From the Experts: God Save the Queen
Is the FTC going too far with its regulations for online marketing? A look at UK rules suggests that maybe they have.
On May 26, 2011, the Federal Trade Commission announced it was undertaking a review of the so-called “Dot Com Disclosure
Guidelines” it adopted in 2000 to provide insight to marketers using the Internet.
My first reaction was positive. Knowing what the FTC thinks about disclosures is a good thing, right? And unlike the FDA, at least
the FTC is willing to address important issues facing e-commerce. As reported in an earlier column, the Food and Drug
Administration has had deaf ears in response to Pharma’s request for advice when marketing on social media.
Then I got to thinking about the bigger picture of how e-commerce and marketing in general are regulated in the United States
when compared to other countries. The truth is that the United States’ system is far more complicated and expensive-and the
bureaucracy that oversees United States markets is far larger-than any other in the world. By far.
Granted, other countries have similar volumes of regulations and case law; but none has as much day-to-day intrusion by
government agencies as does the United States. It seems Washington just can’t keep its hands off commerce, and they believe
consumers need to be protected from avaricious marketers. But guess what? Maybe consumers in the United States are no
dumber or more naïve than consumers in, e.g., England. And marketers are no more aggressive in the United States than they are
in any other country. The United States does not have an exclusive hold on how best to reach consumers and properly motivate
So I ask, do sellers and consumers really need more guidance from the FTC on Internet marketing practices? After all, it’s not like
anyone asked for it. It’s the FDA that was asked and that chose to ignore the request.
In its announcement, the FTC noted that since 2000, mobile media, apps, popup blockers, and social networks have changed the
landscape. Popup blockers? Really?
So now the FTC feels compelled to rewrite its dot com rules. To help marketers. To help consumers.
But what if marketers and consumers don’t need the FTC’s help? It’s pretty safe to say marketers don’t want it; nor, do I suspect,
do consumers either need or want it. It’s not as if they asked.
Sure, some consumer groups have complained. But they always complain. That’s what they do. And sometimes they make very
good points and help improve the marketplace. Other times, they’re just plain silly. But more importantly, they are not ignored by
marketers. The industry often responds to their pressure. And while some would say that’s only true because the FTC and other
regulators also are applying pressure, there is no empirical proof, particularly when one looks at other jurisdictions.
The disturbing truth is that what makes the United States different is that in the name of consumer protection, it has created the
most litigious marketplace in the world. A marketplace in which marketers pay obscene amounts to settle class actions, regardless
of the underlying merits of a case; incur fines and penalties from government agencies far more onerous that they do in any other
country; and face unequaled concerted actions by federal, state, and private practitioners. It’s a mess. But I guess that all protects
consumers and keeps marketers honest in the United States.
If that’s true, how come consumers in the UK, France, Australia, Japan, Brazil, and just about every other developed country in the
world are just as protected? And no one can seriously doubt that marketers are not just as aggressive in all those countries as they
are in the United States. Or put another way: consumers are just as smart and marketers just as honest in the U.S. as they are
throughout the civilized world.
And now the FTC has decided to jump into the soup again and tell marketers how to stir the pot and serve consumers. As if their
prognostications will make the online world a better place and support ecommerce in an increasingly competitive world. After all,
isn’t it time marketers were told where to put a link, how to express a limitation, how to let the consumer hide, or how to control the
world of apps? Don’t marketers really need that guidance? No. The more rules the market faces, the more likely suits will be filed
and the fines and settlement costs in the United States increase, suppressing, not increasing, competition. More burden on
marketers. More red tape. Higher barriers to entry. More money for class action lawyers who settle for pennies on the dollar for
consumers. Consumers couldn’t ask for more, could they?
Maybe it’s time for the FTC (and our system) to take a lesson from our British friends. The UK doesn’t have class actions, so
lawyers are not lining their pockets with legal fees in cases that provide little meaningful redress to consumers. British government
authorities don’t investigate marketers at anywhere near the rate the FTC and other regulators do in the United States. And best of
all, even when UK regulators step in, the fines are pocket change compared to what’s routinely extracted by the FTC.
In the UK, counties and districts have their own regulators similar to attorneys general in the United States. But they rarely intrude
on the markets. So why does it work there? What is their secret?
The answer to both questions is true respect for self-regulation and media cooperation. It’s that simple.
In the UK, its self-regulatory organization, the Advertising Standards Authority, adjudicates cases where it suspects marketers are
making unsubstantiated claims or are involved in unfair, indecent, or deceptive acts or practices. Their process takes about two
months. Their decisions are published. And media companies comply with rulings mandating that a particular campaign be
discontinued or a claim stopped. Indeed, the ASA and regulators actually collaborate on the codes that govern the marketplace.
What a novel approach!
Recently, the ASA assumed full jurisdiction over Internet marketing. In the first couple of months, they’re reporting progress and
remain optimistic. In response, the government is laying off, letting the marketplace correct and regulate itself.
In the United States, the equivalent to the ASA is the National Advertising Review Council and its various divisions-the National
Advertising Division, the Children’s Advertising Review Council, and the Electronic Retailing Review Board. They adjudicate
complaints brought by consumers, competitors, and others. They come to decisions within months. More than 95% of marketers
comply. And while media companies are not beholden to the NARC, the incidence of repeated violations is so insignificant that it
does not warrant anyone’s attention. In short, it works.
But unlike their counterparts in the UK, U.S. regulators can’t control themselves. Congressional committees hold hearings. The
FTC has public workshops. Both publicly support self-regulation and then show their schizophrenia by questioning it and proposing
more regulation. They’re all addicted to the Beltway’s bully pulpit.
But wait, there’s more.
Just a few weeks ago, FTC Commissioner Julie Brill opined that where trade associations get together to adopt self-regulation, if
they get too aggressive, they may be committing a crime by violating the antitrust laws. A crime. As in go directly to jail.
Commissioner Brill’s article comes on the heels of industry trade associations adopting a comprehensive self-regulatory program
for online behavioral advertising (OBA). It includes significant disclosure rules, opt-out mechanisms, consumer education, and
enforcement. It was designed in response to specific concerns expressed in other FTC pronouncements. Now the industry can
thank Commissioner Brill for a very cold shower for self-regulation. The alternative? More regulation by the FTC, starting with a
rewrite of the dot com rules. Some might call that the FTC Self-Preservation Act.
So here we are, waiting for new FTC dot com rules amid implied threats to self-regulation and more marketplace intrusion. All in
the name of protecting consumers who don’t need protection. Unless, of course, you’re prepared to say United States consumers
are dumber, more naïve, and less sophisticated than they are in Britain. If that’s true, may God, indeed, save the Queen.
Mr. Wood is a partner in the New York office of of Reed Smith LLP, He specializes in media and entertainment law and is editor of
Network Interference – a Legal Guide to the Commercial Risks and Rewards of the Social Media Phenomenon, a White Paper on
how social media globally impacts every level of business.
Doug Wood, We Expert
Copyright 2011. ALM Media Properties, LLC. All rights reserved.
Reprinted from Corporate Counsel, http://www.law.com/jsp/cc/index.jsp