Legal Review: Release of Study Leaves Marketers Wondering Just What FTC Is 'Up To'1 Sep, 2012 By: Gregory J. Sater, Jeffrey D. Knowles Response
The Federal Trade Commission's (FTC) recent release of a consumer survey and statements in the accompanying press release have left many wondering about its future enforcement of so-called "up to" claims. The Commission has made seemingly conflicting statements about claims in which marketers state that consumers can experience "up to" a certain level of performance or savings.
The confusion began last February when the FTC announced an enforcement action involving five markers of replacement windows that the Commission alleged made exaggerated and unsupported claims about the savings consumers could achieve on their utility bills by installing the companies' windows.
The settlement piqued the interest of many because it prohibited the companies from making savings claims that include the words "up to" unless that company has competent and reliable scientific evidence to substantiate that all or almost all consumers are likely to achieve the maximum savings claimed. Was the FTC saying, many people asked, that marketers should not make "up to" claims unless they could supply the same level of substantiation? That did not initially appear to be the case. In fact, the FTC went out of its way to say, in its analysis of the settlement, that this specific settlement should not be construed as an indication of how the FTC may interpret or take action on other "up to" claims.
Everything seemed settled until late June, when the FTC released a study used in the window marketing enforcement action. The mall-intercept survey of 360 individuals was designed to measure consumers' perceptions of energy-saving claims made by one of the window companies in its advertisements. The FTC reported that almost half of all respondents believed that all or almost all consumers would achieve the maximum savings displayed in the advertisement. In addition, the study showed that consumers shown a non-"up to" version of the ads took away the same message: all consumers would likely achieve the maximum advertised savings.
The second paragraph of the press release announcing the release of the study stated, "The FTC believes the report will help guide advertisers to avoid the use of misleading "up to" claims. It reinforces the FTC's view that advertisers using these claims should be able to substantiate that consumers are likely to achieve the maximum results promised under normal circumstances."
That statement, taken at face value, seems to contradict the FTC's February statement. This apparent disconnect begs the question: "Just how risky are 'up to' claims?" For the time being, efficacy or performance-based "up to" claims appear to carry some level of risk. Marketers making these types of claims would be well advised to include clear and conspicuous disclaimers that explain the basis for the claim and the result most consumers will likely achieve.
Unfortunately, not even that may be sufficient to avoid all scrutiny. One of the advertisements used in the FTC's survey included just such a disclosure explaining that while some consumers had achieved the 47-percent savings, most consumers would likely achieve 25-percent savings. This disclosure, although straightforward, apparently did little or nothing to change the net takeaway of the advertisement for the people who took the survey.
When it comes to pricing claims, such as "save up to 60 percent off the original price," marketers may be on firmer ground. Although the FTC does not expressly address pricing claims in either document, those types of claims are readily measurable. In addition, consumers are likely to know at the moment of purchase exactly how much they have saved and therefore understand right away whether they too are getting the "up to" result for themselves. Lastly, there is a significant amount of precedent concerning "up to" pricing claims in the form of decisions from the National Advertising Division (NAD) of the Better Business Bureau, as well as state and local law. Examples include the New York City rule requiring that 15 percent of goods be offered at the maximum savings and the Louisiana law that requires ads to show the spread of savings (e.g., "10-to-50-percent off").
The FTC's shifting guidance on this type of claim makes it difficult for marketers to ensure their advertising does not create regulatory exposure. because guessing incorrectly what the FTC is up to can precipitate serious consequences, marketers must confer with their legal counsel to mitigate the risk of future enforcement.