[Federal Register Volume 63, Number 87 (Wednesday, May 6, 1998)]
[Proposed Rules]
[Pages 24996-25006]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-11942]


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FEDERAL TRADE COMMISSION

16 CFR Ch. I


Interpretation of Rules and Guides for Electronic Media; Request 
for Comment

AGENCY: Federal Trade Commission.

ACTION: Notice. Request for public comments.

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SUMMARY: The Federal Trade Commission (``Commission'') seeks comment on 
its proposal to issue a policy statement regarding the applicability of 
its rules and guides to newer forms of electronic media, such as e-
mail, CD-ROMs, and the Internet (hereinafter collectively referred to 
as ``electronic media''). This Federal Register Notice (hereinafter 
``Notice'') does not contain a proposed policy statement. This Notice 
is intended to provide a discussion of the issues that would be 
addressed in a future policy statement and to solicit public comment on 
these issues. The Commission believes that such a policy statement 
would (1) clarify the extent to which the Commission's rules and guides 
apply to representations disseminated through, and activities occurring 
on, electronic media; (2) provide guidance to the public as to how to 
comply with the Commission's rules and guides in

[[Page 24997]]

advertising products and services and conducting commercial activities 
using electronic media; (3) interpret certain terms in light of the use 
of electronic media and provide guidance regarding how electronic media 
could be used to comply with the affirmative disclosure requirements of 
the rules and guides; and (4) advise how disclosures required or 
recommended by the Commission's rules and guides should be made in 
advertising and other commercial transactions in electronic media. The 
Commission also solicits comment regarding interest in participating in 
or attending a workshop to discuss the issues raised in this Notice.

DATES: Comments must be submitted on or before July 7, 1998.

ADDRESSES: Written comments should be submitted to: Secretary, Federal 
Trade Commission, Room H-159, Sixth Street and Pennsylvania Ave., N.W., 
Washington, D.C. 20580. The Commission requests that the original 
comment be filed with five copies, if feasible. The Commission also 
requests, if possible, that the comment be submitted in electronic form 
on a computer disk. (Programs based on DOS or Windows are preferred. 
Files from other operating systems should be submitted in ASCII text 
format.) The disk label should identify the commenter's name and the 
name and version of the word processing program used to create the 
comment. Alternatively, the Commission will accept comments submitted 
to the following e-mail address <ElecM<a href="mailto:edia@ftc.gov"><a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="7b1e1f121a3b1d0f18551c140d">[email protected]</a></a>>. All submissions 
should be captioned: ``Interpretation of Rules and Guides for 
Electronic Media--Comment, FTC File No. P974102.''

FOR FURTHER INFORMATION CONTACT: Laura J. DeMartino, Attorney, Federal 
Trade Commission, Sixth Street and Pennsylvania Ave., N.W., Washington, 
D.C. 20580, telephone (202) 326-3030, e-mail (for questions or 
information only) <L<a href="mailto:demartino@ftc.gov"><a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="4622232b2734322f28290620322568212930">[email protected]</a></a>> .

SUPPLEMENTARY INFORMATION:

I. Introduction

    The Commission proposes issuing a policy statement in the future 
regarding the applicability of its rules and guides to electronic 
media. The Commission is using the term ``electronic media'' in this 
Notice to refer to the newer forms of electronic media, such as e-mail, 
CD-ROMs, and the Internet.<SUP>1</SUP> This Notice does not contain a 
proposed policy statement. It is intended to provide a discussion of 
the issues that would be addressed in an expected policy statement and 
to solicit public comment on these issues. The purpose of the proposed 
policy statement would be to eliminate or reduce any uncertainty as to 
whether the Commission's rules and guides apply to electronic 
media.<SUP>2</SUP>
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    \1\ The Internet encompasses the World Wide Web as well as other 
electronic information-exchanging features, including ``Telnet,'' 
``FTP'' (File Transfer Protocol), and USENET newsgroups. The 
Commission is using the term the ``Internet'' to encompass the 
Internet and proprietary online services, such as America Online and 
Prodigy.
    \2\  Some traditional forms of electronic media, such as 
television and radio, have been used for advertising and marketing 
purposes for years. This Notice is not intended to affect the 
requirements of the Commission's rules and guides for television or 
radio advertisements.
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    The proposed policy statement also would clarify how the rules and 
guides apply to these new media. Many of the Commission's rules and 
guides, for example, use terms that may be more commonly associated 
with print media. The Commission, however, believes these terms apply 
to electronic media. The proposed policy statement also would discuss 
the use of electronic media as a means of complying with some of the 
requirements or recommendations of the rules and guides.<SUP>3</SUP>
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    \3\ Other federal agencies, such as the U.S. Securities and 
Exchange Commission, also have considered whether new technology may 
be used to comply with the laws they enforce, and have issued 
interpretive guidance and rule amendments to clarify these issues 
and assist industry. See, e.g., 60 FR 53458 (Oct. 13, 1995); 61 FR 
24652 (May 15, 1996).
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    The unique features of electronic media present special challenges 
and opportunities for making disclosures effectively. The proposed 
policy statement, therefore, would provide guidance on how the 
Commission would evaluate whether disclosures in electronic media are 
clear and conspicuous. The Commission believes that such guidance will 
encourage voluntary compliance by industry and promote industry self-
regulation. This Notice discusses the Commission's approach to achieve 
these goals, which would form the basis of a future policy statement.
    The issue of Commission guidance and public input on electronic 
media issues arose during the Commission's review of the Trade 
Regulation Rule Pursuant to the Telephone Disclosure and Dispute 
Resolution Act of 1992 (``900-Number Rule''), 16 CFR part 
308.<SUP>4</SUP> During a public workshop on the 900-Number Rule, 
workshop participants suggested that the Commission conduct a separate 
proceeding that would address the issue of making clear and conspicuous 
disclosures on the Internet and provide an opportunity for all 
interested parties to submit comments.<SUP>5</SUP> Accordingly, the 
Commission has determined to publish this notice and seek public 
comment from all interested parties on the Commission's proposed policy 
statement. The Commission believes that public comment will be helpful 
because of the challenging issues presented by electronic media and the 
pace at which technological developments are occurring.<SUP>6</SUP>
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    \4\ 62 FR 11749 (Mar.12, 1997) (soliciting comment, inter alia, 
on whether the 900-Number Rule's disclosure requirements are 
adequate for Internet advertisements).
    \5\ Transcript of the Workshop on the 900-Number Rulemaking (Day 
2, June 20, 1997), Volume 2, pp. 559-579. The transcript is 
available in the Public Reference Room, Room 130, of the Commission 
and on the Commission's Web site <http://www.ftc.gov>. Some 
commenters stated that the Commission's determination regarding how 
clear and conspicuous disclosures should be made in Internet 
advertisements pursuant to the 900-Number Rule would have broad 
implications for all Internet advertisements. Therefore, it was 
argued that all interested parties, and not simply those persons 
interested in the 900-Number Rule, should have notice of the review 
of this issue and the opportunity to submit comments. Id.
    \6\ The Commission recognizes the usefulness of maintaining a 
dialogue with the public regarding these issues in order to benefit 
both consumers and industry. See Commission staff report, 
Anticipating the 21st Century: Consumer Protection Policy in the New 
High-Tech Global Marketplace, p. 7 (May 1996) (summarizing testimony 
presented during hearings regarding the need for a continuing 
dialogue).
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A. Background

1. Technological Advances
    Significant technological advances in recent years are dramatically 
changing the global marketplace. With approximately 62 million people 
in the United States having access to the Internet, it is becoming an 
increasingly popular medium for advertising goods and services and for 
conducting commercial transactions.<SUP>7</SUP> It is estimated that 
businesses spent $906.5 million for advertising on the Internet in 
1997.<SUP>8</SUP> Advertisements on the World Wide Web (``Web''), the 
graphical segment of the Internet, often contain ``pages'' which may 
contain text, pictures, video, sound, interactive graphics, or a 
combination of all of these features.<SUP>9</SUP>

[[Page 24998]]

