ``typicality'' disclaimers because they apparently do not 
believe that consumers understand even simple and conspicuous 
disclaimers. To address this concern, the Commission's proposed 
modification would require marketers to disclose the average results of 
consumers that use the product or service. In many cases, especially 
where we are dealing with product design specifications that apply 
irrespective of the use of the product, this would not be a problem. 
For example, the statements on light bulb packages about the average 
number of hours the bulb will function are generally consistent among 
all users.
    But when it comes to products where the results obtained by 
consumers are variable or depend fundamentally on decisions that 
consumers themselves make--how frequently to use the product and for 
how long, for example--the proposed modification would require that 
marketers disclose facts that simply cannot be determined. This is the 
basis for the advertising community's concerns with the Commission's 
proposal. The proposal would have the effect of limiting the use of 
truthful statements by individuals about their experience with the 
product because of an assumption that consumers will take those 
statements as gospel truth but ignore or fail to comprehend plain-
language typicality disclaimers that accompany them.
    The industry believes that there may be other more effective ways 
of addressing the problem identified by the Commission. While I focus 
more on running the business than the legal framework, I know that the 
Commission has strong existing enforcement authority and uses it 
regularly. This type of enforcement helps foster a healthy marketplace 
for consumers and limits fraudulent competitors.
    For example, as I understand it, the Commission has highlighted as 
a problem area the fact that some disclaimers, in some commercials, are 
too small or use confusing or ambiguous language. This is a problem 
where the Commission could bring an enforcement action under its 
existing authority against those marketers, and require that they make 
the disclaimers larger or remain on the screen longer, or rewrite them 
in plain language so that consumers are not confused or deceived.
    Similarly, some advertisers use extraordinary testimonials to 
promote products that don't work at all. Here, the issue is not the 
typicality of the testimonial, but the lack of proof that the product 
works as claimed.
    We believe the current Guides set an appropriate standard and one 
that is widely understood in the advertising industry. If an advertiser 
is using testimonials that convey a misleading ``net-impression'' of 
what the product or service is capable of doing, the Commission can and 
should go after the marketer under well-established existing law. The 
Commission's enforcement efforts and self-regulatory programs supported 
by the Commission have helped clean up and maintain a robust 
advertising industry for consumers and businesses alike.
    Given the Commission's existing tools, and the potential negative 
impact on endorsements and testimonials that benefit consumers, we 
believe that the Commission can achieve its important goals without 
essentially banning the use of truthful consumer testimonials.
    I thank you for the opportunity to speak with you today and for 
your commitment to these important issues. I am submitting for the 
record my prepared testimony and the comments provided by the 
Electronic Retailing Association and the Council for Responsible 
Nutrition to the Federal Trade Commission as part of its comment 
process.
    I would be happy to take any questions you might have.

    Senator Pryor. Thank you.
    And you met the ``Greenberg standard,'' and that is, you 
stayed in your time. Thank you for that.
    Mr. Renker. Thank you.
    Senator Pryor. Mr. Congdon?

            STATEMENT OF JON CONGDON, PRESIDENT AND 
           CO-FOUNDER, PRODUCT PARTNERS LLC/BEACHBODY

    Mr. Congdon. Chairman Pryor, Ranking Member Wicker, and 
Members of the Subcommittee, it's truly an honor to appear here 
before you today. My name is Jon Congdon, and I'm President and 
Co-Founder of Product Partners, LLC, a leading provider of 
health and wellness solutions under its brand name 
``Beachbody.''
    Product Partners provides consumers with realistic and 
proven ways to improve their health, wellness, and lives. We 
offer several well-known consumer fitness programs, such as our 
P90X home fitness training system, as well as easy-to-follow 
guidelines and superior nutritional supplements.
    Our dynamic online support community provides consumers 
with the assistance they need to help them stay focused, from 
the start of their program to the finish and beyond, and our 
products have helped millions of Americans lose weight and 
improve their health.
    As a matter of fact, Tony Horton, who is the creator of the 
P90X system, was on the Hill just a couple weeks ago with 
members of the House, and worked out with, I believe, 14 
bipartisan members of the House, and he said they were an 
unusually competitive group but----
    [Laughter.]
    Mr. Congdon. At Product Partners, our slogan is to 
``Decide, Commit, and Succeed.'' In our advertising, we 
emphasize the fact that individual effort is necessary to 
obtain the benefits of our products. We believe that it's 
critical to be honest with our consumers so they fully accept 
the challenge of better health, and will not be disappointed or 
misled by any quick fix or it's-so-easy promise.
    Because of our commitment to consumers, we embrace industry 
self-regulation and we staunchly support the mission of the 
Federal Trade Commission. In fact, I've almost heard nothing 
that I disagree with said today. A strong Commission 
strengthens legitimate businesses, like ours, by ensuring that 
unscrupulous companies are not eroding consumer trust or 
competing on unfair terms.
    We know, when we advertise our products, that we have to 
overcome a general mistrust from the public toward companies 
that promise to help them lose weight. As a company that goes 
to great lengths to earn and maintain the trust of its 
customers--and that deals with countless people who have been 
falsely duped into buying the latest fad diet or promise, only 
to be let down--we applaud the Commission's efforts to protect 
our consumers and ensure fair advertising.
    Although we share common goals with the Federal Trade 
Commission, we have concerns regarding the Commission's 
proposed modifications to the guidelines on the use of 
testimonials in advertising.
    In particular, the Commission proposes to require companies 
that use testimonials in advertising to disclose the average 
results experienced by consumers that use a given product or 
service. I'm certain that the Commission acted with the best of 
intentions, but I am concerned by what the implications of 
having to comply with that are. It may have significant 
unintended and negative consequences for marketers and 
consumers, and that's really where our concerns come in. Our 
company faces such hurdles in complying.
    First, the Commission's proposal may not provide the 
Commission with any additional tools to protect or prevent a 
consumers from an unscrupulous company. Those companies are 
simply going to continue doing what they're doing, creating 
false claims, maybe even loading their test groups or their 
studies so that they can claim whatever they want to claim.
    The real question is, How do you enforce against companies 
that are going against what the consumers need to see, and what 
is fair?
    Beyond that, though, companies that strive to comply with 
the Commission's requirements, like Mr. Renker's company and 
like our company, are going to be faced with an undue burden in 
trying to meet the demands. It's very cost-prohibitive to 
create an average, and we actually don't even know what the 
average means, when it comes to weight loss.
    It's--we have--just a few weeks ago, we brought a bunch of 
testimonials of ours to the Hill, and we were touring the 
House. And one of them was a young man named Dallas Carter, 
who, at the age of 25, was morbidly obese and was given a death 
sentence by his doctor. He was actually told that if he didn't 
change his lifestyle within 10 years, he would be dead, and he 
would not see the 10-year--10th birthday of his daughter. 
Still, he did nothing about it, until he finally saw one our 
other testimonials, Earl Broffman, who had lost 140 pounds, and 
saw--by seeing that story, realized that he could do it, also. 
There's no doubt that Earl Broffman's story was extraordinary, 
and not typical, but that was exactly the story that Dallas 
needed to see in order to change his life. He has since lost a 
190 pounds and is incredibly healthy, and actually was even 
honored by the Governor of Hawaii.
    We're very proud of that story, but we need to show 
extraordinary results to people who need to do something 
extraordinary in their life.
    We also show other results, so that other people, with 
different goals, can also react to those stories. Testimonials 
generally appeal to the person who relates to them, not to 
everybody.
    Obviously somebody who had 25 pounds to lose, who saw 
Dallas's story, didn't immediately think that they were going 
to lose 190 pounds, also. They would take the net impression of 
the commercial that they saw and decide whether or not that 
product could help them with their fitness or weight-loss 
goals.
    That's really what we're concerned about with net 
impression, that the net impression of the commercial is going 
to create a thought in a person's mind, as to whether that 
product is going to help them do what they want to do with 
their life. If that net impression does not equal what the 
product is that's being offered, if the product cannot help the 
person achieve what the net impression is, then that is false 
advertising, and we believe that net impression is actually the 
gold standard that we need to go after bad actors with. And we 
fully support--we have to continue to go after bad actors.
    Finally, the self-regulatory systems that we have in place, 
ERSP, have been incredibly helpful with getting bad actors to 
the FTC more quickly, and with our reviewing what's going on in 
our own industry, and our ability to turn in bad actors to 
other people. We think that that is a critical piece in our 
continuing effort to make sure that bad actors are not allowed 
to continue doing what they're doing, but, at the same time, we 
have to make sure that good actors are allowed to continue to 
sell effective products that help people with their everyday 
lives, and achieve the things that they want to achieve.
    I think I'm out of time, so I'll close there. I want to 
thank you for the opportunity to present my views here today.
    [The prepared statement of Mr. Congdon follows:]

     Prepared Statement of Jon Congdon, President and Co-Founder, 
                     Product Partners LLC/Beachbody

