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-~- ~.~f `~a3~82 s. ~. ~. TESTIMONY OF MA'I"I'HEW L. MYERS COALITION ON SMOKING OR HEAL'I;H BEFORE THE CONSUMER SUBCOMMITTEE OF THE COMMI'I'TEE ON COMMERCE, SCIENCE AND TRANSPORTATION JULY 22, 1982

Mr. Chairman, my name is Matthew L. Myers. I am a partner in the law firm of Asbill & Junkin, but appear today on behalf of the Coalition on Smoking OR Health. The "Coalition on Smoking OR Health" is an organization backed by twenty-seven of the nation's leading private health, education and youth leadership organizations, including the American Cancer Society, the American Heart Association and the American Lung Association. The Coalition serves as the public action arm of the National Interagency Council on Smoking and Health, and was created to bring smoking prevention and education issues to- the attention of legislators and federal officials and to promote support for federal smoking prevention education programs. I want to thank you and the members of the Subcommittee for the opportunity to present my views on the current proposals to adopt a more detailed, statutory definition of the phrase "deceptive acts or practices" as used in Section 5 of the Federal Trade Commission Act. On behalf of the Coalition I want to urge you not to act to further alter the F.T.C.'s authority to act to protect consumers pursuant to Section 5 of the Federal Trade Commission Act by redefining the Commission's "deception" jurisdiction, until the need for change in the current legislation can be more adequately shown, the proposals now before you more carefully studied and the full impact of the decision to prohibit the Commission from regulating commercial advertising on the basis that the advertising constitutes an "unfair act or practice" more fully evaluated. The Federal Trade Commission has played an essential role in protecting consumers from advertising practices for hazardous products, such as cigarettes, that are unfair and/or deceptive either because of specific statements made in or images and associations created by these ads or because these ads omit important health information about which consumers are not adequately informed. Given the overwhelming evidence of the health hazards caused by cigarette smoking, the American public has a right to be well informed about the health hazards of smoking. Had the F.T.C. not acted over a decade ago, cigarette advertisements would carry no health warning. Had the F.T.C. not

2 examined the effectiveness of the current health warning last year, there would be no meaningful debate today about the need for a more-effective system of health warnings. Both actions by the Federal Trade Commission have contributed substantially to the public's increased awareness of the health hazards of smoking and both, therefore, have contributed significantly to the overall public welfare. Thus, the Coalition is concerned about any proposal which will make it more difficult and may make it substantially more diffi--ult for the F.T.C. to continue to provide this protection for consumers. It is for this reason that the Coalition opposes the proposed changes in the F.T.C.'s deception jurisdiction. To-appreciate our concern, it is useful to briefly review the history of the F.T.C.'s involvement with cigarette advertising. Brief History of F.T.C. Involvement with Cigarette Advertising. Cigarette advertising has been a concern of the Federal Trade Commission since the late 1930's when the Commission sought to prevent cigarette companies from making unsupported claims about the medical and other benefits of particular brands.1 Between 1945 and 1966, the Commission issued seven (7) cease and desist orders prohibiting various false claims in cigarette advertising.2 Unsubstantiated representations about the "tar" and nicotine content of certain cigarette brands prompted the Commission to seek l/ Julep Tobacco Co., 27 F.T.C. 1637 (1938); Green River Tobacco Co., 27 F.T.C. 1547 (1938). 2/ R.L. Swain Tobacco Co., 41 F.T.C. 312 (1945); P. Lorillard Co., 46 F.T.C. 735, order modified, 46 F.T.C. 853, aff d., 186 F.2d 52 (4th Cir. 1950); R.J. Reynolds Tobacco Co., 46 F.T.C. 706 (1950), modified, 192 F.2d 535 (7th Cir. 1951), on remand, 48 F.T.C. 682 (1952); American Tobacco Co. 47 F.T.C. 1393 (1951); Philip Morris bc Co., Ltd., 49 F.T.C. 703 (1952), vacated and remanded on motion of Commission. com laint dismissed on affidavit of abandonment, 51 F.T.C. 857 1955 ; Liggett & M ers Tobacco Co., reliminar injunction denied, 108 F.Supp. 573 (S.D.N.Y. 1952), aff d mem., 203 F.2d 955 (2d Cir. 1953), decision of Commission, 55 F.T.C. 354 (1958); Brown & Williamson Tobacco Corp., 56 F.T.C. 956 1960 eonsent order).

