Embedded Advertising on Television: Classic Legal Environment and Business Law Content “Brought to...

Embedded Advertising on Television:Classic Legal Environment andBusiness Law Content ‘‘Brought toYou by . . .’’Rita Marie Cainn

Betty Draper, the stay-at-home wife of ad executive Don Draper on MadMen, serves his clients and colleagues a ‘‘trip around the world’’ dinner that

includes the imported beer, Heineken.1 Liz Lemon and Jack Donaghy on

30 Rock openly ask the camera ‘‘Can we get have our money now?’’ after

plugging Verizon Wireless service.2 Stephen Colbert promotes (and

mocks) Doritos in various segments on The Colbert Report.3

Students are likely to be familiar with some or all these depictions of

branded products in these popular television shows. But they probably have

no idea the number of legal and public policy issues these product appear-

ances are generating. This article explains how embedded advertising in

television shows can be the attention-grabbing vehicle for teaching numerous

concepts commonly covered in legal environment and business law courses.4

r 2010 The AuthorJournal compilation r 2010 Academy of Legal Studies in Business

209

Journal of Legal Studies EducationVolume 27, Issue 2, 209–246, Summer/Fall 2010

nProfessor of Business Law, University of Missouri–Kansas City, Bloch School of Business andPublic Administration. I gratefully acknowledge support for this research from the KemperSummer Research Grant program at the Bloch School.

1Mad Men Episode 8, A Night to Remember (AMC television broadcast, Sept. 14, 2008).

2See Emily Nussbaum, What Tina Fey Would Do for a SoyJoy, N.Y. MAG. (Oct. 5, 2008), available athttp://www.commercialalert.org/news/archive/2008/10/what-tina-fey-would-do-for-a-soyjoy.

3See Stuart Elliott, Again, It’s (Dorito) Colbert Nation, N.Y. TIMES (Mar. 20, 2008), available athttp://mediadecoder.blogs.nytimes.com/2008/03/20/again-its-dorito-colbert-nation/.

4Disclosure of embedded advertising under FCC rules discussed below covers advertising onradio and television. It also encompasses children’s television programming. This article,however, is restricted to the issues of advertising in television programming that is not directedto children. First, from a practical perspective, students are more likely to be interested in, andfamiliar with, the advertising practices in the shows they watch rather than on children’stelevision. Further, a different statutory scheme governs FCC rules for children’s program-

http://www.commercialalert.org/news/archive/2008/10/what-tina-fey-would-do-for-a-soyjoy

http://mediadecoder.blogs.nytimes.com/2008/03/20/again-its-dorito-colbert-nation/

The Federal Communications Commission (FCC) uses the term ‘‘em-

bedded advertising’’ to describe two different, but related, marketing

strategies: product placement and product integration.5 Product place-

ment is the use of a branded product as a prop in a production, for a fee.6

Product integration involves incorporating the branded product into the

dialogue or plot of the sponsored program.7

According to the FCC, embedded advertising capitalizes on the credibility

of a program, or its actors and directors, to promote a commercial product by

weaving the product into the program.8 The use of embedded advertising is

escalating in response industry changes. In particular, digital recording devices

(DVRs) allow consumers to skip traditional commercials, leaving producers

looking for advertising value to market their programs and sponsors searching

for innovative methods to promote their goods or services.9 Embedded

ming. Specifically, commercial television broadcasters and cable operators must limit theamount of commercial matter that airs during programs directed to children ages twelve andunder to not more than 10.5 minutes per hour on weekends and not more than 12 minutesper hour on weekdays. See Children’s Television Act of 1990, Pub. L. No. 101–437, 104 Stat.996–1000, codified at 47 U.S. C. § 303b; 47 C.F.R. §§ 73.670, 76.255. When products are in-tegrated into children’s programming, the entire program can be characterized as a program-length commercial that counts against the time limits just mentioned. See Policies and RulesConcerning Children’s Television Programming, Report and Order, 6 FCC Record 2111,2118 (1991), reconsideration granted in part, 6 FCC Rcd 5093 (1991). No such restraints apply toprogramming that is not targeted at children. Finally, alleged government interests in pro-tecting children do not justify widespread restrictions on all content. Lorillard Tobacco Co. v.Reilly, 533 U.S. 525, 555 (2001). Accordingly, if new disclosure rules are deemed necessary forchildren’s programming, that same rationale would not necessarily justify mandating newdisclosures for all other programming. For these reasons, this article is limited to productintegration other than in children’s programming.

5In the Matter of Sponsorship Identification Rules and Embedded Advertising, 73 Fed. Reg.43194, 43195 (July 24, 2008) (Notice of Inquiry and Notice of Proposed Rulemaking).

6Id.

7Id. One marketing practitioner, Product Integrators, Inc., defines product integration as‘‘The seamless weaving of a manufactured product into the storyline of an entertainmentproduction.’’ Interactive Entertainment Marketing Experts, Slide Show, 1, http://www.productintegrators.com/pres1/slide25.html (last visited June 25, 2010). For additional recentexamples of product integration on TV, see Nussbaum, supra note 2.

8See In the Matter of Sponsorship Identification Rules and Embedded Advertising, supra note5, at 43195.

9Id.

210 Vol. 27 / The Journal of Legal Studies Education

http://www.productintegrators.com/pres1/slide25.html



advertising, including product integration into creative storylines, is one

answer.10

Global product placement spending increased 42.2 percent to $2.21

billion in 2005.11 Further, in the 2005–2010 period, annual growth for

paid product placements is projected to be 27.9 percent to $7.55 billion.12

Nielsen reported 117,000 brand occurrences in the first three months of

2008 in the United States.13 Thus, the practice and the issues it spawns are

highly relevant and on the increase.

The marketing practice is not limited to commercial messages.

The White House Office of National Drug Control Policy paid approxi-

mately $21 million to broadcast networks to integrate antidrug messages

in more than one hundred TV episodes like ER and The Practice.14

Thus, marketers in both the for-profit and nonprofit sectors have

embraced embedded advertising. Embedded advertising is expanding

to new media, too. It can be found in blogs, video games and on

YouTube.15

This article analyzes these expanding marketing practices relative

to numerous concepts that are taught in business law or legal en-

vironment courses. After discussing ways to introduce the embedded

advertising concept to students, the article discusses administrative law

and statutory interpretation applicable to embedded advertising.16

The FCC currently has a rule-making docket under way to deter-

mine if it needs to adopt stricter rules regarding disclosure of

10For an understanding of product placement advertising and its effectiveness from market-ers’ perspectives, see generally The Psychology of Entertainment Media: Blurring the Lines BetweenEntertainment and Persuasion (L.J. Shrum ed., 2004).

11See PQ Media, Product Placement Emerges As Key Marketing Strategy Worldwide, As BrandMarketers Scramble to Make Emotional Connection with Consumers (Aug. 16, 2006), http://www.pqmedia.com/about-press-20060816-gppf2006.html.

12Id.

13Nielsen Media Research. Product Placements Rose 6% in First Quarter, (May 5, 2008), http://www.duedee.com/news/101030/Product-Placements-Rose-6-in-First-Quarter-Nielsen-Reports/print/.

14Ellen P. Goodman, Stealth Marketing and Editorial Integrity, 85 TEX. L. REV. 83, 92 (2006).

15Id. at 95.

16See infra notes 31–73 and accompanying text.

2010 / Embedded Advertising on Television 211

http://www.pqmedia.com/about-press-20060816-gppf2006.html

http://www.pqmedia.com/about-press-20060816-gppf2006.html

http://www.duedee.com/news/101030/Product-Placements-Rose-6-in-First-Quarter-Nielsen-Reports/print/



embedded advertising. Thus, the administrative law examples are quite

timely.17

Of course, any potential government regulation of advertising raises

classic free speech issues. Embedded advertising has particular educational

value regarding this constitutional law topic because it reflects commercial

speech that is merged with fully protected social and entertainment

speech. Thus, the basic concept of the degrees of protection afforded

commercial versus noncommercial speech is reflected in the topic.18

Embedded advertising presents opportunities to discuss other com-

pelling legal issues. For example, embedded advertising involves a number

of parties with competing interests that involve labor/employment law19

and contract law.20 For instructors who teach contract or labor negotia-

tions, the competing interests of several parties in the FCC rule making

raise some excellent examples for discussing interest-based negotiations.21

For instructors who teach consumer protection, advertising, or marketing

law, embedded advertising raises unique issues that have been addressed

by the Federal Trade Commission (FTC).22 For faculty who teach in inte-

grated business programs,23 or who use business cases to teach legal con-

tent, the intersection of marketing, employment law and public policy in

this topic will be ideal.24

This article provides instructors basic research to completely famil-

iarize themselves with the embedded advertising topic. For instructors who

17The Federal Trade Commission (FTC) also plays a role in regulating embedded advertisingunder enabling legislation that governs deceptive advertising. This regulatory role is dis-cussed under the consumer and advertising law portion of this article. See infra notes 146–58and accompanying text.




21See infra note 136 and accompanying text.


23See Richard P. Mandel et al., Integrating Law into an Integrated MBA Program: The Experience ofthe F.W. Olin Graduate School of Business at Babson College, 14 J. LEGAL STUD. EDUC. 17 (1996).

24See Darren Charters et al., Using the Case Study Approach to Challenge Students in an IntroductoryBusiness Law Course, 26 J. LEGAL STUD. EDUC. 47 (2006). See also Debra Dobray & David Stein-man, The Application of Case Method Teaching to Graduate Business Law Courses, 11 J. LEGAL STUD.EDUC. 81 (1993).


are committed to the legal case method tradition,25 the article provides

classic cases that illustrate the central free speech issues. The article sug-

gests numerous individual or group assignments to accommodate different

teaching styles and class sizes and provides suggestions for incorporating

visual aids that will make the topic come alive for students.

I. INTRODUCING THE CONCEPT OF EMBEDDEDADVERTISING

Before examining the legal issues embedded advertising generates, stu-

dents can come to appreciate the marketing practice with some real ex-

amples. Video clips bring the issue before the student in a highly effective

way.26 The concern for an instructor is finding relevant video examples

and making them readily usable in class when time is precious.

One approach for finding video clips is to use the Websites for pro-

grams that the instructor knows have meaningful examples. For example,

a search for ‘‘Doritos’’ on The Colbert Report Web site yields several pages of

results, including Colbert’s entire ‘‘Hail to the Cheese’’ mock presidential

campaign in fall 2007, which was sponsored by Doritos.27 The instructor

25See Jordan H. Liebman, In Defense of the Legal Case Method and the Use of Integrative Multi-IssueCases in Graduate Business Law Courses, 12 J. LEGAL STUD. EDUC. 171 (1994).

26See, e.g., Fred Galves, Will Video Kill the Radio Star? Visual Learning and the Use of DisplayTechnology in the Law School Classroom, 2004 U. ILL. J.L. TECH. & POL’Y 195 (2004); see also PaulBergman, Teaching Evidence the ‘Reel’ Way, 21 QUINNIPIAC L. REV. 973 (2003).

