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UNITED STATES OF AMERICA

BEFORE FEDERAL TRADE COMMISSION

IN THE MATTER OF KFC CORPORATION

FTC File No. 042-3033

COMMENTS OF CITIZENS FOR VOLUNTARY TRADE

Proposed Consent Order Announced June 3, 2004


Comments Filed July 2, 2004

Citizens for Voluntary Trade, a Virginia nonprofit corporation,


respectfully files the following comments in response to the Federal
Trade Commission’s proposed consent order in the above-
captioned matter.

Relevant Facts
In 2003, KFC Corporation, the respondent in this proceeding,
ran a series of television advertisements for the company’s
signature fried chicken restaurants. One of these ads compared the
nutritional value of KFC’s “Original Recipe” fried chicken breasts
to the Whooper sandwich sold by Burger King. The ad stated that
two Original Recipe breasts contained 38 grams of fat compared the
Whopper’s 43. A second ad claimed that Original Recipe fried
chicken had 11 grams of carbohydrates and 40 grams of protein,
which made it compatible with a low-carbohydrate, high-protein
diet plan.1 Both advertisements implicitly argued that Original
Recipe chicken could be incorporated into a health and balanced
diet.
KFC ceased running both of these ads in November 2003. At
that time, the Federal Trade Commission was in possession of a
complaint filed by the Center for Science in the Public Interest, an
advocacy organization that seeks to expand government control of
the food and beverage industry. Either as a result of this complaint

1 The most popular of these plans are the Atkins diet and the South Beach diet.
IN THE MATTER OF KFC CORPORATION

Comments of Citizens for Voluntary Trade

or of the Commission’s own initiative, the Commission’s Bureau of


Consumer Protection opened a formal investigation to determine
whether the two advertisements violated the Federal Trade
Commission Act’s prohibition of false or deceptive advertising.2
The Bureau ultimately concluded the advertisements did violate
the FTC Act, and KFC subsequently agreed to the proposed consent
order now before the public.
The proposed order prohibits KFC from making any statements
in the future that favorably compare the nutritional value of its
fried chicken with Burger King’s Whopper, or that its fried chicken
is compatible with any diet program, unless such statements are
backed with “competent and reliable evidence” to substantiate
them. The order forbids KFC from relying solely on statements of
its food’s nutrient content to substantiate any diet-plan
compatibility statement. The terms of the proposed order will
expire in 20 years.

CVT’s Standard of Analysis


Citizens for Voluntary Trade is a nonprofit, nonpartisan
educational organization that analyzes antirust and competition
laws from a pro-reason, pro-capitalism perspective. CVT seeks to
expand the general public’s understanding of these laws by
providing meaningful context to individual cases, such as this one,
where the rights of businesses are adjudicated in an administrative
setting outside the courts and the marketplace. Our analysis serves
both as an intellectual check on the work of the Federal Trade
Commission, and as a means of applying the ethical values of
reason, individual rights, and capitalism to contemporary public
policy issues.
In analyzing the proposed order, CVT applies a standard of
analysis consistent with our pro-reason, pro-capitalism approach to
public policy. This means three things. First, we presume reason is
man’s only means of knowledge, and thus reason is the only
objective standard for determining ethical values. Second,
consistent with a reason-based epistemology and ethics, we
presume men do not have the right to initiate force against one
another, and that in an economic context, this means men must
deal with one another as traders who engage in voluntary exchange

2 See 15 U.S.C. ÿÿ 5(a), 12.

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Comments of Citizens for Voluntary Trade

free of coercion. Finally, based on the first two criteria, we presume


the only political system that promotes rational ethics and
voluntary trade is one where the sole function of government is to
identify and protect individual rights.
The United States Constitution, read in conjunction with the
principles set forth in the Declaration of Independence, provide the
framework for a government that satisfies the criteria stated above.
Accordingly, the proposed order must ultimately be reconciled
with the Constitution and its animating principles. To the extent
particular statutes, including the Federal Trade Commission Act
and related rules, conflict with the Constitution, we treat the
constitutional principles as controlling.

