Dec 05, 2006
In This Issue
The Federal Trade Commission is gearing up to subpoena information from about 50 companies on advertising tactics for children’s food and drink products.
Although names have not yet been disclosed, the companies are likely to include those that make breakfast cereals, snack foods, sodas, and other products aimed at kids. The FTC will use the data for a report that looks at the different types of marketing, such as the use of popular children’s characters or video games, used for kids’ food and drinks. The report is the latest effort in a push to change how the industry markets food to children in the face of alarming statistics about childhood obesity. As reported in the October 24, 2006, issue of AdvertisingLaw@manatt, former President Bill Clinton, who is well known for his love of fast and junk food, recently struck a deal with major snack food manufacturers to sell healthier snack foods to students.
Some companies already have cut back their marketing to children. As reported in the September 26, 2005, issue of AdvertisingLaw@manatt, Kraft Food has set national standards for products it will market to children aged 6 to 11 and will not advertise to those younger than 6. The Walt Disney Company has recently established standards for the type of food products its characters may be used to advertise.
Elsewhere in the federal government, the Federal Communication Commission and Senator Sam Brownback are creating a task force of government officials, television programmers, and marketers to study the media’s impact on childhood obesity next year.
The rate of obesity in children and adolescents has more than tripled from less than 5 percent in the 1980s to about 16 percent today, according to federal data. Critics of the food industry’s marketing practices say ads, on which the industry spent an estimated $10 billion to $12 billion last year, aggressively target children. Marketers counter that they are being singled out as easy targets. They say that the problem of childhood obesity is complex and that no link has been firmly established between food ads and fat kids.
To avoid regulation, the industry is taking the matter into its own hands. New guidelines for marketers of children’s food products from the Children’s Advertising Review Unit, a unit of the Council of Better Business Bureaus, are being revised, after the group announced in February that it would conduct a complete review of the existing guidelines. The new guidelines may go beyond their current focus of protecting children’s privacy and preventing youths from seeing messages intended for adults to adding minimum nutrition standards or restrictions on targeting children with promotions for unhealthy food.
Significance: This could be the first step toward regulation, if the FTC decides that it wants to make a statement. On the other hand, it may push industry self-regulation. Which way the FTC goes will depend on public attitude, Congress, and studies that explore the causes and effects of childhood obesity.
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The new Democratic-led Congress is likely to set its sights on a number of marketing issues, including prescription drug advertising, food advertising to children, and media ownership.
Senator Ted Kennedy of Massachusetts, who will become chairman of the Senate Health Committee, has co-sponsored legislation that would impose a two-year moratorium on direct-to-consumer advertising of newly approved drugs. Kennedy has also criticized the Food and Drug Administration for not giving DTC drug ads sufficient scrutiny. Senator Tom Harkin, an outspoken critic of kid food marketing from Iowa, will be chairman of the Senate Agriculture Committee.
In the House, Representative John Dingell of Michigan has listed his priorities as incoming chairman of the House Energy and Commerce Committee to include privacy issues and prescription drug ads. He also said he disagrees with some of the Federal Communications Commission’s easing of media ownership rules, and asked that approval of AT&T’s deal for BellSouth be delayed until his panel can review it. He said the FCC has been “very responsive to industry desires to reduce or eliminate controls on [media] ownership.” Three other key House changes: U.S. Representative Ed Markey of Massachusetts becomes chairman of the Energy and Commerce Committee’s telecom panel, U.S. Representative Henry Waxman of California becomes chairman of the House Government Reform Committee’ and U.S. Representative John Conyers of Michigan becomes chairman of the House Judiciary Committee.
Significance: The congressional changing of the guard, along with the increase in the number of Democratic governors, means that marketers, including those of drugs and kid food in particular, must contend with an enhanced interest in governmental oversight of advertising.
Swearing on a news program may be acceptable, but profanities on other shows are still forbidden, the Federal Communications Commission announced November 7, 2006.
The agency backtracked on a prior ruling that airing the word “bullshitter” on the CBS program The Early Show was indecent. The incident involved a live 2004 interview with a contestant on CBS’s Survivor Vanuatu who had used the word to describe a fellow contestant. The March decision was controversial because it bucked the traditional wisdom that news shows were given wider leeway on language.
