Friday, March 01, 2013

the reasonable person standard in US and Canada

Is There a One Size Fits All Reasonable Person Standard? U.S. and Canadian Perspectives on Ad Interpretation

Presentation by ABA Section of Antitrust Law, Private Advertising Litigation Committee/Consumer Protection Committee/Privacy and Information Security Committee
(I recommend the PAL Committee for anyone interested in advertising law.)

Moderator: David Conway, Venable LLP

(Sadly, I recorded the time wrong so I missed the initial presenters on US law!  They were Richard Cleland, Assistant Director, Division of Advertising Practices, FTC & John Villafranco, Kelley Drye & Warren LLP. From the slides, Cleland compared reasonable and credulous consumers, noting points of overlap. “A reasonable interpretation is one that would be shared by at least a significant minority of reasonable consumers,” Pom, which might be as low as 10%.  Reasonable consumers = ordinary consumers. Villafranco emphasized that the reasonable consumer varied by the ad. Also pointed out that all ads are subject to misinterpretation, so trying to get rid of it will fail and harm the public. Also, my voice recognition is terrible, so the chances of misattribution are reasonably high here.)

Panelists: Bill Hearn, Davis LLP

Canadian SCt decided Richard v. Time, a case about the Quebec Consumer Protection Act—consumer received a sweepstakes notification that made it look like he’d won a lot of money (including listing his name in the middle of names of actual winners), coupled with fine print disclaimers saying that he’d only win if he returned a winning entry.  Images:

District court said the ad was designed to be misleading.  Court of appeal (French decision): ct of appeal said a consumer of average intelligence wouldn’t expect money to fall from the sky and would understand that it was a sweepstakes.  SCt of Canada reversed; $1000 compensatory and $15,000 punitive damages, but also an award for the solicitor’s fees, which were significant.  Looking at Quebec’s legislation: under that law, the general impression on first contact is the standard.  Rejected “average level of intelligence, skepticism and curiousity” and “careful, diligent” consumer in favor of ordinary consumer in a hurry—credulous, inexperienced, trusting; not “a well-informed person” but “someone who is not particularly experienced at detecting falsehoods and subtleties found in

commercial representations.” Explicitly based on legislative history in Quebec.

Possible implications: Strictly speaking, this was just about Quebec. Courts interpreting the Competition Act have consistently applied a reasonable person standard since 1975. Purposes of Competition Act are more varied than those of Quebec’s consumer protection act—Bureau must consider effect on competition. Bureau has said that average consumer standard turns on nature/sophistication of target audience.

Keeping the reasonable person standard is a good idea for consistency with international standards: US (consumer acting reasonably under the circumstances), UK (average target), EU (reasonably well informed under the circumstances, taking social, cultural and linguistic factors into account). Commissioner of Competition Bureau seems to be taking credulous consumer position in one pending case though.  Should vary based on type, complexity of services/sophistication of the audience targeted or likely to be reached—but it’s an open question under the Competition Act.

Brendan Ross, Major Case Director & Strategic Policy Advisor, Misleading Advertising & Labeling, Competition Bureau Canada: Standard disclaimer: not official views.

The Competition Act contains criminal and civil provisions which prohibit making false or misleading representations when promoting the supply or use of a product or any business interest.  Bureau has recently gone after instances of insufficient disclosure/important stuff hidden in fine print. If fine print adds information and would be likely to come to consumers’ attention, that’s good; but they can’t be used to cure information that would be otherwise misleading—if you hold your thumb over the disclaimer and the ad is deceptive, that won’t work.

Richard: lower court found that the ads were specifically designed to mislead.  Defendant argued that you should read the ad carefully and ignore the presentation, focusing on the text.  Time also invited the court to conclude that the average consumer should be skeptical of the general impression created by the ad and curious enough to take concrete action to find the true message hidden behind the ad—do some digging.  SCt said no. The general impression is what the consumer has after initial contact, including text and layout; does not require minute dissection of text to determine general impression.

Court said: Consumer need not approach an ad as if it were a contract, reading it over several times and making sure every detail was understood. So when the court said a consumer is credulous, that means prepared to trust merchants based on a general impression conveyed by the ad.  Inexperienced: not particularly experienced in detecting falsehoods/subtleties—doesn’t necessarily have a sophisticated toolkit for figuring out what’s wrong. Can’t depend on consumers to parse fine print.