3 and obtain agreement from cigarette manufacturers to eliminate these deceptive claims from their advertisements as long ago as 1960.3 I The modern era of the Federal Trade Commission's concern about cigarette advertising began not quite 20 years ago. In 1964, following the issuance of the Report on Smoking and Health of the Advisory Committee to the Surgeon General,4 the Federal Trade Commission found that the mounting evidence of the "grave hazards to life and health" caused by cigarette smoking, together with the failure of the cigarette manufacturers to warn consumers of this danger, constituted "an unfair or deceptive act or practice" (emphasis added) within the meaning of Section 5 of the Federal Trade Commission Act.5 At that time the Commission concluded that if consumers did not know about the health risks of smoking, cigarette advertising which failed to disclose these dangers was unfair or deceptive. The Trade Regulation Rule promulgated by the Commission in 1964 would have required all cigarette packages and advertisements to disclose clearly and prominently that cigarette smoking is dangerous to health and may cause death from cancer and other diseases.6 In 1965, Congress pre-empted the F.T.C. action by enacting legislation requiring all cigarette packages distributed in the United States to include the statement: "Caution: Cigarette Smoking May Be Hazardous To Your Health."7 In 3/ 2 Trade Reg. Rep. (CCH) $7853.51. 4/ U.S. Department of Health, Education and Welfare, Smoking and Health: Report of the Advisory Committee to the Surgeon General of the Public Health Service (1964) ("1964 Surgeon General's Report"). . 5/ The Trade Regulation Rule for the Prevention of Unfair or Deceptive Advertising and Labeling of Cigarettes in Relation to the Health Hazards of Smoking, 29 Fed. Reg. 8324, 8325, 8326 (July 2, 1964). ("The 1964 Cigarette Rule"). 6/ The 1964 Cigarette Rule at 8324, 8325, *8326. ? „ „ 15 U S C . . . / Federal Cigarette Labei~ng and Advertising Act ( Cigarette Act ), §§1331 et. sea. (1965).

4 C addition, the 1965 Cigarette Act prohibited the F.T.C. from requiring any other disclosure requirements on the cigarette package, and precluded, until July 1, 1969, any government reouirement of a disclosure regarding smoking and health in cigarette advertisements. As the congressionally mandated moratorium neared its conclusion in mid-1969, the Commission proposed a modified version of the 1964 Rule. Instead, however, Congress then amended the message on cigarette packages to read: "Warning: The Surgeon General Has Determined That Cigarette Smoking Is Dangerous To Your Health."8 Neither the 1965, nor the 1970 Acts required a health warning in cigarette advertisements and none were placed in cigarette ads voluntarily by cigarette manufacturers. Two years later, in 1971, the F.T.C. announced its intention to file complaints against the cigarette companies, alleging that advertising without a disclosure that smoking is dangerous to health would be "false and misleading" and would constitute an "unfair practice." Lengthy negotiations between the Commission and the six major cigarette manufacturers culminated in 1972 in consent orders requiring cigarette advertisements to display clearly and conspicuously the same warning that Congress already had required on cigarette packages.9 Only last year the Commission issued a new report on cigarette advertising.10 In this Report, the Staff of the Commission found that while the past efforts of the Commission and the Congress to increase the amount of health information available to consumers have had a positive effect, the problems which prompted the Commission to act in the past still exist. The data examined by the Commission's staff indicated that although most Americans are generally aware that smoking is hazardous, many consumers do not have enough information about the health risks of smoking in order to 8/ 15 U.S.C. S§1331, et. sea. (1970). 9/ Lorillard, et al., 80 F.T.C. 455 (1972). 10/ Federal Trade Commission, Staff Report on the Cigarette Advertising Investigation, May 1981. -