Consumers are able to purchase goods or services directly over the 
Internet.<SUP>10</SUP> Businesses also use CD-ROMs to disseminate 
information about their products to consumers. In addition, businesses 
use e-mail and facsimiles to communicate directly with consumers.
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    \7\ IntelliQuest Information Group, Inc. (Feb. 5, 1998) <<a href="http://
www.intelliquest.com">http://
www.intelliquest.com</a>> (number of users as of the fourth quarter, 
1997).
    \8\ Internet Advertising Bureau (Apr. 6, 1998) <<a href="http://
www.iab.net/news/breaksource.html">http://
www.iab.net/news/breaksource.html</a>>.
    \9\ A ``Web site'' is a collection of linked electronic 
``pages.'' The main ``page'' within the Web site is often referred 
to as a ``home page,'' from which links are provided to electronic 
pages within the overall Web site. Frequently, the home page or 
other pages within the site will provide links to other Web sites as 
well. This linkage is possible because the Web allows users to 
navigate or transfer from one electronic document to another--in 
actually viewing files stored on various computers--through the use 
of electronically coded links called hypertext.
    \10\ Estimates of online sales vary dramatically. One survey, 
however, estimates that as of the fourth quarter, 1997, 37.2 million 
users were shopping online and 10.5 million users were purchasing 
online. IntelliQuest Information Group, Inc. (Feb. 5, 1998) <<a href="http://
www.intelliquest.com">http://
www.intelliquest.com</a>>.
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2. The Commission's Role in the New Marketplace
    The Commission believes that the use of this new technology should 
be encouraged. The Internet provides consumers and businesses with 
access to a global marketplace. Consumers have instant access to a 
large amount of information and a greater array of products and 
services. These newer forms of electronic media also provide businesses 
with different ways of advertising, selling goods, and communicating 
with customers. At the same time, the use of this new technology for 
commercial activities raises consumer protection concerns.<SUP>11</SUP> 
The Commission agrees with the statement by the Interagency Working 
Group on Electronic Commerce, that ``[i]n order to realize the 
commercial and cultural potential of the Internet, consumers must have 
confidence that the goods and services offered are fairly represented, 
that they will get what they pay for, and that recourse or redress is 
available if they do not.''<SUP>12</SUP> As a result, the Commission 
believes that enforcement of consumer protection laws is necessary to 
ensure the vitality and viability of the Internet as a new 
marketplace.<SUP>13</SUP>
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    \11\ The Commission examined consumer protection issues raised 
by technological developments during hearings in November 1995. The 
Commission staff report on the hearings describes the technological 
developments, the challenges faced by law enforcement agencies to 
address consumer protection issues without stifling the use of new 
technology, and various proposed strategies for resolving consumer 
protection concerns. Commission staff report, Anticipating the 21st 
Century: Consumer Protection Policy in the New High-Tech Global 
Marketplace (May 1996).
    \12\ A Framework for Global Electronic Commerce, p. 17 (July 1, 
1997) <http://www.whitehouse.gov/WH/New/Commerce>. ``Truthful and 
accurate advertising shall be the cornerstone of advertising on all 
media, including the Internet.'' Id. at 16.
    \13\ See Commission staff report, Anticipating the 21st Century: 
Consumer Protection Policy in the New High-Tech Global Marketplace, 
pp. 27, 30-31 (May 1996). The Commission already has brought a 
number of cases against companies engaged in unfair or deceptive 
practices on the Internet. See, e.g., Global World Media Corp., 
Docket No. C-3772 (Oct. 17, 1997) (alleged false claims about an 
herbal supplement in advertising on the Internet and other media); 
FTC v. Audiotex Connection, Inc., CV-97-0726 (E.D.N.Y. filed Feb. 
13, 1997) (Internet Web site program allegedly disconnected 
consumer's access provider without consent or adequate disclosure 
and re-connected computer to an international access provider that 
billed consumers over $2 per minute); FTC v. Fortuna Alliance, 
L.L.C., Civ. No. C96-799M (W.D. Wash. filed May 23, 1996) (alleged 
illegal pyramid investment scheme marketed on the Internet); FTC v. 
Brandzel, 96C 1440 (N.D. Ill. filed Mar. 13, 1996) (computer memory 
chips advertised on the Internet allegedly were paid for but not 
delivered in violation of section 5 of the FTC Act and the Mail or 
Telephone Order Merchandise Rule, 16 CFR part 435).
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3. Legal Authority
    This Notice addresses the applicability of certain rules and guides 
issued pursuant to section 5 of the Federal Trade Commission Act (``FTC 
Act''), 15 U.S.C. 45(a), and other statutes enforced by the Commission 
to electronic media. Section 5 of the FTC Act gives the Commission 
broad authority over the advertising and marketing of products and 
services through its prohibition on ``unfair or deceptive acts or 
practices in or affecting commerce.'' The Commission has issued policy 
statements to provide guidance on how it evaluates whether acts or 
practices are ``unfair or deceptive'' under section 5 of the FTC Act 
and on how it will enforce the legal requirement that advertisers 
possess a reasonable basis for objective claims about their products 
and services.<SUP>14</SUP>
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    \14\ Federal Trade Commission Policy Statement on Deception, 
appended to Cliffdale Associates, Inc., 103 F.T.C. 110, 174 (1984) 
(hereinafter ``Deception Statement''); Federal Trade Commission 
Policy Statement on Unfairness appended to International Harvester 
Co., 104 F.T.C. 949 1070 (1984) (superseded by 15 U.S.C. 45(n)); 
Federal Trade Commission Policy Statement Regarding Advertising 
Substantiation, 48 FR 10471 (Mar. 11, 1983).
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    The Commission rules addressed in this Notice prohibit specific 
unfair or deceptive acts or practices and ``may include requirements 
prescribed for the purpose of preventing such acts or practices.'' 
<SUP>15</SUP> The Commission may initiate civil actions, seeking civil 
penalties, against any person who violates a rule ``with actual 
knowledge or knowledge fairly implied on the basis of objective 
circumstances that such act is unfair or deceptive and is prohibited by 
such rule.'' <SUP>16</SUP> The Commission also promulgates rules 
pursuant to specific Acts of Congress.<SUP>17</SUP> The remedies 
available to enforce these rules vary.
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    \15\ 15 U.S.C. 57a(a)(1)(B). The Commission is empowered to 
promulgate rules which define with specificity unfair or deceptive 
acts or practices when it has reason to believe that certain unfair 
or deceptive acts or practices are prevalent. Id.
    \16\ 15 U.S.C. 45(m)(1)(A). The Commission also may seek redress 
for consumers. 15 U.S.C. 57b(a)(1).
    \17\ For example, the Energy Policy and Conservation Act, 42 
U.S.C. 6201, et seq., as amended, requires the Commission to 
prescribe rules for energy consumption and efficiency labeling of 
certain appliances. See Rule Concerning Disclosures Regarding Energy 
Consumption and Water Use of Certain Home Appliances and Other 
Products Required Under the Energy Policy and Conservation Act 
(``Appliance Labeling Rule''), 16 CFR part 305.
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    The Commission's guides are ``administrative interpretations of the 
laws administered by the Commission'' and are intended to assist the 
public in voluntarily complying with the law (e.g., by providing 
guidance on how to avoid unfair or deceptive acts or 
practices).<SUP>18</SUP> Although guides do not have the force and 
effect of law, failure to comply with them may result in corrective 
action under applicable statutory provisions (e.g., a proceeding 
pursuant to section 5(a) of the FTC Act).<SUP>19</SUP>
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    \18\ 16 CFR 1.5. Section 18(a)(1)(A) of the FTC Act authorizes 
the Commission to issue ``interpretative rules and general 
statements of policy with respect to unfair or deceptive acts or 
practices in or affecting commerce.'' 15 U.S.C. 57a(a)(1)(A).
    \19\ 16 CFR 1.5.
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B. Scope of the Proposed Policy Statement

    The proposed policy statement would address those rules and guides 
issued by the Commission that solely pertain to consumer protection 
issues.<SUP>20</SUP> These rules and guides are listed in the Appendix. 
Other consumer protection rules and guides will not be addressed in 
this proceeding.<SUP>21</SUP> These rules and guides either may not 
apply to electronic media or contain provisions that preclude uniform 
treatment in a

