Is Failure to Disclose Product Placement Deceptive Advertising?

With the Super Bowl fast approaching, our attention naturally turns to advertising. Not the hyped 30-second commercial spots—going for a reported $2.6 million during this year’s game—or even the sponsorship gambits that the NFL is so good at.

This posting is about the more subtle advertising method of product placement. “Product placement” is the integration of a brand’s product in a movie, play, television show, music video, or even computer or video game in exchange for some type of compensation.

Famous examples of product placement include the use of Reese’s Pieces in the film “E.T.,” the employment of the DeLorean automobile in the “Back to the Future” movies, the prominent placement of Coca-Cola glasses in front of the “American Idol” judges, and even the familiar orange Gatorade jug at NFL games.

While the EU and other foreign jurisdictions have started regulating product placement, the U.S. has not. Some public interest groups have pushed for regulation, but to no avail.

Commercial Alert, an organization founded by Ralph Nader, formally asked the Federal Trade Commission and Federal Communications Commission to require the disclosure of product placements in a clear and conspicuous fashion. According to the organization, the failure to disclose that advertisers pay for product appearances in programming constitutes an unfair or deceptive practice in violation of the Section 5 of the Federal Trade Commission Act.

In a February 10, 2005 letter, Mary K. Engle of the FTC responded that “there may be instances in which the line between advertising and programming may be blurred, and consumers may be deceived, absent a disclosure clarifying that a communication is an advertisement. However, we believe that the existing statutory framework provides sufficient tools for challenging any such deceptive acts or practices.”

Recently, the National Advertising Division of the Council of Better Business Bureaus brought an inquiry regarding statements about dating service Perfectmatch.com made in the Lifetime Channel’s “Lovespring International,” a situation comedy about a fictional online dating service.

Perfectmatch.com sponsored the show and had an agreement for the Lifetime Channel to “integrate” the real life dating service into the program. In one episode, the boss of the fictional dating service asks “Do you know how many people have signed up for Perfectmatch.com in the last five minutes? 1,623!”

The NAD questioned whether that statement constituted an advertising claim and whether such a claim was substantiated. Perfectmatch.com responded by stating that it had no script or content control and no right to approve the show. The program is partially scripted and partially improvised. The actors can say what they want, as long as it isn’t slanderous.

In a case of first impression, the NAD found that Perfectmatch.com “had insufficient control over the content to render the character’s statement to be national advertising” within the NAD’s jurisdictional purview. The statement regarding the number of individuals who signed up for Perfectmatch.com was not created or scripted by the advertiser. This finding did not preclude the NAD from exercising jurisdiction in the event of a product placement that is controlled by PerfectMatch.com and that makes express or implied claims, the NAD noted.

The decision is Perfectmatch.com, National Advertising Division, Case #4611, December 15, 2006. The abstract is available at CCH Adverising Law Guide ¶62,400. Full text of the decision is available in NAD/CARU Case Reports, Vol. 37, No. 1, January 2007. For further information, contact the National Advertising Division, 70 West 36th Street, 13th Floor, New York, New York 10018; http: www.nadreview.org.