That aligns with the Bureau’s position all along: if the general impression is misleading, the fine print should not help you. Not a “thick as a brick” or unreasonable consumer standard. Question was what was it reasonable to take away from the ad; do not require consumer to be skeptical about whether ad was telling the truth.  It’s not that the consumer is incapable of understanding the general meaning of terms, but rather that the consumer is not required to disbelieve factual claims. Wireless provider: “we have no contract.”  Court in that case said it didn’t believe that even a credulous consumer would believe that there was no contractual relation at all; rather consumer would believe that there was no time commitment.

Consumers do believe most claims they encounter: they believe that a thing that looks like an invoice is an invoice; they believe that weight loss products work; they believe in work-at-home opportunities; etc. 

Takeaway: it’s risky to create a false or misleading general impression and rely on disclaimers; viewed with suspicion by the Bureau and the Canadian SCt. While the Act isn’t a consumer protection statute, consumer protection and consumer understanding is vital to accomplishing the objectives of an efficient economy: misleading consumers interferes with competition. 

Hearn (I believe) asked about what happens when an offer is true for some consumers (e.g., some consumers can get $40/month service, while the majority wouldn’t qualify for this price and this limit is disclosed in fine print—what if the advertiser discontinues this ad rather than run the risk of the credulous consumer standard, depriving a minority of useful information?).  (Why can’t the ad specify who can get $40/month service in the main body of the ad?  “If you are …”)

Villafranco (I think): we’ll know more about this standard as time goes by.  Disclosures aren’t inherently evil, but are actually helpful.  Credit terms can be helpful—US would consider clear and conspicuous standard. Consumers of cellphones understand that there will be limits—if they buy a cellphone at a discounted price, there’ll be a contract term.

Ross: Not saying disclosures are inherently misleading. Saying that disclosures in fine print can’t correct a representation that is misleading. Once the deception is there, you’re gambling that consumers will understand it. Anticipates that courts will pay attention to the targeted group, but doesn’t agree that consumers are highly sophisticated at parsing contract terms for cellphones, which have high penetration; wireless ads appeal to everyone.

Hearn: but if you’re saying that “the ad is misleading if it’s misleading when you put your thumb over the fine print,” then you might not be able to run an ad claiming a benefit only available to 35% of customers.  Risk-averse advertiser might not run the ad.  (And not reword it?)

One panelist, possibly Cleland: courts in the US don’t have trouble with the reasonable/credulous line.  10th Circuit expressed some dismay about the reasonable person standard and questioned whether it served consumer protection purposes. But the reasonable person standard isn’t as high as you think it is—reasonable people may be trusting.  Ordinary person standard isn’t as low as you think it is—not that far apart.  Richard v. Time shouldn’t come out any differently under the US standard.

This is often presented as “if I can’t put the info in the disclaimer, I can’t offer the deal!”  He doesn’t think it’s either/or.  Time ad was put together with the idea of having the consumer, at least for a moment, believe that he was a winner. They didn’t have to do that. Could have put the offer out there simply and to the point, and if it was a good offer, Richard could’ve taken it. But to get his attention this way was just deceptive.

Ross: not convinced that these cases turn on the standard either.  Ordinary citizen—courts say it’s a cross section of the public that lacks expertise but has ordinary reason/common sense.  Note that many older Canadians have low levels of HS graduation; many Canadians have limited literacy and numeracy.  We should not write them off—“you don’t deserve protection because you fell for it.”  Remember that direct mail, as in Time, can be profitable with a 3-4% response rate.  Are we going to interpret that as meaning that the small group who were deceived are out of luck? He’s skeptical of that approach.

Heard (I think): when the court of appeal applied the reasonable person standard, he lost.  When the SCt applied the credulous person standard, he won.  (I don’t think that court of appeal result was right, though, and I take it that Ross might well agree. Does the reasonable person have to say “this deal is too good to be true” every time?  How is that line to be drawn?)

Ross: Ct of appeals said: your job as a consumer is to be suspicious of what you’re told as part of its definition.

Cleland (I think): that’s not part of the reasonable person standard here: need not be skeptical of the claim; we use the standard to determine what the claim is, not whether they should believe it. Nobody ever wins sweepstakes, but that’s not the issue.

Villafranco: reasonable person standard is consistently applied in the Lanham Act, FTC, NAD—every decision in corporate America depends on it.  Agrees with Heard that there is a difference between the standards and a reason why we moved away from the ignorant/unthinking/credulous standard.  (I just think the regulators are saying that the difference between the standards is not that the reasonable person standard requires suspicion of claims that appear to be factual claims, so that Richard should still have won under a true reasonable person standard.)

Heard (I think): many advertisers are worried about the credulousness standard, but some commentators suggest that the difference is more apparent than real. This difference needs clarification. Quebec is an outlier—other provinces apply reasonable person standard, as does Advertising Standards Canada in administering its code.

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