LAW & ETHICS IN THE BUSINESS ENVIRONMENT 8e
Instructor’s Manual
CHAPTER SEVEN
MARKETING AND TECHNOLOGY: CHOICE AND MANIPULATION
MAIN CONCEPTS
Free speech and commercial speech
Advertising and economics
Federal versus industry self-regulation
Children, obesity, and marketing junk food
Direct-to-consumer pharmaceutical advertising
INTRODUCTORY TIPS
Given the first case in this chapter, we like to begin with some background on freedom of
speech. Eliciting ideas from students, create a blackboard list of various forms of expression:
speech that causes violence (shouting fire in a crowded theater)
lies that injure reputation
offensive comments (insults, “hate speech”)
conduct carrying a message (flag burning, e.g.)
literature, lyrics
dance
pornographic words/pictures
parody, satire
advertising
Discuss why each is a form of expression, and then how they might grouped–from those that
deserve virtually complete protection, to those that government should be able to control. In the
process, explain that, although the Nazis can march in Skokie, Skokie can insist that they march
along a certain route, at certain hours (content restrictions vs. time/place/manner restrictions).
Give legal tags where appropriate (defamation, commercial speech, fighting words), but only
after students have described the form of expression and talked about where it fits on the
spectrum.
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FREE SPEECH AND COMMERCIAL SPEECH
R.J. Reynolds Tobacco Company, et. al. v. FDA, Questions, p. 255
1. According to the majority opinion, what is the government’s “substantial” interest?
Why does the FDA’s graphic warning fail to “directly advance” that interest?
The government’s interest is in getting people to quit smoking to reduce disease risk and
2. According to the dissenting opinion, what is the government’s “substantial” interest?
Why does the FDA’s graphic warning rule “directly advance” it? And why is the FDA’s
rule sufficiently tailored to fit its purpose?
In addition to the government’s interest in getting people to quit smoking, there is also an interest
in communicating to consumers the dangers of smoking. The international experience and FDA
3. Research: Find out how the Central Hudson test was applied in the following cases:
(a) The city of Baltimore passed an ordinance banning billboard advertising of
alcoholic beverages and cigarettes near schools and playgrounds.
In Anheuser-Busch, Inc. v. Mayor and City Council of Baltimore City, 855 F.Supp. 811 (D.Md.,
1994), the District Court held the ordinance constitutional. The court held that 1) the advertising was not misleading; 2) the
city’s interest in the welfare of its youth and citizenry was substantial; 3) the ordinance directly advanced the city’s interest;
and 4) the ordinance was narrowly tailored to meet the interest of the city. The Court of Appeals a,rmed this decision. The
United States Supreme Court overturned the decision based on the Rhode Island state case described below.
(b) The state of Rhode Island passed a law banning the mention of price from all
advertising of alcoholic beverages.
In 44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484 (1996), the United States Supreme Court held that the
ban on advertising liquor prices was unconstitutional. Justice Stevens noted that 1) the advertising was not misleading; 2) the
state’s interest in “promoting temperance” could be deemed substantial; 3) the regulation did not directly advance the
interest of the city; and 4) that the regulation was not narrowly tailored but was overly broad.
(c) The New York State Liquor Authority banned the Bad Frog Brewery label that
showed a frog with the second of its four unwebbed fingers extended in a gesture of
insult.
In Bad Frog Brewery, Inc. v. New York State Liquor Authority, 134 F.3d 87 (2nd Cir. 1998), the
Court of Appeals held that the ban on the label was unconstitutional. Under Central Hudson, the
4. What ethical issues arise when tobacco is marketed to people in the developing
world? Research: What happened with the tobacco company issue reached the
WTO?
One primary concern is that citizens of those countries may not have access to information
regarding the dangers of smoking and may not understand the implications. Also, health care
5. Research: Which countries ratified the Framework Convention on Tobacco
Control? Is the United States a signatory? Why or why not? What can you find
out about the likely effectiveness of this global effort to reign in tobacco
marketing?