For a discussion of copyright issues associated with using video clips in class, see AndreHampton, Legal Obstacles to Bringing the Twenty-First Century into the Law Classroom: Stop BeingCreative, You May Already Be in Trouble, 28 OK.CITY U. L. REV. 223 (2003). Notwithstanding thegloom and doom title, Hampton’s explanation of the Convention on Fair Use, MultimediaGuidelines suggests that linking a program’s Web site clips to a password-protected Black-board class page, where short excerpts from a show are run in class, would be permissiblewithout any permissions for two years. Id. at 234–37. If the instructor purchased the item oniTunes, as would be necessary for the Mad Men episode discussed above, then the copy is theinstructor’s to use as long as it is not copied by students. Hampton had potential infringementissues not reflected by the suggestions in this article because he wanted to create a CD thatincluded multimedia content and provide copies to all his students.

27See http://www.colbertnation.com/video?keywords=doritos (last visited June 25, 2010). In aclip from April 2008 Colbert credits Doritos for his Peabody award. Peabody Credit(Apr. 3, 2008), http://www.colbertnation.com/the-colbert-report-videos/164889/april-03-2008/peabody-credit.


http://www.colbertnation.com/video?keywords=doritos

http://www.colbertnation.com/video?keywords=doritos

http://www.colbertnation.com/the-colbert-report-videos/164889/april-03-2008/peabody-credit

http://www.colbertnation.com/the-colbert-report-videos/164889/april-03-2008/peabody-credit

can show some clips in class and provide links to others for students to

watch on their own.

But other video clips might not be free and may be harder to find. The

Heineken embedding in the Mad Men episode discussed above, for example,

is fully described in text on the AMC/Mad Men Web site, but no video is

available there.28 The episode is available to download from iTunes for $1.99.

To immerse students in the concept and get them actively involved in

learning about embedded advertising, they can be asked early in a course

to provide their own examples of product placements and product inte-

gration. The activity could be done for extra credit or for nominal credit to

have little or no downside risk to grades, since the real intent is to pique

students’ interest in a topic that is timely and culturally relevant. Addi-

tionally, the activity can be helpful to instructors who might not be aware of

many examples of the marketing tactic especially in video games, music,

and blogs that might be more familiar to students.

As will be discussed below, much of the law of embedded advertising

is about sponsorship disclosure. When discussing the student examples of

embedded advertising, an instructor could ask an open-ended question on

the topic, such as ‘‘How do you think these products end up in these TV

shows (or movies, videos, and blogs)?’’ Do students know that sponsors pay

for products to appear in scenes and dialogue? Have they ever considered

the matter? Students will find out when studying the FCC rule making

later29 that there are widely divergent views about just how much the

public understands when shows are paid to embed products.

After this discussion, students could be asked to try to discern

through investigative research if their example products appear for a fee

(which is what sponsorship disclosure law, discussed next, is all about). Al-

ternatively, were the products used at a director’s own discretion for re-

alism, not for payment? Since this activity may require some old-fashioned

detective work, by making phone calls or other direct contacts, students

could work in teams, using just one example of embedded advertising that

a team member found. Again, any grade for the activity could be extra

credit or the minimum that will motivate the students to try to find the

information. The idea is to immerse students in the marketing practice and

the disclosure issues, not to penalize them if they come up empty. If

28See supra note 1.



students cannot find out any information about sponsorship, it will rein-

force the concerns of parties in the FCC rule making discussed below, that

sponsorship disclosure needs to be improved.30

With their own hands-on examples at their disposal, students will

now be ready to learn about the numerous legal issues generated by em-

bedded advertising,

II. EMBEDDED ADVERTISING ILLUSTRATESADMINISTRATIVE LAW CONCEPTS

The embedded advertising topic gives the instructor multiple ways to ap-

proach basic administrative law principles of enabling legislation and rule-

making processes. Each of these concepts is discussed next.

A. Delegation and Enabling Legislation

Students may be surprised to learn that the federal government was reg-

ulating sponsorship disclosure long before the recent explosion of product

placements and product integration on television. An historic perspective

on the law applicable to embedded advertising helps students understand

that the issues under discussion today are nothing new, while introducing

examples of statutory law and agency delegation.

A 1912 federal law required notices of paid promotions in newspa-

pers and magazines if the publications wanted to take advantage of second-

class mailing rates.31 A subsequent revision of that law makes it a crime by

editors or publishers to mail such publications second class unless paid

promotions are clearly marked ‘‘advertising.’’32

30I tried, to no avail, to find out if Abbott Laboratories, Inc., the maker of the branded opiateVicodin, was a sponsor of the Fox program House. Vicodin is frequently mentioned onthe show and incorporated (unfavorably at times) into the stories. The show’s credits areimpossibly small to read and nothing on Fox’s House Web site explains anyAbbott sponsorship. Requests for information to Abbot’s communications department wentunanswered.

31See Goodman, supra note 14, at 5. This old federal law also illustrates the concept of theenumerated powers of Congress. The publishers’ sponsorship disclosure mandate is directlylinked to use of the Postal Service which Congress is expressly empowered to regulate.U.S. CONST. art. I, § 8, cl. 6.

3218 U.S.C. § 1734 (2006).


The Radio Act of 1927 required sponsorship disclosure,33 and that

requirement was incorporated into section 317 of the Communications Act

of 1934,34 which applied to television and radio and also established the

FCC. Accordingly, a long-standing premise in federal law is that the public

is entitled to know when it is being targeted with advertising over the

public broadcast signals, and Congress delegated the authority to enforce

that federal policy to the FCC.35

Despite its regulatory authority over sponsorship disclosure, the

FCC had little need to administer the federal mandate in the early

days of radio and television. Prior to World War II, entire radio and TV

broadcasts were prominently sponsored and labeled with the sponsor’s

name, such as the Maxwell House Hour.36 The term ‘‘soap opera’’

stemmed from the sponsorship by detergent manufacturers of the day-

time dramas. Accordingly, early sponsorship disclosure law hardly re-

quired government enforcement when advertising from the show’s

sponsor was so obvious.

The current legal environment of sponsorship disclosure stems from

‘‘payola’’ scandals in radio and television in the 1950s. Radio station DJs

were paid by record labels to feature the labels’ songs on the radio. Spon-

sors of television quiz shows were caught rigging the outcome of contests

and paying their chosen contestant to plug products.37 Instructors can

recommend to students the 1994 movie Quiz Show, directed by Robert

33Radio Act of 1927, ch. 169, 44 Stat. 1162, 1170 (repealed 1934).

3447 U.S.C. § 317 (2006).

35In re Applicability of Sponsorship Identification Rules, 40 F.C.C. 141 (May 6, 1963); see alsoIn re Sponsorship Identification of Broadcast Material, 40 F.C.C. 69 (Mar. 16, 1960).

For instructors who also teach consumer, advertising, and/or marketing law, this portion ofthe analysis would be a good opportunity to mention that Congress created the FTC in thesame time frame as the FCC. Congress gave authority over regulating deceptive advertising tothe FTC, while keeping regulation of sponsorship disclosure of advertising on TV and radiowith the agency that would regulate the broadcasters. Students could be asked to consider ifthis dual delegation over advertising issues reflected any congressional intent regarding falsityor deception when it came to disclosure (or lack thereof). The FTC has issued its opinionabout deception and product placement, which will be explained in the consumer law portionof this article. See supra notes 143–57 and accompanying text.

36See Goodman, supra note 13, at 98.

37Id. at 99. See also Matthew Savare, Where Madison Avenue Meets Hollywood and Vine: The Busi-ness, Legal, and Creative Ramifications of Product Placements, 11 UCLA ENT. L. REV. 331, 360(2004).


Redford, which dramatized these events, including the congressional hear-

ings they spawned.38

Based on those congressional hearings, the Communications Act was

amended to require broadcasters to use due diligence to obtain from em-

ployees and others information about paid promotions in order to satisfy

the disclosure mandates of section 317 of the Communications Act.39 Fur-

ther, station employees, program producers, and program suppliers were

now obligated to report any such exchanges made to station personnel.40

This history about the payola scandals should emphasize to students

that the FCC’s statutory authority to regulate sponsorship disclosure was

never intended to restrict or otherwise punish the mere presence of trade-

marked products or services in broadcasts. The purpose of sponsorship

disclosure regulations is to ensure that the public is told when some prod-

ucts appear in broadcasts because their sponsor paid for them to be there.

Theoretically, disclosure prevents a viewer from attaching any undue

credibility to the product by virtue of its use in a show that the viewer

respects or admires.41 If the viewer understands that the product appears

because of an exchange, then the viewer will make his/her independent

judgment of the merits of the product like the viewer would do when ex-

posed to any traditional advertising of the product. Accordingly, the use of

products as props in a scene on a TV show, now known as product place-

ment, must be disclosed only if the use is done for a fee.42 Disclosure is not

required if the use of a product in a scene is for free or for nominal pay-

ment and if it is ‘‘reasonably related to the use of such service or property

38See The Internet Movie Database, Quiz Show (1994), http://www.imdb.com/title/tt0110932/.The movie’s tagline ‘‘Fifty million people watched, but no one saw a thing’’ was prescient ofthe present concerns of those urging better disclosure of integrated advertising.

39See 47 U.S.C. § 317(c) (2006) (‘‘The licensee of each radio station shall exercise reasonablediligence to obtain from its employees, and from other persons with whom it deals directly inconnection with any program or program matter for broadcast, information to enable suchlicensee to make the announcement required by this section.’’).

40Id. § 508(a)-(c) (2006).

41The extent to which a TV program influences a viewer has been described in marketingresearch as ‘‘connectedness.’’ See Cristel A. Russell et al., People and ‘‘Their’’ Television Shows: AnOverview of Television Connectedness, in THE PSYCHOLOGY OF ENTERTAINMENT MEDIA: BLURRING THE

LINES BETWEEN ENTERTAINMENT AND PERSUASION 275 (L.J. Shrum ed., 2004).

4247 C.F.R. § 73.1212(a)(2) (2009).


http://www.imdb.com/title/tt0110932/



on the broadcast.’’43 In other words, disclosure is not required when a

product is used in a scene for realistic effect with little or no compensation

to the broadcaster. In that case, any assumptions that the viewer might

make that the product was specifically chosen because of its appropriate-

ness for the show or for a character in the show would be accurate.

Typical disclosure under the current statutory requirements comes in

the form of an audio or video declaration stating ‘‘promotional consider-

ation was furnished by the following:’’ at the beginning or ending of a

program.44 FCC regulations implementing sponsorship disclosure legisla-

tion provide one significant exception for ‘‘obvious’’ sponsorship. The tra-

ditional thirty-second TV ad does not require any further disclosure since

it is presumed to be obvious (at least to adult viewers) that the advertiser

paid the broadcaster for that airtime.45 But, as stated, TV viewers are fast

forwarding through these commercials, making new advertising necessary

to fund programs.

