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SUBJECT

CORPORATE LAW

ASSIGNMENT TOPIC

ADVERTISING LAW

SUBMITTED TOMR. ANAS RIZWAN

(DEPARTMENT OF MANAGEMENT SCIENCES)

SUBMITTED BY

SHAKILA MANZOOR…………….056SHAIMA AQEEL ...………………019

DATEDDEC 23, 2009

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TABLE OF CONTENTS

History of advertising------------------------------------------------------------3

Advertising and its types--------------------------------------------------------5

Eight design law-------------------------------------------------------------------7

Code of ethics----------------------------------------------------------------------9

Contracts in advertising--------------------------------------------------------10

Bait advertising-------------------------------------------------------------------11

Harassment and coercion-----------------------------------------------------11

Accepting payment without supply----------------------------------------12

Liability for false, misleading and deceptive advertising-----------12

Advertising and federal trade commission------------------------------15

FTC deceptive and unfair advertising remedies----------------------16

Advertising and other regulatory agencies-----------------------------17

Conclusion------------------------------------------------------------------------19

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History of AdvertisingIntroduction

Marketing is more than just distributing goods from the manufacturer to the final customer. It comprises all the stages between creation of the product and the after-market which follows the eventual sale.

One of these stages is advertising. The stages are links in a chain, and the chain will break if one of the links is weak. Advertising is therefore as important as every other stage or link, and each depends upon the other for success. The product or service itself, its naming, packaging, pricing and distribution all are reflected in advertising which has been called the lifeblood of an organization. Without advertising the products or services cannot flow to the distributors or sellers and on to the consumers or users.

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A successful national economy depends on advertising promoting sales so that factory production is maintained; people are employed and have spending power and the money goes round and round. When this process stops there is recession. Similarly, prosperous countries are those in which advertising does its job.

Early Forms

Early forms of advertising were signs such as the inn sign, the red and white striped barber’s pole, the apothecary’s jar of colored liquid and the

wheelwright’s wheel, some of which have survived until today.

Effect of Urban Growth The need for advertising developed with the expansion of population and the growth of towns with their shops and large stores; mass production in factories; roads and railways to convey goods; and popular newspapers in which to advertise. The large quantities of goods being produced were made known by means of advertising to unknown customers who live far from the place of manufacturer. This process developed some two hundred years ago in industrialized countries.

Advertising and the Modern World

Some of the nineteenth’s centuries advertisers are still with us today include Beecham, Cadbury, lever brothers and Lipton. Thus modern world depends on advertising. Without it producers and distributors would be unable to sell, buyers would not know about and continue to remember the products or services and the modern industrial world collapse. If factory output is to be maintained profitably, advertising must be powerful and continuous. Mass

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production requires mass consumption which in turn requires advertising to the mass market through the mass media.[1, page 1]

Advertising and Its TypesDefinition of Advertising

The institute of practitioners in advertising definition says ‘advertising presents the most persuasive possible selling message to the right prospects for the product or service at the lowest possible cost’.Advertising is also defined as the means of making known in order to sell.

Types of advertising

1. Consumer Advertising

There are two kinds of goods bought by general public consumer goods and the consumer durables. Consumer goods include those which are found to be in the shops, those which enjoy repeat sales like foods, drinks confectionery and toiletries being called the Fast Moving Consumer Goods similarly the medicines which are packaged, branded and retailed are called Over The Counter medicines. Consumer Durables are usually more expensive and less frequently bought and are of a more permanent nature than consumer goods. These include clothes, furniture, domestic appliances, and entertainment goods like radio television video computer etc. The media of consumer advertising include press, radio, television, outdoor exhibitions and sales promotion.

2. Business to Business Advertising

The purpose of business to business advertising is to promote non consumer goods and services. These may include raw materials, components and accessories, plant and machinery, services such as insurance, office equipment and supplies. The media used for this purpose include trade and technical journals, technical literature and catalogues

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,trade exhibitions, direct mail, technical demonstrations and seminars.The amount of money spent on advertising will be far less and there may be more reliance on the market education using public relations techniques such as video documentaries, external house journals and technical feature articles.