5 C know how dangerous smoking is, i.e., what is the nature and extent of the health risk of smoking. The data also indicated that many consumers do not know whether the general health risks of smoking have any personal relevance to themselves or whether they are among those groups of people who may be uniquely vulnerable to these health hazards.ll The Commission's Report further noted a continuing special-eoncern about the need for cigarette advertisements to be accurate and complete in disclosing the health risks of smoking because of their hazardous nature,12 because of the fact that cigarette advertising may adversely affect particularly vulnerable groups of consumers, such as pregnant women, individuals who suffer from cardiovascular or chronic obstructive lung disease and teenagers, and because any deception in cigarette advertising is aggravated by the continuous and massive amount of cigarette advertising to which the American public is and has been exposed. The Commission recognized that the total impact of prolonged and voluminous advertising may exacerbate any misimpression created by the advertising because repeated exposure to a large number of ads that extol virtues of a product without disclosing its specific negative consequences may cause consumers to ignore those negative facts. 13 Two points about the F.T.C.'s past involvement with cigarette advertising bear emphasis. First, the Federal Trade Commission's most significant actions regarding cigarette advertising over the past two decades have focused on the omission of material facts relating to the health consequences of smoking rather than on specific false or 11/ Id. 12/ National Commission on Egg Nutrition, et a1., 88 F.T.C. 89, 162 (1976), modified, 57-0 F.2d 157 (7th Cir. 1977), cert. denied, 439 U.S. 821 (1978); Firestone Tire and Rubber Co. 81 F.T.C. ( ), aff'd., 481 F.2d 246 (6th Cir. 1973), cert. denied, 414 U.S. 1112 1973); 1964 Cigarette Rule, suora. 13/ Warner-Lambert Co. v. F.T.C. 562 F.2d 749 (D.C. Cir. 1977); see, Waltham Watch Co. v. F.T.C., 318 F.2d 28 (7th Cir. 1963), cert. denied, 375 U.S. 944 1963 ; Royal Ba.king Powder v. F.T.C., 281 F. 744 (2d Cir. 1922); 1964 Cigarette Rule, su~ra, at 8356- 8357. See also The J.B. Williams Co. v. F.T.C., 381 F.2d 884, 890 (6th Cir. 1967).

6 deceptive statements in these ads. Second, in each of these instances, the F.T.C.'s decision to act was based upon its conclusion that cigarette advertising that failed to disclose material health related information was or may have been "unfair or deceptive." In none of these instances did the Commission rely solely on its jurisdiction over "deceptive" advertising. Impact of Congressional Action on "Unfairness" on the Current "Deception" Proposals. Therefore, it must be asked: What effect will Congress' decision to eliminate the F.T.C.'s "unfairness" jurisdiction over commercial advertising have on its ability to monitor and regulate cigarette ads which fail to adequately disclose the health hazards of smoking. The answer is not certain. While a strong argument exists that the F.T.C. can continue to require an effective health warning in cigarette advertisements under its current authority to regulate "deceptive" advertising practiGes,14 its ability to do so has not been reviewed by the Courts in recent years. Until the full impact is known of requiring the F.T.C. to limit its regulation of commercial advertising for hazardous J products, like cigarettes, to those ads which are found to be "deceptive" as that term is currently used, it would be dangerous to further narrow the F.T.C.'s "deception" jurisdiction. Further Congressional action at this time could result in a situation in which consumers would have no protection against ads which fail to disclose serious and substantial health hazards. Is this concern justified? Recently, Stanley Cohen, the well-respected columnist for Advertising Age wrote, in discussing the impact of the proposed changes to the F.T.C.'s jurisdiction: 14/ See, Federal Trade Commission, Staff Report on the Cigarette Advertising Investigation, at 4-17 et se . -

7 Here's an example, cited by one of chairman Miller's people: As this newcomer sees it, the "old" commission stretched "deception" to cover health hazard warnings in cigarette ads, when in fact the absence of health hazard information ought to be regarded only as "unfair". The newcomers hope to insert legal language to restrict the use of "deception". But suppose Congress also exemptjs5all advertising from "fairness". Goodby cigarette health warnings." Similarly, in the March 25, 1982 Memorandum to Chairman Miller, cited in the Hearing Record on S.2499,16 from Timothy Muris, the current Director of the F.T.C.'s Bureau of Consumer Protection, Mr. Muris questions the wisdom of the Commission requiring effective warnings on cigarette advertisements pursuant to its "deception" jurisdiction. The legislative history of S.2499 on this point is also unclear. While the Committee Report indicates that ads that depict the unsafe or unlawful use of an otherwise safe or healthful product still can be brought under a "deception" theory because they fail to reveal material facts, the Committee Report does not explicitly authorize the use of the F.T.C.'s "deception" jurisdiction to prevent the advertising of products whose normal usage is hazardous if those ads fail to reveal material health information about the advertised product.l7 We are certain that Congress did not intend to expose consumers to this health risk or to deprive consumers of their right to be informed about the health hazards of smoking by deciding to remove the F.T.C.'s jurisdiction over "unfair" advertising, but we are concerned that any further narrowing of the F.T.C.'s jurisdiction over advertising at this time could have that unintended result. 15/ Cohen, Stanley, "Washington Beat", Advertising Age, June 28, 1982, p.26. 16/ Reauthorization of the F.T.C., Hearings before the Commerce, Science and Transportation, United States Senate, Ninety-Seventh Congress, Second Session, March 18 and 19, 1982, at 57, 59. 17/ Senate Report No. 97-451, Federal Trade Commission Amendments Act of 1982, 97th Congress, 2d. Session, March 28,1982.