[[Page 24999]]

policy statement and need to be examined separately. The Commission 
also is not addressing regulations issued by the Federal Reserve Board 
and enforced by the Commission.<SUP>22</SUP>
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    \20\ The Commission is not addressing antitrust issues or the 
Guides for Advertising Allowances and Other Merchandising Payments 
and Services, 16 CFR part 240, in this Notice. Further, this Notice 
does not address the Commission's rules of practice, 16 CFR parts 1-
4. Other issues relating to the use of electronic media generally, 
such as privacy and electronic payment technologies, are being 
examined in different proceedings. See 62 FR 10271 (Mar. 6, 1997) 
(regarding previous Commission workshops on consumer information 
privacy issues and children's online privacy); 62 FR 19173 (Apr. 18, 
1997) and 62 FR 29392 (May 30, 1997) (discussing public meetings 
held by the inter-agency Consumer Electronic Payments Task Force on 
consumer issues raised by emerging electronic money and payment 
technology).
    \21\ Rule and Regulations Under the Hobby Protection Act (16 CFR 
part 304); Regulations under the Comprehensive Smokeless Tobacco 
Health Education Act of 1986 (16 CFR part 307); Test Procedures and 
Labeling Standards for Recycled Oil (16 CFR part 311); Unfair or 
Deceptive Advertising and Labeling of Cigarettes in Relation to the 
Health Hazards of Smoking (16 CFR part 408); Care Labeling of 
Textile Wearing Apparel and Certain Piece Goods (16 CFR part 423); 
Rule Concerning Cooling-Off Period for Sales Made at Homes or at 
Certain Other Locations (16 CFR part 429); Funeral Industry 
Practices Rule (16 CFR part 453); Ophthalmic Practice Rules (16 CFR 
part 456); Rules, Regulations, Statements of General Policy or 
Interpretation and Exemptions Under the Fair Packaging and Labeling 
Act (16 CFR parts 500-503); and Procedures for State Application for 
Exemption from the Provisions of the Fair Debt Collection Practices 
Act (16 CFR part 901).
    \22\ Regulation B, 12 CFR part 202; Regulation E, 12 CFR part 
205; Regulation M, 12 CFR part 213; Regulation Z, 12 CFR part 226. 
The Federal Reserve Board has issued an interim rule amending 
Regulation E and proposed rules amending Regulations B, E, M and Z 
regarding the use of electronic disclosures for matters covered by 
those Regulations. 63 FR 14528, 14538, 14548, 14552, 14555 (Mar. 25, 
1998).
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    In addition, the Commission is currently reviewing certain rules 
and guides as a part of its ongoing regulatory review 
process.<SUP>23</SUP> In some of these reviews, the Commission is 
examining, among other things, the effect of new technology on the 
provisions of those rules and guides.<SUP>24</SUP> Comments regarding 
specific amendments to those rules and guides in light of new 
technology should be submitted in the course of those particular 
reviews. To the extent that the broad policy issues addressed in this 
Notice impact on those rules or guides, however, interested persons 
also should submit comments in this proceeding. For example, if a rule 
or guide under review requires or recommends that disclosures be clear 
and conspicuous (which will be addressed in the context of electronic 
media in this proposal), commenters should provide a submission in this 
proceeding even if they have already commented in the other review.
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    \23\ In 1992, the Commission implemented a regulatory reform 
program to assess, at least once every ten years, the continued need 
and usefulness of its rules and guides and revise or, as necessary, 
rescind outdated rules and guides. See 63 FR 1802 (Jan. 12, 1998). 
To date under this program, the Commission has reviewed 19 guides of 
which it has repealed 15, and 28 rules of which it has repealed 13. 
Many of the retained rules and guides have been amended to reduce 
compliance burdens while still achieving their intended purpose.
    \24\ See 900-Number Rule, 16 CFR part 308, 62 FR 11749 (Mar. 12, 
1997); Rule Regarding the Use of Negative Option Plans by Sellers in 
Commerce, 16 CFR part 425, 62 FR 15135 (Mar. 31, 1997); Rule 
Regarding Disclosure Requirements and Prohibitions Concerning 
Franchising and Business Opportunity Ventures, 16 CFR part 436, 62 
FR 9115 (Feb. 28, 1997).
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    This Notice and the proposed policy statement also are not intended 
to address all of the substantive issues specific to certain rules or 
guides that may arise because of the use of electronic media. For 
example, this Notice addresses the applicability of the Guides 
Concerning Use of Endorsements and Testimonials in Advertising 
(``Endorsement Guides''), 16 CFR part 255, to electronic media and 
proposes factors the Commission would use to evaluate the effectiveness 
of disclosures that accompany endorsements in electronic media. 
Developments in electronic media, however, may raise new issues unique 
to the Endorsement Guides regarding what is--or is not--an 
``endorsement.'' The Commission will address issues that are unique to 
a particular rule or guide on a case-by-case basis or during the 
regular review of the rule or guide.
    The Commission does not consider the issuance of this proposal, or 
any future policy statement that may result from this proceeding, to 
constitute either a new rule or a substantive amendment of its current 
rules. The policy statement would not create any new rights, duties, 
obligations, or defenses, but instead would clarify the rights, duties, 
obligations, or defenses that currently exist pursuant to the rules and 
guides. Further, the Commission would retain its discretion for 
determining how to proceed in particular cases. The Commission will 
follow the rulemaking procedures required to substantively amend a 
rule, if such amendments are necessary to extend a particular rule's 
coverage to electronic media. Additionally, this proposal or any future 
policy statement will not affect the Commission's 
jurisdiction.<SUP>25</SUP>
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    \25\ See 15 U.S.C. 44, 45(a)(2); Section 2 of the McCarran-
Ferguson Act, 15 U.S.C. 1012(b)
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C. Public Workshop

    To assist in developing its proposed enforcement policy statement, 
the Commission is soliciting comment from all interested parties 
regarding the issues raised in this Notice. The Commission also seeks 
comment as to the advisability of convening a public workshop to 
discuss the issues raised in this Notice. A workshop would afford 
Commission staff and interested parties a further opportunity to 
discuss issues related to the applicability of the Commission's rules 
and guides to electronic media. The workshop would not be intended to 
achieve a consensus among participants, or between participants and 
Commission staff, with regard to any issue raised in this Notice. 
Persons interested in attending or participating in such a workshop are 
requested to notify Commission staff in the comment submitted in 
response to this proposal. If the Commission decides to convene a 
public workshop, it will announce the date, time and location of the 
workshop in a separate Notice in the Federal Register.

II. Proposals for an Enforcement Policy Statement

A. The Applicability of Rules and Guides to New Forms of Electronic 
Media

    One objective of the proposed policy statement would be to reduce 
any uncertainty regarding whether specific Commission rules and guides 
apply to electronic media. The Commission's rules and guides generally 
address representations made about certain products or services 
<SUP>26</SUP> and other commercial activities.<SUP>27</SUP> The 
proposed policy statement would clarify that (1) rules and guides that 
apply to representations generally without reference to, or limitation 
on, the medium used to disseminate them apply equally to 
representations disseminated through electronic media; and (2) rules 
and guides that specify how or where representations are disseminated 
are broad enough to apply to representations disseminated through 
electronic media.
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    \26\ See, e.g., Guides for the Use of Environmental Marketing 
Claims, 16 CFR part 260 (addressing environmental claims made about 
products and services).
    \27\ See, e.g., Rule Concerning the Preservation of Consumers' 
Claims and Defenses, 16 CFR part 433 (requiring that consumer credit 
contracts contain certain provisions).
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1. Rules and Guides That Apply to Representations Generally
    Many rules and guides are not limited to any media or mode of 
dissemination. Rather, they apply generally to representations or any 
form of advertising.
    Example 1: The Guides for the Jewelry, Precious Metals, and Pewter 
Industries (``Jewelry Guides''), 16 CFR 23.0(c), apply to ``claims and 
representations about industry products included in labeling, 
advertising, promotional materials, and all other forms of marketing * 
* *.''
    Example 2: The Guides for Select Leather and Imitation Leather 
Products (``Leather Guides''), 16 CFR 24.2(g), state that disclosures 
should be made ``in all advertising of such products irrespective of 
the media used.''
    Example 3: The Rule Concerning Deceptive Advertising as to Sizes of 
Viewable Pictures Shown by Television Receiving Sets (``TV Picture Size 
Rule''), 16 CFR 410.1, addresses ``designations'' used to refer to 
television picture sizes without specifying how or where the 
designation is made (e.g., orally, in television advertisements, in 
print advertisements, etc.).
    For this category, the plain language of each rule and guide 
applies to

