| **FTC POLICY STATEMENT REGARDING ADVERTISING SUBSTANTIATION**		Appended to Thompson Medical Co., 104 F.T.C. 648, 839 (1984),aff�d, 791 F.2d 189 (D.C. Cir. 1986), cert. denied, 479 U.S. 1086 (1987).		

*Introduction*

On March 11, 1983, the Commission published a notice        requesting comments on its advertising substantiation        program.1 To facilitate analysis of the        program, the notice posed a number of questions        concerning the program's procedures, standards, benefits,        and costs, and solicited suggestions for making the        program more effective. Based on the public comments and        the staff's review, the Commission has drawn certain        conclusions about how the program is being implemented        and how it might be refined to serve better the objective        of maintaining a marketplace free of unfair and deceptive        acts or practices. This statement articulates the        Commission's policy with respect to advertising        substantiation. 

*The Reasonable Basis Requirement*

First, we reaffirm our commitment to the underlying        legal requirement of advertising substantiation-that        advertisers and ad agencies have a reasonable basis for        advertising claims before they are disseminated.

The Commission intends to continue vigorous        enforcement of this existing legal requirement that        advertisers substantiate express and implied claims,        however conveyed, that make objective assertions about        the item or service advertised. Objective claims for        products or services represent explicitly or by        implication that the advertiser has a reasonable basis        supporting these claims. These representations of        substantiation are material to consumers. That is,        consumers would be less likely to rely on claims for        products and services if they knew the advertiser did not        have a reasonable basis for believing them to be true.2        Therefore, a firm's failure to possess and rely        upon a reasonable basis for objective claims constitutes        an unfair and deceptive act or practice in violation of        Section 5 of the Federal Trade Commission Act.

*Standards for Prior Substantiation*

Many ads contain express or implied statements        regarding the amount of support the advertiser has for        the product claim. When the substantiation claim is        express (e.g.., "tests prove", "doctors        recommend", and "studies show"), the        Commission expects the firm to have at least the        advertised level of substantiation. Of course, an ad may        imply more substantiation than it expressly claims or may        imply to consumers that the firm has a certain type of        support; in such cases, the advertiser must possess the        amount and type of substantiation the ad actually        communicates to consumers.

Absent an express or implied reference to a certain        level of support, and absent other evidence indicating        what consumer expectations would be, the Commission        assumes that consumers expect a "reasonable        basis" for claims. The Commission's determination of        what constitutes a reasonable basis depends, as it does        in an unfairness analysis, on a number of factors        relevant to the benefits and costs of substantiating a        particular claim. These factors include: the type of        claim, the product, the consequences of a false claim,        the benefits of a truthful claim, the cost of developing        substantiation for the claim, and the amount of        substantiation experts in the field believe is        reasonable. Extrinsic evidence, such as expert testimony        or consumer surveys, is useful to determine what level of        substantiation consumers expect to support a particular        product claim and the adequacy of evidence an advertiser        possesses.

One issue the Commission examined was substantiation        for implied claims. Although firms are unlikely to        possess substantiation for implied claims they do not        believe the ad makes, they should generally be aware of        reasonable interpretations and will be expected to have        prior substantiation for such claims. The Commission will        take care to assure that it only challenges reasonable        interpretations of advertising claims.3

*Procedures for Obtaining        Substantiation*

In the past, the Commission has sought substantiation        from firms in two different ways: through industry-wide        "rounds" that involved publicized inquiries        with identical or substantially similar demands to a        number of firms within a targeted industry or to firms in        different industries making the same type of claim; and        on a case-by-case basis, by sending specific requests to        individual companies under investigation. The        Commission's review indicates that "rounds"        have been costly to both the recipient and to the agency        and have produced little or no law enforcement benefit        over a case-by-case approach.

The Commission's traditional investigatory procedures        allow the staff to investigate a number of firms within        an industry at the same time, to develop necessary        expertise within the area of investigation, and to        announce our activities publicly in circumstances where        public notice or comment is desirable. The Commission        intends to continue undertaking such law enforcement        efforts when appropriate. However, since substantiation        is principally a law enforcement tool and the        Commission's concern in such investigations is with the        substantiation in the *advertiser's*possession,        there is little, if any, information that the public        could contribute in such investigations. Therefore, the        Commission anticipates that substantiation investigations        will rarely be made public before they are completed.

Accordingly, the Commission has determined that in the        future it will rely on nonpublic requests for        substantiation directed to individual companies via an        informal access letter or, if necessary, a formal civil        investigative demand. The Commission believes that        tailored, firm-specific requests, whether directed to one        firm or to several firms within the same industry, are a        more efficient law enforcement technique. The Commission        cannot presently foresee circumstances under which the        past approach of industry-wide rounds would be        appropriate in the ad substantiation area.

