December 2015 Legislative Report

December 8, 2015       Don’t be DOOMED by crowdfunding rules

The FTC took legal action against the deceptive tactics of a project creator who raised money from consumers to produce a board game through a Kickstarter campaign, but instead used most of the funds on himself. The defendant has agreed to a settlement that prohibits him from deceptive representations related to any crowdfunding campaigns in the future and requires him to honor any stated refund policy.

Crowdfunding involves individuals and businesses funding a project or venture by raising funds from numerous people, often via dedicated online platforms. According to the FTC’s complaint, Erik Chevalier, also doing business as The Forking Path Co., sought money from consumers to produce a board game called The Doom That Came to Atlantic City that had been created by two prominent board game artists.

“Many consumers enjoy the opportunity to take part in the development of a product or service through crowdfunding, and they generally know there’s some uncertainty involved in helping start something new,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “But consumers should be able to trust their money will actually be spent on the project they funded.”

According to the FTC’s complaint, Chevalier represented in his Doom campaign on that if he raised $35,000, backers would get certain rewards, such as a copy of the game or specially designed pewter game figurines.  He raised more than $122,000 from 1,246 backers, most of whom pledged $75 or more in the hopes of getting the highly prized figurines.  He represented in a number of updates that he was making progress on the game. But after 14 months, Chevalier announced that he was cancelling the project and refunding his backers’ money.

TIP: Carefully analyze and plan what rewards to offer and the costs of providing such rewards and follow-through on your plan!

November 27, 2015     DAA Applies Self-Regulator Principles to Cross-Device Data

The AAF supported Digital Advertising Alliance has released guidance to help companies apply the DAA’s Self-Regulatory Principles in the cross-device environment. The guidance makes clear that the transparency and choice obligations in the existing Principles apply to cross-device data practices, which are also subject to the DAA’s independent enforcement.

The guidance helps explain how the Principles apply to browser- and app-based choices made by a consumer to data collected on that browser or device for use elsewhere. It also states that consumer choice applies to data collected elsewhere for use on that browser or device.

The DAA cross-device guidance, titled Application of the DAA Principles of Transparency and Control to Data Used Across Devices, will help participants in the digital advertising ecosystem better understand their obligations regarding cross-device data. It also ensures that a consistent self-regulatory framework is applied to the collection and use of such data across the multiple computers and mobile devices used by consumers.

November 27, 2015     AMA Calls for Ban of DTC Advertising

The members of the American Medical Association recently voted to call for an end to all direct-to-consumer prescription drug advertising. The AMA had previously approved of advertising, as long as it was accurate and educational.

AAF believes the AMA should have stayed with its previous position. Far from being harmful, AAF believes that pharmaceutical advertising has provided a great benefit to consumers and public health. By raising awareness of products available to treat many medical conditions pharmaceutical advertising has resulted in countless patients making appointments with their doctors to learn more.

According to an AMA statement, “Direct-to-consumer advertising also inflates demand for new and more expensive drugs, even when those drugs may not be appropriate.” However, patients can only legitimately receive medications when they are prescribed by their doctors who are the trusted advisor, in a position to explain what drugs or alternative treatments are the most appropriate.

While some physicians may not like having to tell a patient why a particular drug is not right for them, many of those conversations would not take place at all without advertising, and many of those patients would be left with untreated conditions.

The U.S. Food and Drug Administration has powerful tools to censure any prescription drug advertiser that goes over the line in marketing a product. Many pharmaceutical companies often voluntarily work with the FDA prior to an advertisement’s release to insure that all claims are accurate and fair.

A ban on DTC advertising is also unconstitutional. Pharmaceutical advertising is protected speech under the First Amendment of the U.S. Constitution which prohibits bans on commercial speech. The Supreme Court has affirmed that commercial speech – as long as it is truthful and about a legal product or service – is protected speech.

November 27, 2015     Ryan Wants House to Pass Tax Reform in 2016

New Speaker of the House Paul Ryan, R-Wis., recently told The Wall Street Journal CEO Council annual meeting that he would like the House GOP majority to pass tax reform before Republicans select their presidential candidate July 18-21, 2016 in Cleveland, Ohio.