[[Page 25000]]

representations and claims in any medium, including electronic media. 
The policy statement would merely clarify that when a rule or guide 
does not limit how covered representations are communicated to 
consumers, how advertising is disseminated, or where commercial 
activities occur, the provisions of the rule or guide apply to such 
activities in electronic media.<SUP>28</SUP>
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    \28\ The Mail and Telephone Order Merchandise Rule (``Mail Order 
Rule''), 16 CFR part 435, applies to orders for merchandise made 
using certain media, such as the telephone. The Mail Order Rule 
defines the term ``telephone'' broadly, so that the Rule covers 
orders placed by facsimile or by computer through telephone modems. 
16 CFR 435.2(b). Thus, this Rule expressly encompasses electronic 
media because information is transmitted over the telephone 
infrastructure. Another provision of the Mail Order Rule states that 
mail or telephone order sales occur regardless of ``the method used 
to solicit the order.'' 16 CFR 435.2(a). Thus, the Rule covers any 
means of soliciting orders, including those solicitations via 
electronic media.
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2. Rules and Guides Referencing Specific Modes of Communication
    Some rules and guides specify where or how representations or other 
information are disseminated, e.g., referring to ``written'' 
advertisements or ``direct mail promotional materials,'' or specifying 
that information needs to be provided to others ``in writing.''
    Example 1: The disclosure obligations of the Telemarketing Sales 
Rule, 16 CFR part 310, are triggered when consumers call telemarketers 
in response to direct mail solicitations (unless certain disclosures 
appear in the direct mail solicitation).<SUP>29</SUP> The term ``direct 
mail solicitations'' is not defined in the Rule. (See, discussion at 
II. B. 2.)
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    \29\ During the promulgation of the Telemarketing Sales Rule, 
the Commission stated that it did not have sufficient information to 
justify coverage of online services under the Rule's requirements, 
and thus, this Rule does not apply to transactions conducted 
entirely on the Internet. 60 FR 30406, 30411 (June 8, 1995). Any 
modification to this general coverage will be handled separately, if 
needed.
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    Example 2: The Rule Concerning Labeling Requirements for 
Alternative Fuels and Alternative Fueled Vehicles (``Alternative Fuels 
Rule''), 16 CFR 309.11, 309.13, requires industry members to certify 
the fuel rating of certain alternative fuels when they transfer fuel to 
anyone who is not a consumer.<SUP>30</SUP> The Rule states that 
certifications may be made by delivery ticket, or by a letter or 
``written statement.''
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    \30\ The Rule also requires labels to be placed on fuel 
dispensers and on alternative fueled vehicles. Since these 
requirements do not raise concerns regarding the use of electronic 
media, they are not addressed in this Notice.
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    As discussed in greater detail below, the Commission believes that 
these illustrated specifications include the use of electronic media 
and that such inclusion is consistent with the intention of rules and 
guides containing such specifications. Moreover, in certain instances, 
it may be beneficial for firms to use electronic media to comply with 
the requirements of the rules and guides. Thus, it is proposed that the 
policy statement would clarify that those rules and guides apply 
equally to electronic media.

B. Interpretation of Terms Used in Rules and Guides

    The Commission's rules and guides use certain terms that may be 
more commonly used in a paper-based context. With the increasing use of 
computers, the meaning of such terms already has evolved to take into 
account new technologies. The proposed policy statement would clarify 
that the Commission interprets these terms in light of the use of new 
technologies so that industry members understand their obligations 
under the Commission's rules and guides.
1. The Terms ``Writing,'' ``Written'' and ``Printed''
    Many of the Commission's rules and guides use the terms 
``writing,'' ``written,'' or ``printed'' with reference to certain 
documents.<SUP>31</SUP> For example, the Appliance Labeling Rule, 16 
CFR 305.4(d), states that it is unfair or deceptive to make any 
representation ``in writing (including a representation on a label) or 
in any broadcast advertisement,'' with respect to energy use or 
efficiency of certain products, unless the product has been tested in 
accordance with the Rule.<SUP>32</SUP> Neither the Rule nor the 
enabling statute, the Energy Policy and Conservation Act, defines the 
term ``in writing.'' The Appliance Labeling Rule also requires that 
certain disclosures be made in catalogs, which are defined as ``printed 
material which contains the terms of sale, retail price, and 
instructions for ordering, from which a retail consumer can order a 
covered product.'' 16 CFR 305.2(m), 305.14. The Rule does not define 
the term ``printed.''
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    \31\ The rules and guides discussed in this section are used as 
examples and not as an exhaustive list of the rules and guides that 
use the described terms.
    \32\ This provision simply restates section 323(c) of the Energy 
Policy and Conservation Act, 42 U.S.C. 6201, which states that such 
representations are considered unfair or deceptive acts or practices 
in violation of the FTC Act.
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    With the use of new technology, the terms ``writing,'' ``written,'' 
and ``printed'' are not merely associated with communications on paper. 
The proposed policy statement would clarify that, when used in the 
Commission's rules and guides, the terms ``written,'' ``writing,'' and 
``printed'' refer to information that is capable of being preserved in 
a tangible form and read, as opposed to an oral statement that is 
intangible and transitory. As with information presented on paper, 
consumers using electronic media can read the information and preserve 
it for possible later review either by printing it on paper, saving it 
on disk, or by some other means.
    Using this interpretation, the Appliance Labeling Rule's 
substantiation requirements for energy efficiency representations made 
``in writing * * * or in any broadcast advertisement'' would apply to 
representations in electronic media that are capable of being preserved 
and read, such as representations on CD-ROMs or on the Internet. 
Further, the Commission would interpret the Rule's definition of 
catalog (``printed material'') to include any material that is capable 
of being preserved in tangible form and read, and that also meets the 
remainder of the Rule's definition (e.g., from which a retail consumer 
can order a covered product).
    The Commission solicits comment on its proposed interpretation of 
the terms ``written,'' ``writing,'' and ``printed'' that apply to the 
use of electronic media. The Commission seeks information on whether 
the interpretation adequately reflects the understanding of the terms 
and the underlying purpose of the rules and guides that use them, and 
accounts for technological developments.
2. The Term ``Direct Mail''
    The understanding of other terms also has evolved with the advent 
of new technology. The concept of ``mail,'' for example, is understood 
to encompass electronic mail through the Internet as well as 
traditional mail delivery.<SUP>33</SUP> Some of the Commission's rules 
and guides refer to ``direct mail,'' in the context of direct mail 
solicitations. For example, the Telemarketing Sales Rule, 16 CFR 
310.6(e), applies to telephone calls initiated by consumers in response 
to ``direct mail solicitations,'' unless specified information is 
disclosed in the solicitation.<SUP>34</SUP>
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    \33\ Traditional mail includes mail delivered by the United 
States Postal Service as well as by private mail carriers.
    \34\ The Rule always applies to consumer telephone calls in 
response to direct mail solicitations for certain types of products 
and services, regardless of the disclosures made in the 
solicitation. See 16 CFR part 310 for the full text of the Rule.
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    Where the Commission's rules or guides refer to ``direct mail,'' 
the