3. Trade Advertising

Trade advertising is addressed to distributors, chiefly wholesalers, agents, importers/exporters and numerous kinds of retailers large and small. The purpose of trade press advertising is to inform merchants and traders about well established brands, introduces new lines or as is often the case, announces special efforts to help retailers sell goods. Direct mail is often used however broadsheet i.e. the size of a large news paper page which folds down to a convenient envelope size for posting. Occasionally commercial television time may be bought to tell retailers about new lines or retailers may be mailed to tell them.

4 Retail Advertising

This type of advertising lies between the trade and consumer advertising. The most obvious examples include the advertising conducted by any supplier include a petrol station, restaurant or insurance broker. The purpose of retail advertising is to sell the establishment , attract customers to the premises and in case of a shop, increase what is known as ‘store traffic’ that is number of people passing through the shop. If they can be encouraged to step inside they may possibly buy the things they would not otherwise be tempted to buy. Its purpose also includes to sell the stock in the shop , perhaps promoting items which are seasonal, or presenting a representative selection or making special offers. Its media include local weekly newspapers which are delivered from door to door, regional daily newspapers of which most are evening, public transport external posters and interior cards, direct mail to regular or account customers and catalogues etc.Co operative advertising is an important facet of retail advertising and can take many forms like the use of logotype, supplied artwork, suppliers share costs, stockists’ list and shared costs. [1, page 34]

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THE EIGHT LAW OF DESIGNThe design of press advertisement goes through a number of stages. However the designing of this type of advertising follows some rules which are given below.The basic principles of design, which can be applied to advertisements, are:

Law of unityLaw of varietyLaw of balanceLaw of rhythmLaw of harmonyLaw of proportionLaw of scaleLaw of emphasis

LAW OF UNITY All parts of layout should unite to make a whole. This unity can be disturbed by an irritating border, too many different and conflicting typefaces, badly

distributed color, disproportionate elements, or busy layout containing a confusion of parts.

LAW OF VARIETYNevertheless, there should be change and contrast as with bold and medium weight of type and good use of white space. The advertisement should not be monotonous, and grey masses of small print need to be enlivened by subheadings. Variety can also be introduced by the use of pictures.

LAW OF BALANCEIt is essential that an advertisement should be well balanced. The optical balance is one third down a space, not half way. A picture or headline may occupy one third, and the text copy two-thirds, so achieving an optical balance. The symmetrical balance falls midway so that a design can be divided into equal halves, quarters and so on but care should be taken not to divide an advertisement into halves which look like separate advertisement.

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LAW OF RHYTHM

Even though a printed advertisement is static it is still possible to obtain a sense of movement so that eye is carried down and through the advertisement. A simple device is to indent paragraphs of text (as in abook or news paper report) so that the eye is led from paragraph to paragraph. But the general flow of the overall design should be pleasantly rhythmic.

LAW OF HARMONY There should be no sharp, annoying and jerky contrasts – unless perhaps that is the delebrate intention as in some kinds of store or direct response ads which use bombastic shock tactics. Normally, all the elements should harmonise, helping to create unity.

LAW OF PROPORTIONThis applies particularly to the type sizes used for different widths of copy: the wider the column (or measure) the larger the type size, and vice versa. A narrow advertisement needs small text type, but a wider advertisement needs larger text type, unless the type is set in columns. Wider columns and larger type also need greater leading (interline spacing).

LAW OF SCALEVisibility depends on the scale of tones and colors, some appearing to recede, others appearing to advance.pale pastel colors recede while bold, primary colors advance. Black looks closer to the eye than grey, and red is the most dominant color. Balck on either yellow or orange is very bold whereas white on yellow is weak. The law of scale can be used with typographical design when headlines and subheadings are made to contrast with grey areas of text type. Where colors are concerned, this principle can be applied whenever full color is used in press advertisements, TV commercials, posters and apckaging.

