United States: FTC Position On Internet Advertising And Privacy Online

By a unanimous vote, the Federal Trade Commission (FTC) recently issued Guidelines for Internet advertising entitled Dot Com Disclosures. The Guidelines were adopted after a public comment period and workshop. Their purpose is to emphasize that Internet companies are subject to the same laws against false advertisements as other businesses and to explain the method of making disclosures on the Internet. The Guidelines, which are available at www.ftc.gov/bcp/conline/pubs/buspubs/dotcom/index.html, are written in plain English and have links to specific examples.

Advertising is interpreted by the FTC to mean any claim about a product or service. The claim can be on the Internet, in print (e.g., newspapers, mailers, brochures), on the radio, television, or in the form of infomercials.

The FTC's three basic principles of advertising are:

• Truth: The claims must be truthful and not directly or indirectly misleading.
• Substantiation: Advertisers must be able to substantiate their claims with facts. For example, a claim that a product is effective must be supported by evidence.
• Fairness: Advertisements cannot be "unfair."

An advertiser must carefully consider, in light of the ad as a whole, what claims need qualification and what to disclose. However, a disclosure cannot cure a false claim. Instead, a false claim must be modified to ensure that it is true.

In the following situations, among others, disclosures may be necessary:

• Warranties and guarantees
• Comparative advertising
• Use of the word "free"
• Environmental marketing claims
• Negative option plans
• Endorsements and testimonials
• Foreign language materials
• Franchising and business opportunity ventures

The FTC has also promulgated rules relating to specific industries in which disclosures must be made, including the following:

• Automobiles and used automobile parts
• Fur, textile, and wool
• Household furniture
• Jewelry, precious metals, and pewter
• Pay-per-call services
• Tires
• Smokeless tobacco
• Home appliances
• Leather and imitation leather products
• Retail food
• Private vocational and distance education schools
• Home insulation
• Law books
• Nursery industry
• Amplifiers used in home entertainment products

The Guidelines require that disclosures be placed in a "clear and conspicuous" manner. To ensure that an online ad meets this requirement, advertisers should consider how a reasonable consumer would perceive and understand the disclosure in the context of the whole ad. Advertisers must draw attention to the disclosure by placing it on the page where a consumer not actively looking for it would find it anyway. The Guidelines list six factors for advertisers to consider:

A disclosure should be located near - preferably next to - the claim it qualifies to increase the likelihood consumers will see it and associate it with that claim. If a disclosure cannot appear on the same screen as a claim, advertisers should alert consumers with text prompts or through a Web page's visual design to alert them to scroll down for more information. Further, advertisers should avoid formats where a lot of blank space on the screen precedes the disclosure.

An integral disclosure should be placed adjacent to the claim, rather than through hyperlinks, so the reader will view them concurrently. Following are considerations for effective hyperlinks:

• Choice of Label: Because a hyperlink's label affects whether consumers actually click on it, advertisers should make it patently obvious that the link leads to further information. Therefore, the link should provide consumers with a reason to click on it by making it clear that the link is related to a particular claim or product. According to the Guidelines, merely saying "disclaimer" on the link or using asterisks or other symbols as signals may be insufficient.
• Consistent Use of Styles: Advertisers should treat hyperlinks consistently within a single site. For example, if all hyperlinks are underlined, a consumer is unlikely to recognize italicized text as a hyperlink.
• Placement and Prominence: A hyperlink should be proximate - preferably adjacent - to the claim that triggers it.
• Click-Through Page: The page the hyperlink leads to - the click-through page - must contain the complete disclosure, and the hyperlink should take consumers directly to the disclosure. Advertisers should monitor click-through rates and the length of time visitors spend on a page to evaluate the effectiveness of hyperlinked disclosures.

Following are relevant considerations for evaluating whether other online techniques are appropriate:

• Technological Limitations: Advertisers should be aware that certain browsers will not support or display frames properly. If advertisers are uncertain a required disclosure will appear, they should choose alternative techniques.
• Response to Characteristics of Each Technique: To avoid consumers missing pop-up messages, advertisers should make consumers take an affirmative action - e.g., clicking "no thanks" - to proceed past them.
• Research: Advertisers should conduct research to determine if a particular method is effective.