[[Page 25001]]

proposed policy statement would state that the term refers to private 
communications, i.e., traditional mail as well as electronic 
communications that are individually addressed and capable of being 
received privately. This interpretation would clarify that direct mail 
includes those communications that are directed to particular 
individuals, such as facsimiles or e-mail, but not directed to the 
public at large, as are Internet bulletin boards.<SUP>35</SUP>
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    \35\ Messages posted on Internet bulletin boards, however, may 
be considered to be advertising for the purposes of the 
Telemarketing Sales Rule, 16 CFR 310.6(e), and other rules and 
guides.
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    E-mail, for example, requires that the sender address the message 
to individual recipients' e-mail addresses (which is true even if the 
sender addresses a single e-mail to multiple individuals at their 
personal e-mail addresses) and is capable of being received privately 
by the recipients. Therefore, telemarketers or sellers who send 
individually addressed e-mail that provides a telephone number for 
consumers to call may be subject to the provisions of the Telemarketing 
Sales Rule, 16 CFR part 310.
    The Commission solicits comment regarding whether its proposed 
interpretation of the term ``direct mail'' adequately reflects the 
understanding of the term and appropriately encompasses the electronic 
equivalents of ``direct mail.'' The Commission also solicits comment on 
whether targeted advertising on the Internet should be considered as 
the electronic equivalent of ``direct mail.'' For example, some 
Internet advertisers track users' interests through their click 
patterns or use of search terms. These advertisers may then target 
advertisements to a particular user. Although this advertising appears 
on a Web site, which generally may be considered to be a public forum, 
the targeted advertisement is addressed to a particular user's computer 
and is capable of being received privately by that user.
3. Use of Electronic Media To Comply With Affirmative Requirements
    Some rules and guides require or recommend that businesses provide 
information in writing to another person. The Commission recognizes 
that it may be easier, more efficient and less costly for industry 
members to comply with various requirements by using electronic media. 
This is consistent with the Commission's intention that its rules and 
guides should not discourage the use of electronic media.
    The Automotive Fuel Ratings, Certification and Posting Rule, 16 CFR 
306.6, for example, requires that industry members certify the fuel's 
octane rating when they transfer fuel to anyone who is not a 
consumer.<SUP>36</SUP> The Rule permits industry members to do this in 
two ways: Members may include with each transfer, a delivery ticket or 
other paper such as an invoice or ``any other written proof of 
transfer,'' or they may ``(g)ive the person a letter or other written 
statement'' that contains certain information. 16 CFR 306.6(a) and (b). 
With the Commission's interpretation of the term ``written,'' described 
above, the transferor could deliver information in a form that is 
capable of being preserved in a tangible form and read. Thus, the 
transferor could use electronic media, such as e-mail or facsimile, to 
give the person ``a letter or other written statement.'' <SUP>37</SUP>
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    \36\ As mentioned above, the Alternative Fuels Rule, 16 CFR part 
309, contains a similar requirement.
    \37\ Even if electronic media is used to provide certain 
``written'' information, the Rule's record-keeping requirements 
would continue to apply.
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    The requirement that certain information should be provided to 
another person implies that such information actually be received by 
that person. Therefore, although it may be advantageous to use new 
technology to comply with affirmative requirements, industry members 
should be mindful of certain issues. For example, the requirement to 
give, mail, deliver or furnish information would not be met if the 
intended recipient does not have the technological capabilities of 
receiving or viewing the information. In certain circumstances, 
industry members may need to obtain the recipient's consent to deliver 
information by a certain electronic method, inform the recipient of any 
particular media applications needed to view the information, or 
deliver the information on paper. Because there may be technological 
difficulties that could impede the electronic delivery of information, 
it may be necessary for industry members to confirm that the recipient 
in fact received the information. Most facsimile machines routinely 
confirm when the facsimile has been successfully transmitted. Senders, 
for example, might require recipients to confirm receipt by return e-
mail or verify in some manner the recipients' access to information 
posted on a Web site. The Commission seeks comment on what, if any, 
guidance is necessary regarding the use of electronic media to comply 
with affirmative disclosure requirements.
4. Other Terms
    Where other terms are reasonably susceptible of being interpreted 
as applying to, or occurring within the realm of, electronic media, the 
proposed policy statement would clarify that the terms are to be read 
broadly and inclusively so as to apply to electronic media. The Guides 
Against Bait Advertising (``Bait Advertising Guides''), 16 CFR 238.1, 
for example, advise that advertisements containing an offer to sell a 
product should not be published unless the offer is a bona fide effort 
to sell the advertised product. The Commission interprets the term 
``publish'' to include information that is made available to the public 
in online catalogs or other Web pages.<SUP>38</SUP> The Commission 
solicits comment on this general proposal and whether there are 
additional terms that should be specifically addressed by the 
Commission in a policy statement.
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    \38\ This interpretation is consistent with the Guides' 
definition of the term ``advertising'' as including ``any form of 
public notice however disseminated or utilized.'' 16 CFR 238, n. 1.
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C. Clear and Conspicuous Disclosures in Electronic Media

    The application of the Commission's rules and guides to electronic 
media advertising presents new issues regarding the evaluation of 
disclosures.<SUP>39</SUP> Many rules and guides contain disclosure 
requirements mandating or advising that disclosures be ``clear and 
conspicuous.'' Numerous Commission precedents offer guidance on the 
meaning of the clear and conspicuous standard in traditional 
advertising media. Electronic media advertisements, however, 
incorporate both traditional and unique features that raise new issues 
in evaluating the effectiveness of disclosures. In proposing guidance 
in this area, the Commission is attempting to provide consumers with 
comprehensible disclosures to prevent deception, while not imposing 
undue burdens or restrictions on businesses in complying with the 
disclosure requirements.
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    \39\ The Commission discusses the Internet specifically in this 
section because the examples are most pertinent to disclosures on 
Web sites. The guidance proposed by the Commission below, however, 
also may be applicable to disclosures in other electronic media.
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1. Disclosures Required or Advised by Rules and Guides
    The rules and guides that contain disclosure requirements generally 
require or recommend that material information be disclosed to 
consumers to prevent deception, to ensure that consumers receive 
complete information regarding the terms of a transaction, or to 
further public policy goals. For example, the Endorsement Guides, 16 
CFR 255.2, protect against

[[Page 25002]]