    Mr. Chairman, Ranking Member, and members of the Subcommittee, it 
is an honor to appear before you today. My name is Jon Congdon, and I 
am the President and Co-Founder of Product Partners LLC, a leading 
provider of health and wellness solutions under its brand name 
Beachbody. Product Partners provides consumers with realistic and 
proven ways to transform their health, wellness, and lives. We offer 
several well-known consumer fitness programs, such as our P90X home 
fitness training system, as well as easy-to-follow diet guidelines and 
superior nutritional supplements. Our mission is to help people lead 
healthy and fulfilling lives by motivating and educating consumers 
about long-term fitness and the benefits of maintaining a healthy body 
and lifestyle. Our dynamic online support community provides customers 
with the assistance they need to help them stay focused from the start 
to the finish of our programs, and beyond. I am proud to say that our 
products have helped millions of American consumers to lose weight and 
improve their health.
    At Product Partners, our slogan is ``Decide. Commit. Succeed.'' In 
our advertising, we emphasize the fact that individual effort is 
necessary to obtain the benefits of our products. We believe that it is 
critical to be honest with our customers so that they fully accept the 
challenge of better health, and will not be disappointed or misled by 
any ``quick fix'' or ``it's so easy'' promise. Because of our 
commitment to consumers, we embrace industry self-regulation, and we 
staunchly support the mission of the Federal Trade Commission. A strong 
Commission strengthens legitimate businesses, like ours, by ensuring 
that unscrupulous companies are not eroding consumer trust or competing 
on unfair terms. We know when we advertise our products that we have to 
overcome a general mistrust from the public toward companies that 
promise to help them lose weight. As a company that goes to great 
lengths to earn and maintain the trust of its customers, and that deals 
with countless people who have been falsely duped into buying into the 
latest diet fad promise only to be let down, we applaud the 
Commission's efforts to protect consumers and ensure fair advertising.
    Although we share common goals with the Federal Trade Commission, 
we have concerns regarding the Commission's proposed modifications to 
its guidelines on the use of testimonials in advertising. In 
particular, as the Subcommittee knows, the Commission proposes to 
require companies that use testimonials in advertising to disclose the 
average result experienced by consumers that use a given product or 
service. I am certain that the Commission acted with the best of 
intentions in suggesting modifications to its longstanding guidelines. 
However, I fear that the Commission's proposal will have significant 
unintended and negative consequences for marketers and consumers. I am 
glad to be able to share my perspective with the Subcommittee, because 
I believe that the products and services of my company provide an 
excellent example of the difficulties that could arise under the 
Commission's proposed approach.
    First, the Commission's proposal would not provide the Commission 
with any additional tools to prevent an unscrupulous company from 
manipulating the facts and misleading consumers by simply falsifying 
the average result or by devising a flawed or ``loaded'' study that 
creates an average that fits the company's advertising claims.
    On the other hand, companies that strive to comply with the 
Commission's requirements, as we do, will find it extremely challenging 
to satisfy the proposed guidelines. The cost of conducting detailed 
valid studies will be prohibitive, keeping many new companies out of 
the marketplace. The fact is that some products simply cannot be 
reduced to an average figure that will be meaningful to consumers. As I 
mentioned earlier, the Product Partners slogan emphasizes that 
customers must commit to improving their own health and wellness in 
order to benefit from our fitness tools. A customer's experience with 
our product will depend on countless immeasurable factors, such as that 
customer's level of effort, weight, and level of fitness before using 
the product. The customer's age, gender and even genetics will also 
cause significant fluctuations. In addition, many of our customers use 
multiple fitness strategies at the same time. To illustrate these 
difficulties, suppose that I am selling a treadmill. I can give you the 
average results with respect to the durability and electrical pull of 
the treadmill. But if each of us takes home a treadmill and uses it as 
we please, how can I calculate meaningful average health effects 
associated with using the treadmill, given that each of us is different 
and used the treadmill differently? Given these complexities, how could 
Product Partners begin to calculate an average result for our products 
that everyone would agree is accurate? And even if we could collect the 
information to make a basic calculation, it would tell individual 
consumers very little about what they might personally experience with 
one of our products, since the average result for a significantly 
overweight 48-year-old man will be drastically different than for a 
very fit 28-year-old female using the same fitness program even if they 
spend exactly the same amount of time exercising.
    Some of our customers are individuals who have led unhealthy 
lifestyles for a long time, and we all know from personal experience 
how difficult it is to change old habits. A person who faces a 
challenge like losing 100 pounds is more likely to be inspired to 
change his life if he can see, through a testimonial and real-life 
experience, that someone else has succeeded in achieving that goal. 
Product Partners and companies like ours aim to inspire our customers 
to change their lives for the better, which is a critical decision to 
make, but not always an easy one. Testimonials that meet the existing 
standards that the Federal Trade Commission has long imposed are a 
meaningful way to reach out to interested consumers about products that 
can benefit them.
    As an example, in a recent visit to Members of Congress to discuss 
this issue, we brought Dallas Carter, who was morbidly obese at the age 
of only 25, even after his doctor told him that he would likely not 
live to see his new daughter's tenth birthday unless he made a drastic 
change in his lifestyle. It wasn't until Dallas saw the true story of 
Earl Broffman in a P90X infomercial discussing his 140-pound weight 
loss and health transformation that Dallas decided to make a change--a 
change that has led to him losing 190 pounds, leading a healthy life, 
and even being an example for his community. Dallas told us, ``When I 
saw Earl do it, I knew I could do it too.'' And when Dallas told Earl 
this story directly, Earl replied that he himself only tried P90X after 
seeing another of our longtime customers, Aaron Mathis, describing his 
110-pound weight loss. As you can see, as long as these testimonials 
are truthful and disclose that the testimonial's experience is not 
necessarily typical, they provide critical motivation and inspiration 
to others in a similar position. I believe that if we had somehow been 
able to determine that the average weight loss using our product was 25 
pounds but had been prohibited from showing our more ``extraordinary'' 
results, it is unlikely that the customers I just mentioned would have 
been inspired to start their journeys to a healthy lifestyle.
    We know that this country is in crisis with regard to the health of 
its citizens. The obesity figures are staggering, and the costs to care 
for overweight Americans and their related conditions are 
overwhelming--quite possibly the largest financial threat we may face 
in the coming years. Imagine if we could turn the tide and get 
Americans moving again and eating healthier foods. I truly believe that 
our company and others like it are beginning to make a difference as 
the customers who change their own lives also change lives of the 
people around them--particularly their children.
    As our rates of obesity and Type 2 diabetes grow daily, I think the 
need to reach out and inspire others, with proven products and truthful 
advertising, is absolutely critical. I want to be clear, though--it 
takes something big to get a person who feels hopeless and has really 
let his health get out of control to take the step to change all that--
and often the catalyst is seeing someone who was exactly where he is 
now, who accomplished something extraordinary. Not average--
extraordinary.
    Again, we share in the Commission's desire to prevent unfair and 
deceptive advertising. My belief, however, which is shared by others in 
industry, is that there are more effective ways of addressing the 
problem identified by the Commission that would not have the same type 
of negative impact on legitimate offerings. The Commission has 
articulated a concern that, in some cases, a group of extraordinary 
testimonials accompanied by disclaimers will give an impression that 
the product works far better than any substantiation in the possession 
of the marketer. In such situations, the combination of large 
testimonials plus disclaimers can give an impression that is misleading 
to consumers. I agree that if any elements of an advertisement are 
deceptive, there should not be any ``safe harbor'' or special 
protection, but there is another alternative that may help address this 
problem. The Commission has, for many years, followed a well 
established so-called ``net impression'' rule in which they look at any 
advertisement, determine what it means to reasonable consumers, and 
then require substantiation of the claims that arise naturally from a 
commonplace interpretation of the advertisement.
    I believe this net impression rule is an appropriate standard that 
is widely understood in the advertising industry and already provides 
an effective solution to the Commission's concerns. If an advertiser is 
using testimonials (even with disclaimers) that give a misleading 
impression of what the product or service is capable of doing, the 
Commission can and should go after the marketer under existing law. The 
Commission already has the necessary legal authority and enforcement 
tools to address the concerns raised in the Commission's Notice.
    It is important that we protect consumers from bad actors--but I 
strongly believe that it is equally important that legitimate companies 
providing effective solutions to consumers are allowed to succeed 
without arbitrary or unfair constraints. I am concerned that the 
guidelines in their current proposed format could hurt good players, 
and I don't think that is the Commissioners' intent. Given the 
Commission's existing tools, and the substantial negative impact that 
the Commission's proposal would have on endorsements and testimonials 
that benefit consumers, I believe that the Commission can and should 
achieve its important goals without requiring a marketer to provide 
information on an anticipated average result which may actually mislead 
consumers as to what is really average given that their individual 
experiences, almost by definition, will rarely be average. The comments 
of the Electronic Retailing Association, which are attached to my 
testimony, discuss these issues in detail, and I commend those comments 
to the Subcommittee.
    In addition to the Commission's enforcement efforts, our industry 
is vigilantly monitoring and policing the marketplace through self-
regulatory programs such as the National Advertising Review Council's 
Electronic Retailing Self-Regulation Program and the Direct Marketing 
Association's testimonials and endorsements standards provided in the 
Guidelines for Ethical Business Practice.\1\ These self-regulatory 
programs provide the direct response industry with effective guidelines 
that require truthful and responsible advertising and provide the 
marketplace with meaningful mechanisms for evaluating accuracy of 
product claims that are communicated in national direct response 
advertising. In addition, many self-regulatory programs include 
enforcement mechanisms to bring about compliance and, if necessary, 
report violators to an appropriate government agency.
---------------------------------------------------------------------------
    \1\ See The Direct Marketing Association's Guidelines for Ethical 
Business Practice, Article 21, Testimonials and Endorsements, available 
at http://www.dmaresponsibility.org/Guidelines/.
---------------------------------------------------------------------------
    In my experience, industry self-regulation is the most effective 
way to address concerns that arise in an evolving marketplace, 
particularly for an industry that relies on emerging digital 
advertising channels such as the Internet, including tools such as 
blogs, message boards, social networks, and online video. These mediums 
are constantly and rapidly evolving in directions that bring new value 
to consumers. Industry self-regulation is effective because it is 
flexible and adaptable in a timely manner. Such programs can more 
efficiently evolve to address bad practices and target bad actors 
without unnecessarily restraining legitimate companies and online 
innovation. As with most other industries, the legitimate actors take 
extraordinary steps to maintain consumer confidence and their own 
legitimacy by constraining and eliminating the bad actors. I believe 
that industry self-regulation is the appropriate approach to addressing 
problems in the marketplace and encourage that any solution, whether 
formulated by this Subcommittee or the Federal Trade Commission, 
preserve a strong role and effective incentives for strong self-
regulatory programs.
    Thank you for this opportunity to present my views. I welcome your 
questions.