But earlier this month, the FCC said it was deferring to a “plausible characterization” by the network that the interview was news, which merits a higher standard for indecency violations. The ruling creates an interesting disconnect: reality show contestants can’t swear on the show, but they can swear when talking about the show.
The agency also rejected a complaint about profanity on several episodes of ABC’s NYPD Blue on a technicality because the complaint was made against a TV station by a viewer outside of its market.
The FCC upheld its March rulings that unscripted profanities uttered during Fox’s broadcasts of the Billboard Music Awards in 2002 and 2003 were indecent. In the 2002 show, Cher used the “F-word” after accepting an award. In 2003, Nicole Richie used the “F-word” and the “S-word” in presenting an award.
FCC Chairman Kevin J. Martin defended the new rulings. “ Hollywood continues to argue they should be able to say the F-word on television whenever they want … the commission again disagrees,” he said.
The new ruling comes in the wake of a lawsuit by the four major broadcast TV networks challenging the March action. The U.S. Second Circuit Court of Appeals had given the FCC a November deadline to reconsider those indecency decisions.
Broadcasters, who had challenged the original ruling as unconstitutional, were pleased with the two reversals, but reiterated their long-standing complaint that FCC guidelines remain inconsistent and ambiguous. They say that the inconsistencies, combined with its more aggressive enforcement, and Congress’s tenfold hike in maximum indecency fines to $325,000 per violation have chilled the industry.
One commissioner, Jonathan S. Adelstein, alleged that the reversals were not made on merit but to improve the agency’s chances of winning the broadcasters’ lawsuit by jettisoning its weakest parts. “Litigation strategy should not be the dominant factor guiding policy when 1st Amendment protections are at stake,” said Adelstein, who did not vote against the ruling but dissented to those parts of it, as the only one of the five commissioners who raised objections.
The March ruling stemmed from an earlier reversal of FCC policy. In 2003, the FCC’s staff concluded that the “F-word” was allowed as an adjective, rejecting complaints about U2 singer Bono’s use of the word in that way during the 2003 Golden Globe Awards telecast. But in March 2004—amid public outcry after Janet Jackson’s breast was briefly exposed during the 2004 Super Bowl halftime telecast—the FCC reversed itself, ruling that any variation of the “F-word” referred to sexual activity and was almost always indecent. The FCC used that new standard in March to pronounce the incidents on The Early Show, NYPD Blue, and the Billboard Music Awards indecent.
Significance: Although Adelstein suggests that the FCC is trying to improve its chances of winning the networks’ lawsuit, the reversals could have the opposite effect, since they may make it more difficult to argue that the agency has a set of clear and consistent rules, as it claims.
When the Federal Trade Commission proposed new rules this spring for multilevel marketers—a sales system under which the salesperson gets a commission on sales and a smaller commission on sales from recruits—the agency received more than 15,000 letters of protest.
For years, companies like Tupperware, Herbalife, and Avon have flourished by building a network of part-time sales representatives. Those reps, in turn, are encouraged to recruit others for a piece of new enlistees’ profits. The companies profit by increased revenue and fees paid by new sales representatives.
The $30 billion industry for the most part is legitimate but is marred by pyramid schemes and other types of fraud. In April, citing hundreds of probes, the FTC proposed new rules for multilevel marketing companies and related businesses. The rules, if adopted as is, would require multilevel marketing firms and related firms to tell potential recruits how many sales representatives have not earned more than their start-up costs and how many customers filed deceptive practices lawsuits against the firm. They would also require a weeklong waiting period between approaching new sales representatives and sealing the deal.
Companies are worried that the new rules will impair their ability to recruit new sales representatives. Industry-wide, multilevel marketing companies typically replace almost all of their sales representatives every year. The activities of short sellers suggest that they are right to be concerned. Since the commission’s proposal, short sales of many publicly traded multilevel marketing companies have increased dramatically.
The circumstances of Pre-Paid Legal Services, Inc., which sells legal insurance through multilevel partnerships, illustrate the dilemma. For a monthly fee, Pre-Paid Legal lets customers consult an affiliate lawyer on legal matters like speeding tickets or drawing up a will. In 2005, the company’s nearly 500,000 sales representatives brought in revenue exceeding $423 million. It also replaced at least half of its active sales force, according to filings with the Securities and Exchange Commission.