LAW OF EMPHASIS The rule here is that all emphasis is no emphasis, which occurs if too much bold type is used, or there are too many capital letters. A snetence in upper and lower case lettering reads more than one wholy in capital letters.

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Yet emphasis is essential, and this links up with the other laws of variety and scale. An advertiseemnt can be made to look interesting if there is emphasis such as bold type or if certain words are emphasized in a second color. Another form of contrast is to reverse white on black, a method often used for logotypes and name-plates. Reverse color should not be overdone for it tends to reduce legibility. A bad mistake is to print a lot of text in white on a balck or colored background.[1,page 221]

CODE OF ETHICS

The code of ethics states that:1. Advertisements shall comply with Commonwealth law and law of a relevant state or territory.2. They should not encourage dangerous behavior and shall not encourage illegal or unsafe road usage practices.3. They should not engage in unlawful discrimination and shall not demean the dignity of men, women or children.4. Advertisements shall not contain anything which in the light of generally prevailing community standards is likely to cause serious offence to the community or a significant section of the community.5. They shall be truthful and shall not be misleading or deceptive.6. They shall be clearly distinguishable as such.7. Advertisements of a controversial nature shall disclose their source.8. They shall not exploit the superstitious nor unduly play in fear.9. They shall not disparage identifiable products, services or competitors in an unfair or misleading way.10. Advertisements for any product which is meant to be used by or purchased by children shall not contain anything including dangerous practices which would result in their physical, mental or moral harm. They shall not directly urge children to put pressure on their parents to purchase the product advertised.11. Scientific, statistical or other research data quoted in advertisements shall be neither misleading nor irrelevant.12. All guarantees or warrantees referred to in advertisements shall comply with the provisions laid down by Commonwealth law and the law of state or territory.[2,page 562]

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CONTRACTS IN ADVERTISING

An understanding of the law of contract is important to those engaged in all aspects of advertising. Contracts will arise in:

1. The purchase of advertisement space and airtime.2. The hiring of outdoor advertisement sites and exhibition stand space.3. Service agreements with advertising agents, public relations consultants and other professional consultants.4. The purchase of print, display material, photography and artwork.

The law of contract will also apply to many aspects of customer relations, and contractual obligations must be absolutely clear in coupons and literature which offer goods and expect payment. That is why direct response order require a signature, as occur in understandings to buy so many books or CDs from a club

Void and voidable contract:

There are certain situations and conditions which can make a contract void or voidable, and these include the legal capacity of parties.

1. Mistake

This is not easy to prove, but if there is a genuine mistake a contract may be held to be void. A mistake could occur in the wording, or even the of the wording, of an advertisement. Usually advertisers are responsible for their own mistakes, but if the mistake applies to both parties, the contract is more likely to be void, as might happen if both sides held the same belief which proved to be wrong.

2. Misrepresentation:

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A representation is a statement which, while not a term of contract, nevertheless has an important influence upon acceptance. If this fact is proved to be untrue it becomes a misrepresentation, and the contract is void. A deceitful misrepresentation is a fraud.

3. Privity:Only the parties privy to contract, that is, aware of it and participating knowingly in the agreement, are affected or bound by it.

4. Minors:A minor has no capacity to enter into a legal contract.

5. Persons of unsound mind and drunken persons:Contracts made by such people are void at their option if it can be shown that they were incapable of knowing what they were doing, and this condition was known to the other part, at the time of contracting. [1, page 307]

BAIT ADVERTISING:

Bait advertising is the use of selected items to attract customer interest when the advertiser knows full well that there is sufficient stock for only a few customers.

Section 56 prohibits bargain offers being used as a 'bait' to attract customers and sales in circumstances where the bargain is illusory.