    Senator Pryor. Thank you.
    I want to thank all the panelists, again, for their 
testimony. We appreciate it.
    Mr. Vladeck, let me start with you, and just a quick 
clarification. You showed this video, which I thought was very 
helpful, but how does the FTC use that video?
    Mr. Vladeck. Well, it's, of course, available on our 
website. We've distributed this video to clinics, and to 
patient groups, and--as widely as we can to try to get this 
message out. We can't afford to buy airtime, so we distribute 
these kinds of videos to sympathetic organizations that might 
make use of it.
    Senator Pryor. Mr. Greenberg, let me ask you--you've heard, 
I think, the last three witnesses talk about self-regulation, 
and I'd like to get your thoughts on self-regulation versus FTC 
action--or, maybe I should put it a different way--another 
scenario would be self-regulation, ``and then'' FTC action. 
Give me--if you don't mind, give me your thoughts on self-
regulation and whether we need to beef up the Federal Trade 
Commission's abilities, or give them more resources, or whether 
they should do additional regs, or change their guides, or 
whatever.
    Ms. Greenberg. Senator, yes, I think self-regulation within 
an industry is extremely important, because it sets some 
parameters, for the honest and conscientious players within the 
industry, in how they communicate with consumers, and what 
kinds of rules of the road they set for members of the 
industry.
    Self-regulation clearly--and I think I heard both witnesses 
say it's important to have an FTC there for the outliers, for 
those within an industry that don't comply with the standards 
that are set by the members. So, it's important to have both. 
We always recommend, if there is no industry standard--I think, 
when we talked about prepaid calling cards, for example--very 
important that there be some set of guidelines for members of 
the industry, but it's also important to have the FTC to look 
at--certain industries don't have any of those standards; they 
need the FTC. And the FTC needs to be there for those who don't 
comply with a basic set of self-regulatory standards, as well.
    Senator Pryor. Dr. Rangan, do you have anything to add to 
that?
    Dr. Rangan. We also agree with that. The landscape for 
advertising, especially green marketing, is always evolving, 
and it--there are always new and innovate claims being made. 
So, certainly, self-regulation plays an important role in that 
landscape. Yet, we see that there--the bottom has sort of 
fallen out, and that there needs to be some level, baseline, 
playing rules that everyone has to play with, so that we can 
reduce this sort of green noise, or just noise, in the 
advertising marketplace.
    Senator Pryor. Mr. Vladeck, do you have any comments on 
that?
    Mr. Vladeck. Well, self-regulation serves a very important 
function, and we're very supportive of the process, but it's no 
substitute for a fully staffed, able, and capable Federal Trade 
Commission. Sometimes--as able as my friend Lee Peeler is, 
sometimes we disagree, and sometimes disputes are not submitted 
to NAD. So, while we think self-regulation plays an important 
role, it's certainly not--it's not sufficient. It's necessary, 
but it's not sufficient.
    Senator Pryor. And let me ask, from the FTC's perspective 
with the industry, do you have a cooperative relationship with 
the industry when it comes to self-regulation? And, is there 
communication back and forth that the industry comes forward 
with, about bad actors in the industry?
    Mr. Vladeck. Oh, yes. And one of the--you know, and one 
role that self-regulation serves is really helping us to look 
at a very, very crowded playing field and identify the bad 
actors in it. And so, yes, that is an important role self-
regulation plays.
    Mr. Peeler. Senator Pryor, can I just add----
    Senator Pryor. Sure.
    Mr. Peeler.--you know, the other important thing that self-
--two important things that self-regulation adds to this mix 
is, we deal with about--we issue about 200 decisions every 
year. And that's 200 things that the FTC doesn't have to deal 
with. And we have excellent communications with the FTC, so 
their backing is one of the reasons why our decisions are 
followed.
    The other thing is that we deal with--often deal with 
claims that have a competitive impact--superiority claims and 
things like that--that aren't going to be very high on the 
FTC's enforcement criteria, because they don't involve health 
or safety, or direct monetary losses, but are very, very 
important to maintaining the integrity of advertising and the 
level playing field in the advertising area. So, those are two 
ways that we supplement this, sort of, comprehensive system of 
advertising regulation that's out there.
    Senator Pryor. Thank you.
    Senator Wicker?
    Senator Wicker. Well, thank you very much for very thought-
provoking testimony. I appreciate all six of you.
    Mr. Vladeck, Mr. Congdon talks about a specific instance, 
here: Dallas Carter saw an advertisement with Earl Broffman in 
it, where he lost an enormous amount of weight. Earl Broffman 
was inspired to lose this amount of weight by seeing yet 
another ad, from Aaron Mathis, who lost 110 pounds. The 
advertisements were testimonials. It's been suggested that if 
you require these advertisements to do an average result, the 
company's going to have to do a great amount of background 
testing there.
    Do you propose that the FTC look into the scientific basis 
for these tests? Is the FTC going to be deciding whether the 
test itself was loaded, whether there was a flaw in the 
methodology, and that sort of thing?
    And what's wrong with this type of advertisement that 
inspired Mr. Carter and Mr. Broffman to change their life and 
decide not to be morbidly obese?
    And what do you think about the idea in Mr. Congdon's 
testimony that, rather than a safe harbor, or special 
protection, based on the disclaimer, we sort of look at the net 
impression? What would a sensible person think viewing--a 
reasonable consumer think, based on a commonplace 
interpretation of these advertisement?
    I'll start with Mr. Vladeck, but actually, I'll let anybody 
jump in.
    Mr. Vladeck. OK, Senator, you've asked a simple question 
that deserves a simple answer, so let me start with the simple 
answer and then explain it. The simple answer is that--the test 
you've just articulated, ``What would a reasonable consumer 
take away from the ad?'' That's the test that we're proposing. 
But, let me explain how we get there, because this is 
important.
    The safe-harbor provision in the guides has become an 
openhanded invitation to sellers to make inflated claims about 
a product performance that would otherwise be forbidden because 
they couldn't be substantiated. What we're trying to do is 
simply level the playing field to make it fair, both to the 
legitimate business guys, and take away an advantage that we've 
given--inadvertently--given to sellers who are willing to bend 
the truth or to make misleading or deceptive claims, or 
unsubstantiated claims.
    Let me just give you an example. And I'll come to Mr. 
Congdon's example in a minute. But, there have been lots of ads 
that say, for example, ``Take this product. It will lower''--
and they have a person up there who's taken the product, and 
the claim is, it's reduced their cholesterol level by 100 
points. Now, the company knows, or the company has reason to 
believe, that, for most consumers, the cholesterol reduction 
would be a small fraction of that. And the claim is then 
accompanied by a tiny little fleeting disclaimer, on the bottom 
of the TV set, that says, ``This may not be typical,'' or 
``Results may vary.''
    We're trying to get at that claim and make sure that those 
claims are not run anymore, because they're deceptive. Both our 
enforcement efforts and our empirical studies show that most 
consumers believe, or many consumers believe, rightly or 
wrongly, that they're going to be one of the lucky few and get 
that enormous reduction.
    But, what Mr. Congdon is determining--describing--is not an 
ad that makes a typicality claim. The claim that he's talking 
about makes, essentially, a uniqueness claim, that, ``Here's 
someone who undertook a heroic effort and achieved a terrific 
result.'' And if one parses our Federal Register notice--and I 
realize that this is a daunting task for anyone to do--but, if 
you look at page 72392 of the----
    [Laughter.]
    Mr. Vladeck.--November 28 Federal Register notice, 
virtually the identical ad Mr. Congdon is worried about is 
given, in an example--in our examples of how the guide would be 
applied. And we say that, when an ad is not claiming 
typicality, there's no need for the kind of disclosures that 
were talking about. It's ads--and these are the vast bulk of 
them--that make a claim--that either say overtly, or imply, 
that the results are typical.
    Senator Wicker. So, there's nothing wrong with the ad Mr. 
Congdon described, that inspired Mr. Carter?
    Mr. Vladeck. In fact, that ad--yes, I agree with you, and I 
would say that that ad is almost identical to the example--it's 
example 4 on the Federal Register page I gave you. And I'll be 
glad to provide the example to staff.
    [The information referred to follows:]

Federal Register / Vol. 73, No. 230/Friday, November 28, 2008 / 
        Proposed Rules / pp. 72392-93

    Example 4: An advertisement for a weight-loss product features a 
formerly obese woman. She says in the ad, ``Every day, I drank 2 
WeightAway shakes, only ate raw vegetables, and exercised vigorously 
for 6 hours at the gym. By the end of 6 months, I had gone from 250 
pounds to 140 pounds.'' The advertisement accurately describes the 
woman's experience, and such a result is within the range that would be 
generally experienced by an extremely overweight individual who 
consumed WeightAway shakes, only ate raw vegetables, and exercised as 
the endorser did. Because the endorser clearly describes the limited 
and truly exceptional circumstances under which she achieved her 
results, the ad does not convey that consumers who weigh substantially 
less or use WeightAway under less extreme circumstances should 
generally expect to lose something in the vicinity of 110 pounds in 6 
months. The advertiser must have substantiation, however, for any 
performance claims conveyed by the endorsement (e.g., that WeightAway 
is an effective weight loss product).
    If, in the alternative, the advertisement simply says that the 
endorser lost 110 pounds in 6 months using WeightAway together with 
diet and exercise, the advertisement would likely convey that her 
results were representative of what consumers can generally expect to 
lose with WeightAway.