Although adopted later and found in a different section of the FCC

rules,46 a nearly identical sponsorship disclosure regime applies to ‘‘orig-

ination cablecasting’’ by cable operators.47 Origination cablecasting is de-

fined as ‘‘programming (exclusive of broadcast signals) carried on a cable

television system over one or more channels and subject to the exclusive

control of the cable operator.’’48 In other words, original cable series like

Mad Men and The Colbert Report, discussed above, fall under this rule, as

well as cable news. On the other hand, network broadcast programs

brought into consumers’ homes by a cable provider are not the obligation

of cable operators when it comes to sponsorship identification.

43Id. § 73.1212(a)(2) (2009).

44See Adonis Hoffman, Product Placement: Who’s Fooled? BROADCASTING & CABLE (Apr. 28, 2008),http://www.broadcastingcable.com/article/94916-Product_Placement_Who_s_Fooled_.php.

4547 C.F.R. § 73.1212(f) (2009).

46Id. § 76.1615 (2009).

47‘‘We see no reason why the rules for such cablecasting should be different from those forbroadcasting, for the consideration of keeping the public informed about those who try topersuade it would appear to be the same in both cases.’’ Amendment of the Commission’sSponsorship Identification Rules (Sections 73.119, 73.289, 73.654, 73.789 and 76.221), 52F.C.C.2d 701, 712 (1975).

4847 C.F.R. § 76.5(p) (2009).


http://www.broadcastingcable.com/article/94916-Product_Placement_Who_s_Fooled_.php

Finally, current FCC sponsorship regulations do not apply to em-

bedded advertising in feature films that are rebroadcast on television.49 At

the time of its original order establishing the current sponsorship regime, the

FCC found a lack of evidence of sponsorship within films.50 Further, the FCC

found a significant lag time between theatrical release of feature films and

their exhibition on television. Presumably, critical review and discussion of

films during this time, including of any sponsored advertising in a film, was

fully aired so that the public became aware of the paid sponsorship. Accord-

ingly, the FCC found no public interest that dictated sponsorship disclosures

for feature films rebroadcast on television.51 Those rationales were re-

affirmed in 1975 when the FCC adopted the same waiver for feature films

aired over cable.52 Based on the public comments cited below, however, this

rationale may no longer be valid.

To illuminate some of the issues that will come out in the FCC rule-

making discussed below, students can be asked to watch a favorite program

and report on when and how the program sponsors were disclosed. If the

proponents of new disclosure are correct, students may have a hard time

actually finding and reading those disclosures.53

Students can be asked to post their findings on a class-wide discussion

board or other media that is accessible to the whole class. The instructor

can briefly highlight a few examples in class. But it should not be necessary

to spend too much class time explaining that current disclosure practices

may be falling short of actually informing TV viewers what products ap-

peared in shows as a result of payment.

Students will see in the rule-making process discussed below that

many offering public comments advocate for a new FCC approach to

sponsorship disclosure of embedded advertising on TV. In other words,

these comments complain that the FCC is not adequately exercising its

delegated authority to administer sponsorship disclosure law. With this

legislative and regulatory scheme established, students can learn about

49Id. § 73.1212(h) (2009).

50In the Matter of Amendment of Sections 3.119, 3.289, 3.654 & 3.789 of the Commission’sRules, 34 F.C.C. 829, 841 (1963).

51Id.

5247 C.F.R. § 76.1615(g) (2009).

53See supra note 30 and accompanying text.


administrative rule making by delving into the pending FCC rule-making

docket on sponsorship disclosure of embedded advertising.

B. Administrative Rule Making

Whether or not the instructor provides the full historical perspective on

sponsorship disclosure, students can read about the agency’s delegated

authority in the FCC’s Notice of Inquiry and Notice of Proposed Rule-

making, where the statutory authority is discussed.54 Students should also

be directed to the Statements of Commissioners Martin, Copps, and Adel-

stein at the end of that notice. These commissioners express, to some de-

gree, conclusions about the need for revised sponsorship disclosure rules at

the outset of the rule making before any public comments were filed. For

the instructor who wants to cover the standards of the Administrative Pro-

cedures Act and the requirements for fact-finding by federal agencies,55

these prejudgments by those fact finders should be enlightening to stu-

dents about the personal and political interests that can be found in ad-

ministrative procedures.56

Students can be introduced to examples of public participation in

rule-making processes with the comments filed by various interested

parties. A few comments nicely represent the competing positions. Com-

mercial Alert, a nonprofit organization whose mission is to ‘‘keep the

commercial culture within its proper sphere, and to prevent it from

exploiting children and subverting the higher values of family, commu-

nity, environmental integrity and democracy’’57 first petitioned the

54In the Matter of Sponsorship Identification Rules and Embedded Advertising, supra note 5,at 43195. After a Notice of Proposed Rulemaking, the public is given time to comment, usuallyin paper filings. This process also provides an opportunity for filing replies to others’ com-ments. In the FCC docket, the comments and replies were all filed in Fall 2008. Thereafter,every rule making takes its own course. The agency may adopt and publish a new rule, con-duct additional fact finding, or drop the matter without further action. This matter is stillunder consideration by the FCC.

55Courts can set aside the factual conclusions of an administrative agency if those fact findingsare arbitrary, capricious, or unsupported by substantial evidence. 5 U.S.C. § 706(2) (2009).

56When discussing judicial review of administrative decisions, supra note 71 and accompany-ing text, students can consider whether the prejudgments in these statements by three FCCadministrators could create a basis for throwing out any new regulations that might be passed.

57See Commercial Alert, Our Mission, http://www.commercialalert.org/ (last visited June 25,2010).


http://www.commercialalert.org/

http://www.commercialalert.org/

FTC in 2003 for a rule making to reform the current regulatory

scheme.58 Its filing proposes simultaneous pop-up notices of ‘‘Advertise-

ment’’ for most paid product placement or paid integrated products that

appear on the screen.59 The ‘‘pop-up would only be required for a limited

period (perhaps five seconds) in each scene or segment in which the place-

ment occurs.’’60 Additionally, Commercial Alert proposes announcements

at the beginning of programs to inform viewers of all the ways they are

being advertised to in the course of a program. For example, in the case of

product integration into a scene, Commercial Alert would require an

opening disclosure such as ‘‘This program contains paid advertising for . . .

The script of a scene has been altered to include an in-program adver-

tisement from this advertiser.’’61 But in the Mad Men example above, in

which Heineken is discussed in multiple scenes, a different opening dis-

closure would be mandated under the Commercial Alert proposal: ‘‘This

program contains paid advertising for Heineken. The story for this episode

has been developed in conjunction with Heineken, and the program con-

tains in-program advertisements from Heineken.’’62

Commercial Alert proposes a comparable disclosure for the begin-

ning of unscripted reality programming, such as ‘‘This program contains

paid advertising for X clothing seller. The episode features contestants

modeling clothing from X. The choice about what clothing contestants will

model in this episode has been altered to include an in-program adver-

tisement from X.’’63 In all these examples, Commercial Alert proposes an

additional disclosure at the start of each scene in which a product placement

58See Letter from Gary Ruskin, Executive Director, Commercial Alert, to Marlene Dortch,Secretary, Federal Communications Commission (Sept. 30, 2003), http://www.commercialalert.org/fcc.pdf

59Before the Federal Communications Commission In the Matter of Sponsorship Identifica-tion Rules, MB 08-90, Reply Comments of Commercial Alert, at 12–13 (Sept. 22, 2008).Commercial Alert distinguishes a few situations when the commercial sponsorship is obviousand needs no further disclosure. These include a brand-name appearance in a traditionaladvertising setting on a show, such as the appearance of a billboard in a street scene; a brandname is incorporated into the name of the show or a segment; and a celebrity or other in-dividual endorses a product with which he or she is clearly commercially tied. Id. at 12–14.

60Id.

61Id. at 13.

62Id.

63Id.


http://www.commercialalert.org/fcc.pdf

http://www.commercialalert.org/fcc.pdf

occurs.64 Presumably the ‘‘additional’’ disclosure would be the same as the

ones provided for the beginning of the show, although the comments do

not explain that. Commercial Alert asserts that its proposed system of an-

nouncements and pop-up disclosures is necessary to satisfy the statutory

requirement that ‘‘all matter’’ broadcast for which payment has been re-

ceived must be disclosed ‘‘at the time the same is so broadcast.’’65

The Writers’ Guild of America, West (WGAW) proposes simultaneous

disclosure, using a ‘‘crawl’’ along the bottom of the screen, any time a prod-

uct is mentioned, referenced, or exhibited during a television program, for a

fee or other consideration.66 The WGAW proposal elaborates that

� The disclosure should appear on the bottom of the screen for no less

than five seconds.

� The text should move at a reasonable speed and should be ‘‘clearly

readable’’ by the viewer.

� The disclosure should consist of a ‘‘reasonable degree of color contrast’’

between the background and the text. No logos or other product-related

graphics should be used in the disclosure.

� The brand of the product integrated or placed in the program as well as

the parent corporation of the product must be included in the crawl.67

The Screen Actors Guild (SAG) offers another proposal for new dis-

closures. Unlike the disclosure schemes of Commercial Alert and the

WGWA, SAG does not propose simultaneous disclosure whenever a paid

product appears on screen or in the dialogue. ‘‘SAG proposes that the

Commission require clear and distinct visual and audio disclosure before

and after a program which contains product placement and integrated

products.’’68 Additionally, SAG maintains that the disclosure should appear

64Id.

65Id. at 1, 11 (quoting 47 U.S.C. § 317(a)(1) (2006)). Commercial Alert’s Web site provides acomment submission form that allowed the public to submit comments directly to the FCC inthis matter.

66Before the Federal Communications Commission In the Matter of Sponsorship Identifica-tion Rules, MB 08-90, Reply Comments of Writers’ Guild of America West (WGAW) 2 (Sept.22, 2008). The WGAW proposal would require the disclosure when feature films are re-broadcast on TV. Id.

67Id.

68Before the Federal Communications Commission In the Matter of Sponsorship Identifica-tion Rules, MB 08-90, Reply Comments of Screen Actors Guild 1–2 (Oct. 22, 2008).


in readable text, on the full screen for not less than five seconds.69 The

announcements should contain specific language explaining that the pro-

gram contains embedded content that has been included in exchange for a

fee or other consideration, and its inclusion is a paid advertisement.70

These three advocates illustrate the reform positions proposed to the

FCC (that do not specifically involve children’s programming). The rule-

making process also reveals the role the Internet can play in a public

comment process today. Commercial Alert’s Web site provides a comment

submission form that allowed the public to submit comments directly to the

FCC in this matter.71 As a result, almost three-fourths of the 208 comments

the FCC received in this docket were nearly identical filings that it char-

acterized as ‘‘Brief Comment’’ based on the Commercial Alert model. Stu-

dents can be asked to consider how persuasive these mass filings might be

to a decision maker and what would motivate them to participate in an

administrative rule-making process using such a vehicle.