Extensive information regarding the framework is found here:
The United States signed the Framework, but it has not been sent to the Senate for
ratification:
Article 13 specifically addresses marketing. Here is an example of one person’s thoughts
on its effectiveness:
ADVERTISING AND ECONOMICS
The Dependence Effect, John Kenneth Galbraith, Questions, p. 260
1. What are the two assumptions of consumer demand theory as Galbraith explains it?
How does Galbraith undermine those assumptions?
He describes “modern want creation:” The craving for more originates with the production
2. Galbraith says most economists sense “the damage to established ideas that lurks in
these relationships.” What does he mean by this?
The established ideas of supply and demand of traditional microeconomic theory: that what
drives our economy are the freely made choices of millions of individuals–consumers,
3. Does advertising create desire, or tap into pre-existing desires within us? Do you agree
that “advertisers peddle our dreams”? Why or why not?
It is possible to argue both sides of this question. Students can probably come up with examples
of buying something that was prompted by an ad. They may also be able to articulate times
Ask students which they feel is the predominant function of advertising. Is it providing
information or persuasion?
4. Ethical theory re. the blitz “on behalf of beer but not of more schools.”
Free market economist view: Assuming the law is obeyed and “ethical custom” is not violated,
Utilitarian view: Stakeholders would include advertisers, those who sell advertising, those who
provide public goods and services, and those who receive public goods and services. Although
FEDERAL VERSUS INDUSTRY SELF-REGULATION
Federal Trade Commission v. Ivy Capital, Questions, p. 265
1. What are some of the factors that might make it easier for telemarketing scams to
succeed? What are some of the factors that might make them difficult to discover and
prosecute?
Opinions will vary. Students will likely mention a desire to be successful and wealthy as reasons
Scams make be difficult to discover and prosecute because consumers make be reluctant to
report they were duped, especially if the amount invested was small. It is likely that scams
2. Research: Find out what happened to the Ivy Capital defendants.
The defendants faced many prohibitions going forward, including being banned from selling
coaching programs. There were also significant monetary judgments imposed:
3. Research: FTC site
Online advertising and marketing:
4. Research: Find out the terms of Phusion’s settlement agreement with the government.
Phusion was required to relabel the product:
5. Research: FTC proposed changes to its Telemarketing Sales Rule. Reaction? Adoption?
Here is an example of a reaction to the proposal:
More information from the FTC regarding the rule is found here:
Lantham Act
CKE Restaurant v. Jack in the Box, Inc., Questions, p. 271
1. According to the court, what must any plaintiff prove in order to win an injunction
under the Lantham Act?
Plaintiffs must establish:
(1) Defendant made false advertising statements of facts about its own or another’s product.
(2) Those advertisements actually deceived or have a tendency to deceive a substantial
segment of their audience.
2. Why did the court rule that Jack in the Box ads did not have the tendency to deceive
consumers? How did the court deal with the question of whether the ads harmed the
plaintiffs?
The Court found that the defendant’s commercials intended to bolster its own brand and product
3. Why do you think that comparative advertising only represents a small portion of
advertising overall?
Opinions will vary. Students may consider that companies do not want to use their advertising
(a) What ethical issues arrive in the context of comparative advertising?
(b) Is Sodastream “comparative advertising” to Coke and Pepsi? What ethical issues arise?
Research: What result for Sodastream, ultimately?
Again, opinions will vary as to whether students see Sodastream as comparative to Coke and
4. Why is a preliminary injunction described as a “drastic” remedy?
5. Research: Between the plaintiffs and the defendants in this case, which is the bigger and
more powerful entity?
As of March 2014, Jack in the Box had more than 2,200 restaurants in 21 states. The company,
As of March 2014, CKE Restaurants operates 1,322 Carl, Jr. restaurants in 14 states and
internationally. The company also has 1,932 Hardee’s in 30 states and the Middle East.