    Senator Wicker. So, Mr. Congdon, are you attacking a 
``straw man''--doesn't exist?
    Mr. Congdon. I hope not. My concern----
    [Laughter.]
    Mr. Congdon.--is relative to--again, I love what he's 
saying, because I think it is important to be able to show 
something extraordinary, as long as people understand that it's 
extraordinary, that can inspire somebody to change their life. 
But, I also am concerned with the underlying use--or of having 
to say--perhaps having to say--and correct me if I'm wrong, 
under that--that I also need to disclose what the average 
weight loss is while using that product.
    Mr. Vladeck. So, may I follow up?
    Senator Wicker. Sure, because that's part of my question, 
also.
    Mr. Vladeck. Yes. So, if the claim were framed in a way to 
suggest that the weight loss this individual achieved was 
somehow typical, then you'd be required to make that 
disclaimer. But, if you're making the claim that this was an--
this--it took extraordinary effort on his part----
    Voice. Right.
    Mr. Vladeck.--then we do not require that disclosure. And 
the bottom line is, I think, the bottom line you articulated, 
which is, What would a reasonable consumer take away from the 
ad? What we're worried about is the 99 percent of these ads 
that imply, or overtly state, typicality. That is the problem. 
Because they pick out the one outlier, the one person who had 
remarkable success, and depict that person as the typical 
consumer. And those are the ads that are subject to the safe 
harbor now, and those are the ads we want off the air.
    Senator Wicker. Well, just one other thing, and then 
Senator Klobuchar probably wants to dive in here.
    Are you going to be giving scientific evaluations of 
testing methodology if we go down this road? How far behind the 
average-result claim are you going to look?
    Mr. Vladeck. Senator, we already look to see whether ads 
that make health claims are substantiated. And so, if--let me 
take my cholesterol-reducing example. There are lots of these 
claims on the market. If a product markets--is marketed that it 
reduces cholesterol, we want the company that's making that 
claim to have adequate substantiation for that claim. But, 
there's nothing in these enforcement guidelines that would 
change our substantiation standards.
    And please remember, these are guides. If we bring an 
enforcement action, the guides have nothing to do with the 
case. We have to prove, as we would have to prove in any other 
case, that the claim was unfair or deceptive, because it was 
unsubstantiated.
    Senator Wicker. Mr. Congdon may want to briefly respond, 
and then----
    Mr. Congdon. Yes.
    Senator Wicker.--I intruded too much----
    Mr. Congdon. First, if I'm not mistaken, it also says that, 
even if it's not typical, I'm going to need to issue a 6-line--
about a 6-line disclosure of everything that they ate, and how 
they exercised, in detail, so somebody understands what 
happened, which I'm not sure is going to be very carefully 
read, based on other findings that we've got.
    Beyond that, though, it's difficult to understand when--and 
one of my problems with the guidelines, as written, is it's not 
necessarily clear when they are going to perceive that we are 
being typical and when they are going to perceive that we're 
not being typical, unless we disclose that.
    So, once again, we come down to whether or not we're going 
to need to provide an average, which is, in my opinion--
especially for weight-loss products, when people are putting in 
different levels of effort, and may be different ages, or a 
different gender--that it's going to be impossible to determine 
what the average is--literally impossible--even if we had 
endless dollars to conduct the studies.
    So, I'm concerned with what typicality is going to mean, 
I'm concerned with whether or not we're still going to be held 
to an average, and I'm concerned, beyond what the FTC might 
perceive on this--because there are unintended consequences, 
which we've dealt with before, relative to the red flags on 
weight loss that you talked about earlier today--and that is 
that, sometimes, broadcasters will interpret something one way, 
and feel that they need to take action, so they're not liable 
for being a participant, or an unwitting participant, in 
defrauding a consumer.
    The example that I've got, which actually affected my 
company, was a few years ago, when the red flags came out, 
which were based on supplements that were taken, and weight 
loss rules, where it was--one of the red flags was, when you 
see somebody claiming that somebody could lose more than 2 
pounds per week, that that is a red flag. At the same time, we 
were advertising a program, where people were losing at least 3 
pounds a week, in some cases. But, that was through diet, 
exercise, and taking the supplements that we were providing, 
but mostly through diet and exercise. We had a broadcaster who 
saw that we had testimonials that had lost more than 2 pounds 
per week, and they said, ``You know what? We're not going to 
air your testimonials, because there's a red flag in there.'' 
They didn't understand that it was only related to supplements 
and--and, in my opinion, the FTC hadn't properly disclosed what 
the guidelines were about, and so, we were harmed in the 
marketplace, as a result of that.
    So, I'm, again, concerned, not just with what we're talking 
about here, but with how others might interpret it and react in 
the marketplace, which could affect our ability to market our 
product.
    Senator Pryor. Thank you.
    Senator Klobuchar?

