DOES ADVERTISING A COMPANY SLOGAN VIOLATE SECTION 10(b) OF THE EXCHANGE ACT OF 1934

When your public company begins to advertise its product or service, advertising professionals will tell you that slogans are very effective in quickly engaging potential customers, improving recall, and creating a competitive edge by highlighting the value and benefit of what you are offering. Effective slogans are very brief, can have a rhythm or rhyme, and should have an emotional connection through humor or curiosity. Slogans can convert a complicated message into a short, catchy phrase that people easily remember.

However, Section 10(b) of the Securities Exchange Act of 1934, which is enforced through Rule 10b-5, says it shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, to:

• Employ any device, scheme, or artifice to defraud
• Make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading
• Engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person in connection with the purchase or sale of any security

The United States Court of Appeals for the Ninth Circuit clarified the relationship between marketing slogans and the reasonable investor standard for reliance and materiality. The court held that a company slogan used in investor presentations was not misleading to reasonable investors, especially in light of accompanying disclosures.

The pharmaceutical company at the center of this case had developed an opioid medication that could be administered under the tongue rather than intravenously, like other opioids. To highlight this advantage, the company developed the marketing slogan “Tongue and Done.” In addition to complying with U.S. Securities and Exchange Commission (SEC) regulations, the Food and Drug Administration (FDA) required the company to create a Risk Evaluation and Mitigation Strategy (REMS) that restricted the use of their opioid to certain healthcare settings and licensing protocols.

At investor conferences, the company CEO gave speeches which included the product’s limited use to medically supervised settings and a broad description of the process for administering the product, as well as company displays that:

• Used its slogan in posters, banners, and brochures
• Directed investors to additional information at the booths
• Provided product safety warnings
• Highlighted the REMS plan

Although the CEO did not include in his speeches every detail of administering the opioid, the Court ruled that it is necessary to consider the full context in which a statement or omission is made — including any other available information — to determine if it would mislead investors. The Court decided that a reasonable investor would understand the need to look at the “total mix” of information, rather than any isolated phrase or document.

As an additional point, the Court noted that there was no “strong inference of Scienter” — which is when a person acted with knowledge of wrongdoing or with a reckless disregard for the truth.

The experienced securities lawyers at Corporate Securities Legal LLP will make sure your advertising is in full compliance with all regulatory restrictions, with full disclosures about risks, restrictions, and market realities in your consumer-facing materials and in referenced websites.