Natural Foods Merchandiser

Media companies can be liable for deceptive practices

The Federal Trade Commission has reiterated its position regarding the media's responsibility when it helps to create and disseminate false and deceptive advertisements. In a letter to the lawyer representing Premiere Radio Networks, the "hybrid entity" that helped produce and then run radio commercials for HeightMax dietary supplements, the FTC stated, "An ad agency 'has a duty to ascertain the existence of substantiation for the claims which it makes,'" referring to a ruling in a 1983 case involving Bristol-Meyer (102 F.T.C. 21, 368).

Premiere is not a traditional advertising agency. However, the FTC said that when a company produces commercial advertising for national dissemination, then the "Commission precedent cited above is applicable."

"An advertising agency may be held liable under the FTC Act if the agency was an active participant in preparing the deceptive advertisement and it knew or should have known that the advertisement was false or lacked substantiation," wrote Mary Engle, associate director, Division of Advertising Practices at FTC.

Hugh Latimer, the lawyer representing Premiere who received the letter, wrote an article in MediaWeek that called the FTC's action a "major policy shift." Latimer wrote, "For many media insiders, the policy shift seems rooted in neither logic nor precedent. To start, comparing media companies to advertising agencies is impractical, as agencies charge substantial fees for developing entire ad campaigns, while media companies tend to help the smaller advertisers at no extra charge with little details like inserting voices, adding music and making sure the ad runs for the desired length of time. To require media companies to substantiate advertising claims would increase cost, preclude or severely limit advertising by many smaller advertisers and raise significant First Amendment issues with regard to commercial speech."

"Anyone who is actively involved in the creation of false or misleading advertising can be a target of FTC action. That includes a media company that actually helped to create the deceptive advertising — as opposed to simply disseminating copy provided to it by the advertiser — and knew or should have known that it was false or did not have adequate substantiation," according to Ivan Wasserman, partner with the law firm of Manatt, Phelps and Phillips in Washington, D.C.

HeightMax had been marketed on the Premiere Radio Network and in magazines such as Newsweek, Rolling Stone and Maxim. The advertisements claimed that people between the ages of 12 and 25 could grow an additional 2 to 3 inches in 6 months. In November 2006, the marketer of HeightMax, Sunny Health Nutrition Technology & Products, was ordered to pay $375,000 in consumer redress. An additional $1.9 million was ordered in February 2007 because the company had misrepresented its financial statements by hiding funds.

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