FTC Staff Comment Before the State Bar of Arizona Concerning Attorney Advertising

UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON. D.C. 20S80
V900033
COMMISSION AUTHORIZED
April 	17, 	1990
Bruce Hamilton
Executive 	Director
State Bar of 	Arizona
363 	North 	First Avenue
Phoenix, 	Arizona 	85003
Dear Mr. 	Hamil ton:
I 	am writing 	in 	response 	to 	your 	letter of 	March 	29, 	1990,
in which you 	requested 	the views 	of 	the 	Federal 	Trade 	Commission
staff 	on certain proposed 	amendments 	to 	the Arizona 	Rules 	of
Professional 	Conduct. l 	These 	amendments 	would 	generally
establish more 	restrictive 	standards 	than 	now 	exist 	in 	the 	areas
of 	attorney advertising 	and 	solicitation. 	We 	believe 	that
several 	of 	these 	proposals 	may 	restrict 	the 	flow 	of 	truthful 	and
useful 	information to consumers, 	and 	therefore, 	on balance, 	have
the 	potential 	to 	impede 	competition or 	increase 	costs 	without
providing countervailing benefits 	to 	consumers.
The 	discussion 	of 	these 	issues 	will 	be 	divided 	into 	a 	number
of 	sections. 	The 	first 	of 	these 	describes 	the 	FTC 	staff'S
interest 	and 	previous 	experience 	in 	this 	field. 	The 	remaining
sections 	then 	take 	up 	the 	specific 	provisions 	of 	the 	proposed
amendments 	that 	raise 	the 	most 	serious 	concerns 	about 	adverse
effects 	on consumers, 	including 	the 	provisions 	governing: 	(1)
client 	testimonials; 	(2) 	electronic 	media 	advertising; 	(3)
cautions 	against 	excessive 	reliance 	on 	advertising; 	and 	(4)
written communications 	with prospective 	clients. 2
The 	interest 	and 	experience 	of 	the 	staff 	of 	the 	Federal 	Trade
Commission
Congress 	has 	empowered the 	Federal 	Trade 	Commission 	to
prevent 	unfair methods 	of 	competition 	and 	unfair 	or 	deceptive
These comments 	are 	the 	views 	of 	the 	staff 	of 	the 	Bureau
of 	Competition of 	the 	Federal 	Trade 	Commission. 	They 	are 	not
necessarily 	the 	views 	of 	the 	Commission 	or 	of 	any 	individual
Commissioner.
2 	Our comments 	are 	limited 	to 	these 	specific 	areas, 	in 	part
due 	to 	the 	constraints 	of 	time.

3
Bruce Hamilton 	-- 	Page 	2
acts 	or practices 	in or affecting commerce. 3 Pursuant 	to 	this
statutory mandate, 	the Commission 	and 	its 	staff 	encourage
competition among members 	of 	licensed professions 	to 	the 	maximum
extent compatible with other 	legitimate 	goals. 4 For 	several
years 	the Commission 	and 	its 	staff, 	through 	law enforcement
proceedings 	and 	analysis, 	have 	been 	evaluating 	the 	competitive
effects 	of 	public 	and private 	restrictions 	on the 	business
practices 	of 	lawyers, 	dentists, 	optometrists, 	physicians, 	and
other 	state-licensed professionals. 	Our 	goal 	has 	been 	to
identify 	restrictions 	that 	impede 	competition or 	increase 	costs
without 	providing countervailing benefits 	to consumers. 	As 	part
of 	this 	effort 	the 	Commission has 	examined the 	effects 	of 	public
and 	private 	restrictions 	limiting 	the 	ability of 	professionals 	to
contact prospective 	clients 	and 	to 	advertise 	truthfully.s
15 	U.S.C. 	Sec. 	41 	et 	~
4 	The 	Commission's 	staff 	has 	previously submitted comments
to 	state 	governments 	and professional 	associations 	on 	the
regulation of 	professional 	advertising, 	particularly advertising
by 	attorneys. 	See, 	e.g., 	Comments 	of 	the 	Federal 	Trade
Commission Staff 	on 	the 	Rules 	of 	Professional 	Conduct 	of 	the
Florida 	Supreme 	Court, 	submitted 	to 	William 	F. 	Blews, 	Member,
