Mr. O'TOOLE. I can answer part of that, Congressman. Our association was at the forefront of the effort to combat functional illiteracy for a number of years and then turned it over to the Advertising Council, an effort that we still support and is ongoing.

We have just concluded a study having to do with miscomprehension of print advertising, and that is broken down into a number of demographic groups. And we find that there is very little difference in the miscomprehension of print advertising, and the same was found in a study of television advertising 2 years ago, based on differences in education and income, two things that generally go together.

Advertising is generally brought down to a very-not a simple level, but a very comprehensible level, and miscomprehension still exist, but it did not differ by economic groups.

Mr. COOPER. I would like to see a copy of that study.
Mr. O'TOOLE. You will get it.

Mr. SNYDER. If I just may add something, Congressman, at the Federal Trade Commission, in taking into consideration whether or not an ad is deceptive or misleading, one of the question is the audience to whom the ad is directed, their level of understanding, their fears, their concerns. And I think the Commission has been very open in trying to make sure that consumers are not misled in that manner.

Mr. COOPER. It seems to me hard to separate sometimes the ad from the product being sold. And when the product is a financial product, in some instances there is a great deal of very complicated reading to be done. And oftentimes folks would rely more on the ad, the promo material, than on the actual product itself.

Does the study to which Mr. O'Toole is referring make that distinction between the ad and the product, and the extent to which people might have to buy a product on faith based only on what they saw in the ad, rather than on the information contained in the product itself?

Mr. O'TOOLE. No, it makes no attempt to make that differentiation. It simply measures the degree to which the material was comprehended.

Mr. COOPER. I am new to the subcommittee. If you could, explain to me what self-regulatory efforts you advertisers are engaged in, and what disciplinary cases have been brought against your own members for engaging in disreputable practices?

Mr. O'TOOLE. We established in 1970, along with the Council of Better Business Bureaus and with their help, what is known as the National Advertising Division of the Council of Better Business Bu

reaus.

The procedure involves a panel that is made up of three groups, after certain preliminary investigations have been made by the NAD. But if there is a finding that there is false or misleading advertising going on, or deceptive, and the advertiser contest this, it goes to a panel which comprises representatives from the advertising agency business, the advertiser side, and public members.

Mr. COOPER. How many disciplinary cases have been brought and how many folks have been punished since 1970?

Mr. O'TOOLE. I cannot give you the number. There are hundreds of cases that have been brought and they have resulted generally

in either the advertiser withdrawing the advertising, after the panel has met, or in-it is either a voluntary withdrawal, or sometimes the panel finds that there really was no deception.

The final action to be taken is turning over the whole proceedings to the Federal Trade Commission, with attendant publicity. And no advertiser has, as yet, taken it that far. They usually withdraw it.

Mr. JAFFE. Could I just add one thing? There have been more than 1,600 cases since the formation of this organization. And Mr. O'Toole is right in the sense that nobody has refused to-once entering the process, to go along with the policy. And there is always publication of the findings of the group, which is provided to the press, and often findings of the NARB, NAD will be found in the business press or in the style sections of newspapers.

So, there is a cost to an advertiser who is found to not have been advertising accurately or fairly, nondeceptively to the public.

Mr. COOPER. If you could, supply for the record a more complete description of the disciplinary cases.

It is interesting to me that the ultimate sanction, apparently, is referral to a Government agency, the FTC, and that sanction has never been employed.

It is also interesting that the other sanction, the one that has, apparently, been employed on occasion, is withdrawal of the advertisement, presumably after tens of thousands, if not millions of people have already seen the advertisement.

So, to me, those hardly sound like rigorous sanctions, and I am skeptical that the NAD or whatever you call it is a tough watchdog. Perhaps you gentlemen feel that it is a very tough watchdog.

Mr. O'TOOLE. We do. We take a great deal of pride in it, Congressman. And we take pride in the fact that the statements of Chairman Perchuck, to the effect that we are doing such a good job that it was taking his job away from him, are sources of particular price, and Mr. Potofsky and a number of the Commissioners in the rather harsh regime of the 1970's.

Mr. FLORIO. Would the gentleman yield just on that point?
Mr. COOPER. I would be happy to.