deception by advising that advertisers disclose what performance 
consumers can generally expect with a product when an endorsement is 
not representative of that performance. In addition, the Guides for the 
Advertising of Warranties and Guarantees (``Warranty Guides''), 16 CFR 
239.2(a), provide for complete disclosure of warranty information by 
advising that if an advertisement mentions a product warranty, a 
disclosure should be made that consumers may review the complete 
details of the warranty prior to purchase at the place where the 
product is sold. The required energy efficiency disclosures in the 
Appliance Labeling Rule, 16 CFR 305.4, further the statutory policy 
goal of promoting energy conservation.
    Some disclosures are required when a certain term, representation 
or claim (i.e., a ``triggering representation'') is made. The Leather 
Guides, 16 CFR 24.2, for example, advise that the term ``leather'' (the 
triggering term) be qualified when used to describe a product that is 
not composed in all substantial parts of leather. Other disclosure 
requirements may not be linked to a specific triggering term, but 
nonetheless are necessary to prevent deception, e.g., the Guides for 
the Rebuilt, Reconditioned and Other Used Automobile Parts Industry 
(``Used Auto Parts Guides'') 16 CFR 20.1(b), advise that it is unfair 
or deceptive to offer for sale or sell used auto parts unless the fact 
that the parts are used is disclosed in advertising and on invoices. In 
other cases, rules and guides advise that information be disclosed to 
consumers prior to the completion of the transaction, e.g., the Credit 
Practices Rule, 16 CFR 444.3, requires that certain information be 
disclosed to a cosigner prior to becoming obligated.
2. The Clear and Conspicuous Standard in Traditional Media
    In all cases the required or advised disclosures must be 
effectively communicated to consumers. To achieve this general 
performance standard, the Commission's rules and guides require that 
disclosures be ``clear and conspicuous,'' using that term or other 
conceptually similar articulations.\40\ The Commission views such terms 
as synonymous, and this Notice collectively refers to them as the 
``clear and conspicuous'' standard. Other, more specific disclosure 
standards, such as ``equally prominent,'' and ``in close proximity 
to,'' are discussed below.
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    \40\ The following are examples of other articulations found in 
the Commission's rules and guides: ``clearly, adequately, and 
conspicuously,'' ``clearly, conspicuously, and non-deceptively,'' 
``adequate and non-deceptive'' (Guides for the Nursery Industry 
(``Nursery Guides''), 16 CFR 18.8(b)); ``sufficiently clear and 
prominent'' (Jewelry Guides, 16 CFR 23.1 n.2); ``of such 
conspicuousness and clarity'' (Leather Guides, 16 CFR 24.2(g), and 
Guides for the Watch Industry, 16 CFR 245.3(o)); ``clearly and 
adequately'' (Tire Advertising and Labeling Guides (``Tire 
Guides''), 16 CFR 228.14(b)(3); Bait Advertising Guides, 16 CFR 
238.3(c); Retail Food Store Advertising and Marketing Practices 
Rule, 16 CFR 424.1); ``of sufficient clarity and conspicuousness'' 
(Guides for the Decorative Wall Paneling Industry (``Wall Paneling 
Guides''), 16 CFR 243.1(c)(4)); ``legible and conspicuous'' (Rules 
and Regulations Under Fur Products Labeling Act, 16 CFR 
301.38(a)(1)); and ``conspicuous'' (Tire Guides, 16 CFR 228.11).
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    In order to determine whether the disclosure is effectively 
communicated, the Commission considers the disclosure in the context of 
all of the elements of the advertisement.\41\ Ordinarily, a disclosure 
is clear and conspicuous, and therefore is effectively communicated, 
when it is displayed in a manner that is readily noticeable, readable 
and/or audible (depending on the medium), and understandable to the 
audience to whom it is disseminated.\42\
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    \41\ This approach is set out in the Commission's general policy 
on deception. ``[T]he Commission will find deception if there is a 
representation, omission or practice that is likely to mislead the 
consumer acting reasonably in the circumstances to the consumer's 
detriment.'' Deception Statement, 103 F.T.C. at 176. In evaluating 
an advertisement or other promotional message, the Commission 
focuses not on the individual elements of the message in isolation, 
but on its ``overall'' or ``net'' impression. Id. at 175, n. 4. See 
also American Home Products, 98 F.T.C. 136, 374 (1981), aff'd 695 
F.2d 681 (3d Cir. 1982).
    \42\ Deception Statement, 103 F.T.C. at 180-181, ``Qualifying 
disclosures must be legible and understandable. In evaluating such 
disclosures, the Commission recognizes that in many circumstances, 
reasonable consumers do not read the entirety of an ad or are 
directed away from the importance of the qualifying phrase by the 
acts or statements of the seller.''
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    The Commission examines a number of factors to determine whether 
disclosures in traditional media (e.g., print, television, and radio) 
meet this general performance standard. Thus, in print or other visual 
media, the Commission may consider a disclosure's type size, placement, 
color contrast to background, duration, and timing, as well as the 
existence of any images that detract from the effectiveness of the 
message. In audio messages, such as those delivered over the radio, the 
Commission may examine the volume, cadence, and placement of a 
disclosure, as well as the existence of any sounds that detract from 
the effectiveness of the message.\43\ In all media, the Commission 
further evaluates the language and syntax of the disclosure to 
determine whether it is likely to be understood by the relevant 
audience.
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    \43\ E.g., Kraft, Inc., 114 F.T.C. 40, 124 (1991), aff'd, 970 
F.2d 311 (7th Cir. 1992), cert. denied, 507 U.S. 909 (1993); 
Thompson Medical Co., 104 F.T.C. 648, 797-98 (1984), aff'd, 791 F.2d 
189 (D.C. Cir. 1986), cert. denied, 479 U.S. 1086 (1987); See also 
Commission consent orders in European Body Concepts, Inc., Docket 
No. C-3590 (June 23, 1995); Eggland's Best, Inc., Docket No. C-3520 
(Aug. 15, 1994).
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3. Special Issues in Electronic Media
    Because the newer forms of electronic media transmit information in 
writing and through audio and visual messages, the same factors 
considered by the Commission in applying the clear and conspicuous 
standard in traditional media apply. The special attributes of 
advertising on electronic media, however, may call for additional 
guidance. Many Internet advertisements, for example, include scroll 
bars to maneuver down pages that usually exceed one screen in length. 
They also often include hyperlinks, both to other pages on a Web site 
as well as directly to other Web sites. On the Internet and in other 
electronic media, new graphics technologies create messages that 
scroll, blink, spin, pop-up, relocate, etc.
    These unique features may require the Commission to give special 
consideration to certain factors in determining whether a disclosure is 
effectively communicated on electronic media.<SUP>44</SUP> As is true 
for any medium, the specific elements necessary to effectively 
communicate a disclosure may vary depending on the nature of the 
advertisement and the nature of the claim.<SUP>45</SUP> The focus on, 
or the weight given to, any specific factor will vary accordingly.
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    \44\ Certain rules and guides expressly include factors that are 
analyzed in determining the adequacy of a disclosure. For example, 
the Used Auto Parts Guides require that disclosures be ``of such 
size or color contrast and so placed as to be readily noticeable.'' 
16 CFR 20.1(b)(2). Such specific articulations are consistent with 
the general ``clear and conspicuous'' standard and would continue to 
inform the analysis of whether the disclosure is effectively 
communicated.
    \45\ For example, some e-mail messages or facsimiles may contain 
only text, while Web pages or CD-ROMs may contain text, graphics, 
video and audio.
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4. Factors Used To Evaluate Clear and Conspicuous Disclosures on 
Electronic Media
    a. Unavoidability. The Commission believes that, to ensure 
effectiveness, disclosures ordinarily should be unavoidable by 
consumers acting reasonably. On the Internet or other electronic media, 
this means that consumers viewing an advertisement should necessarily 
be exposed to the disclosure in the course of a communication without 
having to take affirmative action, such as scrolling down a page, 
clicking on a link to other

[[Page 25003]]

