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Advertising Law and Regulation




The role of advertising as a pervasive communication continues to expand around the world. In response, many societies face greater challenges in regulating advertising in a manner that shields the public from deceptive and unfair conduct. Many legal sources regulate advertising practices, and the legislative rationale for curbing this unique type of speech has been vigorously debated. Given that all the laws must be consistent with the principles of freedom of speech, how to define commercial speech and the amount of constitutional protection it should be afforded are key issues among scholars and legal professionals.

Forms of Regulation

Although the scope of advertising law and regulations varies from country to country, regulation is generally manifested as self-regulation by the industry and statutory regulation by various government bodies. In many countries, self-regulation – voluntary, industry-wide control by advertisers – complements legal regulatory systems. Its great flexibility and adaptability offer realistic solutions in rapidly changing marketing environments. Hybrid forms have replaced the most basic form of self-regulation by the industry. Consumer representatives, as in the Netherlands and Canada, or public members, as in Italy, the United Kingdom, and the United States, participate to develop and enforce industry codes and standards. For instance, in the US, public members are drawn from a pool of distinguished educators, attorneys, and other public authorities.




Statutory Regulation and Self-Regulation

In the US, the National Advertising Division (NAD) closely monitors national consumer advertising, responds to complaints, and enforces voluntary cooperation among advertisers. Individuals, organizations, or competitors who are concerned with the truthfulness or accuracy of an advertisement can make complaints. When the NAD and an advertiser fail to reach a satisfactory settlement, an appeal can be made to the National Advertising Review Board (NARB). NAD and NARB findings and recommendations are published at the conclusion of each inquiry, and any unresolved cases can be forwarded to an appropriate government agency, in most cases the Federal Trade Commission (FTC).

Given that each self-regulatory system offers a different set of standards and codes, the International Chamber of Commerce (ICC) plays an important role in coordinating efforts to develop international guidelines and policies. The ICC publishes the International Code of Advertising Practice, which is used and integrated into many self-regulatory systems around the world. The ICC not only assists countries in developing codes, but also handles complaints when the scope of a dispute spans multiple countries, or in cases where national self-regulatory systems do not exist. Other key international organizations that promote self-regulation in advertising include the International Advertising Association (IAA) and the World Federation of Advertisers.

Although self-regulation is less expensive and offers faster solutions than government regulation, voluntary cooperation is not always sufficient. With statutory regulation, a variety of judicial tools can be utilized to achieve prompt and efficient control of advertising practices. In the US, several federal administrative bodies have jurisdictions to regulate specific types of advertising. The agencies include, but are not limited to, the Federal Trade Commission (FTC), the Food and Drug Administration (FDA), the Federal Communications Commission (FCC), and the Securities and Exchange Commission (SEC). The FTC is the principal regulatory agency for advertising, and its rulings are not only legally binding, but also exert great influence on setting the standards for state and industry regulatory bodies.

The Contribution of the Courts

In the United States, state and local governments also monitor advertising practices. For many years, state laws evolved without raising the issue of the First Amendment and its protection – or lack thereof – of commercial speech. In fact, for a long time, advertising was considered to be outside the realm of freedom of expression. When the US Supreme Court first considered the issue in Valentine v. Chrestensen (1942), it firmly discounted the notion that advertising deserved First Amendment consideration. Without providing much legal reasoning, the court decided unanimously that “purely commercial advertising” was not the type of speech protected by the First Amendment. For more than 30 years, the Valentine decision was regarded as the prevailing judicial precedent concerning commercial speech. In 1976, it was explicitly overruled by the US Supreme Court in Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council. In this landmark case on commercial speech, the court declared that a Virginia state law banning the advertisement of prescription drug prices was unconstitutional, emphasizing consumer interests. It reasoned that such advertisements conveyed vital information to the public and that a free enterprise economy depended upon a free flow of commercial information.

The US Supreme Court outlined more specific guidelines for the protection of “purely commercial advertising” in Central Hudson Gas and Electric Corp. v. Public Service Commission of New York (1980). In overturning a statute banning certain advertising by utilities, the court developed a four-part test for determining the constitutionality of advertising regulation. The four key questions are: (1) whether the advertising at issue is lawful and truthful; (2) whether the asserted governmental interest is substantial; (3) whether the regulation directly advances the governmental interest; and (4) whether the restriction is no more extensive than necessary to further the governmental interest.

Compared to the US Supreme Court’s continuous efforts to characterize commercial speech, the courts in Europe have generated less theoretical and conceptual argument on commercial speech doctrine (Barendt 2005). Contrary to the US Supreme Court’s categorical approach, the European courts have tended to apply the same principles to both commercial and noncommercial expression. For the European Union, treaties are the primary source of law, and the Maastricht Treaty signed in 1992 incorporates by reference the European Convention on Human Rights. Article 10 of the European Convention on Human Rights decrees freedom of expression, and the European Courts have held that Article 10 applies to commercial expression. Unlike the US Supreme Court, which once put commercial expression outside the realm of freedom of expression, the European Court of Human Rights has never excluded commercial expression from constitutional protection. It is worth noting, however, that in practice the courts in Europe are generally more willing to defer to governmental regulations (Shiner 2003). As a result, legal challenges to governments’ infringements on commercial speech based on Article 10 of the convention have been relatively few.