Classes should discuss their views of the foregoing proposed disclo-

sures.72 This discussion can be informed by earlier class discussions about

students’ understanding (or lack thereof) about the paid nature of product

placement and integration and their previous attempts to find out about

paid sponsorship of their earlier examples. Since the FCC is supposed to

create a public disclosure system, students’ opinions about the propriety of

such proposals are quite germane. Do students seek the kinds of pop-up

disclosure advocated by Commercial Alert and its online followers? Or do

they find them intrusive? If students do not understand the paid spon-

sorship of embedded advertising, but they do not want to see simultaneous

disclosure, what other methods of disclosure are appropriate? Since

69Before the Federal Communications Commission In the Matter of Sponsorship Identifica-tion Rules, MB 08-90, Comments of Screen Actors Guild 8 (Sept. 22, 2008).

70Id. Unique to SAG’s proposal is a request to disclose that, when a product appears in a show,that should not be considered an endorsement by the producers, writers, or actors. Id.

71See Commercial Alert, Tell the FCC to Require Full Disclosure of Product Placement, ElectronicComment File Submission, http://salsa.democracyinaction.org/o/475/t/1646/content.jsp?con-tent_KEY=4586 (last visited June 25, 2010).

As a result, almost three-fourths of the 208 comments the FCC received in this docket werenearly identical filings that it characterized as ‘‘Brief Comment’’ based on the CommercialAlert model.

72My views of the proposals are reflected in the analysis of the free-speech constraints, infranotes 76–131 and accompanying text.


http://salsa.democracyinaction.org/o/475/t/1646/content.jsp?content_KEY=4586






students represent the media savvy, they ought to have meaningful ideas

about how appropriate sponsorship disclosure could be accomplished.

Eighteen parties representing advertisers and broadcasters filed a

single comment opposing these reforms.73 Generally, they contend that

existing sponsorship laws and practices suffice. In particular, they contend

that any expansion of sponsorship disclosure mandates would violate their

free speech rights.

Although the outcome of the rule-making process currently is unde-

termined, instructors can explain that any FCC decision to adopt the ex-

panded disclosures proposed in the foregoing comments certainly would

be challenged in a judicial review process. The analysis of first amendment

rights would be at the core of any such review action. Accordingly, the

embedded advertising topic neatly transitions from administrative law to

constitutional law.

III. EMBEDDED ADVERTISING ILLUSTRATESCONSTITUTIONAL LAW PRINCIPLES

As was noted above, the early statutory history of sponsorship disclosure

illustrates how Congress exercised its enumerated power over use of the

postal service when it linked advertising disclosure to second-class postage

rates for magazines and newspapers.74 Subsequent communications

statutes that required sponsorship disclosure on TV and radio were clear

exercises of the interstate commerce power.75 These examples of congres-

sional authority over advertising disclosure keep the embedded advertising

topic in front of the students during the initial coverage of constitutional

authority to regulate business in most legal environment and business law

courses. The major legal issue with embedded advertising is found in the

first amendment, under coverage of individual constitutional rights.

Embedded advertising is an excellent topic to expose students to

the judicial approach of applying different levels of scrutiny to different

73They include CBS, NBC, Fox, Disney, Discovery, Viacom, and the Motion Picture Associ-ation of America. See Before the Federal Communications Commission In the Matter ofSponsorship Identification Rules, MB 08-90, Comments of National Media Providers (Sept.22, 2008).

74See supra notes 31–32 and accompanying text.

75U.S. CONST. art. I, § 8, cl. 2.


government regulations based on the level of constitutional protection the

regulated industry or activity enjoys. Instructors should first introduce

students to the concepts of strict scrutiny versus intermediate scrutiny for

commercial speech. Strict scrutiny is often associated with ‘‘political

speech,’’ but entertainment speech is also given broad first amendment

protection, and any regulation of television programs is subject to strict

scrutiny.76 In some programs, the message may be purely entertainment.

In many TV dramas and comedies, however, the messages may be social

commentary or political and social satire, thus supporting the same level of

protection as news and political debate.

For most advertising, the purpose of the expression (promotion of

goods and services) is legitimately subject to regulation, but the mechanismof expression–the speech, whether it is expressed in words, logos or a

combination–is protected under the first amendment.77 This merger of

regulatable purpose and constitutionally protected mechanism generated

an intermediate level of first amendment scrutiny. This approach allegedly

allows legitimate regulation of the commercial purpose while still provid-

ing significant protection for the expression.78 If instructors emphasize

that commercial speech law is a hybrid of commercial regulation and free

speech protection, it will serve to spotlight the issues raised by the inte-

76See, e.g., Joseph Burstyn, Inc. v. Wilson, 343 U.S. 495, 502 (1952) (‘‘expression by means ofmotion pictures is included within the free speech and free press guaranty of the First andFourteenth Amendments.’’). See also Southeastern Promotions, Ltd. v. Conrad, 420 U.S. 546,557 (1975) (‘‘By its nature, theater usually is the acting outFor singing outFof the writtenword, and frequently mixes speech with live action or conduct. But that is no reason to holdtheater subject to a drastically different standard.’’).

Savare, supra note 37, explains that most entertainment ‘‘regulation’’ has been self-imposedby the industry to avoid attempts by government at regulation. Id. at 338.

77See WV Ass’n of Club Owners & Fraternal Servs. v. Musgrave, 553 F.3d 292 (4th Cir. 2009);O’Grady v. Twentieth Century Fox Film Corp. 2003 U.S. Dist. LEXIS 24936 (E.D. Tex. Dec.19, 2003); U.S. Olympic Comm. v. Am. Media, Inc., 156 F. Supp. 2d 1200 (D. Colo. 2001);Oxycal Labs., Inc. v. Jeffers, 909 F. Supp. 719 (S.D. Cal. 1995). See generally Note, Making Senseof Hybrid Speech: A Model for Commercial Speech and Expressive Conduct, 118 HARV. L. REV. 2836,2838 (2005).

78According to the Court, the commercial speech doctrine represents ‘‘the ‘commonsense’distinction between speech proposing a commercial transaction, which occurs in an area tra-ditionally subject to government regulation, and other varieties of speech.’’ Ohralik v. OhioState Bar Ass’n, 436 U.S. 447, 455–56 (1978). See generally Ashutosh Bhagwat, The Test That AteEverything: Intermediate Scrutiny in First Amendment Jurisprudence, 2007 U. ILL. L. REV. 783(2007).


gration of advertising into television content that is fully protected free

speech.

Thus, the question raised by embedded advertising is whether the

commercial purpose of the ads outweighs the constitutionally protected

message of the program, subjecting the merged program and advertising

to regulation pursuant to the reduced scrutiny of the commercial speech

doctrine. Alternatively, is the speechFboth commercial and noncommer-

cial componentsFentitled to full constitutional protection and any regu-

lation subject to strict scrutiny?

Some instructors (and students) might question whether an abstract

analysis of embedded advertising as commercial speech is worth their time,

which is always a constrained resource in any course. At least two factors

suggest it is not only a good use of time, but one that may be extremely

relevant to future business leaders.

First, the commercial speech doctrine and its lesser protection for

advertising has been criticized for some time now. For example, Justice

Clarence Thomas has asserted, ‘‘I do not see a philosophical or historical

basis for asserting that ‘commercial’ speech is of ‘lower value’ than ‘non-

commercial’ speech.’’79

Some of this criticism of the intermediate scrutiny of commercial

speech is directly related to the second reason why students need a thor-

ough exposure to the issue. The line between advertising and other forms

of speech continues to blur and not just with product placement and in-

tegration on television. For example, businesses now use ‘‘social media’’

like Twitter, Facebook and LinkedIn to promote their goods, services, and

for-profit organizations while connecting to old friends and commenting

on current business events and trends. Blogs and videos express obvious

political and social messages along with promoting goods and services for a

fee. Nike was sued for ‘‘false advertising’’ over a public relations campaign

in which it defended its labor practices in foreign factories.80

7944 Liquormart v. Rhode Island 517 U.S. 484, 522–23 (1996) (Thomas, concurring).44 Liquormart overturned state restrictions on truthful price advertising about alcoholicbeverages.

80Nike v. Kasky, 539 U.S. 654 (2003), had promised a new Supreme Court pronouncement onthe line between commercial speech and fully protected speech by a commercial party. Con-sumer activist Marc Kasky sued Nike under false advertising laws over allegedly false state-ments in Nike’s public relations campaign regarding labor conditions in its factories. Id. at656. Nike defended that these public statements were protected free speech under the Con-stitution. The California Supreme Court ruled the messages were commercial speech


Unlike blogs or Twitter, however, advertising on television is one

medium that is expressly regulated today. Thus, any new FCC rule re-

quiring enhanced disclosure of embedded advertising, in fact, may create

the opportunity for directly challenging the commercial speech doc-

trine, with its lesser protection. The outcome of this issue could be in-

structive for many new advertising models that business students of today

will be advancing as the marketing leaders of the future. Accordingly, em-

bedded advertising begs for an answer to the question ‘‘Is it commercial

speech?’’

A. Embedded Advertising: Intermediate or Strict Scrutiny?

Opponents of new sponsorship regulation relied heavily on Bolger v. YoungsDrugs Products Corp.81 to urge that programs embedded with advertising

deserve full free-speech protection.82 They cite Bolger for the proposition

that commercial speech does ‘‘no more than promote a commercial trans-

action.’’83 Product placement, they contend, does not promote a commer-

cial transaction at all. It only provides brand enhancement or exposure.

Further, the program in which a product is integrated does much more

than promote the product.84

For instructors who like to teach using complete legal cases,85 or who

engage their students in legal research, the use of this case by the broad-

casters in the FCC rule making presents a great teaching example of what

not to do when it comes to relying on cases. Unlike these opponents of

‘‘[b]ecause the messages in question were directed by a commercial speaker to a commercialaudience, and because they made representations of fact about the speaker’s own businessoperations for the purpose of promoting sales of its products, . . . 27 Cal. 4th 939, 946, 119Cal. Rptr. 2d 296, 45 P. 3d 243, 247 (2002).’’ The Supreme Court took the case to decide thatissue but dismissed the writ of certiorari as ‘‘improvidently granted,’’ 539 U.S. at 655, becausethe case was still pending a final outcome in California state court. The case was returned to aCalifornia trial court and settled. Thus, no new commercial speech law ever emerged fromwhat appeared to be a classic clash between fully protected speech and the commercial speechdoctrine.

81Bolger v. Youngs Drugs Prods. Corp., 463 U.S. 60 (1983).

82See Comments of National Media Providers, supra note 71, at 45.

