Presentation by ABA Section of Antitrust Law, PrivateAdvertising Litigation Committee/Consumer Protection Committee/Privacy andInformation Security Committee
(I recommend the PAL Committee for anyone interested in advertising law.)
Moderator: David Conway, Venable LLP
(Sadly, I recorded the time wrong so I missed the initialpresenters on US law! They were RichardCleland, Assistant Director, Division of Advertising Practices, FTC & JohnVillafranco, Kelley Drye & Warren LLP. From the slides, Cleland comparedreasonable and credulous consumers, noting points of overlap. “A reasonableinterpretation is one that would be shared by at least a significant minorityof reasonable consumers,” Pom, whichmight be as low as 10%. Reasonableconsumers = ordinary consumers. Villafranco emphasized that the reasonableconsumer varied by the ad. Also pointed out that all ads are subject tomisinterpretation, so trying to get rid of it will fail and harm the public. Also, my voice recognition is terrible, so the chances of misattribution are reasonably high here.)
Panelists: Bill Hearn, Davis LLP
Canadian SCt decided Richardv. Time, a case about the Quebec Consumer Protection Act—consumer receiveda sweepstakes notification that made it look like he’d won a lot of money(including listing his name in the middle of names of actual winners), coupledwith fine print disclaimers saying that he’d only win if he returned a winningentry. Images:
District court said the ad was designed to bemisleading. Court of appeal (Frenchdecision): ct of appeal said a consumer of average intelligence wouldn’t expectmoney to fall from the sky and would understand that it was a sweepstakes. SCt of Canada reversed; $1000 compensatoryand $15,000 punitive damages, but also an award for the solicitor’s fees, whichwere significant. Looking at Quebec’slegislation: under that law, the general impression on first contact is thestandard. Rejected “average level ofintelligence, skepticism and curiousity” and “careful, diligent” consumer infavor of ordinary consumer in a hurry—credulous, inexperienced, trusting; not“a well-informed person” but “someone who is not particularly experienced atdetecting falsehoods and subtleties found in
commercial representations.” Explicitly based on legislativehistory in Quebec.
Possible implications: Strictly speaking, this was justabout Quebec. Courts interpreting the Competition Act have consistently applieda reasonable person standard since 1975. Purposes of Competition Act are morevaried than those of Quebec’s consumer protection act—Bureau must considereffect on competition. Bureau has said that average consumer standard turns onnature/sophistication of target audience.
Keeping the reasonable person standard is a good idea forconsistency with international standards: US (consumer acting reasonably underthe circumstances), UK (average target), EU (reasonably well informed under thecircumstances, taking social, cultural and linguistic factors into account).Commissioner of Competition Bureau seems to be taking credulous consumerposition in one pending case though. Should vary based on type, complexity of services/sophistication of the audiencetargeted or likely to be reached—but it’s an open question under the CompetitionAct.
Brendan Ross, Major Case Director & Strategic PolicyAdvisor, Misleading Advertising & Labeling, Competition Bureau Canada:Standard disclaimer: not official views.
The Competition Act contains criminal and civil provisionswhich prohibit making false or misleading representations when promoting the supplyor use of a product or any business interest. Bureau has recently gone after instances of insufficientdisclosure/important stuff hidden in fine print. If fine print adds informationand would be likely to come to consumers’ attention, that’s good; but they can’tbe used to cure information that would be otherwise misleading—if you hold yourthumb over the disclaimer and the ad is deceptive, that won’t work.
Richard: lowercourt found that the ads were specifically designed to mislead. Defendant argued that you should read the adcarefully and ignore the presentation, focusing on the text. Time also invited the court to conclude thatthe average consumer should be skeptical of the general impression created bythe ad and curious enough to take concrete action to find the true messagehidden behind the ad—do some digging. SCt said no. The general impression is what the consumer has afterinitial contact, including text and layout; does not require minute dissectionof text to determine general impression.
Court said: Consumer need not approach an ad as if it were acontract, reading it over several times and making sure every detail wasunderstood. So when the court said a consumer is credulous, that means preparedto trust merchants based on a general impression conveyed by the ad. Inexperienced: not particularly experiencedin detecting falsehoods/subtleties—doesn’t necessarily have a sophisticatedtoolkit for figuring out what’s wrong. Can’t depend on consumers to parse fineprint.
That aligns with the Bureau’s position all along: if thegeneral impression is misleading, the fine print should not help you. Not a “thickas a brick” or unreasonable consumer standard. Question was what was itreasonable to take away from the ad; do not require consumer to be skepticalabout whether ad was telling the truth. It’s not that the consumer is incapable of understanding the generalmeaning of terms, but rather that the consumer is not required to disbelieve factualclaims. Wireless provider: “we have no contract.” Court in that case said it didn’t believethat even a credulous consumer would believe that there was no contractualrelation at all; rather consumer would believe that there was no time commitment.