Florida 	Bar Board of Governors 	(July 	17, 	1989); 	Comments 	of 	the
Federal 	Trade Commission Staff 	on 	the 	American 	Bar Association
Model 	Rules 	of 	Professional 	Conduct 	(November 	22, 	1988); 	Comments
of 	the 	Federal 	Trade Commission Staff 	on 	the 	Rules 	of 	the 	Idaho
State Board of 	Chiropractic 	Physicians 	(December 	7, 	1987);
Comments 	of 	the 	Federal 	Trade 	Commission Staff 	on 	the 	Rules 	of
Professional 	Conduct 	of 	the 	New 	Jersey Supreme 	Court, 	submitted
to 	the 	Committee on Attorney Advertising of 	the 	New 	Jersey
Supreme Court 	(November 	9, 	1987); 	Comments 	of 	the 	Federal 	Trade
Commission Staff 	on 	the 	Code 	of 	Professional 	Responsibility of
the 	Alabama 	State 	Bar, 	submitted to 	the 	Supreme 	Court 	of 	Alabama
(March 	31, 	1987); 	Comments 	of 	the 	Federal 	Trade Commission 	Staff
on 	the 	rules 	of 	the 	South Carolina 	Boards 	of 	Optometry and
Opticianry, 	submitted to 	the 	Legislative Audit 	Council 	of 	the
State of 	South Carolina 	(February 	19, 	1987).
S 	See, 	e.g., 	American Medical 	Association, 	94 	F.T.C. 	701
(1979), 	aff'd, 	638 	F.2d 	443 	(2d Cir. 	1980), 	aff'd memo 	by 	an
equally divided 	Court, 	455 	U.S. 	676 	(1982). 	The 	thrust 	of 	the
AMA decision 	-- 	"that 	broad bans 	on 	advertising and 	soliciting
are 	inconsistent with 	the 	nation's 	public 	policy" 	(94 	F.T.C. 	at
1011) 	-- 	accords 	with 	the 	reasoning 	of 	recent 	Supreme 	Court
decisions 	involving 	professional 	regulations. 	See, 	e.g., 	Shapero
v. 	Kentucky 	Bar Association, 	108 	S. 	Ct. 	1916 	(1988) 	(holding 	that
nondeceptive 	targeted mail 	solicitation 	is 	protected 	by. the 	First
(continued ... )
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Bruce Hamilton -- 	Pa~e 3
Advertising 	informs 	consumers 	of 	options 	available 	in 	the
marketplace, 	and encourages 	competition among 	firms 	seeking 	to
meet consumer needs. 	Advertising may 	be 	especially valuable 	for
people 	first 	entering a 	profession, 	because 	it 	enables 	them 	to
become known 	to 	potential 	clients 	and 	to 	reach 	an efficient
competitive 	size more 	quickly 	than they 	otherwise might. 	Studies
indicate that 	prices 	for 	certain professional 	services 	tend 	to 	be
lower where 	advertising exists 	than where 	it 	is 	restricted or
prohibited. 6 	Empirical 	evidence 	also 	indicates 	that 	while
certain restrictions 	on professional 	advertising 	tend 	to 	raise
prices, 	the 	restrictions 	studied do 	not 	~enerally increase 	the
quality of 	available 	goods 	and 	services. 	These 	relationships
between price, 	quality, 	and 	advertising 	have 	been 	found 	to 	apply
in 	the provision Qf 	certain 	legal 	services 	as 	well. 8
, 	( •.• continued)
Amendment); 	Zauderer v. 	Office 	of 	Disciplinary Counsel 	of 	the
Supreme Court of 	Ohio, 	471 	u.S. 	626 	(1985) 	(holding 	that 	an
attorney may 	not 	be disciplined 	for 	seeking 	legal 	business
through printed advertising containing 	truthful 	and 	nondeceptive
information 	and 	advice 	regarding 	the 	legal 	rights 	of 	potential
clients 	or 	for 	using 	nondeceptive 	illustrations 	or 	pictures);
Bates v. 	State Bar of Arizona, 	433 	u.S. 	350 	(1977) 	(holding 	a
state supreme 	court 	prohibition on 	advertising 	invalid under 	the
First Amendment 	and 	according 	great 	importance 	to 	the 	role 	of
advertising 	in the 	efficient 	functioning 	of 	the 	market 	for
professional 	services); 	Virginia 	State 	Board of 	Pharmacy v.