83Id. at 48, quoting Bolger v. Youngs Drugs Prods. Corp., 463 U.S. 60, 66 (1983).

84Id.

85See supra note 24.


increased regulation in the FCC rule making, students should understand

that the facts and conclusions of cases actually matter, not just favorable,

cherry-picked quotes.

Bolger challenged a federal statute that prohibited mailing contra-

ceptive advertisements. The challenger had proposed three mailings, all of

which were enjoined under the federal law. Two of the mailings were clas-

sic advertising flyers promoting condoms, either exclusively or with other

products. There was no question in the case that these would be regulated

as commercial speech. The third mailing, however, consisted of informa-

tional pamphlets promoting the health merits of condom use such as

‘‘Condoms and Human Sexuality’’ and ‘‘Plain Talk about Venereal Dis-

ease.’’ Both pamphlets expressly mentioned the Trojan brand sold by the

defendant.86 Accordingly, Bolger does seem to bear some similarity to em-

bedded advertising woven into the message of a television program. Like

embedded advertising on TV, the third pamphlet at issue in the case was

an example of a commercial message merged with other, fully protected

information.

The Bolger Court noted three factors in classifying speech as com-

mercial or not. First, are the messages in question ‘‘conceded to be adver-

tisements’’?87 Next, do the messages reference a specific product? Finally,

does the speaker have an economic motivation?88 The Court stated that no

single factor would yield the conclusion that the pamphlets were commer-

cial speech. Nevertheless, the Court held that the three factors together

required that the pamphlets be regulated as commercial speech, despite

their inclusion of clearly noncommercial content.89 Accordingly, as the

WGAW pointed out in its reply comments challenging the broadcasters’

commercial speech analysis,90 Bolger does not obviously support the argu-

86Bolger v. Youngs Drugs Prods. Corp., 463 U.S. 60, 62 (1983).

87Id. at 66.

88Id.

89Bolger went on to overturn application of the federal law regarding the pamphlets under theCentral Hudson commercial speech analysis. The Court held that the regulation blocking de-livery of all pamphlets was more extensive than necessary to address the government’s limitedinterest in helping parents properly address contraceptives with children. Bolger v. YoungsDrugs Prods. Corp., 463 U.S. 60, 73 (1983).

90Before the Federal Communications Commission In the Matter of Sponsorship Identifica-tion Rules, MB 08-90, Reply Comments of Writers’ Guild of America West, at 16 (no date,2009).


ment that embedded advertising is not commercial speech since the BolgerCourt applied the commercial speech scrutiny to the mixed-message

pamphlets.

When applying the Bolger three-part test to embedded advertising,

two of the three factors in the Bolger test point to a similar conclusion as

that of the Bolger court, namely, that embedded advertising be regulated as

commercial speech. First, while the broadcasters do not ‘‘concede’’ the first

Bolger point, that product placement and product integration is advertis-

ing,91 their position is unsupportable by any reasonable interpretation of

this marketing activity. Product placement is very similar to a branded

product appearing on a billboard. Product integration goes further and

brings out some of the qualities of the product in the context of the fic-

tionalized scene. Classic attributes of advertising include creating brand

exposure and creating favorable impressions of the brand,92 both of which

are accomplished with embedded advertising.93 The argument that prod-

uct placement and integration are not advertising is untenable, whether

the sponsors ‘‘concede’’ it or not.

Next, product placement and product integration refer to specific

products, at least with clearly displayed logos, if not express mention in

dialogue. Thus, embedded advertising satisfies the second Bolger criteria

for commercial speech.

The third Bolger factor, however, is debatable regarding embedded

advertising, since the ‘‘speaker’’ is not just one party in a television broad-

cast. The sponsor who pays for the product to appear in the show, as well

as a show’s network and producers, clearly have a commercial motive, like

the maker of Trojan condoms in Bolger who produced the venereal disease

pamphlets. In the television show with embedded advertising, however,

the writers, directors, and actors are also among the ‘‘speakers’’ involved in

the message. They predominantly have artistic motives. To the extent that

they have economic motives, those are based on their own personal finan-

cial interests. The only economic interest they share with the embedded

91Comments of National Media Providers, supra note 73, at 45–46.

92See generally HERSCHELL GORDON LEWIS & CAROL NELSON, HANDBOOK OF ADVERTISING (1999).

93As will be discussed below in Part V, the FTC has noted that product placement advertisingmakes no representations about the product to qualify as deceptive. See infra notes 146–60 andaccompanying text. Representations are not the only attributes of advertising, however. Fur-ther, depending on the particular example, product integration into TV storylines can createrepresentations about the products, thus meeting that attribute of advertising too.


advertising sponsor is the general interest in the success of their show.

Minimally, this issue of economic motivation raises problems for applying

Bolger’s result that the condom pamphlets were commercial speech to em-

bedded advertising on television.

Accordingly, Bolger does not produce a clear-cut conclusion on

whether embedded advertising will be treated as commercial speech. Stu-

dents should read this case and its application by the advocates before the

FCC to understand that legal case analysis requires more than cutting and

pasting convenient verbiage.

Stronger support that programs with embedded advertising cannot

be regulated as commercial speech comes from the telemarketing case

Riley v. National Federation of the Blind,94 which, unlike Bolger, specifically

dealt with compelled disclosures. Students need to understand that govern-

ment regulates speech both with limitations on what is said, as well as with

government-mandated speech, such as warnings and, in the case of ad-

vertising on TVand radio, sponsorship disclosure. Instructors could opt to

teach Riley in lieu of Bolger, or both.

The Riley Court concluded that solicitation conducted by commercial

telemarketers on behalf of nonprofit organizations is afforded first amend-

ment strict scrutiny protection.95 Riley struck down disclosure provisions in a

North Carolina statute that required solicitors to reveal their professional

status. Like so many disclosure regulations, including the FCC’s sponsorship

disclosure rules, the alleged government interest in the telemarketing

disclosure was informing the public ‘‘in order to dispel the alleged misper-

ception,’’96 namely, about the benefit to the charity versus the professional

fund-raisers.

In response to the state’s argument that the solicitation of the pro-

fessional fund-raisers was commercial speech, the Court disagreed, stating,

Our lodestars in deciding what level of scrutiny to apply to a compelled state-ment must be the nature of the speech taken as a whole and the effect of the

94Riley v. Nat’l Fed’n of the Blind, 487 U.S. 781 (1988).

95Id. at 801. Riley invalidated a North Carolina statute that also directly regulated professionalfund-raisers and the fees they could charge. The Court held that fraud could not be inferredfrom percentages retained versus paid to the solicitor because charities might benefit from theact of solicitation itself. The request for funds can convey information and include cause-oriented advocacy. Id. at 798.

96Id. at 798.


compelled statement thereon. . . . [W]here, as here, the component parts of asingle speech are inextricably intertwined, we cannot parcel out the speech,applying one test to one phrase and another test to another phrase. Such anendeavor would be both artificial and impractical. Therefore, we apply our testfor fully protected expression.97

When viewed under this ‘‘lodestar,’’ product integration and product

placement still are part of a television program. They would not exist

but for the program. The nature of the speech is not a ‘‘program-length

commercial’’ as some have asserted.98 The program is still a reality or

comedy or dramatic show, even with integrated advertising. Accordingly,

under Riley, the law should treat the television program with integrated

advertising as fully protected expression, not commercial speech. Rileystrongly suggests that any revised disclosure FCC regulations of embedded

advertising will have to satisfy strict constitutional scrutiny.

The Riley case also explains that ‘‘in deciding what level of scrutiny to

apply to a compelled statement,’’ the Court will look at effect of disclosures

on the whole dialogue. The Court reasoned that disclosing when telemar-

keters were paid solicitors would prompt questions about the amount they

receive for the service. If asked the amount of their fund-raising fees, the

North Carolina statute required paid solicitors to disclose the amounts

(usually a percentage of the donations). The Court said these upfront dis-

closures could result in the solicitation ending before it ever started.99 The

possibility that these state-mandated disclosures would cause potential

contributors to immediately hang up presented too chilling an effect on the

speech. The less restrictive alternative was for the state to publish chari-

table financial disclosures and to vigorously prosecute fraudulent misrep-

resentation when it arose.100

The chilling effect the Riley Court described is akin to the broadcast-

ers’ complaints that additional sponsorship disclosure of embedded ad-

vertising, especially simultaneous disclosure, will interfere with the creative

97Id. at 796.

98See, e.g., Comments of WGAW, supra note 64, at 19. See also Before the Federal Commu-nications Commission In the Matter of Sponsorship Identification Rules, MB 08-90, Com-ments of Diane Martindale, at 3 (Nov. 21, 2008).

99Riley v. Nat’l Fed’n of the Blind, 487 U.S. 781, 796 (1988).

100Id. at 799–800. The Riley Court’s recommended alternative sounds similar to the FTC’sconclusion to regulate alleged deception in product placement on a case-by-case basis, whichwill be discussed below under consumer law.


content of a program to the point of effectively banning integrated adver-

tising.101 Since simultaneous disclosure could not be segregated out from

the creative content in which it is embedded, Riley suggests that any man-

date for such disclosure must be analyzed under the tougher scrutiny that

is applied to the fully protected speech.

Notwithstanding that the Riley analysis suggests that embedded ad-

vertising regulation can be challenged as a restraint on fully protected

speech, students still need to understand the lower level of scrutiny that is

applied to commercial speech. That analysis can still be applied to the re-

form disclosure proposals for embedded advertising. Students will under-

stand that, if any new FCC sponsorship disclosure mandate could not

withstand the commercial speech test, it would always be unconstitutional

under the higher protection that the television program enjoys.

B. Commercial Speech Analysis as Applied to New Sponsorship Regulation

The current scrutiny applied to commercial speech regulations was artic-

ulated in Central Hudson Gas and Electric Corp. v. Public Service Commission.102

Usually, Central Hudson applies to government regulations that limit pro-

motions. There is some question whether the Central Hudson analysis also

applies to disclosure requirements, under the doctrine of ‘‘compelled’’

commercial speech. In Zauderer v. Office of Disciplinary Counsel, the Court

upheld a state requirement that compelled particular disclosures in attor-

ney advertisements.103 The Court cited Central Hudson and explained that

disclosure and disclaimer requirements are less restrictive means of dissi-

pating the possibility of deception than are flat prohibitions.104 ‘‘[A]n ad-

vertiser’s rights are adequately protected as long as the disclosure

requirements are reasonably related to the State’s interest in preventing

deception of consumers.’’105 The Court added, however, that unjustified

or unduly burdensome disclosure requirements might not be permissible

101Before the Federal Communications Commission In the Matter of Sponsorship Identifi-cation Rules, MB 08-90, Reply Comments of Fox Entertainment Group, Inc., at 4 (Nov. 21,2008).

102Cent. Hudson Gas and Elec. Corp. v. Pub. Serv. Comm’n, 447 U.S. 557 (1980).

103Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985).

104Id. at 651.

105Id.


if their application chilled protected commercial speech.106 These state-

ments in Zauderer regarding mandatory commercial disclosures suggest

aspects of the Central Hudson analysis for other commercial speech regu-

lations.107 Further, both sides in the FCC docket discuss the applicability of

Central Hudson to the proposed disclosure schemes. Accordingly, that is the

analysis discussed here.

The first step in the Central Hudson analysis requires a finding that

speech is entitled to constitutional protection because it is truthful and not

misleading. This analysis will be addressed fully below regarding Con-

sumer and Advertising Law.108 For purposes of the commercial speech

analysis, the instructor should ask students to assume that embedded ad-

vertising is not deceptive (as the FTC has done).

Next Central Hudson asks whether the government has articulated a

substantial government interest for the regulation.109 The government’s

interest in regulating sponsorship disclosure has been accepted for de-

cades: to reveal when particular program content is broadcast because of

consideration received by the licensee.110 The current FCC docket to ex-

pand sponsorship disclosure presumably requires the United States to

show that existing sponsorship disclosure fails to meet the original gov-

ernmental interest of so notifying the public.

Several comments raise questions about the exact understanding of

consumers regarding paid sponsorship of embedded advertising. For ex-

ample, Commercial Alert asserts that a brand-identified product that ap-

pears in a program in a ‘‘traditional advertising setting’’ would be obvious

to viewers as a paid promotion and would not need to be disclosed at all. A

106Id.

107In his separate opinion, concurring in part and dissenting in part, Justice Brennan equatedthis standard for scrutinizing disclosure regulations with the fourth prong of Central Hudson.Id. at 657 n.1. See supra notes 128–32 and accompanying text. One circuit court, however, hasinterpreted Zauder to create a ‘‘lesser’’ reasonableness requirement for disclosure mandates,than the ‘‘seemingly more stringent standards for the state of Central Hudson.’’ Tillman v.Miller, 133 F.3d 1402, 1403 (11th Cir. 1998).


109Cent. Hudson Gas and Elec. Corp. v. Pub. Serv. Comm’n, 447 U.S. 557, 564 (1980).

110‘‘[M]eaningful government regulation of the various broadcast media has from an earlydate embraced the principle that listeners are entitled to know by whom they are being per-suaded.’’ In re Applicability of Sponsorship Identification Rules, 40 F.C.C. 141 (May 6, 1963);see also FCC 60-239 Public Notice 85460, Mar. 16, 1960.


billboard in a scene at a sports stadium is the example provided.111 By

contrast, when a brand-indentified product is ‘‘used as a prop’’ or ‘‘a char-

acter uses or interacts with the product,’’ then simultaneous disclosure

would be required ‘‘at the moment viewers are advertised to.’’112 Appar-

ently, the advertising use of a prop is ‘‘hidden,’’113 while the billboard in a

scene is obvious paid promotion. Commercial Alert cites no authority to

support these assertions.

Arguably, consumers might think the billboard appears in the scene

to provide realism or just by happenstance in a location where the director

decided to shoot. The class’s introductory discussion about what students

understand about the appearance of products in shows and movies is as

instructive as the speculation of Commercial Alert.

WGAW repeatedly cites the increase prevalence of embedded advertis-

ing as justification for expanded disclosure.114 Arguably, the greater inci-

dence of embedded advertising could make consumers more attuned to it,

not less. As the practice becomes more common, consumers may become

more sophisticated in their understanding about it.115 Instructors need to

reinforce that, if the FCC cannot show a substantial government interest to

justify increased disclosure, then any new mandates are unconstitutional

under the lower commercial speech scrutiny. Naturally, they would clearly

111Before the Federal Communications Commission In the Matter of Sponsorship Identifi-cation Rules, MB 08-90, Reply Comments of Commercial Alert, at 5, 12 (Sept. 22, 2008).

112Id. at 15. Commercial Alert actually misstates the government interest underlying spon-sorship disclosure law regarding obvious or non-obvious placements: ‘‘The test for obvious-ness around product placement and integration is not whether people are aware that productplacement and integration exist, but whether they can identify these advertisements each timethey are exposed to them.’’ Id. at 11. In fact, obviousness in the FCC sponsorship schemeobviates the need to disclose because the viewer understands the product’s appearance in theprogram was bought with consideration. Nothing in Commercial Alert’s ‘‘test for obviousness’’‘‘each time’’ an ad is embedded addresses the paid promotional consideration of theadvertising.

113Id. at 11.

114Before the Federal Communications Commission In the Matter of Sponsorship Identifi-cation Rules, MB 08-90, Reply Comments of Writers’ Guild of America West 6, 8–9, 11, 12 (nodate, 2008).

115For instructors who teach the Administrative Procedures Act standards for administrativedecision making, here is another example where students can surmise whether the FCC canmake a defensible conclusion on such unsure factual assertions. 5 U.S.C. § 706(2) (2009).


fail under the higher compelling interest standard for fully protected

speech.

Two proponents of increased disclosure assert that product place-

ment and product integration are more effective when they are seamless

rather than obvious.116 According to their logic, then, embedded adver-

tising must not be obvious to viewers, thus requiring increased disclosure

mandates. Both these comments cite the same marketing study for their

support for better disclosure about the tactic.117 In fact, this source is not

support for the position asserted. For instructors who teach marketing law,

or who teach in an integrated or team-taught context with business in-

structors, the misuse of this marketing study as support for the advocates’

legal position may be amusing or appalling. Whichever, it will be instruc-

tive for students to understand what legal principles can and cannot be

gleaned from these marketing sources.

The cited study begins with the premise ‘‘[d]espite the increasing

popularity of the technique of product placement among marketers, there

is relatively little scientific evidence regarding how, even whether, it affects

people.’’118 This study concluded that branded products that were incon-

gruent to a show’s plotline brought higher recall, but with negative back-

lash on brand attitudes.119 From this, the advocates of increased disclosure

argue that advertisers will only engage in embedding that is congruent to

the plot, making it not obvious to viewers. If the branded product is not

obvious (that is, congruous to the plot), its sponsorship must be disclosed.

Hopefully, students will be able to recognize the tortured logic on their

116Before the Federal Communications Commission In the Matter of Sponsorship Identifi-cation Rules, MB 08-90, Comments of N.E. Mardsen, at 54 (Nov. 21, 2008); see also Before theFederal Communications Commission In the Matter of Sponsorship Identification Rules, MB08-90, Reply Comments of Fairness and Integrity in Telecommunications Media, at 2 (Nov.21, 2008).

117See Cristel Antonia Russell, Investigating the Effects of Product Placements in Television Shows:The Role of Modality and Plot Connection Congruence on Brand Memory and Attitude, 29 J. CON-

SUMER RES. 306 (Dec. 2002). This study used a research tool developed by the author called‘‘theater methodology.’’ Branded products were strategically placed inside a specially writtenoriginal screenplay that followed the structural format of most televised situation comedies. Id.at 309. The study did not account for levels of involvement and connectedness that viewersoften develop for ‘‘their’’ shows. See supra note 41.

118Russell, supra note 117, at 307.

119Id. at 313. Visual placements (as opposed to auditory) were only recalled when their place-ment was incongruous to the plotline. Id.


own, but here are the discussion points that will be helpful for both mar-

keting and legal studies instruction.

Implicit in the studies’ conclusion is that incongruent product place-

ments are easy to recall. What remains unanswered, because it was not part

of the study, is what consumers understand about the paid placement of

products, which is all that the law requires be disclosed.120 In other words,

the study supports the marketing principle that nonobvious embedded

advertising is probably better advertising, at least for improving brand at-

titudes. But it tells regulators nothing about consumer understanding of

the paid nature of product placement or integration. Current sponsorship

disclosure law makes an exception for the thirty-second commercial be-

cause the paid sponsorship of the commercial is obvious to viewers. No

parallel conclusions can be drawn one way or the other about what con-

sumers understand about the paid placement of products in scenes or

stories, based on this cited study.121

The use of this marketing research by proponents of increased spon-

sorship disclosure should be another reminder to students that good re-

search depends on a thorough reading and understanding of sources, not

an approach that twists the words of authors and ignores the entirety of a

case or article.

Media broadcasters assert that the lack of evidence about consumer

understanding of embedded advertising violates the Central Hudson re-

quirement of a substantial government interest in expanded disclosure.122


121The commentators also cite another marketing piece as support for increased disclosure.See Namita Bhatnagar et al., Embedding Brands Within Media Content: The Impact of Message,Media, and Consumer Characteristics on Placement Efficacy, in PSYCHOLOGY IN ENTERTAINMENT

MEDIA: BLURRING THE LINE BETWEEN ADVERTISING AND ENTERTAINMENT 99–116 (L.J. Shrum ed.,2004). In fact, this source actually contradicts the concept for which it is cited. Id. at 100 n.131.It is not a marketing study. It is a book chapter on persuasive communications and the impactof product placement on consumer trust in a brand and claims about the brand. To the call formore regulation to protect consumers from being misled, the authors specifically state:

We can turn the argument around and contend that audiences are sophisticated, andconditions do exist where consumers realize that brands are commercially placed withinmedia context. Consumers who are aware and accepting of placements as legitimateforms of marketing efforts engage in critical thinking, thereby obviating the need forgovernment legislation.

Id. at 113.

122See Comments of National Media Broadcasters, supra note 73, at 54–56.


They claim ‘‘paternalism’’ that the government would assume that con-

sumers do not understand that products appear in programs as a result of

paid sponsorship.123

In an integrated MBA curriculum or a marketing law class,

students could be asked to formulate a marketing research study

that could provide an answer to the issue of what viewers under-

stand about the paid sponsorship of product placement and product

integration. What they may find is that it is difficult to formulate a

valid empirical analysis about paid sponsorship. A closed-ended

question124 would possibly lead the test subjects to a conclusion about

sponsorship that was not their own before reading the question. Open

questions,125 on the other hand, lead to difficulty in interpreting widely

varying answers to create any valid, universal conclusions.

Without an understanding of just what the public does or does not

understand about the paid sponsorship of product placement and product

integration, the Central Hudson analysis stalls. If there is no public misun-

derstanding of the paid nature of these product appearances, the FCC

could not show a substantial public interest to justify increased disclosure.

The commercial speech analysis would end, and any proposed regulation

would fail. If there is no public need for increased disclosure, the ‘‘when’’

and ‘‘how’’ of such disclosures would be irrelevant.126

123Id. at 57–58.

124An example of a closed-end question would be:

Which of the following best describes your understanding of how Product X came toappear in the TV scene you were just shown:A. Director (or someone else associated with creating the show) picked it to be in thesceneB. Sponsor paid for it to be in the sceneC. It was randomly chosen from a collection of propsD. I have no idea and never thought about it before.

125An example of an open-ended question would be:

List any products you noticed in the scene. How do you think these products came toappear in the show?