Fields of Regulation

The Case of Tobacco

The advertising of controversial products, such as cigarettes, demonstrates a substantially different application of the commercial speech doctrine. Unlike in the US and Canada, a comprehensive ban on tobacco advertising has been imposed in many European countries. In the UK, for instance, most forms of tobacco advertising are prohibited as a result of the Tobacco Advertising and Promotion Act 2002. The US Supreme Court would invalidate such a comprehensive ban on the grounds that there are other less restrictive means.

In fact, in Lorillard Tobacco Co. v. Reilly (2001), the US Supreme Court struck down a statute falling well short of a comprehensive ban. At issue was a Massachusetts law banning outdoor ads and point-of-sale ads for tobacco products within 1,000 feet of public playgrounds and schools. The court agreed that the state had a substantial interest in protecting young children, but declared the rule much more extensive than necessary. Similarly, the Supreme Court of Canada invalidated a comprehensive ban on cigarette advertising in RJR-McDonald Inc. v. A-G of Canada (1995).

Differentiating Commercial and Noncommercial Speech

Despite differences in commercial speech jurisprudence, it is clearly not protected to the same extent as many other forms of speech, such as political ideas. As stated in Central Hudson, commercial expression should be truthful and legal in order to be protected under the First Amendment. However, there is no requirement under traditional First Amendment analysis for the underlying activity to be lawful or the speech not to be false or misleading. For noncommercial speech cases, the government should demonstrate “compelling” interest rather than just “substantial” interest. In a milestone case on libel, New York Times v. Sullivan (1964), the US Supreme Court stated that political advertisements, though paid for, were fully protected by the Constitution. Political speech, including political advertising, is at the top of the constitutional hierarchy of protected speech, thus subject to strict scrutiny.

The same principle can be found in the European Court of Human Rights trial Barthold v. Germany (1985). Barthold, a veterinary surgeon, was disciplined for advertising his services in a newspaper interview, hence breaching professional codes. Barthold defended the remarks he made about the absence of a veterinary night service in Hamburg, in which he incidentally mentioned his own name and services, as public discussion of a matter of general interest. The court sided with Barthold, maintaining that the German advertising restrictions could potentially deter a professional from contributing to public debate on a matter of importance.

Considering the different constitutional standards for commercial speech, categorizing an expression as commercial or noncommercial becomes a key issue. In fact, defining commercial speech was the key issue in Kasky v. Nike, a 2002 California Supreme Court case. In an effort to respond to public criticism of the underpayment and mistreatment of overseas workers, Nike launched a public relations campaign with press releases and letters to newspapers. Sued by consumer activist Marc Kasky over the truthfulness of its statements, Nike claimed that its responses were not made in an advertising format and argued that the campaign statements were an important matter of public controversy entitled to full First Amendment protection. Conversely, the California Supreme Court characterized Nike’s campaign as commercial speech subject to state statutes that prohibited false and misleading advertising. The court pointed to Nike’s profit motive, stating that the company’s public relations campaign was ultimately aimed at persuading consumers to buy its products. In January 2003, the US Supreme Court agreed to hear an appeal, but in June of the same year, the court dismissed the case without offering highly anticipated resolutions.

As the Supreme Court of Canada pointed out in Ford v. A-G of Quebec (1988), commercial information leads to informed economic choices, an important individual self-fulfillment. Therefore, as expressed in Virginia Pharmacy, the interest in matters of public interest may be as keen as those in political ideas. However, some scholars and commentators strongly argue against the value of commercial expression and its constitutional protection (see Shiner 2003). Amid the continued debate on commercial speech jurisprudence, advertising continuously evolves and becomes increasingly ubiquitous. Nonetheless, the fundamental question of the distinction between commercial speech and noncommercial speech remains unclear and awaits further legal reasoning.

References:

  1. Barendt, E. (2005). Freedom of speech. New York: Oxford University Press.
  2. Barthold v. Germany (1985). 7 EHRR 383.
  3. Boddewyn, J. J. (1992). Global perspectives on advertising self-regulation: Principles and practices in thirty-eight countries. Westport, CT: Quorum Books.
  4. Central Hudson Gas and Electric Corp. v. Public Service Commission of New York 447 US 557 (1980).
  5. Ford v. A-G of Quebec (1988). 2 SCR 712.
  6. Kasky v. Nike 27 Cal 4th 939 (2002). cert. granted, 123 S. Ct 817, and cert. dismissed, 123 S. Ct 2254 (2003).
  7. Kozinski, A., & Banner, S. (1990). Who’s afraid of commercial speech? Virginia Law Review, 76, 627– 653.
  8. Lorillard Tobacco Co. v. Reilly, A-G of Massachusetts 533 US 525 (2001).
  9. New York Times v. Sullivan 376 U.S. 254 (1964).
  10. Oliver, A. (2000). The proposed European Union ban on television advertising targeting children: Would it violate European human rights law? New York Journal of International and Comparative Law, 20, 501–526.
  11. Rich, S. J. (1998). Commercial speech in the law of the European Union: Lessons for the United States. Federal Communications Law Journal, 51, 263 –279.
  12. RJR-McDonald Inc. v. A-G of Canada (1995). 127 DLR (4th) 1.
  13. Shiner, R. A. (2003). Freedom of commercial expression. New York: Oxford University Press.
  14. Valentine v. Chrestensen 316 US 52 (1942).
  15. Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council 425 US 748 (1976).