Mr. FLORIO. My recollection-and correct me if I am wrong-is that not too long ago, however vigorous or less than vigorous you are going forward, when you say the ultimate sanction is referral to the FTC, Chairman Oliver, if I recall, in a fairly publicized statement, stated that you shouldn't be taking these actions, whatever actions you are taking, because it was somehow inhibiting the marketplace. Didn't he have some comments to make?

Mr. SNYDER. No; I think that in reading that speech, he is very clear that he was supporting good, strong self-regulation, and he joined the whole line of chairmen at the FTC in supporting advertising self-regulation and recognizing the benefits that it plays in the marketplace. And he has said that again and again and again. So, I don't think that he in any way discouraged it.

Mr. FLORIO. Mr. Chairman, I would just ask unanimous consent that we obtain a copy of that speech and put it into the record. Mr. SNYDER. We would be happy to.

Mr. FLORIO. Because it is clear there is a difference of opinion as to what the thrust of that speech was. I think a clear reading of it

was somehow to be saying that nobody, including self-regulators, should be inhibiting the free flow of ideas in the mind of the chair

man.

Mr. LUKEN. Without objection, we will ask the staff to obtain that report, the report of the speech, that is.

[The material requested was not available at the time of printing.]

Mr. LUKEN. Proceed. The gentleman from Tennessee has the time.

Mr. COOPER. Thank you, Mr. Chairman.

One final question. It is in the form of a hypothetical. I have been concerned about the prevalence of two words in the supermarket nowadays, "light" and "lean" that adorn most products it seems like in the grocery stores.

We identified one product that was a frozen flounder filet with a given number of calories, fat and carbohydrates. The light version of that product, by the same company, had triple the calories, 18 times more fat, and 18 times more carbohydrates, yet it had the word "lite" prominently displayed on the front of the package.

How would you gentlemen characterize advertising of that type? And I realize it is not on TV or in print, but it is right there on the face of the package. Is that unfair, deceptive, misleading? What is that?

Mr. SNYDER. Well, not knowing exactly the facts of your case, I would say that if the product package implies that this is a light product in terms of calorie content, that could be a deception.

The problem with this area, again, when you try to look at it on an industrywide basis, is that it is very difficult to set standards across the board for the use of words like light. And I think the commission has decided it has to look at each of these cases and decide if that particular ad or package has implied inappropriately that the product is low in calories, or whatnot.

So, I think your example could be one of deception.

Mr. COOPER. Would you other gentlemen agree that it would be deception? Is just the word "lite" in great big letters. It doesn't say light in regard to what, just "lite," the modern spelling.

Mr. O'TOOLE. There might be confusion, as well. But the Commission, I believe, has published some guidelines on the use of "lite," not necessarily "lean." But "lite," primarily in terms of fear and that sort of thing. I think Mr. Snyder is correct. In practice, these things really have to be looked at on an individual basis to see if there is deception.

Is it possible that I could answer the question having to do with targeting?

Mr. COOPER. Sure.

Mr. LUKEN. Proceed. The gentleman will be extended another minute.

Mr. COOPER. I thank the chairman.

Mr. LUKEN. We have all had 10 minutes, you can have 10.

Mr. O'TOOLE. Because I think it points out the difficulty in dealing with this standard of unfairness.

The Commission said in the 1970's that targeting children was inherently deceptive, or inherently unfair. And it was clear what they were talking about, not in terms of what was unfair but the

targeting, because there were television programs directed primarily to an audience of children.

But the reason that this hypothesis of the Commission staff is so difficult for us to deal with is we know no way of targeting alcoholics. Targeting is a function of media selection, and I know of no magazine that goes to alcoholics that would accept alcoholic beverage advertising, and no television program directed to them.

So, I don't understand how this targeting goes on.

Mr. JAFFE. Mr. Chairman, I don't want to break into anybody's time. Would you mind if I added one thing to that. If there is a time problem, I would be glad to――

Mr. LUKEN. Twenty seconds, proceed.

Mr. JAFFE. OK. What we would like to say about unfairness is it has not been used as Congressman Florio has suggested, to come in and protect the public against all of these terrible harms. Where it has been used, it has caused harm, in our view, to the public.