126This same issue of public need for increased sponsorship disclosure applies to the existingexemption from disclosure for feature films rebroadcast on TV. As was discussed above, in1963 and again in 1975, in the cable sponsorship docket, the FCC found no need for dis-closure regarding sponsorship in films played on TV or cable. See supra notes 37–40 andaccompanying text. Advocates for new disclosure about paid sponsorships in feature films citethe same complaints about increased prevalence of the practice. See Comments of Commercial


Nevertheless, for the sake of argument, this article will assume that

the FCC can prove that consumers do not understand that paid sponsor-

ship underlies product placement and product integration. Accordingly,

proposals for expanded disclosure would have to satisfy the remainder of

Central Hudson’s criteria.

Central Hudson next requires that any government restrictions on

commercial speech must be carefully designed to directly advance

the public interest at stake.127 A regulation cannot stand if it only

provides remote or ineffective protection.128 Assuming that disclosure of

paid promotions is needed, proponents’ claims for some new and

additional disclosures can likely meet this requirement. The WGAW

comments showed multiple examples of current disclosure practices,

which include tiny print scrolled on a screen momentarily. No mar-

keting research is necessary to conclude that average viewers who are in-

clined to watch these notices cannot get any meaningful information about

sponsors when they scroll by so quickly and are so tiny that they cannot be

read.129 The current disclosure rules, as implemented, are providing com-

pletely ineffective sponsorship notice. Accordingly, some new enforcement

regime would seem to be defensible under this prong of the Central Hudsontest.

Just what required disclosure will withstand constitutional scrutiny is

addressed by the final Central Hudson factor. An excessive restriction cannot

survive if the governmental interest could be served as well by a more

limited restriction on commercial speech.130 Here is where Commercial

Alert, supra note 111, at 26–27; see also Reply Comments of WGAW, supra note 129, at 9–11.But the Screen Actors Guild, which supports increased disclosure on TV finds no need fornew disclosure about film. See Comments of Screen Actors’ Guild, supra note 69, at 7–8.

127Cent. Hudson Gas and Elec. Corp. v. Pub. Serv. Comm’n, 447 U.S. 557, 569 (1980).

128Id.

129My own experience in trying to learn if Abbott Laboratories has any role in the constantreferences to Vicodin in House reflects this issue. Proponents justify simultaneous disclosurewith the fact that consumers who ‘‘time shift’’ their viewing can scroll through disclosures atthe end of shows. See Comments of WGAW, supra note 112, at 3; see also Comments of Com-mercial Alert, supra note 111, at 14–15. Opponents correctly explain that it is not the role ofgovernment disclosure rules to force sponsorship information upon consumers, only to makeit available. Reply Comments of Fox Entertainment Group, Inc., supra note 101, at7–8.

130Cent. Hudson Gas, 447 U.S. at 570.


Alert, the WGAW, and their supporters overstep. They insist that the pub-

lic can only meaningfully understand product placement and integration

with simultaneous pop-up or crawling detail about paid sponsorship. Tele-

vision viewers can imagine the intrusiveness of such notices by watching

severe weather alerts or Amber alerts on their screens, then envisioning

those constantly during every scene of every program where a paid prod-

uct placement appears.

Commercial Alert also proposes audio/video announcements about

the different caliber of participation by sponsors, from paying to place a

product in a scene to participating in the screen-writing process. In the

case of a program with a number of different sponsors participating in

different degrees, such announcements potentially could take up to a

minute or more of content time.

As was noted above, unduly burdensome disclosure requirements

cannot pass constitutional muster.131 Commercial Alert and WGAW

set up a false dichotomy regarding disclosure options. On the one hand,

there is the current situation with unreadable, fast scrolling, tiny-print

disclosures. On the other hand is their system of lengthy opening

or closing announcements and their proposed pop-up or crawling

notices in the midst of a scene, plus beginning and ending detailed au-

dio statements.

Broadcasters seem to assert a similar all-or-nothing approach in

which anything but the status quo of disclosures is unconstitutional. Stu-

dents could be asked to design a scheme in which complete information

about the embedded marketing tactics is made available to viewers, but the

creative product of the show is unadulterated. If that balance cannot be

achieved, any FCC action will be unconstitutional.

IV. EMBEDDED ADVERTISING ILLUSTRATESEMPLOYMENT AND LABOR LAW ISSUES

If instructors assigned students the WGAW comments to read in the ad-

ministrative law coverage, they can ask students to review that filing for any

131See supra notes 104–08 and accompanying text regarding disclosure in commercial speech.If the programming is protected as noncommercial speech, then the scrutiny applied to anycommercial disclosures is higher. See supra notes 95–102 and accompanying text.


employment or labor law issues reflected in the comments. In the com-

ments they will discover that

The WGAW represents over 8,000 professional writers of literary material fortheatrical and television motion pictures and interactive technologies.The WGAW is the collective bargaining agent for writers residing west of theMississippi River employed by the major media companies and dozens of inde-pendent producers. Its membership is comprised of television writers, (including‘‘showrunners’’ and executive producers), feature film writers, and news andnew media writers. In its representative capacity, the WGAW protects andadvocates for the rights, benefits and working conditions of writers.132

Although the WGAW is a labor union for writers, that does not necessarily

dictate that its interests regarding embedded advertising must conflict with

media companies and producers. Writers and producers of their shows

have a mutual interest in the financial viability of the show to continue on

the air. Embedded advertising contributes to that financial health. Accord-

ingly, students will not find any mention of a labor conflict underlying the

WGAW’s position staked out in the FCC rule making for simultaneous

crawling notices when embedded advertising appears in a TV showFa

position media producers adamantly oppose.

In fact, the WGWA position before the FCC reflects a real paradox.

Presumably, writers’ primary interest would be in protecting their creative

content. By any reasonable assumption, simultaneous disclosure would

violate that creative content. So why would the writers be favoring such a

regulation? In fact, there is an intriguing underlying labor conflict that,

indirectly, involves embedded advertising.

Instructors should ask students if they can surmise any conflict writ-

ers and producers (labor and management) might have over embedded

advertising. Many may be able to understand that writers might expect

some level of freedom to create TV scripts based on the characters and plot

development that are writers’ natural domains. Accordingly, writers might

feel that freedom is impinged if they are told they have to integrate par-

ticular brand-name products into storylines. Potentially, such concerns

could be addressed in labor contracts, by limiting embedding mandates or

giving writers a voice in which products a show will be paid to promote.

132See Before the Federal Communications Commission In the Matter of Sponsorship Iden-tification Rules, MB 08-90, Comments of the Writers’ Guild of America, West, at 4 (Sept. 22,2008).


Such terms are not at issue regarding the writers’ positions before the FCC,

although they could be in the future.

In fact, the unspoken labor conflict that underlies the WGAW’s position

on embedded advertising involves a very popular television genre: reality

programming. The WGAW has a long-running dispute with producers of re-

ality programming over WGAW’s attempts to organize writers on these shows.

Producers of these shows claim the WGAW lacks jurisdiction over their work-

ers because the shows are ‘‘unscripted.’’ They claim that the ‘‘writers’’ of their

programs are ‘‘story editors,’’ ‘‘segment producers,’’ or ‘‘story producers.’’133

As such, WGAW cannot act as their collective bargaining representative.

Now, the embedded advertising topic has funneled into a discussion

about reality TV workers and whether they are entitled to organize under

federal law. The instructor can discuss whether the WGAW is an appropriate

bargaining unit for these reality TVemployees. But it will be important to tie

the labor conflict back to the embedded advertising issue for students to

understand why the WGAW might use the FCC rule making to stake out a

paradoxical position regarding simultaneous disclosure of embedded ads.

The connection is simple but not obvious: reality programs are rife with productplacements and product integration.134 In fact, in numerous comments before

the FCC advocating increased disclosure of embedded advertising, reality

programs are the common examples cited for the practice.

Thus, students can come to understand that the WGWA may have an

interest in thwarting the embedded advertising model that is so success-

fully used by reality programs. That interest, however, has little to do with

the advertising practice itself. Rather, the economic interest of the union in

representing those reality TV workers is the likely motivating force. Stu-

dents should find this a fascinating perspective on the tactics a union will

employ to accomplish its organizing objectives: writers would normally

have a strong interest in preventing simultaneous pop-up disclosures as a

regular part of the programs they create.135 Instead they are advocating

133See Josef Adalian, WGA Reality Check, Scribe Tribe on Warpath over Unscripted TV, VARIETY

(June 20, 2005), available at http://www.variety.com/article/VR1117924792.html?categoryid=18&cs=1.

134Writers Guild of America West and Writers Guild of America East, ‘‘Are You Selling to Me?’’Stealth Advertising in the Entertainment Industry 4–6 (Nov. 14, 2005), http://www.wga.org/uploadedFiles/news_and_events/press_release/2005/white_paper.pdf.

135For instructors who teach contract negotiation theory, as a stand-alone subject or as part oflabor law, this analysis of the writers’ competing interests regarding regulation of embedded


http://www.variety.com/article/VR1117924792.html?categoryid=18&cs=1

http://www.variety.com/article/VR1117924792.html?categoryid=18&cs=1

http://www.wga.org/uploadedFiles/news_and_events/press_release/2005/white_paper.pdf

http://www.wga.org/uploadedFiles/news_and_events/press_release/2005/white_paper.pdf

for that result to accomplish a completely separate labor goal of constrain-

ing reality TV programs as they are presently managed.

SAG has its own employment and contract concerns that are reflected

in its comments to the FCC. SAG is the largest labor union for actors in the

United States, representing over 120,000 members.136 Although the

union is concerned with lack of disclosure and public awareness of ‘‘stealth

advertising,’’137 the actors’ interest in the artistic and creative integrity of

programs is reflected in their agreement with producers that the FCC

should not mandate simultaneous pop-up disclosure of sponsored prod-

ucts during scenes.138 Instead, ‘‘SAG proposes that the Commission re-

quire clear and distinct visual and audio disclosure before and after a

program which contains product placement and integrated products.’’139

Additionally, SAG maintains that the disclosure should appear in readable

text, on the full screen for not less than five seconds.140 The announce-

ments should contain specific language explaining that the program con-

tains embedded content that has been included in exchange for a fee or

other consideration, and its inclusion is a paid advertisement.141 Unique to

the SAG proposal is a request that the foregoing disclosure specifically state

that viewers should not consider the appearance of any particular product

in a scene as an endorsement of that product by the producers, writers, or

actors.142

SAG has multiple labor and contract issues that it perceives

affect actors when products are integrated into scenes, including ‘‘proper

advertising is a great vehicle for illustrating interest-based negotiations. See generally ROGER

FISHER & WILLIAM URY, GETTING TO YES (1991).

136Before the Federal Communications Commission In the Matter of Sponsorship Identifi-cation Rules, MB 08-90, Comments of Screen Actors Guild 1 (Oct. 22, 2008).