Comments
CVT will address two questions in these comments: First, does
the First Amendment permit the FTC to restrict KFC’s advertising
because the Commission finds previous advertising “false or
misleading”; and second, does the proposed order provide a
tangible benefit to the public that could not otherwise be achieved
through the free market (in other words, was there “market
failure”)? For the reasons set forth below, CVT answers both of
these questions in the negative.

Comment 1: There is no exception to the First Amendment for “false


or misleading” advertisements.
The First Amendment provides, in relevant part, “Congress
shall make no law . . . abridging the freedom of speech, or of the
press.” The amendment does not immunize individuals from the
consequences of their speech; the amendment merely prevents
Congress (and by extension, the Executive Branch) from imposing
prior restraints to speech.
In recent decades, it has become fashionable for the
Government to carve out arbitrary exceptions to the First
Amendment. Just recently, the Supreme Court authorized Congress
to impose prior restraints on political speech under the pretext of
preventing corruption or the “appearance” of corruption. Another
exception is the so-called “commercial speech” doctrine, where the
Government may impose prior restraints against speech based on
the motives of the speaker. Speech arising from “commercial”
motives are afforded less constitutional protection on the grounds

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that the First Amendment—despite its lack of qualifying


language—was only meant to fully apply to political speech (except
political speech that might create an appearance of corruption.)
It is through this commercial speech exception that the FTC
derives its basic authority to punish and restrict advertising that it
alone deems false or misleading. In this case, the Commission
prosecuted KFC because the Bureau of Consumer Protection’s staff
believed the two advertisements at issue here lacked enough
substantiation. This may well be true. All advertising, especially 30-
second television spots, run the risk of presenting incomplete or
inaccurate information. But the question here is not whether KFC’s
advertising attained a level of Platonic perfection; the question is
whether the FTC’s actions are a necessary and proper exercise of
government power.
The common law of fraud governs in those cases where one
party to a contract intentionally misleads another party, causing
actual injury to the misled party. If KFC’s advertisements contained
a false representation (or omitted facts it knew to be relevant)
intended to mislead individuals into purchasing KFC fried chicken,
then the Commission could argue fraud existed. But the
Commission’s complaint makes no such allegation. In fact, it does
not point to a single consumer who either relied on the ad or was
injured as a result of such reliance. Instead, the Commission
challenges whether the advertisements met some arbitrary
standard of full disclosure.
The absence of any allegation of fraud reduces the
Commission’s actions here to that of an advertising censor,
deciding how much information is necessary and how companies
must promote their products. In this case, the Commission’s
complaint states that KFC’s ads were illegal because they failed to
include additional nutritional information that the Commission
itself deemed essential:
In truth and in fact, eating KFC fried chicken,
specifically two Original Recipe fried chicken breasts,
is not better for a consumer’s health than eating a
Burger King Whopper. While compared to Burger
King’s Whopper, two KFC Original Recipe fried
chicken breasts have slightly less total fat (38 g. v. 43
g.) and saturated fat (12 g. v. 13 g.), they have more
trans fat (3.5 g. vs. 1 g.), more cholesterol (290 mg. v.

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85 mg.), more sodium (2300 mg. vs. 980 mg.), and


more calories (760 v. 710). Therefore, the
representation set forth in Paragraph 6 was, and is,
false or misleading.3
The Commission did not state that KFC presented false nutritional
information in its ads; rather, the complaint says KFC failed to
provide additional nutritional information that might have led
consumers to reach a different conclusion than the ad’s hypothesis.
Again, this may be true, but the Commission’s complaint contains
no specific charge or evidence that KFC had a duty to disclose such
information. The Commission relies solely on its own subjective
opinion of what the ad should have disclosed.
Had any consumer been the victim of fraud arising from KFC’s
ads, that consumer could properly seek relief through a private
civil action. The First Amendment is not a defense to fraud. But in
this case, there is no evidence the FTC is attempting to remedy
actual fraud, but rather to impose restrictions on KFC speech that
the Commission feels might prevent fraud in the future. This is a
classic prior restraint, and as such it is wholly incompatible with
the First Amendment. The Government may not restrict speech—
even speech it believes to be false—because of a hypothetical risk
that some recipients of that speech might be misled. If such a power
existed under the Constitution, virtually every elected official in the
United States would be imprisoned for making “misleading”
statements in the course of their official duties. We do not, as a
matter of law, hold politicians to an absolute standard of proof for
protecting their right to speak free of prior restraint. We owe
businesses and non-officeholders the same courtesy.