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you very much to all the 
panelists. I'm going to stray away a little from weight loss. 
It's making me feel guilty.
    [Laughter.]
    Senator Klobuchar. And I thought I'd talk a little bit 
about the marketing of green products. I'm a member of the 
Environment and Public Works Committee, and have been closely 
monitoring the work that the FTC is doing in this area. And I 
understand, Mr. Vladeck, that the FTC is currently reviewing 
its guides regarding environmental standards for marketing.
    And in your testimony, you also reference that the FTC is 
conducting its own research to determine consumer perceptions 
of green claims. And I've always wondered what these--when 
things say they're ``eco-friendly,'' ``biodegradable''--and I 
know you're working on this, as well, Dr. Rangan--
``recyclable,'' ``ozone-safe,'' ``sustainable''--and I'm just 
wondering--and I've heard from people that are just producing 
products, and then they get mad because someone else is 
claiming that their products are green, when, in fact, someone 
is doing the same thing as that other company, but they 
wouldn't claim that they're green.
    So, could you just give me an update on what is the 
potential standardization of terms, what direction is this 
going? And I'd also like to hear from you, Dr. Rangan.
    You want to start, Mr. Vladeck?
    Mr. Vladeck. Well, thank you for the question. We are in 
the midst of updating and revising our green claims. We're 
about to take a very large consumer survey. In order to do 
that, we needed clearance, under the Paperwork Reduction Act 
from OMB, which we have finally obtained. So the survey ought 
to begin, this summer. We ought to have the results by fall. 
And we're hoping to at least put out our proposed revisions, 
maybe by the end of this year.
    Our problem, of course, is, until we have a baseline of 
what it is consumers think when they hear these terms, it's 
more difficult for us to bring enforcement cases. We've brought 
some--recently we brought a spate of enforcement cases on 
claims of biodegradability, when we could prove that the 
products would not, in fact, degrade. But, what we're hoping to 
do is use the consumer survey to get a baseline about what is--
to the extent there is any shared understanding--about what 
consumers understand these terms to mean, and that will inform 
both the way we write our green guides, and will help inform 
our enforcement policy.
    Senator Klobuchar. Doctor? Thank you.
    Dr. Rangan. Thank you, Senator.
    We think that there are a host of vague and misleading 
claims out there. And the original green guides went a long way 
to highlighting some of those examples, like ``environmentally 
friendly,'' ``Earth-safe.'' And if you take a look at the old 
green marketing guides, you'll find a number of those terms 
that were identified in there actually didn't get onto the 
marketplace in a pervasive way, and so, those guides were 
useful.
    The problem is that we have so much more vague and 
misleading terminology out there, and we need the FTC to 
provide guidance around those. And common claims, like 
``natural,'' which are really muddying up the green marketplace 
because there is so little definition behind what that has to 
mean, really needs either guidance, or it should just be 
prohibited to be used. You can find ``natural'' products today 
that contain synthetic and petroleum-derived ingredients, you 
can find them with potentially harmful ingredients, you can 
find them with partially hydrogenated oils, high fructose corn 
syrup. So, you can find lots of ingredients, in those types of 
products that are labeled as ``natural,'' that no consumer 
would think that they're getting in a product labeled as 
``natural.''
    Another important aspect that we gave in our oral testimony 
is the fact that you need full disclosure. So, you need full 
ingredient disclosure on cleaners. We need to have plastic 
numbers be mandatory, so that consumers know what plastics 
they're getting. These things are not the case, at this time; 
and without the kind of transparency in the marketplace, it 
really makes it very, very difficult for consumers to 
understand what it's all about.
    And just a final note, in many of the green surveys that 
have been done out there already, consumers who are looking to 
green claims are looking to them for health reasons, in the 
majority of cases; and so, that's an important aspect to also 
note.
    Senator Klobuchar. OK. Yes?
    Mr. Peeler. Senator, I'm from the advertising industry's 
self-regulatory program, and I just----
    Senator Klobuchar. Great.
    Mr. Peeler.--wanted to add a couple thoughts.
    First off, you know, further definition in the guides by 
the FTC would be really valuable. And the way that they're 
going about it is exactly the right way to go about it.
    In the interim, we actually are handling a number of green 
cases, and competitors who see claims----
    Senator Klobuchar. What I'm talking about.
    Mr. Peeler.--that they say, ``You know, my counsel won't 
let me make this''--there's actually a process for them to come 
to us, and we will adjudicate those claims, as best we can, 
given the information we have now, and issue a decision. And 
we've actually gotten very good support and coverage in 
Consumer Reports for some of the claims.
    We had exactly--we've had cases with exactly the issue that 
you were speaking about, a claim that a product's natural, when 
it contains synthetic ingredients. And we actually have a body 
of precedent we've built up, over about 5 or 10 years, on the 
issue of ``natural.''
    So, again, it's something that can be done right now, while 
the FTC's moving forward with its process.
    Senator Klobuchar. Very good. It seems like there's some 
agreement that we need some better guidelines here. Because I 
think it's really confusing, as consumers are trying to do the 
right thing and be part of this--you know, the new energy and--
green world--that it's getting very difficult for them. So, I 
appreciate that.
    One last question, if I could, Mr. Chairman, a brief one, 
just for you, Mr. Vladeck. The challenges that you see with 
this--the new media. I noticed, in the summaries of some of the 
issues, that there are issues of bloggers getting paid, and 
things like that--and just, the challenges you see, and how 
you're shifting your enforcement activities at the FTC in 
response to that.
    Mr. Vladeck. Well, as I mentioned earlier, the 
proliferation of new technologies give marketers new tools to 
market their products. Our proposed revision to our endorsement 
guides do focus, in part, on social marketing techniques, and 
we have proposed to require bloggers who are taking some form 
of compensation from a sponsor to disclose that fact as part of 
their promotion of a product. We've got----
    Senator Klobuchar. I hope they do that in politics, too.
    [Laughter.]
    Senator Klobuchar. I'm kidding.
    Mr. Vladeck. I'm not going to touch that third rail----
    [Laughter.]
    Mr. Vladeck. But, that is--that has sparked some 
controversy. We believe that it's the right thing to do, and 
we're exploring all sorts of comments.
    I would say that the one self-regulatory group that's 
already grown up among the blogging community very much 
supports our position on this.
    Senator Klobuchar. OK, that's excellent.
    Thank you very much. Appreciate all of you.
    Senator Pryor. Thank you, Senator Klobuchar.
    Senator Wicker?
    Senator Wicker. Thank you, Mr. Chairman. You've been most 
generous.
    What I want to do is let the other four panel members jump 
into the exchange between Mr. Congdon and Mr. Vladeck. And I'll 
set the stage by reading from Mr. Congdon's prepared testimony, 
``Companies that strive to comply with the Commission's 
requirements, as we do, will find it extremely challenging to 
satisfy the proposed guidelines. The cost of conducting 
detailed, valid studies will be prohibitive, keeping many new 
companies out of the marketplace.''
    With that, who'd like to jump into this discussion?
    Mr. Renker. I'd be happy to, Senator Wicker.
    Senator Wicker. Mr. Renker?
    Mr. Renker. But, I'll come at it from a contrarian point of 
view, relative to cost. The size and scope of our company, with 
the amount lawyers that we have and the dozens of MBAs that we 
have working for us, would enable us to meet some of these 
average requirements on certain of our products. Yes, it would 
be costly; but, yes, we could do it. I think that's unfair to a 
small business, and I think it's unfair to innovation.
    Second, this problem, relative to averages, is one that--it 
crosses many different kinds of product categories, not just 
weight loss. For example, my partner and I started our business 
because we shared a mutual interest in motivational tapes, and 
so, we created a motivational series of tapes called ``Personal 
Power,'' with Anthony Robbins, 20 years ago. And those products 
are still on the air. It's the best-selling motivational tape 
series of all time. But, that product is about goal setting and 
trying to realize your dreams by taking action, and that may be 
in weight loss, that may be in relationship improvement, it may 
be in starting a business of your own. It's impossible to 
determine what the average result is of the people that have 
purchased that product.
    We have the same circumstance with Proactiv, our acne 
treatment system, for which we have many resources to try to 
seek what the average might be. However, because acne can be 
genetically--excuse me--predisposed, and it may have cultural 
differences, it has differences based on age, gender, et 
cetera--that the compliance of our product changes from person 
