Deck 7: Commercial Speech and Regulation of Advertising

Question 1

Which of the following statements is correct?

A) The advertiser must disclose whatever qualifying information is necessary for implied claims, but no disclosure is required for express claims.
B) The advertiser must disclose whatever qualifying information is necessary for express claims, but no disclosure is required for implied claims.
C) The advertiser must disclose whatever qualifying information is necessary for both implied and express claims.
D) There is no disclosure required for either type of claim.

Answer 1

C

Question 2

The FTC monitors both advertising practices and antitrust violations

Answer 2

True

Question 3

A consumer must show actual deception to recover under the FTC Act.

Answer 3

False

Question 4

Which of the following is NOT a way in which a person's identity may be appropriated?

A) Unauthorized use of a name, likeness, or nickname.
B) Unauthorized use of phrases associated with a person.
C) Unauthorized use of impersonators.
D) All of the above are ways in which a person's identity may be appropriated.

Question 5

A company that believes a competitor has engaged in false advertising or made deceptive claims has no direct cause of action to sue the competitor, but rather must ask the FTC to investigate and sue on its behalf.

Question 6

Which federal government entity regulates deceptive or unfair advertising?

A) The Federal Bureau of Investigation.
B) The Federal Trade Commission.
C) The Department of Justice.
D) The Department of Commerce.
E) The Federal Communication Commission.

Question 7

An advertisement for food storage bags shows what appear to be two elephants standing on pure white carpet in the middle of a formal dinner party. The elephants are stepping on what appear to be two bags of puréed strawberries. One elephant, in the background, is stepping on a bag made by the competitor, while the elephant in the foreground is stepping on the advertiser's bag. Bad things begin to occur when the elephant in the background, which appears to be approximately half the size of the other elephant, puts its weight on the bag and causes the contents to spill out all over the host of the party. Meanwhile, the other elephant, which appears much larger, is putting its full weight on the bag but does not puncture it, much to the delight of the hostess who is standing next to the large elephant. The ad ends with the caption "The Hostess with the mostest uses Revlar brand bags." In real life, however, the actual size of the elephants was reversed. The smallest elephant possible was used for the Revlar bags while a gigantic elephant was used for the competitor's bag; camera tricks completed the illusion. Did Revlar do anything wrong, assuming that the smaller elephant really couldn't pop its bag and the other elephant really did rupture the competitor's bag?

A) No, as long as the elephants actually did what the advertisement showed them doing.
B) No, camera tricks are an accepted part of advertising.
C) Yes, the product demonstration didn't accurately depict the strength of the different bags.
D) Yes, because the FTC considers any ad that shows the competitor's product failing to be unfair and de facto deceptive.
E) Both c and d are correct.

Question 8

Whose perspective does the FTC use to evaluate potentially deceptive advertising?

A) Average adult advertisement viewer.
B) Sophisticated advertisement viewer.
C) Reasonable consumer.
D) Most susceptible advertisement viewer.

Question 9

Willie operates Willie's A Horse Called Music Saloon and Bar. Willie's top selling beer is Willie's Journeyman Ale. Little known to Willie's customers, however, is the fact that the Ale is simply keg Budweiser pumped into Willie's signature bottles and resold to the unsuspecting masses. What is the legal term for Willie's wrongful action, assuming, of course, that Budweiser didn't authorize the switch?

A) Passing off.
B) Palming off.
C) Reverse passing off.
D) Contributory passing off. See Essay Question 8 below for a short-answer essay question based on these facts.)

Question 10

Manny Marketer writes a new ad campaign touting the health benefits of smoking cigarettes. His client, a tobacco company, loves it, and they decide to run the advertisement on a cable channel. Manny, however, doesn't have any factual information on which to base his claims. The tobacco company doesn't care, and informs Manny that it will be "no problem" to get a scientific report listing the many health benefits of cigarettes and smoking. Manny is delighted and runs the ads. Later, the FTC sues Manny for making false and misleading advertisements. By this time, however, Manny has several scientific reports in hand backing up his advertisements. Who wins, and why?

A) Manny, because he has the reports to back up his advertisements.
B) Manny, because the FTC can't sue the companies that produce the ads, only the advertisers.
C) The FTC, because Manny's scientific data was supplied by the advertiser.
D) The FTC, because there has to be information to support ads at the time they are run.

Question 11

Which of the following is NOT a remedy available to the FTC for FTC Act violations?

A) Criminal penalties.
B) Cease and desist orders.
C) Corrective advertising.
D) Civil penalties.
E) All of the above are available.