Virginia Citizens 	Consumer Council, 	425 	U.S. 	748 	(1976) 	(holding
invalid 	a 	Virginia 	prohibition on price 	advertising 	by
pharmacies).
6 	Bond, 	Kwoka, 	Phelan 	& Whitten, 	Effects 	of 	Restrictions 	on
Advertising 	and 	Commercial 	Practice 	in 	the 	Professions: 	The 	Case
of 	Optometry 	(1980); 	Benham 	& Benham, 	Regulating Through 	the
Professions: 	A Perspective 	on 	Information Control, 	18 	J.L. 	&
Econ. 	421 	(1975); 	Benham, 	The 	Effects 	of 	Advertising 	on 	the 	Price
of 	Eyeglasses, 	15 	J.L. 	& Econ. 	337 	(1972).
7 	Bond et 	al., 	Effects 	of 	Restrictions 	on Advertising 	and
Commercial 	Practice 	in 	the 	Professions: 	The 	Case 	of 	Optometry
(1980). 	See 	also 	Benham, 	Licensure 	and 	Competition 	in Medical
Markets, 	draft 	AEI 	conference 	paper 	(1989); 	Cady, 	Restricted
Advertising 	and 	Competition: 	The 	Case 	of 	Retail 	Drugs 	(1976).
• 	See 	Jacobs 	et 	al., 	Improving Consumer Access 	to 	Legal
Services: 	The Case 	for 	Removing 	Restrictions 	on 	Truthful
Advertising 	(1984); 	Calvani, 	Langenfeld 	& Shuford, 	Attorney
(continued ... )
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Bruce Hamilton 	-- 	Page 	4
This 	is 	not 	to 	say 	that 	advertising 	is 	invariably benign.
It may sometimes 	be 	unfair 	or deceptive, 	or may violate 	other
legitimate 	goals 	of 	public 	policy. 	We 	believe, 	however, 	that
truthful 	advertising 	is 	generally beneficial. 	Therefore, 	we
suggest 	that 	the 	Board of 	Governors 	should 	impose 	restrictions 	on
advertising only 	if 	those 	rules 	are 	narrowly 	tailored 	to 	prevent
unfair or deceptive 	acts 	or practices, 	or 	to 	accomplish 	some
other significant objective.
The 	remaining sections 	of 	the 	letter will 	apply 	these
general 	principles 	to 	the 	specific 	amendments 	proposed.
ER 	7.1(b)(S): 	Client 	testimonials
Proposed 	rule 	ER 	7.1(b)(5) 	would 	prohibit 	communications
containing testimonials 	from 	current 	or 	former 	clients.
We 	believe 	that 	truthful 	testimonials 	from 	actual 	clients
may 	be valuable 	to consumers 	of 	legal 	services. 	For example, 	the
listing of 	certain clients 	such 	as 	major banks 	or corporations 	in
the 	Martindale-Hubbell 	directory 	suggests 	that 	a 	firm 	can 	handle
complicated 	legal 	problems 	in which 	large 	sums 	of 	money may 	be 	at
risk. 	Advertising 	in which clients 	attest 	that 	they 	use 	a 	firm's
legal 	services 	provides 	the 	general 	public 	the 	same 	type 	of
information 	that 	is 	available 	to 	users 	of 	legal 	directories.
Advertising 	in which clients 	discuss 	their 	reasons 	for
satisfaction with a 	law 	firm 	conveys 	even more 	information than
legal directories 	convey. 	Such testimonials 	are 	not 	necessarily
misleading, 	and 	to prohibit 	them may 	impede 	the 	flow 	of 	useful
information to 	consumers. 	The 	Board may wish 	instead 	to 	prohibit
only those 	testimonials 	that 	are 	likely 	to mislead.