Advertisers must communicate disclosures before the point of purchase. Therefore, disclosures should be provided before the consumer decides to buy. For example, disclosures should appear before clicking "order now" or "add to shopping cart." Consumers may overlook the correlation between a disclosure on the order page and information viewed several pages earlier.

Advertisers that use banner ads must decide whether to include disclosures in the banner or on the linked Web site. They should consider such factors as how much information needs disclosure and how effective the disclosure would be if made on the Web site. The Guidelines encourage advertisers to be creative in incorporating or flagging necessary information or in making their banners interactive.

Advertisers have the burden of drawing attention to the disclosures they make. They should display disclosures prominently through the following:

• Size: Disclosures should be at least as large as the ad copy.
• Color: Disclosures should be in a color that contrasts with the background.
• Graphics: Graphics can make a disclosure more noticeable.

Advertisers should evaluate the above factors in relation to other components of the Web site. For example, the font size should be appropriate relative to that of the claim and other text. Furthermore, advertisers should refrain from "burying" disclosures in long and unrelated paragraphs.

The Guidelines recommend that other parts of an ad should not distract consumers. For example, flashing images or animated graphics may compromise a disclosure's prominence. Advertisers should consider all of an ad's content - not just the disclosure's text - in evaluating whether visual distractions might have a deterrent effect.

The Guidelines recommend repeating a disclosure to increase the likelihood a consumer will notice and understand it. However, they caution against over-repetition. Specifically, advertisers should adhere to the following:

• Repeat Disclosures on Lengthy Web Sites: Because consumers can enter a Web site through the home page, in the middle, or anywhere else without necessarily navigating through the whole site, advertisers should evaluate whether consumers who view only a portion of a site will miss important disclosures.
• Repeat Disclosures with Repeated Claims: Where a disclosure is tied closely to a claim, the disclosure may need to always accompany that claim. Advertisers can use repeated hyperlinks to accomplish this.

Advertisers must heed special considerations for multimedia ads:

• Audio Disclosures: Where a claim is in audio form, the disclosure should air at a sufficient volume and cadence. Because some consumers lack the technology to receive audio information, the disclosure should also be visual.
• Visual Disclosures: Visual disclosures should appear for a sufficient duration. Fleeting disclosures tend to be ineffective.

Disclosures should be in clear language and syntax and should avoid legalese or technical language.

FTC rules and guides that use the terms "written," "writing," and "printed" may also apply to online activities. The FTC plans to continue to examine the precise nature of how they apply to e-commerce and online advertising on a case-by-case basis, as well as via periodic rule and guide reviews. The Commission expects that most will apply to the Internet industry.

Online businesses may use e-mail to comply with a rule or guide to send required information to consumers. Advertisers can use e-mail where consumers understand or expect that they will receive information this way. The following specific suggestions may apply:

• Notice to Consumers: Sellers should consider telling consumers they plan to send delay notices via e-mail.
• Negative Option Plans: Advertisers must ensure that consumers understand the consequences of not responding to negative option ads, such as book-of-the-month clubs.
• Warranties: Sellers offering warranties can make requisite information available at the point of purchase by using clearly labeled hyperlinks and presenting the information in a way that can be preserved, i.e., by downloading or printing.

According to the Guidelines, where e-mail invites consumers to telephone the seller to make a purchase, both the call and the sale are subject to the Telemarketing Sales Rule (16 C.F.R. § 310.6). However, online advertisements are not necessarily deemed "direct mail" solicitations. The FTC assumes that consumers surfing the Web or reading electronic bulletin board postings understand that what is being sold is being offered on the same terms to all potential consumers and that the seller has not specially selected them. Therefore, phone calls that respond to these types of solicitations are not covered by the Telemarketing Sales Rule.

The FTC will continue to examine Internet advertising under traditional criteria while remaining cognizant of new technologies. Businesses engaged in e-commerce must remain aware of these criteria to ensure that their online marketing is not deceptive.