Question 12

Uptown Propane, Inc. sells propane and propane accessories. Its cross-town rival, Midland Propane, went to the office of one of Uptown's best propane and propane accessories customers and told the customer: "Uptown's propane is mostly water and air." This statement was false. Uptown's propane is not mostly water and air. As a result of this remark, the customer switched to Midland. What action, if any, could Uptown bring against Midland?

A) Commercial disparagement.
B) False advertising.
C) Deceptive advertising.
D) Midland's conduct was not actionable.

Question 13

The FTC Act requires that advertising meet three requirements. Which of the following is NOT one of the three requirements for advertising?

A) The advertising is truthful and not misleading.
B) The advertising treats all competitors equally.
C) The advertising is substantiated.
D) The advertising is fair.

Question 14

Both express and implied claims in advertisements must be substantiated.

Question 15

Lack of intent to deceive relieves an advertiser of liability for deceptive advertising under the FTC Act.

Question 16

The Supreme Court formulated a four-part test in Central Hudson to determine if commercial speech is constitutionally protected. Which of the following is NOT one of the four factors?

A) Is the asserted governmental interest in the regulation substantial?
B) Is the regulation no more extensive than necessary to serve the government's interest?
C) Does the regulation directly advance the government's interest?
D) Does the speech encompass rights beyond simply the commercial interests of the speaker?
E) All of the above are factors in the Central Hudson test.

Question 17

Explain the four-factor Central Hudson test.

Question 18

Jim operates a used clothing business out of his parents' basement. Lately, in an effort to improve his lot in life, Jim has been advertising on local telephone polls in his neighborhood. His flyers state simply: "Buy one used shirt get a used pair of pants for FREE!!!" Jim is a cutthroat businessman, despite appearances to the contrary, so he decides to double his price on shirts to break even on the "free" pants. Jim's sale is wildly successful and soon Jim's Bargain Basement of Dapper Duds is the hip place to pick up sassy shirt and pant combos. Did Jim do anything legally wrong by raising shirt prices?

A) Yes. The FTC says you can't advertise something as free and then raise prices.
B) No. Ethically, you shouldn't advertise something as free and then raise prices, but it is legal to do so.
C) Yes, but any claim would have to arise under state, not federal, law
D) No, because posting flyers is not technically an advertisement under the FTC Act.

Question 19

The Lanham Act provides a cause of action for trademark infringement and for various forms of unfair competition.

Question 20

"Passing off" occurs when a person or company makes some sort of false representation that misleads consumers into thinking that the defendant's goods or services originate from another company. Which federal act makes passing off illegal?

A) The Lanham Act.
B) The Sherman Act.
C) The Scott-Hart-Rodeo Act.
D) The Copyright Act.

Question 21

You work for an ad agency and you are working on the new commercial for the latest SUV to come out of Detroit. The SUV, named Truckasaurus, is a behemoth; it weighs four tons and its V14 engine gets 8 miles to the gallon on the highway. The auto company claims it is so large that it can carry a fully armed platoon of marines in comfort. You like the SUV combat angle, and think it would appeal to today's suburban professionals looking for a way to show off at the office and while taking the kids to soccer practice. You decide that the best commercial would be one that shows Truckasaurus in some sort of urban combat environment. You quickly decide that the best environment is the highway system around Los Angeles.

Question 22

Customer Advocate, a national magazine, tested three leading brands of bacon in order to find out which was lowest in nitrates and other suspected carcinogens. It published the results, stating that the bacon "lowest in nitrates" was BestBacon. The report went on to state that the differences between the brands was small and that no single brand was so superior to the others as to justify its selection as less harmful. BestBacon ran an advertisement stating: "BestBacon Found Lowest in Nitrates. See Impartial Test by Customer Advocate, December issue." Pork o' Plenty, BestBacon's largest competitor, sued, arguing that the advertisement was deceptive. Who is correct and why?

Question 23

Briefly explain the difference between passing off and reverse passing off.

Question 24

A very large and elaborate discount shopping mall has just opened in southeast Michigan. The Mall has been running extensive advertising, labeling this as an "eye-popping, jaw-dropping, heart-stopping" shopping experience. The ads also refer to "a food court the size of Utah." In fact, the Mall has put up billboards that contain no copy other than the phrase "a food court the size of Utah." If another local mall were to file suit, alleging that the advertising is deceptive because the food court most definitely is not the size of the state of Utah, how would a court rule and why?

Question 25

Describe the scope and causes of action of the Lanham Act.