Critics Say Federal Agency Is No Longer Doing Adequate Job : States Are Moving Into FTC’s Traditional Role of Policing Advertising

In February, Kraft Inc. agreed to quit advertising Cheez Whiz, which is a blend of cheese with other products, as “real cheese.”

Earlier, Coca Cola, Seven-Up and Pepsi agreed to stop ads that regulators said misled consumers into believing that their diet drinks contained only Nutrasweet, when in fact they also contained saccharin at the time.

At about the same time, Borden Inc. agreed to change Wise Lights potato chips to Wise Brights after regulators complained that the name might persuade consumers that the chips were lighter in calories, cholesterol or sodium rather than in color.

And since last year, McDonald’s has been under investigation concerning whether the company is misleading customers into believing that Chicken McNuggets are made entirely from chicken breasts and thighs.

What these actions have in common is that they were the efforts of state officials, not the Federal Trade Commission, traditionally the nation’s most aggressive regulator of advertising practices.

The reason, according to consumer advocates and some state officials, is that the FTC no longer does what they consider an adequate job.

New York at Forefront

New York has been at the forefront. The state has reached agreements in the past several years with national advertisers, which include the diet drink manufacturers, Campbell Soup and others, that resulted in advertisements being withdrawn or altered. Similar activity is under way in Texas, California, Massachusetts and Iowa.

“In terms of consumer-protection activity, a high percentage is being brought in the states, and a high percentage of that seems to be in New York,” said Thomas J. McGrew, an attorney with Arnold & Porter who specializes in advertising law.

“In general, with the whole deregulatory mode, I think the states have stepped into areas that they feel they want to be more active in than the federal government is,” said Lorraine Reid, senior vice president of the Council of Better Business Bureaus in charge of the National Advertising Division, an industry self-regulatory group that also watches claims by advertisers. “I don’t think it’s just advertising. I think it’s generally.”

The decision by the states to step in where federal agencies choose not to tread may turn out to be a troubling phenomenon for industries that thought they were in line for relief from federal regulation and oversight.

Advertising Age, a weekly magazine that covers the advertising industry, has twice called in editorials for FTC to be “active enough, vigilant enough, to arrest this disturbing drift toward piecemeal, crazy-quilt, state-by-state regulation of national advertising.”

Will Cause Problems

Herbert Baum, president of Campbell USA, said: “That kind of situation, where the states get involved, will cause some problems for advertisers”--such as forcing them to change advertising campaigns on television, radio or in national magazines at the behest of a single state.

“I personally would hope that the FTC would be the jurisdiction where that would be handled,” he said. “The question is not whether the FTC should get back into this area. The question is whether the states think the FTC is vigorous enough. The states, who are really responding to their own constituents, have been more aggressive than the FTC. Who is right and who is wrong depends on where you sit.”

Robert Abrams, attorney general for the state of New York, said: “What got us in is that the historic role of the FTC was suddenly altered. The burden and the duty was left to the states. I don’t think that’s in the public interest. I don’t think that’s good.”

Several of the complaints to which states have responded have been filed by the Center for Science in the Public Interest, an activist group that forwards complaints filed with the FTC to the states. The FTC “either has turned down our complaints or has not acted at all,” said Bruce Silverglade, legal director of CSPI.

Inactivity Cited

“It’s a matter of inactivity by the Federal Trade Commission,” said Steve Gardner, assistant attorney general in the consumer-protection division of the Texas attorney general’s office. “It’s understaffed, underfunded, and under Reagan and not doing its job on anything--especially deceptive advertising.”

Texas has handled complaints involving advertising by Kraft Cheez Whiz, Nabisco Easy Cheese and Colgate Dentagard, according to Gardner.

“In regard to national companies, although there have been efforts before, there are more now because of the vacuum created when the FTC withdrew from previous activities,” said Herschel Elkins, senior assistant attorney general in California.

Elkins, who heads the consumer-law section of the California attorney general’s office, said the office has several major investigations under way involving food and automotive products.