to person. Acne itself can be random and, in effect, customizes 
per individual. And even though we have several million 
customers, currently--as current customers--it is nearly 
impossible to determine what the average result is of the use 
of that product.
    So, the issue for us really is, as it relates to the 
current FTC guides, we support them and want to see them 
enforced. As it relates to the disclaimers, we would like to 
see them become more conspicuous, unambiguous, ubiquitous, 
larger, more important, more prevalent, or, absent that, we 
fully support net impression, because that's, ideally, the 
business that we're in.
    We can substantiate the claims that we make. We back them 
up. We under-promise and over-deliver. That's why we are 
successful marketers. And again, we support pursuing those that 
do not.
    Senator Wicker. Anyone else?
    Ms. Greenberg?
    Ms. Greenberg. Yes, certainly the story with Mr. Broffman 
is a compelling and a--it, you know, pulls at your heartstrings 
that somebody was able to--with a series of motivational 
relationships, was able to lose all that weight.
    I guess the thing that I keep wondering is, What happened 
to the other customers, the many, many other customers, to whom 
this product was sold? Where do they fall in the average weight 
loss? And I--and that's the information that we don't have, I 
think, from Mr. Congdon. So, I'd be interested in knowing that.
    The second point I'd like to make is, that it's really 
difficult for me to understand, as a consumer advocate, how 
anyone could argue against a company being required to post 
average results. Average results really tells the consumer what 
the likelihood is of their having success with this particular 
product. Somebody who's lost 120 pounds, I would venture to 
guess, with this particular product they're selling, is not 
their average customer. And it seems to me that if a company is 
selling millions of dollars worth of products to customers, the 
least they could do is tell their clients, their customers, 
what their likelihood is, pro or con, and where the average 
falls. I understand that there may be some costs involved, but 
it seems to me an incredibly sensible way to approach this 
issue.
    Senator Wicker. Anyone else?
    Mr. Vladeck. Well, I'm----
    Dr. Rangan. What----
    Mr. Vladeck. Oh, sorry.
    Dr. Rangan. Sorry.
    Senator Wicker. Well, Dr. Rangan, I guess we'll let you go 
first and then----
    Dr. Rangan. OK, thank you. I'll be brief, Senator.
    In any case, even in the green sphere, it's hard for a 
consumer to tell what kind of impact that product has in a real 
reference frame, and so average numbers do give that consumer 
some sort of reference frame, so that they can decide how they 
want to do that, whether they're willing to spend more. Without 
that, it does become a bit of a sensational, extraordinary 
pitch, but there is no reference frame for the consumer to put 
that pitch into. And that's what averages will help them get 
to.
    Senator Wicker. Yes, sir?
    Mr. Vladeck. Could I make one quick point?
    Senator Wicker. Yes.
    Mr. Vladeck. Let's clear up the confusion, here. That is, 
for advertisers to make claims generally, they need 
substantiation. So, if they're claiming a product is a weight-
loss product, they'd better have something, a study or other 
support, that shows that. And generally, that substantiation 
will tell you pretty much what one can reasonably expect, which 
is what were asking, for ads that make typicality claims.
    The other point, which needs to be underscored, is, assume 
it is too expensive or difficult to acquire some sense of what 
the typical consumer is likely to achieve, in terms of their 
results. Our provision, our proposal, would still permit a 
disclaimer, provided that it was clear--I forget the language 
that one of my colleagues used, but provided that it was 
clear--easy to read, and clear about the fact that the 
achievement of this particular endorser or testimonial was not 
typical of the result.
    So, I'm not sure there's that much disagreement with us. If 
they don't have, and cannot get, substantiation, then the key 
out of that dilemma is simply to make a clear, ubiquitous, 
unequivocal statement that the results are not standard.
    Senator Wicker. Thank you.
    Mr. Congdon. If I could just elaborate for a moment.
    I think that, where it's relevant--certainly nobody is 
saying that an average, where relevant, wouldn't be useful to a 
consumer. For instance, with a light bulb, if I know that 
your--that the average life of a light bulb is 5,000 hours, I'm 
certainly, as an advertiser, not going to be asking that I hold 
up the one light bulb that lasted 30,000 hours and not talk 
about the average use of a light bulb, therefore expecting that 
people were going to buy the light bulbs, thinking that their 
light bulbs are also going to last 30,000 hours.
    But, when it comes to weight loss, it's in a very 
individual and personal thing. What might be the average--and 
I'll try to clarify. What it means is, because I show a woman, 
who's 30 years old, who lost 40 pounds, that does not 
necessarily mean that that is average. But, it might be average 
for women who had 40 pounds to lose when they started the 
program. That is not relevant to a 22-year-old guy who's been 
an athlete all his life, and, while he was in college, and 
because he was drinking a bunch of beer and eating pizza, 
happened to gain 10 pounds, and now wants to get back in shape. 
What's the average weight loss for that person? Well, if he 
uses the program effectively for a reasonable period of time, 
the average weight loss might be 10 pounds. But, do I have to 
take into account the people who buy the product and then 
decide not to use it? Is that--do I have to equate that into 
the average?
    Or--for instance, our extreme workout program, P90X--when I 
did that program I actually gained 15 pounds. I was 
underweight, because I wasn't working out enough, and I packed 
on muscle and gained 15 pounds. In fact, many of our customers 
who use P90X gain weight. Do I have to average in the people 
who gained weight using P90X into the overall average of people 
who use P90X?
    So, I'm not trying to skirt an issue or get around 
anything. It is that weight loss, or getting fit, is actually a 
very personal thing. With some of our programs, your body 
literally goes where it's supposed to go by using the program.
    If I had a way that I could show an average, then I would 
absolutely do it, because I think the consumer would find that 
very useful. I'm just saying that, if I'm showing a testimonial 
that's extraordinary, I can inspire people who are like that to 
change their lives and lose a lot of weight. I also show 
testimonials who lose only 20 pounds, because I must appeal to 
somebody who has 20 pounds to lose, and get them to buy that 
product, as well, or at least give them the tools that they 
need to decide whether or not they should buy the program.
    Senator Wicker. Thank you.
    Senator Pryor. Thank you.
    I have a follow-up, if I can, for Mr. Peeler, and that is--
Senator Klobuchar alluded to this a few moments ago--about 
bloggers being paid. Are you familiar with that issue? And how 
deceptive is that practice?
    Mr. Peeler. You know, we are familiar with that issue. And, 
as I said, there are a number of varieties of that, including 
paying employees to post reviews on websites. And there have 
been a couple of cases by the State AGs, just in the last 2 
weeks, where they've discovered that process.
    If you--you know, advertising law is pretty clear, that if 
you're paying somebody to promote your product, that's a 
material disclosure, and you need to disclose it. I think what 
the FTC and the blogging community are struggling with in 
connection with that debate is exactly what would constitute 
compensation in that area.
    Senator Pryor. OK.
    And, Ms. Greenberg, let me ask you about--you know, we've 
talked a lot about averages and net impressions, et cetera. 
From your perspective--and if you have data on this, let me 
know--but, from your perspective, how effective are 
disclaimers? I know you get into issues about super-small type, 
and really fast disclaimers on television, and things like 
that. How effective are disclaimers? I mean, do consumers 
actually pick up on those, and read those, and factor that in, 
or not?
    Ms. Greenberg. Well, it depends on the context in which 
we're talking. If we're talking about a blog, the--a blog that 
says, ``We were given samples of this product by the company, 
and we're testing them, and, you know, we found the following 
things to be positive about the product,'' that's a--I think, a 
fairly effective disclaimer.
    The problem comes, of course, when you have these fleeting, 
tiny-print disclaimers. We've talked about this with pre-paid 
calling cards, where there's a tiny little disclaimer on the 
bottom, about--that the fees may not--or, ``The minutes you're 
getting may not be what we promised you,'' for a variety of 
reasons. If it's--you know, if it's easy--easily read, easily 
seen, if it's part of a commercial, if it's part of a blog, 
that's a disclaimer that can be fairly effective. Mostly what 
were seeing in this context, and with the work the FTC is 
doing, the disclaimers on a lot of these ads are not are not 
getting through to consumers. And I think the FTC's research 
shows that the consumers that they polled and talked to believe 
that they, too, could lose 110 pounds, if they need to lose 110 
pounds. So, I think we're talking about--we've got to do a much 
better job of getting information out, much more effective 
information out, to consumers.
    Senator Pryor. Senator--oh, excuse me.
    Senator McCaskill?