Under the proposed rules, Pre-Paid Legal would have to tell prospects that fewer than a quarter of its sales representatives sold more than one plan in 2005, according to an SEC filing. They would probably also force the company to disclose a variety of legal actions, including a 2005 jury verdict of $9.9 million over claims of deceptive marketing.
Significance: The agency could take up to two years to approve the proposed regulations, which may be modified considerably in the interim. Multilevel marketers would be well-advised to take this proposal very seriously and plan well in advance for its possible enactment.
European Union member states have agreed to overhaul broadcasting regulations, opening the door to increased use of product placements and more frequent interruptions of films for ads.
Under the deal, broadcasters must continue to limit advertising to 12 minutes per hour but will be permitted to interrupt a film for ads every 30 minutes, instead of the previous 45 minutes. Product placements will also be allowed, although broadcasters would have to avoid focusing on company logos and could not put products in children’s or news programming. This move brings European law, which banned most product placement, more in line with U.S. rules, which allow it.
The deal must be approved by the European Parliament. After its Culture Committee discusses the issue, Parliament will negotiate a compromise between its version and the governments’ version. Ministers will reportedly seek to come up with a final text by May.
Significance: Broadcasters have battled to loosen European rules, which they say put them at a disadvantage against U.S. competitors, who operate under less restrictive advertising and product placement rules. Technology companies also have worried that new EU rules could affect video on the Internet and mobile phones. This deal should alleviate some of the industries’ concerns.
At the beginning of the year, only four states— California, Vermont, Texas, and Louisiana—had credit freeze laws on their books. Today, in the wake of a spate of widely publicized security breaches, 25 states have passed credit freeze laws.
New York’s new law, which went into effect on November 1, is typical. It allows any consumer within the state to write to the three major agencies and request that their credit records be blocked from any inquiries. The credit freeze bars lenders and others from reviewing an individual’s credit history. Because few lenders will issue credit without first seeing a credit report, identity thieves will not be able to open fraudulent accounts using the name of someone who has frozen their report.
A security freeze can only be obtained by sending a letter by certified mail or overnight courier to each of three credit reporting agencies. The service is free if a consumer is making this request for the first time. However, a $5 fee can be charged for subsequent requests, as well as to remove or temporarily lift a security freeze. No fees are charged to victims of identity theft provided they submit a signed police report or an ID Theft Victim’s affidavit obtained from the Federal Trade Commission.
The freeze will take effect within five business days after the consumer’s letter is received. Within ten days, the credit bureaus must send a letter to the consumer informing them that the security freeze is in place and giving them instructions on how they can remove or temporarily “thaw” this credit freeze. The letter will also include a personal identification number to be used when the consumer calls a credit bureau in the future.
Consumer officials have admitted that the law can cause disadvantages for consumers by preventing them from using their own credit files to apply for credit as long as the freeze remains in effect. “With a security freeze in place, you won’t be able to borrow money or get a new credit card until you temporarily lift or permanently remove the security freeze,” the New York state Consumer Protection Board noted on its Web site. “The same is true of new insurance coverage and background checks that might be required by a new employer.”
The security freeze can be temporarily lifted for a specific period of time or for a specific company or creditor. To do this, the consumer must write or call the credit bureaus using the PIN provided by them and request a temporary lift of the security freeze from the consumer’s records. This “thaw” will cost $5 and the credit bureaus will have three days to carry out this request.
Significance: The credit reporting services have cautioned consumers about freezing their reports because of the wide variety of circumstances in which such reports are used, although they do recommend such a move for certain identity theft victims.
Lauren Reiter Brody
Alan M. Brunswick
Gregory A. Clarick
Christopher A. Cole
George A. Cooke
Jeffrey S. Edelstein
Gene R. Elerding
Linda A. Goldstein
William M. Heberer
Susan E. Hollander
Angela C. Hurdle
Felix H. Kent
Christopher T. Koegel
Charulata B. Pagar
Jill M. Pietrini
Lindsay M. Schoen
Brad W. Seiling
Charles E. Washburn, Jr.
Linda A. GoldsteinPartner
Jeffrey S. EdelsteinPartner
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