Why the FTC Should Take the U.K.’s Lead on the Internet
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 naive 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 them.
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 U.K., 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 e-commerce 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 U.K. 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 U.K. regulators step in, the fines are pocket change compared to what’s routinely extracted by the FTC.
In the U.K., 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 U.K., 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 percent 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 U.K., 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. 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 naive, and less sophisticated than they are in Britain. If that’s true, may God, indeed, save the Queen.
Doug Wood, We Expert
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