*Relevance of Post-Claim Evidence in        Substantiation Cases*

The reasonable basis doctrine requires that firms have        substantiation before disseminating a claim. The        Commission has on occasion exercised its discretion,        however, to consider supporting materials developed after        disseminations The Commission has not previously        identified in one document the circumstances in which it        may, in its discretion, consider post-claim evidence in        substantiation cases.5 Such guidance can serve        to clarify the program's actual operation as well as        focus consideration of postclaim evidence on cases in        which it is appropriate.

The Commission emphasizes that as a matter of law,        firms lacking a reasonable basis before an ad is        disseminated violate Section 5 of the FTC Act and are        subject to prosecution. The goal of the advertising        substantiation requirement is to assure that advertising        is truthful, however, and the truth or falsity of a claim        is always relevant to the Commission's deliberations.        Therefore, it is important that the agency retain the        discretion and flexibility to consider additional        substantiating evidence, not as a substitute for an        advertiser's prior substantiation, but rather in the        following circumstances:
- When deciding, before issuance of a complaint,                whether there is a public interest in proceeding                against a firm;
- When assessing the adequacy of the substantiation                an advertiser possessed before a claim was made;                and
- When deciding the need for or appropriate scope                of an order to enter against a firm that lacked a                reasonable basis prior to disseminating an                advertisement.

First, using post-claim evidence to evaluate the truth        of a claim, or otherwise using such evidence in deciding        whether there is a public interest in continuing an        investigation or issuing a complaint, is appropriate        policy. This does not mean that the Commission will        postpone action while firms create post-claim        substantiation to prove the truthfulness of claims, nor        does it mean that subsequent evidence of truthfulness        absolves a firm of liability for failing to possess prior        substantiation for a claim. The Commission focuses        instead on whether existing evidence that claims are true        should lead us in the exercise of our prosecutorial        discretion to decline to initiate a law enforcement        proceeding. If available post-claim evidence proves that        the claim is true, issuing a complaint against a firm        that may have violated the prior substantiation        requirement is often inappropriate, particularly in light        of competing demands on the Commission's resources.

Second, post-claim evidence may indicate that apparent        deficiencies in the pre-claim substantiation materials        have no practical significance. In evaluating the        adequacy of prior substantiation, the Commission will        consider only post-claim substantiation that sheds light        on pre-existing substantiation. Thus, advertisers will        not be allowed to create entirely new substantiation        simply because their prior substantiation was inadequate.

Finally, the Commission may use post-claim evidence in        determining the need for or appropriate scope of an order        to be entered against a firm that lacked a reasonable        basis. Thus, when additional evidence offered for the        first time at trial suggests that the claim is true, the        Commission may frame a narrower order than if there had        been no post-claim evidence.

The Commission remains committed to the prior        substantiation requirement and further believes that        these discretionary factors will provide necessary        flexibility. The Commission will consider post-claim        evidence only in the circumstances listed above. But,        whether it will do so in any particular case remains        within its discretion.

*Self Regulation Groups and        Government Agencies*

The Commission traditionally has enjoyed a close        working relationship with self regulation groups and        government agencies whose regulatory policies have some        bearing on our law enforcement initiatives. The        Commission will not necessarily defer, however, to a        finding by a self-regulation group. An imprimatur from a        self-regulation group will not automatically shield a        firm from Commission prosecution, and an unfavorable        determination will not mean the Commission will        automatically take issue, or find liability if it does.        Rather the Commission will make its judgment        independently, evaluating each case on its merits. We        intend to continue our useful relationships with        self-regulation groups and to rely on the expertise and        findings of other government agencies in our proceedings        to the greatest extent possible.

By direction of the Commission.

__________

' The distinction between pre-claim and        post-claim evidence is only relevant when the charge is        lack of substantiation. For other chases, such as        falsity, when evidence was developed is irrelevant to its        admissibility at trial.

1 48 FR 10471, March 11,        1983.

2 Nor presumably would an        advertiser have made such claims unless the advertiser        thought they would be material to consumers.

3 Individual Commissioners        have expressed differing views as to how claims should be        interpreted so that advertisers are not held to        outlandish or tenuous interpretations. Notwithstanding        these variations in approach, the focus of all        Commissioners on reasonable interpretations of claims is        intended to ensure that advertisers arenot required to substantiate claims that were        not made.

4 The Commission's        evidentiary rule, 16 C.F.R. 3.40, has sometimes been        interpreted as precluding introduction of post-claim        substantiation. In fact, it does not. Section 3.40 only        provides a sanction against the introduction of evidence        that should have been produced in response to a subpoena,        but was not.   |
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