pages, activating a ``pop up,'' or entering a search term to view the 
disclosure.
    b. Access to Disclosures. The Commission believes that in order to 
be effectively communicated, disclosures should remain accessible by 
consumers at all times during the communication. Therefore, after 
initially viewing a Web page that contains disclosures, a consumer who 
hyperlinks to another page should not be prevented from returning to 
the page containing the disclosures.
    c. Proximity and Placement. Internet and other electronic media 
advertisements often include many pages and the length of each 
individual page can far exceed that of a traditional off-line page. 
Consumers may choose not to scroll completely through each page and not 
to link to each available page on the Web site, thus possibly missing 
important disclosures.
    Based on its experience in evaluating disclosures in traditional 
media, the Commission believes that the effectiveness of disclosures is 
ordinarily enhanced by their proximity to the representation they 
qualify. This is especially important for disclosures that are made 
because of a triggering representation. For example, disclosures on the 
same screen as the triggering representation are likely to be more 
effective than those on separate screens. For those disclosures that 
are not required in response to a triggering representation, the 
disclosure nevertheless is likely to be more effective if it is 
proximate to relevant information.
    The Commission also recognizes that electronic media offers new 
ways of placing claims in advertisements as compared to advertisements 
on paper. For example, some Web pages may use frames to separate the 
screen. Although a consumer may scroll down the Web page, a frame can 
remain constant on the side, top or bottom of the screen. The 
Commission solicits comment on whether consumers generally notice 
disclosures placed within a separate frame and the effectiveness of 
such placement as compared to disclosures that appear elsewhere on a 
Web page.
    d. Prominence. Disclosures that are large in size and/or emphasized 
through a sharply contrasting color, and remain visible or audible for 
a sufficiently long duration, are likely to be more effective than 
those lacking such prominence. Electronic media affords new 
possibilities for adding to (or detracting from) the prominence of 
disclosures through animated graphics, graphics that facilitate 
segregating certain claims, and displays that remain on the screen for 
a long or indefinite duration. Disclosures that are supported by new 
display technologies such as animation, or that are distinguished from 
(i.e., not embedded within) surrounding text, such as within a border, 
may or may not be more prominent. The Commission solicits comment on 
whether these technologies, and other technologies unique to electronic 
media advertisements add to or detract from the prominence of 
disclosures.
    e. Non-Distracting Factors. Even if a disclosure is large in size 
and long in duration, other elements of an advertisement may distract 
consumers so that they fail to notice, read, or listen to the 
disclosure. For example, Web pages may contain large flashing images, 
background sounds, or other items that are separate from the disclosure 
and may reduce the prominence of the disclosure. The Commission 
solicits comment on whether there are specific display technologies 
that distract consumers and reduce the effectiveness of disclosures.
    f. Repetition. The repetition of a disclosure in conjunction with 
the claim that triggers it tends to enhance the likelihood of consumers 
noticing and understanding them. This is particularly relevant to 
Internet advertisements which can be extremely lengthy, with many and/
or long Web pages.
    g. Audio and Visual Presentation. Some electronic media 
advertisements contain both visual <SUP>46</SUP> and audio elements. 
The Commission believes that disclosures are likely to be more 
effective if they are presented in the same mode (audio or visual) in 
which a triggering or relevant claim is presented. In addition, 
research suggests that disclosures that are made in both visual and 
audio modes generally are more effectively communicated than 
disclosures made in either mode alone.<SUP>47</SUP> Therefore, the 
Commission also believes that the display of disclosures both visually 
and in audio, for those promotions that are presented in both modes, is 
likely to be more effective than disclosures in only one.
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    \46\ The Commission is using the term ``visual'' in this Notice 
to include both static visual displays (e.g., a fixed image) and 
non-static video displays (e.g., moving video clips).
    \47\ Mariea Grubbs Hoy & Michael J. Stankey, Structural 
Characteristics of Televised Advertising Disclosures: A Comparison 
with the FTC Clear and Conspicuous Standard, J. Advertising, June 
1993, at 47, 50; Todd Barlow & Michael S. Wogalter, Alcoholic 
Beverage Warnings in Magazine and Television Advertisements, 20 J. 
Consumer Res. 147, 151, 153 (1993); Noel M. Murray, et al., Public 
Policy Relating to Consumer Comprehension of Television Commercials: 
A Review and Some Empirical Results, 16 J. Consumer Pol'y 145, 164 
(1993).
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    The Commission solicits comment on all of the factors set forth 
above. In particular, the Commission solicits comment on (1) its 
underlying assumptions about consumer perceptions regarding Internet 
and other electronic media advertisements, (2) the discussion of the 
state of technology, including any existing or reasonably foreseeable 
technology that is not addressed in this Notice, and (3) the costs and 
benefits of applying the factors discussed above. The Commission also 
requests comment on specific questions listed in Part III, below.
5. Additional Specific Standards Contained in Rules and Guides
    Some of the Commission's rules and guides specify in more detail 
the manner in which the disclosure should be made, instead of simply 
stating that the disclosure should be clear and conspicuous. In these 
instances, the underlying objective of the rule or guide is the same: 
the effective communication of the disclosure. Thus, the Commission 
intends to draw on the factors described above, as embellished by the 
specific requirements of the individual rule or guide, in evaluating 
compliance with the disclosure provisions of the rules and guides in 
advertising on electronic media.
    For example, certain rules and guides specify a particular type-
size in which the disclosure should appear or contain language such as 
``of equal size and conspicuousness,'' ``of equal conspicuousness,'' 
and ``more prominently.'' <SUP>48</SUP> The Commission proposes that 
these rules and guides be interpreted as requiring compliance with the 
general effective communication performance standard, as well as the 
specific size and prominence criteria listed in the rule or guide. 
Other rules and guides state that disclosures should be clear and 
conspicuous and in close conjunction or proximity to a designated 
claim.<SUP>49</SUP> The Commission will evaluate whether the disclosure 
is effectively communicated, following the factors described above, 
with a special focus on the placement of the disclosure.
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    \48\ See, e.g., Rule Concerning the Preservation of Consumers' 
Claims and Defenses, 16 CFR 433; Rules and Regulations Under the 
Textile Fiber Products Identification Act, 16 CFR 303.41(b); Jewelry 
Guides, 16 CFR 23.4; and Rule Concerning Power Output Claims for 
Amplifiers Utilized in Home Entertainment Products, 16 CFR 432.2.
    \49\ See, e.g., Leather Guides, 16 CFR 24.2(g); Guides Against 
Deceptive Labeling and Advertising of Adhesive Compositions, 16 CFR 
235.7; Wall Paneling Guides, 16 CFR 243.1(c)(4); Guides for the 
Household Furniture Industry, 16 CFR 250.1(b)(2); and Guide 
Concerning Use of the Word ``Free'' and Similar Representations, 16 
CFR 251.1(c).

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[[Page 25004]]

    With respect to rules and guides that call for the placement of 
certain disclosures in a specific context, the Commission will consider 
interpreting the language in these rules and guides to permit alternate 
ways of disclosing information using electronic media, so long as the 
disclosure is effectively communicated to consumers and is consistent 
with the underlying objective of the rule or guide.<SUP>50</SUP>
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    \50\ For example, in the consent orders issued in America 
Online, Inc., Docket No. C-3787, Prodigy Services Corporation, 
Docket No. C-3788, and CompuServe, Inc., Docket No. C-3789, (Mar. 
16, 1998), advertisements of a ``free'' offer must contain a 
disclosure directing consumers to the location where the terms and 
conditions of the offer can be found, and full disclosure of the 
terms, conditions, and obligations of the offer can occur during the 
online registration process, prior to consumers incurring any 
financial obligation.
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    Similarly, when rules and guides contain specific disclosure 
provisions that may not translate precisely to the Internet, the 
Commission proposes to interpret these requirements for Internet 
advertising in a manner that is consistent, to the extent possible, 
with both the requirements of the rule or guide and the underlying 
objective of effective communication.<SUP>51</SUP>
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    \51\ For example, the TV Picture Size Rule, 16 CFR 410.1, n. 2, 
prohibits the disclosure of required information in a footnote to 
which reference is made by an asterisk. Following the principles 
stated herein, this Rule would be interpreted as not allowing 
asterisked footnotes as well as their functional Internet 
equivalent--placing the disclosure in a separate location accessed 
by clicking on an icon or hyperlinking to a separate page. This is 
consistent with the Commission's proposal, discussed above, that 
disclosures should be unavoidable by consumers acting reasonably.
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    The Commission solicits comment on these approaches to applying 
specific standards in rules and guides to electronic media marketing, 
and whether additional guidance regarding the specific standards is 
necessary.
6. Perspective of the Reasonable Consumer
    In determining if representations or practices are deceptive, in 
any and all media, the Commission examines them from the perspective of 
a reasonable consumer. A representation or practice directed to a 
particular group, such as children, is evaluated from the perspective 
of a reasonable consumer within that group.<SUP>52</SUP> The same 
``reasonable consumer'' standard applies to disclosures required by the 
rules and guides in electronic media advertising.
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    \52\ Deception Statement, 103 F.T.C. at 175, 179. Some rules and 
guides define the relevant audience for analyzing the adequacy of 
disclosures, e.g., ``purchasers or prospective purchasers,'' 
``purchasers and prospective purchasers . . . casually reading, or 
listening to, such advertising,'' and ``prospective purchasers.'' 
See Nursery Guides, 16 CFR 18.2; Leather Guides, 16 CFR 24.2(g); and 
Warranty Guides, 16 CFR 239.2(b), respectively. Other rules and 
guides do not address the issue.
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III. Request for Comments

    The Commission solicits comments on the issues discussed in this 
Notice. Comments should, if appropriate, suggest specific alternatives 
to various proposals and indicate why alternative approaches would 
better serve the Commission's statutory mandate of protecting consumers 
against unfairness and deception. The Commission also seeks comment on 
the following specific questions:

Applicability of Rules and Guides to Electronic Media

    1. Does the Commission's proposal to clarify the applicability of 
its rules and guides to electronic media provide adequate guidance to 
industry and to the public?
    2. What are the costs and benefits to consumers of the Commission's 
proposed policy regarding the applicability of its rules and guides to 
electronic media?
    3. What significant burdens or costs, including costs of 
compliance, would the proposed policy impose on firms subject to the 
provisions of a rule or guide? Would the proposed policy provide 
benefits to such firms?
    a. What are the costs, burdens, and benefits of the proposed policy 
for small businesses in particular?
    b. What changes should be made to the proposal to reduce the 
burdens or costs imposed on firms subject to the admonitions of the 
rules and guides?
    c. How would these changes affect the benefits provided by the 
proposal?

