Kraft, Inc. v. Federal Trade Commission
1992 U.S. App. LEXIS 17575, 970 F.2d 311 (1992)
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Rule of Law:
The Federal Trade Commission (FTC) may find an advertisement deceptive based on implied claims that are reasonably clear from the face of the advertisement, without being required to rely on extrinsic evidence of consumer deception, such as surveys.
Facts:
- Kraft, Inc. manufactured Kraft Singles, a process cheese food slice, and faced increasing competition from lower-priced imitation cheese slices.
- To counter this competition, Kraft launched its 'Five Ounces of Milk' advertising campaign, which stated that each Kraft Single is made from five ounces of milk.
- The advertisements, particularly the 'Skimp' ads, explicitly compared Singles to imitation slices, claiming imitations use 'hardly any milk.'
- The campaign's audio and visual elements strongly linked the five ounces of milk to the calcium content necessary for children's bone growth.
- In reality, about 30% of the calcium from the five ounces of milk is lost during the cheese-making process.
- Additionally, the vast majority of imitation cheese slices were fortified with calcium, giving them a per-slice calcium content roughly equal to that of a Kraft Single.
Procedural Posture:
- The Federal Trade Commission (FTC) filed an administrative complaint against Kraft, Inc., alleging deceptive advertising.
- An Administrative Law Judge (ALJ), after a trial, found Kraft's ads conveyed two false and material implied claims and issued a cease and desist order.
- Kraft appealed the ALJ's decision to the full Commission.
- The Commission affirmed the ALJ's findings regarding the deceptive claims, with some modifications, and issued a broader cease and desist order covering all Kraft cheese products.
- Kraft, Inc., as petitioner, filed a petition for review of the Commission's final order in the U.S. Court of Appeals for the Seventh Circuit.
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Issue:
Does the Federal Trade Commission Act permit the FTC to find an advertisement deceptive based on implied claims reasonably clear from the face of the advertisement, without requiring extrinsic evidence of consumer deception?
Opinions:
Majority - Flaum, Circuit Judge.
Yes. The Federal Trade Commission Act permits the FTC to find an advertisement deceptive based on implied claims without resorting to extrinsic evidence, so long as those claims are reasonably clear from the face of the advertisement. The court rejected Kraft's argument for a de novo standard of review, instead applying the traditional deferential 'substantial evidence' test to the FTC's findings, citing the Commission's expertise. The court held that when implied claims are conspicuous, the FTC may rely on its own reasoned analysis and common sense, a principle supported by the Supreme Court's decision in Zauderer. Here, the court found substantial evidence supported the FTC's conclusion that the ads conveyed two false implied claims: the 'milk equivalency' claim (that a slice has the calcium of five ounces of milk) and the 'imitation superiority' claim (that Singles have more calcium than imitation slices). These claims were deemed material because calcium is a significant health concern for consumers, and Kraft's persistence in running the ads despite warnings indicated the company believed the claims were effective. The court also upheld the broad scope of the cease-and-desist order, finding it was reasonably related to the seriousness and transferability of the violation.
Concurring - Manion, Circuit Judge.
Yes. While the majority opinion is correct under controlling Supreme Court precedent like Zauderer, this approach raises serious concerns. Allowing the FTC to determine an ad is deceptively misleading based on its own subjective interpretation, without extrinsic evidence, creates unpredictability for advertisers. This threatens to chill truthful and valuable commercial speech, particularly comparative advertising, as companies may opt for vague 'feel good' ads to avoid the risk of an FTC enforcement action. The FTC would be well-advised to use its expertise to develop a consistent consumer survey methodology that advertisers could use to reduce uncertainty and ensure their ads are not misleading.
Analysis:
This decision solidifies the FTC's authority to regulate implied advertising claims without needing to produce consumer survey evidence in every case, provided the implied claim is 'reasonably clear.' It reaffirms the deferential 'substantial evidence' standard for reviewing FTC findings of deception, distinguishing these administrative actions from cases requiring stricter First Amendment scrutiny. While this gives the FTC significant power, the concurrence highlights the ongoing tension between preventing deception and avoiding a chilling effect on the free flow of valuable commercial information. The case thus sets a precedent that an ad's overall 'net impression' can be legally actionable, even if its statements are literally true.