              STATEMENT OF HON. CLAIRE McCASKILL, 
                   U.S. SENATOR FROM MISSOURI

    Senator McCaskill. It's OK. I'll be mistaken for Amy, any 
day.
    [Laughter.]
    Senator McCaskill. I'm really concerned about an area of 
advertising that I don't think we've talked about yet today. 
And when I first saw it, it just infuriated me. And that is--
you know, our news folks have enough problem with credibility, 
right now, without fake news being aired. And this notion that 
we have people--and sometimes even the news anchors from the 
stations--being paid to pretend like it's a newscast. I mean, 
with the ticker running underneath, you know.
    And particularly as we look at these stimulus scam ads, 
which--we had a huge article in the Kansas City paper this 
morning about a firm in Oberlin Park Kansas that was, you know, 
selling--you know, ``We will get you $25,000 in stimulus 
money.'' These fake newscasts are unconscionable, just 
unconscionable, and I don't get--I mean, I've got some numbers, 
here, of the numbers of them and--but, it's old data, from 
2006.
    And I think everyone, because of the nature of our election 
last year, was more attuned to the news than perhaps they have 
been in my adult life, just because everyone was so interested. 
It was a very interesting campaign. And on the heels of that 
kind of ratings that news channels got, to begin to use these 
ads, pretending like this is a newscast, I am amazed that the 
journalists have not kicked and screamed about this. Maybe it's 
because they're all worried about their jobs right now, in this 
downturn, and they don't think it's the thing to do.
    But, I would ask--I know the FCC has taken limited action 
against Comcast in this area--I would like to ask the FTC, Does 
the current law give you enough recourse to take actions on 
these fake newscasts? Isn't there a way that we can say, ``You 
can't do that. You can't pretend like you're broadcasting news, 
when it's a paid advertisement''? That doesn't seem 
unreasonable to me.
    Mr. Vladeck. We can, and we do. If you look at the 
Commission's testimony, at page 4, we talk about a case--it's 
this case that we filed in 2004 against dietary supplement 
manufacturers that were claiming that their supplements could 
prevent cancer, cure arthritis, and things like that. One of 
the claims against the company was that they failed to disclose 
that they promoted these products through a paid commercial 
that looked like a independent television program. And, you 
know, we target products, based on the risks they pose to the 
public, in terms of public health issues and economic loss.
    Where we see an infomercial like this masquerading as real 
news, we will add a charge. But, in our view, given our 
enforcement priorities, the principal actor here has to be the 
FTC--the FCC. We do not have the resources to go, one by one, 
against all of these fake newscasts. So, we look for these----
    Senator McCaskill. Can't you, at a minimum--you know, like, 
I'm pretty good at yelling at people.
    [Laughter.]
    Senator McCaskill. I mean, can't you, at a minimum, every 
time you all see one of those ads, can't you send the 
production company, you know, ``What you're doing could be 
actionable, and it could cost you a lot of''--I mean, why can't 
you do to them what is real, what they do to everyone else, 
which is fake?
    Mr. Vladeck. Well----
    Senator McCaskill. You know, they----
    [Laughter.]
    Senator McCaskill.--they pretend to the world that--you 
know, I mean--with all due respect--and I haven't been here for 
your testimony, Mr. Congdon; I assume you sell some kind of 
weight-loss product or--you know, with all due respect, I mean, 
I would--you know, in my life, I wish I had a dollar for every 
diet I've been on and every weight-loss attempt I've made. And 
I get why everybody wants to believe something that isn't going 
to be true. There's just really one old-fashioned way to do it; 
it's called ``put less in your mouth and move your body more.''
    You know, but they--they do all this, that ``It's a 
miracle,'' and, ``If you do this, wonderful things will 
happen.'' Why can't we, at a minimum, send out a letter, 
saying, ``Hey, what are you doing?'' You know, ``You're 
pretending you're a newscast, and you're not, and it could be 
actionable, and we could come after you''? I don't think 
these--the production companies have even heard a whiff of a 
problem. When the Comcast action was taken, it wasn't even 
against the production companies; it was against Comcast.
    Anybody?
    Mr. Renker. Well, if I might----
    Senator McCaskill. Consumer Union?
    Mr. Renker. If I might, Senator, speaking on behalf of the 
industry--and I'm--I hope Mr. Peeler has a comment--as I 
mentioned earlier, before you came in, I testified on this very 
topic 19 years ago. And what you're describing is deceptive and 
wrong. And if we see it on television, we try to stop it.
    Senator McCaskill. Well, it's not hard to find it right 
now. It's everywhere.
    Mr. Renker. I agree. And it is harmful to our industry, it 
is harmful to consumers, and we are 100 percent against it.
    Senator McCaskill. Well, I hope that you all get 
aggressive, because I will follow up with the FCC in--because--
but, we have jurisdiction in this committee, too. It's bad 
enough that people are turning on the evening news and don't 
believe what people are saying. And all this is doing is adding 
to the problem.
    Mr. Peeler. Senator, could I add one----
    Senator McCaskill. We need to rely on our news.
    Mr. Peeler.--could I add one complexity to this discussion?
    As Mr. Renker said, 20 years ago there was a real pervasive 
issue with television ads that looked like they were news 
castings. And thanks to the support of the ERA, I think we've 
made a lot of progress there. We're still seeing some cases--in 
fact, I looked back, we've had three in the last year, of 
advertisements that were taking editorial format.
    The specific issue, though, that I think you're raising has 
one additional complexity, which is, if it's basically a news 
release done in video form that a broadcaster decides that 
they're going to run, and the company that put out either the 
video or paper news release is not making that decision, 
there's actually an issue for us, as a self-regulatory body--
and there certainly would be an issue for the government--as to 
whether or not they could go in and--they can certainly, as the 
FCC has done, tell the broadcaster that they've got to disclose 
the connection, but I think there would be an issue about 
whether they could actually go and second-guess the judgment of 
the news program.
    Assuming there's not a direct payment. If it's a direct 
payment to the television station for running the VNR, then 
that's just advertising, and that's exactly what the industry 
and the self-regulatory system and the FTC have been working to 
clean up for years.
    Senator McCaskill. Yes, well, I'm talking about when 
somebody pays the station to run an ad, and pretends like it's 
a news with the little clip running below, with today's news on 
it. I mean, give me a break. I mean, it is deceptive, on its 
face. Give me that case in front of a jury, and I'll do it pro 
bono, and I'll get the result that we all know would happen if 
a jury looked at it. This is not complicated. It's common 
sense. And I hope you all take that seriously, because I think 
it's really a problem.
    Can I ask one brief other question?
    I asked the FTC, last year, to look into the Craftmatic 
beds. There was a unbelievable effort--sales effort. Then we 
added some undercover folks that went into a sales training--
and how you got seniors to buy Craftmatic beds, and some 
egregious circumstances of seniors, where the salesman shows up 
at their front door, and gets in the door, and takes advantage. 
In fact, these people were trained how to identify seniors to 
take advantage of, and to make sure you close the sale before 
they have a chance to call anyone, and make sure they close the 
sale when no other family members are around really bad. And 
I'm just curious, has there been any follow-up done on the 
Craftmatic scam?
    Mr. Vladeck. I assume there has been, but I can't answer 
that question. I'll have to get back to you. I just--I don't 
know the answer to that question.
    Senator McCaskill. OK. Well----
    Mr. Vladeck. We will get back to you promptly, I promise.
    Senator McCaskill. OK. And I know that it's hard, coming to 
these hearings, and everything that gets covered, but--just a 
piece of advice, Mr. Vladeck, if you check your files for scams 
that Senators have written about, that are on the Committee, 
they're probably going to ask about them at the hearing.
    [Laughter.]
    Mr. Vladeck. I will make sure this doesn't happen again.
    Senator McCaskill. OK, thank you.
    Mr. Vladeck. Thank you very much, Senator.
    Senator McCaskill. Thank you, thank you, Mr. Chairman.
    Ms. Greenberg. Senator, I just wanted to--Senator 
McCaskill, if I could just note that, on the VNRs, we couldn't 
agree with you more. It's an outrage that broadcasters would 
get paid to advertise something that looks like a--real news.
    And what we'd like to see is a disclosure running, for the 
entire segment of the VNR. And I think consumers would be 
really shocked to see that.
    Senator McCaskill. How about over the faces of----
    [Laughter.]
    Senator McCaskill.--the pretend newspeople who are 
delivering that? I think, right over their mouths.
    Ms. Greenberg. Can't argue with that.
    Senator McCaskill. Yes.
    Ms. Greenberg. Yes.
    Senator McCaskill. OK.
    Ms. Greenberg. OK, thank you.
    Senator McCaskill. Thank you, Mr. Chairman.
    Senator Pryor. Thank you.
    Let me ask just a very few follow-ups. And you all have 
been patient, and very helpful and informative to the 
Subcommittee today, and we really appreciate it.
    Mr. Vladeck, let me start with you. And does the Commission 
have research--or, do you have data that tells the Commission, 
and tells all of us, whether consumers can effectively 
distinguish between, say, testimonial advertising that is 
containing, truthful and substantiated information, versus that 
type of advertising containing, the false and unsubstantiated 
claims? Do you have any data showing where the line is and when 
the consumers buy into it or not?
    Mr. Vladeck. Well, the data that we have on the 
testimonials shows that consumers do not understand, when there 
is a disclaimer about typicality, that that disclaimer means 
that they won't achieve what the person rendering the 
testimonial does. And that's part of the impetus about why we 
want to change our guides. That is, these disclaimers about 
``not typical performance'' are ineffective. They may be 
ineffective for a variety of reasons, but they are ineffective.
    With respect to whether consumers believe ads, there are--
you know, there are now 40- to 50,000 dietary supplement 
products that are being advertised both--heavily, in both TV 
and through the Internet. These claims are proliferating 
because the market is growing. And I think that it's only fair 
to conclude--and there are lots of studies on this--that 
people, by and large, believe the ads. They believe the 
testimonials. They believe them when they're endorsers who are 
sports figures, who are athletes, who are other people that 
they trust--celebrities--which is why it's so important that we 
police the marketplace and we make sure, particularly when 
you're having claims of typicality, that those claims, in fact, 
are accurate and substantiated.
    All we're trying to do is make sure the flow of information 
to the consumer flows cleanly, as well as freely. And that's 
what we're--that's why we're trying to revise these guides.
    Senator Pryor. Let----
    Mr. Renker. Senator?
    Senator Pryor. Let me follow up on that----
    Mr. Renker. Right.
    Senator Pryor.--just for one sec, and I'll get back to you 
in a second, Mr. Renker, but----
    You're talking about revising the guides. Just for the 
Subcommittee's information, how many guides are there? Are they 
issue-specific, or is there one master guide?
    Mr. Vladeck. Well, there are a lot of guides, but----
    Senator Pryor. Tell me what you're doing.
    Mr. Vladeck.--but, for the advertisers, there are two main 
ones. There's the--there are the endorsement guides, and 
there's a specific guide involving environmental claims--the 
green guides. We're in the midst of revising both of them; 
separately, because they raise different issues.
    The key issues with respect to the endorsement guidelines 
are the typicality claims, and the social networking claims, 
whether bloggers who are being paid or compensated for product-
touting have to disclose the relationship between themselves 
and their sponsors. Those are the two key issues that we've 
confronted.
    Senator Pryor. And, again, for the Subcommittee's 
information, when you review and revise these guides, do you 
have a process which is like a public comment period, et 
cetera?
    Mr. Vladeck. So far, we've had two with respect to the 
endorsement guides, and we will certainly have the same kind of 
process, open and public process. All of our data is available 
to everyone. So, the public can give us informed comments. And 
we've gotten lots and lots of comments from businesses, from 
consumers, from all stakeholders.
    Senator Pryor. OK.
    Mr. Renker?
    Mr. Renker. Thank you, Senator Pryor.
    Mr. Vladeck references the consumer impression of 
typicality disclaimer, and their belief that what they're 
seeing is real. But, I just want to highlight that that is 
coming from print ads.
    The business that we are in, that Mr. Congdon and I 
represent, is one of a 30-minute program, with multiple 
impressions throughout the program, and our products are 
compliant, and our claims can be substantiated. And I would 
suggest that that research would need to carry over into our 
industry in order to be valid and relevant to what we're 
talking about, on averages.
    Senator Pryor. OK. Well, that's helpful.
    And one last thing, really--and Senator McCaskill may have 
a follow-up, too--but, really, I guess, for Mr. Peeler, since 
you're in this industry and there are some self-regulation 
activities that you do--how hard is it for you to spot 
deceptive advertising?
    Mr. Peeler. How hard is it to----
    Senator Pryor. How hard is it for you to spot deceptive 
advertising?
    Mr. Peeler. You know, if--and I think that one of the real 
challenges of self-regulation and enforcement in the area is 
that, if deceptive advertising is done well, it is hard for 
someone on the outside to spot, which is why one of the key 
drivers of self-regulation has been encouraging competitors to 
come forward with complaints, because competitors really know 
what's their--what their competitors are doing.
    So, for example, if--and we handle cases like this all the 
time--if you're making a claim that your toothpaste reduces 
cavities by 20 percent, you know, it's hard just to look at 
that ad and say, you know, ``Gee, I wonder if that's true or 
not.'' A competitor's going to have a pretty good sense of 
whether or not there's something in the area that would provide 
that result. So, we handle--you know, about half of our cases 
are competitor-complaint-driven cases.
    I also want to go back, though, to what you started the 
hearing with, by saying that the majority of advertisers, you 
know, do want to tell the truth, and they are compliant. And 
there are two really important points that--just to add to 
that. One is, you know, people like Mr. Renker and Mr. 
Congdon--the fact that there are deceptive ads out--advertising 
out there, as the Senator--Senator McCaskill suggested, really 
undermines the credibility of all the advertising that's out 
there. So, it's really in the--cuts against the industry, as 
well as consumers, to have, you know, the deceptive advertising 
out there.
    And the other thing to say is, I--you know, I was in the 
government for a long time, and I--and when you're in the 
government, you basically see the bad people, the people that 
have stepped over the line. In my present position, one of the 
things that is the most impressive is how mainstream that--how 
carefully mainstream advertisers look to both self-regulatory 
precedent and government precedent in following their ads. You 
know, a lot of our self-regulatory cases go into the nitty-
gritty details of Department of Agriculture definitions, FDA 
definitions.
    You know, literally everything that the FTC has written is 
scrutinized. There's an old opinion letter that the FTC put 
out, 25 years ago, saying, ``Here's what we would look to for 
the use of the word `new,' '' that the industry follows like 
it's a bible. I don't even think it's in the CFR anymore. But, 
people really--the mainstream advertisers really pay attention 
to the guidance that comes from the government.
    Senator Pryor. Senator McCaskill, do you have anything 
else?
    Senator McCaskill. I don't.
    Senator Pryor. Well, I want to thank the panel. This has 
been a very good discussion.
    What we're going to do is leave the record open for 2 
weeks. There were some Senators that, due to other committee 
hearings, et cetera, and action on the floor, were not able to 
be here today. So, we'll leave the record open for 2 weeks. 
What we'd like to do is, if Senators have more questions, we 
would love for you all to respond to those as quickly as 
possible.
    Senator Pryor. And again, I want to thank you for your 
preparation and your time here today. It's been very helpful 
for the Subcommittee.
    Hearing is adjourned.
    [Whereupon, at 11:47 a.m., the hearing was adjourned.]
                            A P P E N D I X