Interpretations of Terms

    4. Do the Commission's proposed interpretations of the terms 
``written,'' ``writing,'' ``printed,'' and ``direct mail'' provide 
adequate guidance to the public?
    5. What are the costs and benefits of the proposed interpretations?
    6. Do the Commission's proposed interpretations of the terms listed 
encompass all the newer forms of electronic media?
    7. Are there more appropriate alternatives to the various 
interpretations of the terms proposed by the Commission? If so, please 
explain the alternative interpretation and the benefits of the 
alternative.
    8. Does the Commission's discussion of ``direct mail'' adequately 
address the various new means of electronic communication, e.g., e-
mail, facsimiles or list servers, and adequately account for the 
differences inherent in these various formats?
    9. Should the Commission's interpretation of the term ``direct 
mail'' be limited to communications that are capable of being received 
privately? Should individually addressed communications posted on 
Internet Bulletin Boards or USENET groups be considered ``direct 
mail''?
    10. Should Web page or banner advertisements that are targeted to 
certain consumers on consumer preference information be characterized 
as ``direct mail''? If so, are such advertisements adequately addressed 
by the Commission's proposed interpretation? To what extent should 
specific forms of online targeted marketing (e.g., push technology or 
consumer-selected ``channels'') be considered ``direct mail''?
    11. What issues, if any, need to be addressed by the Commission 
regarding the use of electronic media to deliver information required 
to be provided in writing by a rule or guide?
    a. How should the Commission address those issues?
    b. Under what circumstances, if any, should the Commission advise 
that information be provided on paper and not electronically?
    12. Are there other terms in the rules and guides that should be 
specifically addressed by the Commission in the context of electronic 
media? If so, how should the terms be interpreted and why?

Disclosures

    13. Do the proposed factors for evaluating disclosures provide 
adequate guidance to industry regarding making disclosures in 
electronic media?
    14. What are the costs and benefits of applying the factors 
proposed by the Commission to evaluate disclosures required or 
recommended by the rules and guides?
    15. To what extent will an individual consumer's Web browser or 
computer capabilities affect the format of an advertisement (e.g., Web 
page), and therefore, the format of a disclosure? Should the Commission 
advise that advertisers take these differences into account in 
designing their advertising to ensure that disclosures are clear and 
conspicuous?
    16. What technologies exist to prevent or hinder consumers from 
accessing a disclosure after initially viewing it? What are the costs 
and benefits of advising against their use?
    17. Are the Commission's underlying assumptions about consumers' 
perceptions with respect to Internet and other electronic media 
advertisements accurate? Are there surveys, copytests,

[[Page 25005]]

or other direct evidence of consumer behavior that will aid the 
analysis?
    a. How do consumers behave in navigating through a Web site, 
reading e-mail or viewing a CD-ROM?
    i. Do consumers generally scroll completely through Web pages or e-
mail?
    ii. Do consumers generally link to each available page on the Web 
site?
    b. Under what circumstances are consumers more likely to examine 
the top of a Web page, rather than the middle or the bottom of a Web 
screen or page?
    c. Are consumers more likely to notice information that is placed 
within a separate frame on a Web page or in other electronic media 
advertisements?
    d. In what circumstances, if any, must a disclosure appear multiple 
times to be effectively communicated?
    18. What features and technologies particular to advertising on 
electronic media enhance or detract from the prominence, and therefore 
the effectiveness, of a disclosure?
    a. Do disclosures with graphical elements, such as pop-up features, 
animation, blinking, or borders surrounding disclosures, enhance or 
detract from the effectiveness of disclosures?
    b. What features can appear in Internet advertisements that may 
distract consumers from noticing, reading, or listening to disclosures?
    19. Could the interactive nature of the Internet present an 
opportunity to assure that disclosures are noticed and understood by 
the consumer (i.e., could a consumer be required to click on an 
``Understood'' button following the disclosure before being permitted 
to link to other information)? What are the costs and benefits of using 
such features?

General

    21. Are there new technologies that are not adequately addressed by 
the Commission's proposals? If so, how should these technological 
changes be addressed by the Commission?
    22. Are there other issues that the Commission should address in 
clarifying the applicability of its rules and guides to electronic 
media?

    By direction of the Commission.
Donald S. Clark,
Secretary.

                                Appendix                                
------------------------------------------------------------------------
                 Titles                              CFR parts          
------------------------------------------------------------------------
Guides for the Nursery Industry.........  16 CFR 18                     
Guides for the Rebuilt, Reconditioned     16 CFR 20                     
 and Other Used Automobile Parts                                        
 Industry.                                                              
Guides for the Jewelry, Precious Metals,  16 CFR 23                     
 and Pewter Industries.                                                 
Guides for Select Leather and Imitation   16 CFR 24                     
 Leather Products.                                                      
Tire Advertising and Labeling Guides....  16 CFR 228                    
Guides Against Deceptive Pricing........  16 CFR 233                    
Guides Against Deceptive Labeling and     16 CFR 235                    
 Advertising of Adhesive Compositions.                                  
Guides Against Bait Advertising.........  16 CFR 238                    
Guides for the Advertising of Warranties  16 CFR 239                    
 and Guarantees.                                                        
Guides for the Dog and Cat Food Industry  16 CFR 241                    
Guides for the Decorative Wall Paneling   16 CFR 243                    
 Industry.                                                              
Guides for the Watch Industry...........  16 CFR 245                    
Guides for the Household Furniture        16 CFR 250                    
 Industry.                                                              
Guide Concerning Use of the Word          16 CFR 251                    
 ``Free'' and Similar Representations.                                  
Guides for the Feather and Down Products  16 CFR 253                    
 Industry.                                                              
Guides for Private Vocational and Home    16 CFR 254                    
 Study Schools.                                                         
Guides Concerning Use of Endorsements     16 CFR 255                    
 and Testimonials in Advertising.                                       
Guides for the Law Book Industry........  16 CFR 256                    
Guides Concerning Fuel Economy            16 CFR 259                    
 Advertising for New Automobiles.                                       
Guides for the Use of Environmental       16 CFR 260                    
 Marketing Claims.                                                      
Rules and Regulations Under the Wool      16 CFR 300                    
 Products Labeling Act of 1939.                                         
Rules and Regulations Under Fur Products  16 CFR 301                    
 Labeling Act.                                                          
Rules and Regulations Under the Textile   16 CFR 303                    
 Fiber Products Identification Act.                                     
Rule Concerning Disclosures Regarding     16 CFR 305                    
 Energy Consumption and Water Use of                                    
 Certain Home Appliances and Other                                      
 Products Required Under the Energy                                     
 Policy and Conservation Act.                                           
Automotive Fuel Ratings, Certification    16 CFR 306                    
 and Posting.                                                           
Trade Regulation Rule Pursuant to the     16 CFR 308                    
 Telephone Disclosure and Dispute                                       
 Resolution Act of 1992.                                                
Labeling Requirements for Alternative     16 CFR 309                    
 Fuels and Alternative Fueled Vehicles.                                 
Telemarketing Sales Rule................  16 CFR 310                    
Deceptive Advertising as to Sizes of      16 CFR 410                    
 Viewable Pictures Shown by Television                                  
 Receiving Sets.                                                        
Retail Food Store Advertising and         16 CFR 424                    
 Marketing Practices.                                                   
Use of Negative Option Plans by Seller    16 CFR 425                    
 in Commerce.                                                           
Power Output Claims for Amplifiers        16 CFR 432                    
 Utilized in Home Entertainment Products.                               
Preservation of Consumers' Claims and     16 CFR 433                    
 Defenses.                                                              
Mail or Telephone Order Merchandise Rule  16 CFR 435                    
Disclosure Requirements and Prohibitions  16 CFR 436                    
 Concerning Franchising and Business                                    
 Opportunity Ventures.                                                  
Credit Practices Rule...................  16 CFR 444                    
Used Motor Vehicle Trade Regulation Rule  16 CFR 455                    
Labeling and Advertising of Home          16 CFR 460                    
 Insulation.                                                            
Interpretations of Magnuson-Moss          16 CFR 700                    
 Warranty Act.                                                          
Disclosure of Written Consumer Product    16 CFR 701                    
 Warranty Terms and Conditions.                                         
Pre-Sale Availability of Written          16 CFR 702                    
 Warranty Terms.                                                        
Informal Dispute Settlement Procedures..  16 CFR 703                    
------------------------------------------------------------------------


[[Page 25006]]

[FR Doc. 98-11942 Filed 5-5-98; 8:45 am]
BILLING CODE 6750-01-P


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