Ryan would like the Republican Party to present a substantive economic policy agenda, including tax reform, fairly soon to ensure that the 2016 election can provide a true mandate. Ryan said the Party should run on its ideas and cannot wait until it has a candidate to articulate them.

The Speaker did not talk in specifics about the plan. Ryan has previously endorsed the goals of the last major tax reform bill introduced by former House Ways and Means Committee Chair Dave Camp, R-Mich. That bill would have lowered the corporate tax rate to 25% and eliminated many tax preferences and deductions currently in the code – including a provision reducing the current year deduction for advertising from 100% to 50%, with the remaining 50% amortized over ten years. Ryan has never taken a public position for or against on that specific provision.

November 27, 2015     Study Shows Economic Benefits of Advertising

A new study commissioned by The ADvertising Coalition highlights the importance of advertising to the U.S. Economy. The ADvertising Coalition is an alliance of AAF and many corporations and associations representing various facets of the advertising industry.

Among the study’s findings:

  • Advertising supported $5.8 trillion, or 16 percent, of the $36.7 trillion in U.S. output. Advertising also supported 20 million, or 14 percent, of the 142 million jobs in the U.S.
  • Every dollar spent on advertising, on average, generated about $19 of economic output or sales.
  • The total impact of advertising represented 19 percent of U.S. GDP.
  • Every one million dollars spent on advertising supported 67 American jobs throughout the U.S. economy.
  • Every direct advertising job supported another 34 jobs across all industries.

The study was conducted by HIS Economics and Country Risk. It is an update of a study first designed and developed under the direction of Dr. Lawrence R. Klein, recipient of the 1980 Nobel Prize for Economics.

October 30, 2015                   Record Amounts of Political Ads Expected

Forecasters are expecting the 2015-2016 election cycle will generate records amounts of spending on political advertising. The estimates are for national, state and local contests and anticipate more advertising for more extended periods than in previous elections. While this may benefit some media, it could make it difficult for commercial advertisers as rates are likely to increase as less quality time and space is available.

October 30, 2015                   UK Report Calls for Less Advertising

A recent report by Public Health England recommended a “sugar tax” of up to 20 percent, as well as reductions in the advertising of “fizzy drinks and fattening snacks.” The United Kingdom already has curbs on advertising during children’s programs. The report suggests extending those curbs to programs that children are likely to watch. It also says that the restrictions could be extended to social media, cinemas, online and in games.

October 30, 2015                   Carson Tax Plan Could Hit Advertising

In the Republican Presidential debate on October 27, Dr. Ben Carson reiterated his support for a flat tax at a rate close to 15 percent. In defending his proposal, he said that rate was achievable, but “You also have to get rid of all the deductions and all the loopholes.” Should the flat tax apply to corporations as well – as seems to be his wish – then advertising would seemingly be one of the deductions eliminated.

October 30, 2015                   New Leadership in the House

Representative Paul Ryan, R-Wisc., has been selected as the new Speaker of the U.S. House of Representatives replacing former Rep. John Boehner, R-Ohio, who has resigned from Congress.

Rep. Ryan had previously been chair of the tax writing Ways and Means Committee. Earlier this year, members of the American Advertising Federation (AAF) and our partners in The Advertising Coalition (TAC) met with Chairman Ryan to discuss the importance of maintaining advertising as a fully deductible normal and necessary business expense in the corporate tax code. While he took no position for or against, Rep. Ryan is well educated on the issue.

A new Chairman of Ways and Means has not yet been selected. The two most likely contenders are considered to be Rep. Kevin Brady, R-Texas, and Rep. Pat Tiberi, R-Ohio. The AAF and TAC have met with Rep. Brady to educate him on the importance of keeping advertising fully deductible. Rep. Tiberi has not yet scheduled a meeting with us, but he did address AAF’s 2013 Government Affairs Conference, where the AAF grassroots were able to demonstrate the importance of the issue by their very presence in Washington.

AAF Baltimore Legislative Committee

Cynthia B. Sanders, Esq., Ober|Kaler; Clark Rector, EVP AAF Gov Affairs; Wendy McDermott, Esq., Morgan Stanley,  Ashlene Larson, CEO Ashlene Larson PR