8 ImDact of Current Deception Proposals. A variety of proposals from a variety of sources to narrow the F.T.C.'s "deception" jurisdiction have surfaced in recent months. While many proposals have been suggested, none have been thoroughly studied. Yet, given the nature of many of these proposals, their impact on consumers, the business community and the F.T.C. could be dramatic. Before Congress acts, it is essential that the need for and impact of these changes be carefully studied to avoid creating a gaping hole in the protection provided to and needed by consumers and business. To illustrate, I would like to briefly explore the possible effect of a number of these proposals as they relate to cigarette advertising and, by analogy, to advertisements for other hazardous products. First, several of these proposals would redefine deception to cover only "material misrepresentations." This appears to mean that unless there is an affirmative material misstatement in the advertisement, the F.T.C. would have no jurisdiction. If this requirement had been in effect in 1964 and 1972, the F.T.C. would not have had jurisdiction to require a health warning in cigarette advertisements. If enacted, this requirement could undermine the authority of the F.T.C. to require any advertisement for a hazardous product which failed to disclose the dangers of that product from being required to carry a health warning unless the ad falsely and explicitly stated that the product was safe. Second, several of the announced proposals would require that the F.T.C. prove that the allegedly "deceptive" act caused direct consumer injury. This simple sounding requirement has serious potential implications. According to the Chamber of Commerce and the National Association of Manufacturers, to meet this requirement the F.T.C. would first have to prove that consumers would have made a different purchasing decision but for the deceptive misrepresentation. This means the Commission would have to prove that consumers purchased the product because of the deceptive statement

9 and for no other reason: an extremely difficult burden in most cases and a virtually impossible burden for cigarette advertising or for advertisements of other hazardous products which fail to reveal material health information. I shall explain. Typically, cigarette advertisements contain few affirmative statements of any kind. Instead, they often seek to associate smoking with an image with which people wish to identify.or emulate, especially young people. Thus, ads for Marlboro focus more on the Marlboro man than on Marlboro cigarettes. Virginia Slims ads focus on the modern liberated, sexually attractive woman more than the cigarette. How could the F.T.C. prove that a consumer purchased cigarettes because of these ads and these ads alone? In addition, cigarette advertising is not the sole reason a person starts smoking. The decision to smoke often is motivated by many factors. Several studies show that among the reasons teenagers smoke is peer pressure, the desire to appear "cool" and the desire to project an adult image. Cigarette advertising feeds into and associates smoking with each of these motivating factors. Yet, no one would or could say that cigarette advertising or any particular cigarette ad or, even the lack of health information in cigarette ads, is the sole cause of a particular teenager's decision to smoke. i._ _a. a__ O: ..a ..C •L... l.onseC~uef7Lly, UlG 11rJL prollg V1 UlG -Ulr-eCl lltJiir"y-- lCSL, 11 tiUV(JLCU, pr-VVauly Vvuau uvL vv met and the F.T.C. might find itself powerless to require any cigarette health warnings at all if this requirement were adopted. There also is a second prong to the proposed requirement that the F.T.C. prove that the challenged deceptive practice directly causes consumer injury. Even if the F.T.C. can prove that consumers relied and acted upon the challenged deceptive practice, most of the proposals now before you would require proof of actual injury. The type of potential problem caused by this proposal is best demonstrated by two illustrations from matters now pending before the Commission. In one, several cigarette manufacturers have alleged that Barclay cigarettes have a much higher "tar" content than the one milligram of "tar" which is the focus of its ads. In short, they allege that