1. It prohibits the advertising goods or service at a specified price if there are reasonable grounds of which the advertiser is aware, or ought reasonably to be aware that it will not be able to offer those goods or services for a reasonable period and in reasonable quantities.

2. It obliges the advertiser of goods or services at a specified price to supply those goods or services at a price for a reasonable time and in reasonable quantities. [2, page 567]

HARASSMENT AND COERCION:

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The use of physical force or undue harassment or coercion in relation to the supply of goods or services advertised to, or the payments for goods or services by a consumer, or the sale of, or payment, for, an interest in land is prohibited.

ACCEPTING PAYMENT WITHOUT SUPPLY:

Section 58 prohibits a company from accepting payment for goods of services advertised if at the time of acceptance it either:

1. intends not to supply the goods or services or to supply goods or services materially different from goods or services for which the payment or other consideration is accepted.

2.there are reasonable grounds, of which the corporation is aware or ought reasonably to be aware, for believing that the corporation will not be able to supply the goods or services within the period specified by the corporation or, if no period is specified, within a reasonable time. [2, page 569]

LIABILITY FOR FALSE, MISLEADING OR DECEPTIVE ADVERTISING:

Deceptive advertising and marketing practices have been around since the beginning of time and are still prevalent today. Sometimes it is done unknowingly by an advertiser, however, more often than not, it is done with the intent to

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mislead the consumer, making deceptive advertising a relevant marketing ethics issue.

What is deceptive advertising

An advertisement or marketing practice is considered deceptive if there is a "representation, omission, or practice that is likely to mislead the consumer". The advertisement does not necessarily have to cause actual deception, but, according to the Federal Trade Commission (FTC), the act need only likely mislead the consumer. False advertising or deceptive advertising is the use of false or misleading statements in advertising. As advertising has the potential to persuade people into commercial transactions that they might otherwise avoid, many governments around the world use regulations to control false, deceptive or misleading advertising. Truth in labeling refers to essentially the same concept, that customers have the right to know what they are buying, and that all

necessary information should be on the label.

Types of Deceptive Advertising

According to David Gardner (1975) there are three types of deceptive advertising: Fraudulent advertising which is an outright lie; false advertising which "involves a claim-fact discrepancy", such as not disclosing all the conditions to receive a certain promotion or price; and misleading advertising which involves "claim-belief interaction"

What Makes Advertising Deceptive?

According to the Federal Trade Commission (FTC), the government agency responsible for regulating and monitoring advertising practices, there are three common elements they look for in deceptive advertising and marketing claims. First, there must be "a representation, omission or practice that will likely mislead the consumer", such as misleading price claims, or a oral or written misrepresentation of a product or service. Second, the FTC examines the misrepresentation from the view of a "reasonable" consumer or particular

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target group such as the elderly. And finally, "the representation, omission, or practice must be a ‘material’ one". This means that if the misrepresentation is likely to affect the consumer’s decision whether or not to use or purchase a certain product or service, this is considered material since the consumer may have decided differently if not for the deceptive advertising.

Oral and written misrepresentation:

Let’s look first at oral or written misrepresentation, or omission, which is the most common form of deceptive marketing. According to the Better Business Bureau, "an advertisement as a whole may be misleading although every sentence separately considered is literally true. Misrepresentation may result not only from

direct statements but by omitting or obscuring a material fact" (Better Business Bureau, 1998 [on-line]). This includes "bait and switch" advertising and selling, which is an alluring offer to sell a product or service in which a company has no intention to sell to the consumer. The goal of "bait and switch" is to get the consumer in the door ready to purchase one product that was advertised and then get them to switch their purchasing decision to a higher priced product or service. Vague generalities are also included in this category. A vague generality is when an advertisement makes a vague claim. There are numerous examples of vague generalities such as "our clothes are made in the USA, our cars are fuel efficient, our frozen desserts are low in fat". According to Mary Azcuenaga, Commissioner of the FTC (1994), "should we assume that these claims apply to every individual item in the product line? To most or nearly all of the products in the line? Or is the message that, on average, the products have the characteristics?". These generalities often bring up more questions than they answer for the consumer, and can be misleading and confusing.

