Press Releases Can Create Liability for False Advertising

In May 2002, the California Supreme Court decided the case of Kasky v. Nike, Inc. Starting in 1996, Nike was the subject of adverse media coverage regarding its labor practices at overseas factories. Nike responded with a media campaign, asserting that the workers were paid and treated fairly. The campaign included press releases, letters to newspaper editors, university presidents and athletic directors, and full-page advertisements in major newspapers.

The Supreme Court, by a vote of 4-3, held that Nike could be liable under a false advertising theory if the claims in its media campaign were misleading. The Court rejected Nike’s argument that its free speech rights gave it protection from false advertising claims.

The upshot for the advertising and public relations community is that media campaigns must be designed and reviewed with the broad false advertising rules in mind. The Supreme Court described its decision as meaning that “when a business enterprise, to promote and defend its sales and profits, makes factual representations about its own products or its own operations, it must speak truthfully.” While the Supreme Court denied that it was imposing a “remarkable or intolerable burden” on the business community, Nike stated in a press release that the court’s decision “sets a dangerous precedent by restraining companies, such as Nike, from making public statements about their business practices when challenged in the arena of public debate.”

FTC Sweep Targets Alleged Business Opportunity and Work-at-Home Scams

In the last decade, the “sweep” has been a hallmark of the Federal Trade Commission’s enforcement approach with respect to marketers engaged in deceptive practices. In FTC lingo, this means that the agency files lawsuits against a group of businesses marketing a similar type of product or service. By bundling together its cases, the FTC can make a bigger splash in the media, which serves its consumer education function.

On June 20, the FTC announced a law enforcement sting against 77 marketers who allegedly used deceptive earnings claims and paid “shills” to promote work-at-home scams. The businesses encouraged consumers to invest in such ventures as envelope stuffing and medical billing work-at-home schemes. In all the FTC’s cases, the marketers made earnings claims that allegedly were unsubstantiated or deceptive. For more details, see www.ftc.gov/opa/2002/06/bizopswe.htm

National Do-Not-Call Registry

The FTC is currently evaluating the establishment of a one-stop, national do-not-call registry that would allow consumers to stop calls from many types of telemarketers by placing a single call to a toll-free number. It appears likely that the FTC will adopt such a rule by next year and that the rule will have a major impact on telemarketing.

California Auto Dealer Advertising Law Manual

The California Motor Car Dealers Association recently published a 420-page manual that provides guidance regarding the maze of laws and regulations applicable to vehicle advertising, which is one of the most highly-regulated areas of advertising in this state.

Advertising & Marketing Law Update is a publication of Downey Brand LLP