Comment 2: The proposed order does nothing that the market itself
could not—or did not—accomplish.
Even if the First Amendment did not forbid the Commission’s
prior restraint of KFC’s speech, the proposed order is still an
unnecessary exercise of government power. The challenged
advertisements have been off-the-air for months despite the lack of
a federal administrative agency order. The Commission’s
complaint and supporting documents conveniently ignore the fact
that KFC’s ads were subject to substantial scrutiny and ridicule

3 Complaint, para. 7.

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over their health claims. Contrary to the implicit viewpoint of the


Commission’s complaint, consumers are not helpless infants at the
mercy of a business’s whims. In a free market—or even a semi-free
market—the constant exchange of information serves as an
effective barrier to false and misleading advertising.
Take the Commission’s claim that KFC’s ads falsely stated that
fried chicken was compatible with “low carbohydrate weight loss
programs.”4 If indeed this was a false claim, it is still unlikely that
any participant in an organized weight-loss program fell for the
claim. The two most popular low-carbohydrate plans, Atkins and
South Beach, publish extensive information detailing what foods
are compatible with their diets. There is little chance any consumer
following either plan would have accepted KFC’s claims without
first checking their diet plan materials.
And beyond quantitative measurements, such as nutritional
information, there is no foolproof way to examine the relative
health benefits of food. Unlike drugs, which are marketed to treat
specific conditions and produce specific results, food is often
consumed merely for the enjoyment of the product irrespective of
its nutritional value. Even in the context of a diet plan, individuals
may set specific goals that deviate from the plan’s stated
guidelines. Thus, a person who nominally follows the Atkins diet
plan may choose to occasionally consume fried chicken even if it is
not on any “approved” list of Atkins-compatible foods.
The subjective nature of dieting is a major reason, we suspect,
that the FTC produced no specific evidence of consumer injury.
Once again, the Commission’s complaint treats the Bureau of
Consumer Protection’s subjective opinions as scientific fact, despite
a lack of supporting evidence. In this sense, it is the Commission
that is presenting misleading information to the public, not KFC.
For one thing, the Commission is not a competent judge of what
constitutes adequate proof of an advertisement’s truthfulness as to
health claims. The Commission’s staff is composed principally of
lawyers, not dieticians, physicians, or nutritional experts. More
likely than not, this case is an attempt by Commission lawyers to
curry favor with organizations—like the Center for Science in the
Public Interest—that seek to expand the FTC’s regulatory power by
manufacturing consumer “injuries” where none exist (or at least
cannot be proven.)

4 Complaint, para. 9.

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And in any case, the Commission possesses the discretion to act


or not act upon a complaint depending on the context. In a republic
governed by a Constitution, it is axiomatic that the state should not
act unless there is no other means to secure a particular right or
rights. In economic regulation, this principle holds that the state
should not act unless it can demonstrate some “market failure”
which necessitates government intervention. Here, the Commission
has not alleged, much less proven, any such market failure. If
anything, the market rendered KFC’s advertisements ineffective.
KFC’s fried chicken is well-known product with substantial brand
identification. Consequently, the company’s efforts to re-brand the
product as health food faced substantial public skepticism. The
Commission has produced no evidence that suggests the public
overcame that skepticism. The complaint cites no evidence that
KFC’s sales increased as a result of the challenged advertisements,
nor any evidence that a substantial portion of the public ever
believed KFC fried chicken was compatible with the Atkins or
South Beach diets. Without such evidence, the Commission should
leave well enough alone, and recognize that the free market can do
a more efficient job weeding out false and misleading
advertisements than can a government agency.

Conclusion
For the reasons set forth above, the proposed order should be
withdrawn, and the FTC should dismiss the complaint.

Respectfully Submitted,
CITIZENS FOR VOLUNTARY TRADE

S.M. Oliva
President
Post Office Box 66
Arlington, VA 22210
(703) 740-8309

Dated: July 2, 2004