6. What arguments might Kors make against Costco?
Kors accused Costco of false, deceptive, “bait and switch” advertising:
Industry Self-Regulation and Marketing to Children
Standards of Practice, Questions, p. 273
1. Research: Find out what consumer advocates think of CARU’s work.
Truth-in-Advertising.org doesn’t believe that CARU has much power since compliance is
voluntary:
https://www.truthinadvertising.org/the-childrens-advertising-review-unit-caru/
2. Construct an ethical argument that advertising to children should be prohibited.
Critique that argument again, using ethical tools.
This is a good question for class or group discussion. Consider diving the class into two groups
– one that makes the argument(s) and another that does the critique(s).
CHILDREN, OBESITY, AND MARKETING JUNK FOOD
From Tastes Great to Cool: Children’s Food Marketing and the Rise of the Symbolic,
Juliet B. Schor and Margaret Ford, Questions, p. 279 – 280
1. Describe the evolution from the “intrinsic product benefit” model for advertising and
the “creative revolution”. According to the authors, why did the change occur?
In its early decades (1950s-1980s), children’s advertising was low-budget, drew on little research
or creative talent, and tended to follow well-established formulae. Children were not a lucrative
2. Research: Investigate http://www.livepositively.com/home/ . Look for similar
campaigns have been launched by soft drink and fast food companies. What kinds of
solutions are being promoted? How would the authors respond to them?
According to a recent study, little to nothing has been done by the fast-food giants:
The authors argue that marketers are becoming “sophisticated anthropologists” who build upon
the social relationships, and the connections of food to those relationships provoke powerful
3. Research: Find an example of a community engagement strategy designed to counter
the effects of junk food marketing. Describe the plan and any results.
A web search should lead students to several community plans. A good website to check is:
Other examples include:
Occidental College in the greater Los Angeles area, has partnered with the Center for Food &
In November, 2010, the San Francisco Board of Supervisors banned toys in children’s meals at
fast food restaurants unless nutritional standards in those meals were increased.
Citing parental responsibility rather than political paternalism, then Mayor Gavin Newsom
vetoed the legislation:
Mayor Newsom cited the city’s successful Shape Up program:
4. The nonprofit group Children NOW has testified before the FTC in favor of a ban on
interactive advertising to children. Commercial Alert has advocated a ban on all junk
food sales in schools. The Center for Science in the Public Interest has petitioned the
FDA to require warning labels on soft drinks.
(a) Put each of these strategies for limiting commercial speech though the Central
Hudson test. Would any of them be constitutional?
(b) Working with a partner or small group, determine what kind of information the
government would need to justify a regulation of junk food advertising under
Central Hudson. Try to write a law that would pass that test.
5. (a) Find out if your high school uses or has ever used Channel One. If it was taken out,
find out how that happened.
Ask students if they have had exposure to Channel One, or to other forms of advertising in
school. How did they respond to it? Do they believe that students are more likely to learn from
(b) Research: Find out if your state has junk food legislation for its public schools.
6. Research: (a) Locate the Center for Consumer Freedom Web site. Read some of its
articles. Do they seem well-researched and reliable? Why/why not? What can you find
out about how this organization is funded? (b) What ethical values underlie the CCF
arguments?
7. Research: California Menu Education and Labeling Act (MEAL). Have any other
states or municipalities passed legislation requiring food businesses to inform the public
about the caloric and nutritional qualities of their products?
MEAL mandated brochures with nutritional education in fast food restaurants beginning in 2009
and mandated information be posted on menus beginning January 2011. The rules apply only to
restaurants that have 20 or more locations within the state. In addition, the Governor signed SB
f
For information on other states see:
8. What has the Children’s Food and Beverage Advertising Initiative accomplished? How
do critics assess its accomplishments?
There are several websites and articles discussing the CBAI. Here is one from Adweek:
9. Research: Check out energy drink advertising, particularly the Monster Army
social-networking site. Do you think it is aimed at young teenagers and children under 12?
Find out what happened in the lawsuit.
Information about the background of the lawsuit is found here:
A federal judge threw out a lawsuit by Monster that sought to block the investigation:
As of January 2014, New York has joined with San Francisco to investigate Monster: