I'd be more convinced if you'd rewrite to include a response to the obvious free speech concerns. The FTC jurisdiction is limited not by the accident of legislation but by constitutional requirement. So false advertising in connection with sale of goods in interstate commerce could be regulated regardless of whether the source is disclosed, and risk-averse businesses will avoid coming near the limit of liability if they believe there is any possibility of interference, which is why exemplary enforcement largely works. Fifty state attorneys-general plus the FTC plus the varieties of private enforcement (like the false advertising rule wrt drugs) is not trivial given the past record of exemplary enforcement.

So the issue is the relevance of the past to the future given the present, which is what our issue usually is. But you take us instead into the inquiry of whether we ought to loosen the false advertising principle without inquiring first into whether we can. Opinion is constitutionally protected, and this applies to liability regimes beyond defamation. The rational relation calculus of regulatory intervention seems inappropriate. And none of your logic is capable of surviving the exacting scrutiny of interference with fundamental right. Seems to me you have not carried a basic burden of your argument.

Perhaps you can. Whether or no, it seems to me you might well have chosen instead to apply yourself to what is essentially a rule-skeptic's question: if exemplary enforcements against fraudulence and more-speech remedies under community control in the age of free communication against bogosity which is annoying but not fraudulent aren't sufficient to keep the problem more or less unstably at bay, why aren't they? And why would some administrative scheme of dubious constitutionality perform any better?

-- EbenMoglen - 15 Nov 2008

Further Reading

• It's not exactly on this topic, but the Center for American Progress and the Center for Democracy & Technology released a report about online fraud and the role of state attorneys general.

Obviously, these campaigns are nothing new. Even in traditional media, advertisers bribe media institutions and scheme to mislead the public. The difference between that corruption and this new perversion is that users are less likely to anticipate the corruption and, therefore, are more likely to accept the deception.

Comments

• I'm not sure about offering a reward. First, the government doesn't have that much money to begin with; if it did, we would see rewards for everything, because it is a lot cheaper to have your neighbors turn you in than to pay law enforcement to conduct an investigation. Second, the false positives and shear amount of participation may prove difficult to manage, because you would be trying to filter all of the anarchic distribution through a small number of (underpaid) government lawyers. The private actions might be viable, but who would be paying to bring all of these cases? Maybe they would operate like qui tam suits, and if the government intervenes on the private action, the original plaintiff can split any reward the government garners. -- JoshS - 27 Oct 2008

Could the one guy in the AG's office engage anarchy by offering a $ reward for information leading to the successful prosecution of false advertisers? (After all, anarchy is growing ALONGSIDE government, not necessarily against it. As a result, government might benefit by encouraging more $ rewards for information or private rights of action, although that raises the risk of false positives.)

-- AndrewGradman - 19 Oct 2008

Anarchic Consumer Protection

Advertisements are now so numerous that they are very negligently perused, and it is therefore become necessary to gain attention by magnificence of promises, and by eloquences sometimes sublime and sometimes pathetic. Promise, large promise, is the soul of advertising.

— SAMUEL JOHNSON, “The art of advertising exemplified,” THE WORKS OF SAMUEL JOHNSON 394 (Alexander Y. Blake 1846) (1759)

The change in geometry that the net produced has allowed great social developments to manifest. One manifestation of this connectivity is the creation and distribution of visual media. Users of YouTube? , for example, have millions of videos at their finger tips. As users load videos, others view, share, and respond to them both in comments and with other videos. This creates a massive public discourse that can include as many or as few people as would like to participate.

The discourse, however, has been polluted by the inevitable entry of commercial organizations. These companies conduct stealth or guerilla marketing campaigns, which are, essentially, attempts to misinform and deceive. Obviously, these campaigns are nothing new. Even in traditional media, advertisers would bribe media institutions and scheme to mislead the public. The difference between that corruption and the perversion of YouTube? , however, is that on YouTube? users are less likely to anticipate the corruption and, therefore, are more likely to accept the deception.