137Id. at 1–2.

138Id. at 9.

139Before the Federal Communications Commission In the Matter of Sponsorship Identifi-cation Rules, MB 08-90, Reply Comments of Screen Actors Guild 1–2 (Oct. 22, 2008).

140Before the Federal Communications Commission In the Matter of Sponsorship Identifi-cation Rules, MB 08–90, Comments of Screen Actors Guild 8 (Sept. 22, 2008).

141Id.

142Id.


compensation, potential conflicts, and consent.’’143 In particular, SAG is

concerned about exclusivity requirements actors have in their contracts

with sellers of products that the actors independently promote. Actors

want it disclosed that they are not personally promoting a competing

product just because a show in which they appear embeds that competing

product in a scene with that actor.144 Students will certainly be able to un-

derstand how bad it would look for Justin (‘‘Hello, I’m a Mac.’’) Long to be

in a television scene touting the superiority of a Dell PC. Instructors can

ask students to consider whether these concerns are better handled by a

general disclosure imposed by government rule or by the actors’ individual

bargains with the shows. Of course, SAG represents actors with widely

varying degrees of contracting leverage to bargain for such protections.

Accordingly, the actors’ labor union seeks protection of this divergent

membership through a mandatory federal disclosure rule.

V. EMBEDDED ADVERTISING ILLUSTRATES CONSUMERAND ADVERTISING LAW CONCEPTS

Embedded advertising and the legal issues its presents are natural topics

throughout a marketing law course. In a legal environment class, the cov-

erage of consumer law or deceptive advertising can be taught using em-

bedded advertising as the illustrative vehicle.

The FTC Act empowers the FTC to prevent unfair or deceptive acts or

practices.145 Further, the act specifically designates false advertising and the

dissemination of such as an unfair or deceptive act or practice.146 Accordingly,

the FTC is the federal agency empowered to regulate deceptive advertising,

including television advertising. For a simple research assignment, students

can be asked to find a case in which the FTC’s standard for deceptiveness in

advertising was applied. In general, an act is deceptive if it includes a repre-

sentation or omission that is likely to mislead reasonable consumers and the

143Id. at 4.

144Before the Federal Communications Commission In the Matter of Sponsorship Identifi-cation Rules, MB 08-90, Reply Comments of Screen Actors Guild 5–6 (Oct. 22, 2008).

14515 U.S.C. § 45(a)(1) (2008).

146Id. § 52 (2008).


representation or omission is material.147 This definition (which can be com-

pared to the definition of basic contract fraud in a business law course) will be

relevant to understand the FTC’s conclusion that product placement is not per

se deceptive as some proponents of new regulation urged.148

Students can also be asked to find any FTC decisions about decep-

tiveness of product placement. In 2005, Commercial Alert (the same or-

ganization that petitioned the FCC in 2003 for a rule making on

sponsorship identification)149 petitioned the FTC, alleging that product

placement without full disclosure (which it called ‘‘buzz marketing’’ at that

time) constitutes an unfair and deceptive practice.150

In response to this petition, the FTC analogized product placement to

‘‘word of mouth’’ advertising, with the sponsoring program acting as the

speaker or a ‘‘sponsored consumer.’’151 In examining the tactic, the FTC

relied on its 1980 Endorsement Guidelines.152 These guidelines focus on the

relationship between the endorser and product seller and whether it is likely

to have a material effect on the perceived weight and credibility consumers

give the endorsement. If a connection between the endorser and the prod-

uct seller is not expected by the audience, the viewer will likely give the en-

dorsement greater credibility than if the viewer understood the endorser

was being paid to promote the product.153 Accordingly, in such cases when

147FTC Deception Policy Statement, appended to Cliffdale Assocs. Inc., 103 F.T.C. 110, 175 (1984).


149See supra note 58 and accompanying text.

150See Letter from Gary Ruskin, Executive Director, Commercial Alert, to Donald Clark,Secretary, Federal Trade Commission (Oct. 18, 2005), http://www.commercialalert.org/buzz-marketing.pdf.

151See Letter from Mary Engle, FTC Associate Director for Advertising Practices to GaryRuskin, Executive Director, Commercial Alert (Dec. 7, 2006), http://www.ftc.gov/os/closings/staff/061211staffopiniontocommercialalert.pdf.

152See Whitney Washburn, FTC Regulation of Endorsement in Advertising: In the Consumer’sBehalf? 8 PEPP. L. REV. 697 (1980–81); see also Consuela Lauda Kertz & Roobina Ohanian,Source Credibility, Legal Liability and the Law of Endorsements, 11 J. PUBL. POL. & MKTG. 12 (1992).

153See, e.g., In re Bacon, 2008 FTC LEXIS 207 (Oct. 22, 2008) (‘‘Respondent has failed to dis-close adequately that one of the endorsers had a material connection with Cleansing TimePro. Specifically, at the time of providing her endorsement, one of the consumers was Holly A.Bacon, the sole owner of Cleansing Time Pro. This fact would materially affect the weight andcredibility given by consumers to the endorsement and would be material to consumers intheir purchase or use of the products. Therefore, the failure to adequately disclose this fact, inlight of the representation made, was, and is, a deceptive practice.’’).


http://www.commercialalert.org/buzzmarketing.pdf

http://www.commercialalert.org/buzzmarketing.pdf

http://www.ftc.gov/os/closings/staff/061211staffopiniontocommercialalert.pdf

http://www.ftc.gov/os/closings/staff/061211staffopiniontocommercialalert.pdf

the viewer would not clearly understand the paid relationship between en-

dorser and seller, that sponsorship must be disclosed. In the case of celebrity

endorsements, however, the FTC generally has assumed that reasonable

consumers understand that a celebrity who appears in an ad is being paid.154

Despite the similarities between product placement and undisclosed

endorsements, the FTC informed Commercial Alert that its complaint

‘‘does not suggest that product placement results in consumers giving more

credence to objective claims about the product’s attributes.’’155 Further, the

Commercial Alert complaint did not sufficiently show that product place-

ment involves ‘‘false or misleading objective, material claims about the

product’s attributes.’’156 In other words, the mere presence of products in a

television scene does not amount to potentially deceptive representations

about the products. A consumer cannot attach greater credibility to ‘‘claims’’

about the product (as is the risk with undisclosed endorsements) when no

claims are actually made. The FTC promised continued case-by-case eval-

uation of specific claims of deception regarding product placement.157

154Recently, however, the FTC adopted revisions to its Endorsement Guidelines. 16 C.F.R. §255 (2009), available at http://www.ftc.gov/os/2009/10/091005endorsementguidesfnnotice.pdf.One revision would require disclosure of celebrity plugs of products that are integrated intointerviews and talk shows because a reasonable viewer would not understand these apparentcasual mentions are actually paid endorsements. See Glenna Shaw, Heads Up Marlo Thomas:FTC Is Planning New Rules on Ad Testimonials, Endorsements, HEALTH LEADERS MEDIA (Apr. 8,2009), http://www.healthleadersmedia.com/content/231120/topic/WS_HLM2_MAR/Heads-Up-Marlo-Thomas-FTC-is-Planning-New-Rules-on-Ad-Testimonials-Endorsements.html.

These new regulations, which went into effect December 1, 2009, are the closest thing theFTC has come to addressing product integration advertising on television. In marketing lawcourses, these new endorsement guidelines can be another tangent that an instructor maypursue off the embedded advertising topic. It has potential for research and writing assign-ments but will not be discussed further here.

155See Letter from Mary K. Engle, Associate Director for Advertising Practices, Federal TradeCommission, to Gary Ruskin, Executive Director, Commercial Alert, at 3 (Feb. 10, 2005),http://www.ftc.gov/os/closings/staff/050210productplacemen.pdf.

156Id. Similarly, in 1991, the Center for the Study of Commercialism filed an FTC unfair anddeceptive trade practice complaint regarding product placements in motion pictures. See Inthe Matter of Unfair and Deceptive Acts and Practices in the Placement of Product Adver-tisements in Motion Pictures, Docket No. P914518, 209-59, 1991 WL 640030 (May 30, 1991).The FTC denied the petition finding an ‘‘apparent lack of a pervasive pattern of deceptionand substantial consumer injury attributable to product placements.’’ See FTC Press Release,FTC Denies Center for the Study of Commercialism’s Petition to Promulgate Rule on ProductPlacement in Movies (Dec. 11, 1992), http://www.ftc.gov/opa/predawn/F93/csc-petit5.htm.

157See Letter from Mary K. Engle, supra note 155.


http://www.ftc.gov/os/2009/10/091005endorsementguidesfnnotice.pdf





http://www.healthleadersmedia.com/content/231120/topic/WS_HLM2_MAR/Heads-Up-Marlo-Thomas-FTC-is-Planning-New-Rules-on-Ad-Testimonials-Endorsements.html








http://www.ftc.gov/os/closings/staff/050210productplacemen.pdf

http://www.ftc.gov/opa/predawn/F93/csc-petit5.htm

Students can be asked to refer to their initial examples of embedded

advertising that they found for class. Did any of them reflect any repre-

sentations about the products? The FTC’s conclusion was directed pri-

marily at product placement, not product integration into the storyline of a

television program. Nevertheless, ‘‘as advertisers develop new forms of

promotion,’’ the FTC will be looking for ‘‘misrepresentations’’ that deceive

consumers.158 Do students believe that any of their examples of product

integration deceive consumers by misrepresenting the attributes of the

product in the storyline? If not, it is unlikely that the FTC will be the av-

enue for regulation for this form of marketing.

This analysis can lead to an interesting public policy discussion about

traditional legal concepts like deception based on misrepresentation and

whether that concept still suffices for regulating newer advertising models

like embedded advertising. This discussion can loop back to the administrative

law materials where students saw advocacy groups petitioning the government

and urging more modern approaches to these new marketing practices.

CONCLUSION

What instructor would not want to be known for assigning TV as home-

work? When teaching embedded advertising to illustrate numerous busi-

ness law and legal environment concepts, such an assignment is not only

justified, but meaningful and memorable for students. Embedded adver-

tising brings timely and relevant legal and public policy issues into the

classroom. The topic incorporates classic law cases, government rule-mak-

ing documents, and business research. It can be integrated throughout a

semester-long course and can span core business disciplines of marketing

and employment relations. Alternatively, instructors can use the concept at

discrete times in a course to illustrate isolated topics such as commercial

speech or deceptive advertising law.

Embedded advertising is likely to continue to flourish as a marketing

strategy in broadcast media and movies as well as social media and other

interactive communication tools for consumers. Legally, the issues will re-

main relevant until the FCC rules in its docket, and all subsequent appeals

run their course. The topic should have life for years to come.

158Id.


Embedded Advertising on Television: Classic Legal Environment and Business Law Content “Brought to...

Documents

Transcript of Embedded Advertising on Television: Classic Legal Environment and Business Law Content “Brought to...