Consumers dobelieve most claims they encounter: they believe that a thing that looks likean invoice is an invoice; they believe that weight loss products work; theybelieve in work-at-home opportunities; etc.
Takeaway: it’s risky to create a false or misleading generalimpression and rely on disclaimers; viewed with suspicion by the Bureau and theCanadian SCt. While the Act isn’t a consumer protection statute, consumerprotection and consumer understanding is vital to accomplishing the objectivesof an efficient economy: misleading consumers interferes with competition.
Hearn (I believe) asked about what happens when an offer istrue for some consumers (e.g., some consumers can get $40/month service, whilethe majority wouldn’t qualify for this price and this limit is disclosed in fineprint—what if the advertiser discontinues this ad rather than run the risk ofthe credulous consumer standard, depriving a minority of useful information?). (Why can’t the ad specify who can get$40/month service in the main body of the ad? “If you are …”)
Villafranco (I think): we’ll know more about this standardas time goes by. Disclosures aren’tinherently evil, but are actually helpful. Credit terms can be helpful—US would consider clear and conspicuousstandard. Consumers of cellphones understand that there will be limits—if theybuy a cellphone at a discounted price, there’ll be a contract term.
Ross: Not saying disclosures are inherently misleading.Saying that disclosures in fine print can’t correct a representation that ismisleading. Once the deception is there, you’re gambling that consumers willunderstand it. Anticipates that courts will pay attention to the targetedgroup, but doesn’t agree that consumers are highly sophisticated at parsingcontract terms for cellphones, which have high penetration; wireless ads appealto everyone.
Hearn: but if you’re saying that “the ad is misleading if it’smisleading when you put your thumb over the fine print,” then you might not beable to run an ad claiming a benefit only available to 35% of customers. Risk-averse advertiser might not run thead. (And not reword it?)
One panelist, possibly Cleland: courts in the US don’t havetrouble with the reasonable/credulous line. 10th Circuit expressed some dismay about the reasonableperson standard and questioned whether it served consumer protection purposes.But the reasonable person standard isn’t as high as you think it is—reasonable peoplemay be trusting. Ordinary personstandard isn’t as low as you think it is—not that far apart. Richardv. Time shouldn’t come out any differently under the US standard.
This is often presented as “if I can’t put the info in thedisclaimer, I can’t offer the deal!” Hedoesn’t think it’s either/or. Time adwas put together with the idea of having the consumer, at least for a moment,believe that he was a winner. They didn’t have to do that. Could have put theoffer out there simply and to the point, and if it was a good offer, Richardcould’ve taken it. But to get his attention this way was just deceptive.
Ross: not convinced that these cases turn on the standardeither. Ordinary citizen—courts say it’sa cross section of the public that lacks expertise but has ordinary reason/commonsense. Note that many older Canadianshave low levels of HS graduation; many Canadians have limited literacy andnumeracy. We should not write them off—“youdon’t deserve protection because you fell for it.” Remember that direct mail, as in Time, can be profitable with a 3-4%response rate. Are we going to interpretthat as meaning that the small group who were deceived are out of luck? He’sskeptical of that approach.
Heard (I think): when the court of appeal applied thereasonable person standard, he lost. When the SCt applied the credulous personstandard, he won. (I don’t think that courtof appeal result was right, though, and I take it that Ross might well agree.Does the reasonable person have to say “this deal is too good to be true” everytime? How is that line to be drawn?)
Ross: Ct of appeals said: your job as a consumer is to besuspicious of what you’re told as part of its definition.
Cleland (I think): that’s not part of the reasonable personstandard here: need not be skeptical of the claim; we use the standard todetermine what the claim is, not whether they should believe it. Nobody everwins sweepstakes, but that’s not the issue.
Villafranco: reasonable person standard is consistentlyapplied in the Lanham Act, FTC, NAD—every decision in corporate America dependson it. Agrees with Heard that there is adifference between the standards and a reason why we moved away from the ignorant/unthinking/credulousstandard. (I just think the regulatorsare saying that the difference between the standards is not that the reasonable person standard requires suspicion of claimsthat appear to be factual claims, so that Richard should still have won under atrue reasonable person standard.)
Heard (I think): many advertisers are worried about thecredulousness standard, but some commentators suggest that the difference ismore apparent than real. This difference needs clarification. Quebec is anoutlier—other provinces apply reasonable person standard, as does AdvertisingStandards Canada in administering its code.
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