The children's rule would have stopped advertising baseball gloves, baseball bats. In the over-the-counter drug rule, it would have required using the same language on the label in the advertising. So, Antitussen would have had to be used. That would have been totally misleading to the public. And the food rule went on for years and had to be removed because they could not come up with any consensus.

Sodium in antiacids, it was said to be less expensive to call the patients at risk than to put it in the advertising.

In every case where it has been brought up after 6 or 7 years the rulemaking has been stopped.

Unfairness is not necessary to protect the public and the public is not in danger. There is no proof or no sign in the 5 years that we have been here that the public is being taken advantage of because the FTC has had a congressionally placed ban on unfairness. The Congress has put in that ban

Mr. LUKEN. Well, we will move along to the other members.
Mr. FLORIO. Mr. Chairman.

Mr. LUKEN. Does the gentleman from New Jersey have something?

Mr. FLORIO. Just to respond, since it was made reference to.

Of course, a lot has been talked about the children's rule. The children's rule was a staff recommendation. The Commission never, in fact, imposed the alleged onerous provisions of the rule. Is that the case, Mr. Jaffe?

Mr. JAFFE. It was never imposed. It was found to-they canceled the rule after about-I don't remember, 4 years, I believe.

Mr. FLORIO. They didn't cancel the rule. They just didn't act on the proposal.

Mr. JAFFE. The proposal, that is right.

Mr. FLORIO. Thank you, Mr. Chairman.

Mr. LUKEN. The gentleman from Kansas.

Mr. SLATTERY. Thank you, Mr. Chairman. I don't have any questions at this time, but I would like to reserve my time for later, perhaps.

Mr. LUKEN. The other gentleman from Kansas.

Mr. WHITTAKER. Mr. Snyder, on page 10 of your statement you state, "The unfairness authority, where used to censor truthful ad

vertising, runs counter to the first amendment protection accorded truthful commercial speech."

Would you be kind enough to provide us with examples where the FTC has used its unfairness authority in such a manner?

Mr. SNYDER. Well, I can't think of, first of all, any rules that were promulgated so that they would have been challenged in the courts. I think what we are saying is, under this Central Hudson test which has come down in 1984-85, we are saying that under that dictate we think that this standard, this FTC unfairness standard, would violate Central Hudson if they in fact did bring out an unfairness rule.

I don't think there have been any cases that the court has had occasion to do that yet.

Mr. WHITTAKER. In the past, you have supported deleting the term, “unfairness," from section 5 of the FTC's consumer protection authority. As we all know, the FTC reauthorization bill that was passed by the Senate this year, includes an exemption from section 18's rulemaking authority and a definition for the term, "unfairness," in section 5.

Do you believe that this is a fair compromise? And if so, in effect, how would the Senate provision differ from your original proposal? Mr. SNYDER. Well, I believe the original proposal was to disallow the FTC from using unfairness across the board in advertising matters. And I think the Senate compromise is to allow the agency to use it in individual cases.

We have concern, speaking for the American Advertising Federation, about the use of unfairness across the board in advertising cases because of the subjective nature and the vagueness of the standard. But we are able to accept that compromise because our real concern is that this not be applied in industrywide advertising proceedings where you are dealing with hundreds of ads, ads not yet even created, where we think it is impossible to decide whether or not these violations would occur.

And we have been very concerned about the cost of unfairness to the industry and to the public, in terms of having to come in and defend these industrywide proceedings for years and then nothing happening in the end.

So, I feel we could accept this compromise and we think it would be a good basis for reauthorization.

Mr. WHITTAKER. Thank you, Mr. Chairman. I yield back the balance of my time.

Mr. LUKEN. The gentleman from California.

Mr. BATES. Thank you, Mr. Chairman. Just a brief statement. I don't want to delay this.

But it is my perception that these hearings are desperately needed, that the organizations that are charged with regulating deceptive practices, both self-regulatory entities as well as the Federal Trade Commission, are paper tigers and essentially nonproductive. I think it is a waste of taxpayers' money with respect to the Federal Trade Commission.

I think we need significant reductions in their budget until we can establish some productivity indices that will give us some way of measuring their productivity, probably using a program budget format.