Alternatively, 	the 	Board could delete 	this 	section entirely, 	and
allow such matters 	to 	be 	covered by 	the 	general 	prohibition 	in
rule ER 	7.1(b) 	against 	"false or misleading communication."
8 	( ••• continued)
Advertising 	and Competition 	at 	the 	Bar, 	41 	Vande 	L. 	Rev. 	761
(1988); 	Schroeter, 	Smith 	& Cox, 	Advertising 	and 	Competition 	in
Routine 	Legal 	Service Markets: 	An 	Empirical 	Investigation, 	35 	J.
Indus. 	Econ. 	49 	(1987); 	Muris 	& McChesney, 	Advertising 	and 	the
Price 	and 	Quality of 	Legal 	Services: 	The 	Case 	for 	Legal 	Clinics,
1979 Am. 	B. 	Found. 	Research 	J. 	179 	(1979).
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Bruce Hamilton 	-- 	Page 5
ER 	7.2: 	Electronic Media 	Advertising
This 	proposed rule would 	severely 	restrict 	the 	visual 	and
audio elements 	of 	electronic 	media 	advertisements. 	The 	proposed
rule would 	allow only the 	text 	of 	the 	narrator's 	words 	to 	appear
on screen 	in 	television 	advertisements. 	Both on 	television 	and
radio 	the 	only 	audio 	allowed would 	be 	that 	of 	a 	single, 	non-
dramatic 	voice with no 	other background 	sound. 	The 	rule 	would
thus 	prohibit 	the 	use 	of 	actors, 	background music, 	visual 	action,
dramatic 	voices, 	and other 	features 	common 	to 	electronic 	media
advertising.
This 	proposal 	appears 	to 	be overbroad. 	We 	appreciate 	that
the 	rule 	is 	intended, 	at 	least 	in 	part, 	to 	maintain 	the 	dignity
and professionalism of 	the 	legal 	community. 	The 	Board may want
to bear 	in mind 	however 	that 	advertising 	restraints 	of 	this 	sort
are costly to 	consumers. 	Graphics, 	dramatizations, 	reenactments,
and 	similar techniques 	can 	help consumers 	understand 	their 	legal
rights 	and 	obligations 	and can 	identify 	attorneys 	who 	appear
responsive 	to 	particular needs. 	The 	unavailability of 	such
techniques 	may make 	it harder 	for 	consumers 	to make 	informed
decisions 	about 	hiring 	legal 	counsel. 	It may 	also make 	it 	harder
for 	lawyers 	to 	devise vivid advertising 	images 	that will 	engage
the viewer's 	attention, 	thereby enabling the 	lawyers 	to 	convey
their messages.
For 	all 	these 	reasons 	the 	Board may wish 	to 	consider
shifting the 	focus 	of 	the 	proposed 	rule. 	Rather 	than 	allowing
electronic 	media 	advertising only 	in 	certain 	specialized 	formats,
and banning all 	others, 	the 	rule 	might 	instead ban 	only 	those
specific 	techniques 	that could 	likely mislead or otherwise 	cause
harm 	to 	consumers.
ER 	7.1(m) 	and 	ER 	7.2: 	Caution 	against 	reliance 	on 	advertising
Another 	prov1s10n of 	the 	new 	rules 	would caution 	consumers
against 	excessive 	reliance 	on 	advertising. 	Proposed Rule 	ER
7.1(m) 	would 	require 	that 	all 	advertisements 	and written
communications 	involving direct 	contact with 	prospective 	clients
contain the 	following 	disclaimer: 	"The 	determination of 	the 	need
for 	legal 	services 	and 	the 	choice 	of 	a 	lawyer 	are 	extremely
important 	decisions. 	Before you 	decide, 	we 	will 	send you 	free
written 	information 	about 	our qualifications 	and 	experience."
Proposed Rule 	ER 	7.2 	would 	require 	that 	all 	electronic 	media
advertisements 	shall 	contain 	the 	following 	disclaimer: 	"The
determination of 	the 	need 	for 	legal 	services 	and 	the 	choice 	of 	a
5

Bruce Hamilton 	-- 	Page 	6
lawyer are 	extremely 	important 	decisions 	and 	should 	not 	be 	based
solely upon 	advertisements 	or 	self-proclaimed expertise."