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False claims:

As well as the broad provision of the Trade Practices Act that prohibits misleading and deceptive conduct in general (see above), there are also some specific provisions.

For example, the law also says businesses must not make false claims about:

the quality, style, model or history of a good or service whether the goods are new the sponsorship, performance characteristics, accessories, benefits and uses

of goods and services the availability of repair facilities or spare parts the place of origin of a good (for example, where it was made or assembled) a buyer's need for the goods or services Any exclusion on the goods and services.If a business makes a false or misleading claim or representation about one of the issues on this list, then the conduct is likely to breach the law.

Examples of misleading or deceptive conduct

Whether or not conduct is considered misleading or deceptive will depend on the particular circumstances of each case. Conduct that misleads one group of consumers will not necessarily mislead every consumer.

Some examples of conduct that may be misleading or deceptive are:

A mobile phone provider signing you up to a contract without telling you that there is no coverage in your region

A real estate agent misrepresenting the characteristics of a property, for example, advertising 'beachfront lots' that are not on the beach

A jewellery store promoting that a watch 'was' $200 and is 'now' $100 when the store never sold the watch for $200

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A business predicting the health benefits of a therapeutic device or health product but having no proof that such benefits can be attained

A transport company using picture of aero planes to give you the impression that it takes freight by air, when it actually sends it by road

A company misrepresenting the possible profits of a work-at-home scheme, or other business opportunity

Failing to include in advertisements that sale stock is limited in number or available only for a limited time. [Google]

ADVERTISING AND THE FEDERAL TRADE COMMISSIONThe Federal Trade Commission(FTC), established in 1914 by an act of the U.S. Congress, is the primary agency governing the advertising industry.its main focus with respect to advertising is to identify and eliminate ads that deceive or mislead the consumer.

Some FTC responsibilities are to

Initiate investigations against companies that engage in unfair competition or deceptive practices.

Regulate acts and practices that deceive businesses or consumers and issue cease-and-desist orders where such practices exist. Cease-and-desist orders require that the practice be stopped within 30 days (a cease-and-desisit order given to one firm is applicable to all firms in the industry).

Fine people and companies that violate either (1) a trade regulation rule or (2) a cease-and-desist order given to any other firm in the industry.

Fund the participation of consumer groups and other interest groups in rule making proceedings.

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Specifically, the FTC oversees the false advertising of such items as foods, drugs, cosmetics and therapeutic devices. It appears that new FTC chairman Tim Muris will continue most of these priorities. In an interview early in his regime, Mr.Muris said he would focus on privacy issues, fraudulent health claims on the web, and violent movies, video games and music targeted to kids.The existence of a regulatory agency such as the FTC influences advertisers’ behavior . although the most cases never reach the FTC, advertisers prefer not to risk long legal battles with the agency. Advertisers are also aware that competitors may complain to FTC about a questionable advertisement. Such a move can cost the offending organization million of dollars. [3, page 45]

FTC DECEPTIV

E AND UNFAIR

ADVERTISING

REMEDIES

The common sources of complaints concerning deceptive or unfair advertising practices are competitors, the public, and the FTC’s own monitors. If a claim seems justified, the commission can follow several courses of action: consent decrees, cease-and-desist order, fines, corrective advertising etc.

CONSENT DECREES

A consent decree is the first step in the regulation process after the FTC determines that an ad is deceptive. The FTC simply notifies the advertiser of its findings and asks the advertiser to sign a consent decree agreeing to stop deceptive practices. Most advertises do sign the decree to avoid the bad publicity and the possible $ 10,000-per-day fine for refusing to do so.