          Prepared Statement of Hon. John D. Rockefeller IV, 
                    U.S. Senator from West Virginia

    With this hearing, the Committee continues to highlight the Federal 
Trade Commission's role in protecting the American people, especially 
at a time of unprecedented economic crisis. Last week, we explored the 
increasing frequency and danger of economic fraud and financial scams 
during tough times. Today, we will examine deceptive advertising and 
its power to undermine consumers' confidence.
    Empowering consumers with accurate information is essential to a 
fair and thriving marketplace. But when that information can no longer 
be trusted, consumers become vulnerable to manipulation, and bad actors 
have the opportunity to take advantage of them.
    Unfortunately, there is no limit to the tricks and ploys that 
deceptive advertisers may use to rope consumers into bogus 
opportunities and dangerous investments: elaborate ``bait and switch'' 
techniques, advertisements masquerading as news articles, advertisers 
paying bloggers to endorse certain products, false or deceptive 
testimonial advertising, ``free'' product advertising and false or 
deceptive marketing of ``green'' products.
    With each false claim or inflated promise, consumers lose faith in 
the marketplace, the information they use to make decisions and the 
government they expect to keep these scam artists in check. The impact 
of deceptive advertising reaches beyond any one individual who buys 
into it. Fraud seriously hurts legitimate businesses trying to compete 
and does lasting damage to our economy.
    I hope that with this hearing we can learn more about the 
Commission's efforts to crack down on deceptive advertisers and 
consider whether it has the resources and the authority it needs. And a 
special thanks to Subcommittee Chairman Pryor for presiding today and 
being such an outspoken advocate for the American consumer.
    I want to thank our witnesses for sharing their perspective on 
these issues as we discuss the Commission's most fundamental 
responsibility: protecting the American consumer.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Tom Udall to 
                            Sally Greenberg

    Question 1. What is the appropriate level of voluntary industry 
self-regulation?
    Answer. The development of sound self-regulatory standards for 
consumer products and services helps ensure the physical and economic 
welfare of consumers. Self-regulation helps industry players know what 
the norm is for actions within their industry. It sets parameters that 
help to identify bad actors within the industry. It also encourages 
industry to condemn bad actors and take action to address the issue. 
NCL strongly supports industry self-regulatory models that include 
competent consumer contributions to the development of product and 
service standards. Such consumer input should be applied in the 
development of both mandatory and voluntary industry self-regulation 
standards.
    With regards to advertising industry self-regulation, NCL believes 
the standards and rules set by the industry should reflect the 
following core principles:

   The goal of self-regulation should be to promote policies 
        and standards that better inform consumers of product and 
        service performance characteristics.

   There should be an endorsement and support of the role that 
        strong and effective government regulatory and enforcement 
        agencies play in overseeing industry.

   There should be an acknowledgment that disclosure alone is 
        never an acceptable substitute for quality safety standards and 
        careful design and production of the advertised product.

    To the specific question of the level of voluntary industry self-
regulation, we support vigorous industry-based review of all 
advertising, including in the mew media market. Unfortunately, we find 
that the advertising industry too often fails to balance the 
competitive desires of the standards-making body's members against need 
for consumers to understand the true nature of a product or service 
advertised.
    Time and again, it has been shown that when consumers are presented 
with all the facts about a product or service in a clear, easy-to-
understand fashion, they will make an informed choice. This is no less 
true in ``new media'' advertising than in traditional advertising. 
Unfortunately, it is apparent to our organization that advertisers too 
often think first of how their advertisements can give as little 
substantive information as possible without running afoul of government 
regulators. Instead, they should focus on how to properly inform their 
target audience to enable them to make informed choices.
    It is illuminative to note that the three goals of the National 
Advertising Review Council, a leading advertising industry self-
regulatory body, are as follow:

   minimize governmental involvement in the advertising 
        business.

   maintain a level playing field for settling disputes among 
        competing advertisers.

   foster brand loyalty by increasing public Trust in the 
        credibility of advertising.\1\
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    \1\ National Advertising Review Council, ``About the National 
Advertising Review Council (NARC),'' Accessed August 21, 2009. Online: 
http://www.narcpartners.org/about/index.aspx.

    That effectively informing consumers about the benefits, risks, and 
effectiveness of products advertised is not mentioned as a goal 
indicates to us that the self-regulatory objectives of the advertising 
industry may be insufficient. Further, given the opposition shown by 
the advertising industry to even the modest revisions proposed to the 
Federal Trade Commission's (FTC) Guides Concerning Use Of Endorsements 
and Testimonials in Advertising, we feel that there is a lack of 
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ambition on the part of the industry to set such a goal in the future.

    Question 2. Where do we need greater FTC authority and activity to 
protect consumers?
    Answer. First, the proposed revisions to the FTC's Guides 
Concerning Use Of Endorsements and Testimonials in Advertising should 
be adopted by the Commission. These changes are long overdue and will 
help to stop some of the most egregiously harmful advertising industry 
practices, particularly with regards to weight-loss drugs, business 
opportunities, and other medical services such as baldness cures.
    Second, replacing the FTC's current Magnusson-Moss Act-based 
rulemaking authority with Administrative Procedures Act (APA) 
rulemaking authority would do much to enhance the FTC's ability to 
proactively protect consumers from dishonest advertisers. For example, 
under its current rulemaking regime, when the FTC takes action against 
a dishonest advertiser, such an action requires a lengthy investigation 
that all too often leaves inordinate amounts of time for dishonest 
marketers to reap the rewards of their bogus advertisements. We believe 
that APA rulemaking authority would allow the FTC to much more quickly 
take action against dishonest marketers and thus protect more 
consumers, particularly in the ever-evolving new media landscape.
    Finally, we would endorse more FTC activity to initiate actions 
against deceptive advertisers. Unfortunately, the FTC's stretched 
resources have in recent years forced it to only choose high-profile 
targets, relying on the media exposure gained from its actions to 
attempt to scare other bad actors out of the market. Given the 
proliferation of advertising we find to be manipulative at best and 
fraudulent at worst, especially online, we do not believe that this 
strategy is sufficient to control the problem. While a more vigorous 
rulemaking authority would give the FTC the legal tools it needs to 
tackle fraudulent advertisers, the agency will also require the 
sufficient financial and staff resources to support vigorous 
enforcement.

    Question 3. Does the FTC need new authority to protect consumers in 
a new media landscape that includes Internet videos, web blogs, and 
Twitter accounts?
    Answer. NCL supports the inclusion of new media content channels 
such as blogs and viral video in the Guides Concerning Use Of 
Endorsements and Testimonials in Advertising. We believe that consumers 
are increasingly relying on such new media outlets to inform themselves 
about products and services in the marketplace. The increasing 
resources advertisers are devoting to these advertising channels, 
suggests that they are of a similar mind on this issue.
    Given the complexities of the new media landscape and the evolving 
nature of user-generated content we believe the revisions to the FTC's 
Guides are a good first step in ensuring that these new advertising 
channels do not become a haven for deceptive advertising. We would urge 
the Commission to remain vigilant and periodically review the 
effectiveness of its policies regarding testimonial advertising in 
user-generated content to determine if greater authority is needed in 
the future.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Tom Udall to 
                             David Vladeck

    Question 1. In testimonies today, witnesses express different views 
of the appropriate level of regulation and where industry self-policing 
is working--or not working--well. What is the appropriate level of 
voluntary industry self-regulation? Where do we need greater FTC 
authority and activity to protect consumers? Does the FTC need new 
authority to protect consumers in a new media landscape that includes 
Internet videos, web blogs, and Twitter accounts?
    [The witness did not respond.]

    Question 2. Mr. Vladeck, you note that today it is more complex and 
difficult to pursue false and deceptive advertising claims. With the 
Internet and new ways of reaching customers, we are seeing new ways for 
bad actors to flock unsafe products or take advantage of vulnerable 
consumers.
    As a former state attorney general, I would appreciate your 
thoughts on how the FTC is working with state attorneys or U.S. 
attorneys to pursue these truly bad actors--those who are committing 
fraud and producing deceptive advertisements. How are you planning to 
work with and reach out to state attorneys general and U.S. attorneys? 
Do you have a systematic way to work with them? How often are you 
meeting with them and their staffs?
    [The witness did not respond.]
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