Any disclosure 	obligation tends 	to 	increase 	advertising
costs, 	both because 	it may 	increase 	the 	length of 	the 	message 	and
because 	it may 	force 	advertisers 	to 	forego 	some 	other 	portion 	of
the message 	that would 	have 	been delivered 	had 	the 	space 	not 	been
occupied by 	the 	disclosure. 	Unnecessary disclosure 	requirements
can thus 	result 	in a 	decrease 	in 	useful 	information 	available 	to
consumers. 	Moreover, 	some 	disclosures 	may 	further 	discourage
advertising 	if 	consumers 	are 	thought 	likely 	to 	understand 	the
disclosure 	to 	reflect 	negatively on 	the 	advertiser, 	even when
such an 	inference 	is 	unjustified. 	Accordingly, 	it 	is 	important
in evaluating 	disclosure 	requirements 	to 	weigh 	such costs 	against
any benefits 	that 	can be 	clearly 	identified.
ER 	7.3ed): 	Written Communications 	with 	Prospective 	Clients
This 	proposed 	rule 	limits 	the 	amount 	of 	direct 	competition
among 	lawyers. 	It 	provides 	that 	the 	first 	sentence 	of 	any
written communication to 	a 	prospective 	client 	concerning a
specific 	occurrence 	shall 	be: 	"If 	you 	have 	already 	retained a
lawyer 	for 	this 	matter, 	please disregard 	this 	letter."
While 	this 	may 	not 	seem 	as 	restrictive 	as 	the 	current 	rule,9
it may 	still 	be 	overbroad. 	We 	recognize, 	of 	course, 	that 	clients
may 	sometimes 	enter 	into contractual 	relationships 	under which a
particular 	lawyer 	acquires 	the 	right 	to 	handle 	a 	certain matter
in 	its 	entirety. 	We 	would not 	advocate 	rules 	that 	encourage 	the
breach of 	those 	contracts. 	Nonetheless, 	in many 	other 	instances
the 	client will 	be 	free 	to 	terminate 	the 	relationship 	with 	the
attorney 	at 	will. 	At 	least 	in 	this 	latter context 	the 	proposed
rule 	could operate 	as 	a 	direct 	restraint on competition, 	and
could thereby 	injure 	consumers.
9 	ER 	7.2(f) 	provides 	that 	a 	lawyer 	shall 	not 	send 	a 	written
communication 	to 	a 	prospective client 	for 	the 	purpose 	of
obtaining 	professional 	employment 	if 	the 	written communication
concerns 	a 	specific 	matter 	and 	the 	lawyer 	knows 	or 	reasonably
should 	know 	that 	the 	person 	to 	whom 	the 	communication 	is 	directed
is 	represented 	by 	a 	lawyer 	in 	the 	matter.
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Bruce Hamilton 	-- 	Page 	7
Conclusion
In short, 	we 	believe 	that 	some 	of 	the 	proposed 	rules 	under
consideration 	for 	regulating 	attorney 	advertising 	and
solicitation may 	not 	give 	sufficient weight 	to 	the 	value 	of 	free
and 	informed consumer choice. 	We 	therefore 	suggest 	that 	you
consider modifying 	the 	rules 	to permit 	a 	wider 	range 	of 	truthful
communications, 	and 	to 	ban only those 	that 	are 	likely 	to be
unfair or deceptive, 	or 	to 	otherwise violate 	significant 	state
objectives 	in 	a 	way 	that 	threatens 	to 	cause 	net 	injury to
consumers. 	As 	part 	of 	this 	process 	you may want 	to 	review 	the
rules 	to 	ensure 	that 	any prohibitions 	are 	drafted 	narrowly and
precisely.
We 	appreciate 	this 	opportunity to 	give you 	our views.
Please 	feel 	free 	to 	get 	back 	in 	touch 	if 	you 	have 	any 	questions,
or 	if we can help 	in 	any 	other way.
Sincerely,
~~~Kev~n Arquit
Director
Bureau of 	Competition
7