Over the last year, we have seen several such marketing campaigns, including Levi’s Jeans, Ray-Ban Sunglasses, and the movie Wanted. There was also a Nike campaign for sneakers, but unlike the other videos, it was fairly obvious that these videos were advertisements because the shoe was prominently displayed out of context at the beginning and/or end of the video. One set of videos depicted a group popping popcorn by setting several cell phones next to the kernels. The campaign, paid for by Cardo Wireless, was an attempt to market their cell phone headsets. The company claims that the videos weren’t designed to scare people by making them believe cell phones were frying their brains.

These marketing campaigns are fairly effective—since the inception of the Cardo campaign, their sales increased 100%—which makes sense given that pull media is more effective than push media, and these provocative videos tap into the anarchic distribution system that works so well for non-functional zero-marginal cost goods. So what’s the problem?

First, there is the understandable concern that people believe what they see. As it turns out, this is less of a concern with this particular video, because if cell phones could pop popcorn, they would also make your brain explode, which they don’t. However, these campaigns will continue to become more subtle and raise more concerns. On the other hand, one could argue that as these videos proliferate, users will become more skeptical of the videos they see.

A second concern is the effect these videos have on public discourse. If the Internet is supposed to educate the masses in a way that they never have been before, having companies wage disinformation campaigns on the world is particularly troubling. In spite of this, these companies argue that as long as they are not saying anything false or misleading about their products, the consumers should be able to draw their own conclusions about the motivations of those depicted. However, the videos remain deceptive as to the source of their representations, and users will treat representations made by company employees differently and with more scrutiny than those that are not.

One solution to this problem is the anarchic distribution of truth. In the case of the popcorn campaign, from the beginning people expressed skepticism; the community immediately began speculating that the video was a fake. Simultaneously, users around the world recreated the video to debunk it and posted their content on the same distribution networks where the original video was displayed. Exposing the video anarchically has several benefits: like the initial distribution it can be done at zero marginal cost and in the same medium, and it allows many minds to work together on the problem. Conversely, relying on other users leaves detection of these campaigns to the level of doubt the campaigns engender in their viewers after the video is initially distributed. This in itself is troubling because for maximum consumer protection, we would need to live in a world of people that do not believe anything they observe in any medium. Additionally, once the truth is discovered, the promoters are rewarded with a second distribution by those posting that it was a fake.

Another solution would be to turn to the law. Unfortunately, current laws seem ill-equipped. While the FTC Act prohibits false or deceptive advertising, it defines false advertising as those that are misleading in a material respect. FTC Act § 55(a). Therefore, advertisements that are not misleading and merely allow the audience to make inferences are not violations. Ellen Goodman provides a nice example:

As time was running out on the day's shooting, the director reportedly screamed at the crew, "'[G]o get my fucking Diet Dr. Pepper moment and get out of here."' According to the producer, "contestants [were] saying on mike--'I hate Dr. Pepper.' . . . I told them to just hold it in their hand. But then we were told we had to make sure they drank it too."

Stealth Marketing and Editorial Integrity, 85 Tex. L. Rev. 83, 109-110 (2006). If the product placement is subtle enough, it will leave a false impression, but will not materially misrepresent any fact. Goodman also points out that stealth marketing is not meant to defraud, but rather to “bypass audience resistance to promotional messages by giving an erroneous impression of source.”

A final solution would be to draft a new law that requires advertisers to disclose their identities in their videos. Such a law would have the benefit of disclosure, and if the penalties are high enough, it may act as a deterrence. Then again, stealth marketing is, well, stealthy. It may be difficult for regulators to tell the difference between a video created for fun and one created by advertisers. Additionally, unlike anarchic distribution, only a limited number of minds will be able to work on the problem (likely one guy in a state attorney general’s office).

-- JoshS - 19 Oct 2008

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