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CEASE-AND-DESIST ORDER

When the advertiser refuses to sign the consent decree and the FTC determines that the deception is substantial, it issues a cease-and-desist order. The process leading to the issuence of cease-and-desist order is similar to the court trial. An administrative law judge presides. FTC staff attorneys represent the commission, and the accused parties are entitled to representation by their lawyers. If the

administrative judge decides in favour of the FTC, the judge issues an order requiring the respondents to cease their unlawful practices. The advertiser can appeal the order to the full five member commssion.CORRECTIVE ADVERTISING

The FTC requires corrective advertising when consumer research determines that an advertising compaign has perpetuated lasting false beliefs. Under this remedy, the FTC orders the offending person or organization to produce messages for consumers that correct the false impressions the ad made. The purpose of corrective advertising is not to punish an advertiser but to punish it from continuing to deceive consumers. The FTC may require a firm to run corrective advertising even if the compaign in question has been discontinued. [3, page 50]

ADVERTISING AND OTHER REGULATORY AGENCIES

In addition to the FTC, several other federal agencies regulate advertising. The Food And Drug Administration and the Federal Communication Commission have become dynamic components of the advertising regulatory environment. Lets now examine the importance of these regulatory agencies.

FOOD AND DRUG ADMINISTRATION

The Food And Drug Administration (FDA) is the regulatory division of the Department of health and human services. It oversees package labeling and ingredient listings for food and drugs. It also determines the safety and purity of foods and cosmetics. Although not directly involved with advertising, the FDA provides advice to the FTC and has a mjor impact on the overall marketing of food , cosmetics, and drugs. [3, page 52]

FEDERAL COMMUNICATION COMMSSION The federal communication commission (FCC), formed in 1934 to protect the public interest in radio and television broadcast communications, can issue and

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revoke licenses to broadcasting stations. The FCC also has the power to ban messages, including ads, that are deceptive or in poor taste. The agency monitors only advertisements that have been the subject of complaints and works closely with the FTC to eliminate false and deceptive advertising. The FCC takes action against the media, whereas the FTC is concerned with advertisers and agencies. [3, page 53]

NATIONAL ADVERTISING DIVISION (NAD)

NAD is a full-time agency made up of people from the field of advertising. It evaluates complaints submitted by consumers, consumer groups, industrial organizations, and advertising firms. NAD also does its own industry monitoring. After NAD receives a complaint, it may ask the advertiser in question to substantiate the claims made in advertisement. If such substantiation is deemed inadequate, NAD representatives ask the advertiser to change or withdraw the offending ad. When a satisfactory resolution cannot be found , NAD refers the case to NARB.

NATIONAL ADVERTISNG REVIEW BOARD (NARB)

NARB is a 50 member regulatory group that represents national advertisers, advertising agencies, and other professional fields. When the advertiser appeals a case to NARB, it faces a review panel of five people: three advertisers, one agency person, and one public representative. This NARB panel reviews the complaint and the NAD staff findings and holds hearings to let the advertiser present its case. If the case remains unresolved after the process, NARB can (1) publicly identify the advertiser and the facts about the case and (2) refer the complaint to the appropriate government agency (usually the FTC). Although neither NAD nor NARB has any real power other than threatening to invite government intervention, these groups have been effective in controlling deception and misleading advertising. [3, page 55]

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CONCLUSION

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Deceptive advertising is an ongoing ethical, and in some cases, controversial issue. What may appear to be a harmless advertisement to one person or group may be very misleading to another. With the increase in technology and the ever-increasing use of the Internet, consumers remain prime targets for deceptive advertising and marketing practices. Fortunately, the laws and monitoring agencies continue to improve, and will continue to protect the consumer from many deceptive advertising and marketing practices.

REFERENCES

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Advertising by Frank Jefkins revised by Daniel Yadin [page 3-11] [ book 1]

Business, society and the law by Andrew Terry and Des Giugni [page 9, 11-12] [book 2]

Advertising principles and practice by Wells Burnett Moriarty [page 15-18] [book 3]

Some material from internet Google [page12-15]