However, some FTC officials and advertising industry executives dispute that the states are doing more, and that the FTC is doing less. Several advertising industry trade association officials said they have heard no complaints from members about increased activity by the states.

“I do not perceive a difference in terms of their activity today versus 10 or 12 years ago,” said Elaine Reiss, executive vice president and general counsel for Ogilvy & Mather, a major advertising agency.

May Be Political

“Perhaps they wish to pressure the FTC to do something,” she said of the claims by state officials that they are more active. “Perhaps it’s political.”

The attorneys general in the states that appear to be the most active in regulating advertising claims are Democrats.

Acting FTC Chairman Terry Calvani said that he, too, has seen little evidence of increased activity by the states. “It doesn’t appear to me to be earth-shaking,” he said. “It’s just not news.”

At the FTC, efforts are focusing on cases where there is direct consumer injury--especially when it results from an overt attempt to defraud, not on cases in which “the presumption is that the American consumer is an ignoramus,” said Calvani.

“The question I ask myself is, ‘Is this a representation where consumers don’t have adequate information to make a determination whether it is accurate?’ ” he said, citing such cases as promotions of thermostat control devices or diet pills.

Critics of the FTC, including some state officials, said the types of cases that the FTC takes often involve somewhat limited injuries.

“They’re not going after the national companies. They’re going after the easy hits--the ‘pieces-of-the-true-cross’ kind of advertisements--not the ones that affect the millions and millions of American consumers that the big companies do,” Gardner said in Texas.

Abandoned Precedent

Richard Cleland, an assistant attorney general in Iowa who heads the office of consumer protection, said: “The FTC has adopted a new view of advertising that has abandoned the older precedent, so we have become more concerned about regulating advertising on the local level. We feel we need to be more stringent than the federal standard if we are going to protect our consumers.

“I’ve worked with enough consumers to know that there’s no advertising claim so outrageous that some consumer won’t believe it. And the industry knows that too, or they wouldn’t be making those claims.”

“It’s our perception that except for a few specific areas such as truth-in-lending disclosure, the FTC has been much less active than it used to be,” said Dwight Golann, an assistant attorney general in Massachusetts. “There certainly has not been much advertising regulation when it comes to mainstream advertisers.”

Massachusetts has moved against national retailers for advertising clothes as marked down, when the garments arrived in the the United States with tickets on which the “mark-downs” were already registered.

Calvani said the FTC has continued to watch national advertising of consumer products, but that it would not pursue cases brought in “the presumption that the American people are incapable of making a reasoned judgment.”

Citing an earlier FTC decision to pursue a case against a manufacturer of a hair dye advertised as “permanent,” he said, “I think every consumer would understand that means that shampoo wouldn’t take it off,” not that a user’s hair would grow out the color it was dyed.

Same Number of Cases

Calvani said that the FTC brought about the same number of actions in the last year of the agency under former Chairman James C. Miller III as it had in the last year of the tenure of earlier Chairman Michael Pertschuk and was equally committed to pursuing national cases.

“I think that the agency is focusing its resources better today on those cases that can cause the most consumer injury,” said Wally Snyder, senior vice president for government relations for the American Advertising Federation. “What I’m seeing is an active program, and one that appears to be well targeted.”

Snyder, Calvani and others said that vigorous self-regulation by the industry itself and private litigation by competitors seeking to torpedo the opposition’s advertising claims have reduced the need for an activist FTC.

“People will argue, with some justification, that the FTC has not been as big or all-present in looking at national advertising as it used to be,” said FTC Commissioner Patricia Bailey. “It’s often not a question of the numbers of cases, but a question of our heavy-breathing presence. It’s not that we’re not bringing cases, but there’s a very clear sense that we’re not there, and that has an impact regardless of numbers.”

But from the perspective of at least some large states, something different is going on.

“This Administration is unique in terms of the last 80 years,” said Abrams in New York. “This Administration has moved away from the traditional role of government.”