The Federal Trade Commission (FTC) recently issued a report entitled: Privacy Online: Fair Information Practices in the Electronic Marketplace. This is the third FTC report since 1995 examining the state of Internet privacy and the efficacy of self-regulation. The Report does the following: (1) presents the results of the Commission's 2000 Online Privacy Survey; (2) evaluates the recommendations of the Commission-appointed Advisory Committee on Online Access and Security; and (3) sets forth the conclusion that legislation is necessary to ensure fair information practices and recommends a statutory framework.

In February/March 2000, the Commission conducted the 2000 Online Privacy Survey, a study of the busiest U.S. commercial sites (i.e., those with 39,000 or more unique visitors each month) on the World Wide Web to assess industry's progress in protecting consumer privacy. The following are the key findings:

• Collection of Consumer Information: Nearly all Web sites collect personal identifying information from consumers. More collect e-mail addresses or some other type of personal identifying information than non-identifying information.
• Privacy Disclosure and Policy: There has been a significant increase in the past year in the percent of Web sites posting at least one privacy disclosure and a privacy policy. Some disclosures, however, are related to only one discrete information practice.
• Fair Information Practice Principles: Less than half of the Web sites that collect personal identifying information at least partially implement the fair information practice principles accepted for nearly 30 years as necessary to assuring fair and protective information practices - notice, choice, access, and security. Less than half of the sites help implement a fifth principle - enforcement - by displaying the TRUSTe, BBBOnLine Privacy, CPA Web Trust, or Entertainment Software Ratings Board privacy seals.
• Cookies: Most sites allow placement of cookies by third parties.

In December 1999, the FTC established the Federal Trade Commission Advisory Committee on Online Access and Security under the Federal Advisory Committee Act to consider the parameters of "reasonable access" to personal information collected on consumers and "adequate security" for such information. The 40-member Committee made the following recommendations:

• Reasonable Access: The Advisory Committee Report presents four options for defining scope of access: (1) "total access" approach (consumer could access all personal information to make businesses' information practices transparent to consumers); (2) "default to consumer access" approach (personal information retrievable in ordinary course of business would be available); (3) "case-by-case" approach (access would depend on content, holder, source, and likely use); and (4) "access for correction" approach (consumer could access all information used to grant or deny significant benefits).
• Adequate Security: The Advisory Committee recommends implementation of an approach requiring that each commercial Web site have a security program to protect personal data, that the program specify its elements, and that the program be "appropriate to the circumstances." The Committee also recommends that a security disclosure is an appropriate tool to keep consumers informed and to allow them to make informed choices.

The Commission believes all these options will be useful to Web sites in creating procedures to facilitate consumer access to personal information collected, and should be considered in developing parameters.

The Report emphasizes the Commission's continued encouragement of self-regulation, but recognizes the barriers to achieving adequate protections. The proposed legislation would set forth a basic level of protection for visitors to commercial Web sites to the extent not already provided by the Children's Online Privacy Protection Act (COPPA), and would authorize an implementing agency to promulgate and enforce more standards. Under the proposal, Web sites would have to comply with the four widely accepted fair information practices:

• Notice: Web sites would have to provide consumers with clear and conspicuous notice of their information practices, including: the type of information they collect; how it is collected; how it is used; how they provide choice, access, and security; whether they disclose the information collected to other entities; and whether other entities are collecting the information through the site.
• Choice: Web sites would be required to offer consumers choices as to how their personal identifying information is used beyond the use for which the information was originally provided. Such choice would encompass both internal and external secondary uses.
• Access: Web sites would be required to offer consumers reasonable access to the information a Web site has collected about them, including a reasonable opportunity to review information, correct inaccuracies, or delete information.
• Security: Web sites would be required to take reasonable steps to protect the security of the information collected from consumers.

The Commission recognizes that implementation of these practices must be flexible in order to encompass the variety of information collected and the uses for that information, as well as to adapt to new technology.

© 2000 Greenberg Traurig