It pays to advertise, and it seems that
businesses are inundating consumers
with more advertising today than ever before. Print, TV, radio and now the
Internet are all serving as strong mediums
to get companies’ messages out.
But what if the advertising is untrue?
What if your competitor is seeking an edge
over you by making false claims about its
products? Rest assured that there are
actions to take, says Ed Novotny, shareholder in the Atlanta office of Baker,
Donelson, Bearman, Caldwell & Berkowitz, PC. The key is to know the laws and
the “truth-in-advertising” rules.
Smart Business spoke with Novotny
about what businesses need to know about
false advertising and how to ensure a level
playing field among their competitors.
What are the truth-in-advertising rules?
Under federal law, all advertising must
be: 1) truthful and nondeceptive, 2) backed
up by evidence, and 3) not unfair. There are
additional laws for specialized products
like consumer leases, consumer credit, 900
telephone numbers, and products sold
through the mail or over the telephone.
Most states have additional consumer protection laws that govern ads running in that
state as well as additional particular products and services.
What makes an advertisement deceptive?
The Federal Trade Commission and the
U.S. Postal Service (if mail is involved) are
the federal agencies that have developed
standards to determine whether advertising is deceptive. Under these standards, an
advertisement is deceptive if it contains a
statement or omits information that: 1) is
likely to mislead consumers acting reasonably under the circumstances and 2) is
‘material’ that is important to a consumer’s
decision to buy or use the product.
The advertisement is analyzed from the
point of view of the ‘reasonable consumer’
— the typical person looking at the ad. The
overall impression is examined, not merely
its specific words. The goal is to determine
what claims about the product or service
are being conveyed to consumers.
Both ‘express’ and ‘implied’ claims are
then evaluated. An express claim is what’s
literally expressed in the advertisement.
For example, ‘Our widgets kill mice,’ is an
express claim that the product will exterminate mice. An implied claim is one made
indirectly or by inference. For example,
‘Mice fear our widgets.’ Although the ad
doesn’t literally say that the product kills
mice, a reasonable consumer could conclude from the statement that the product
will kill mice. Under the law, advertisers
must have proof to back up both express
and implied claims that consumers take
from an ad.
The next step involves the claims being
categorized as ‘material’ or not. Material
claims are those that affect a consumer’s
decision to buy or use the product.
Examples of material claims are representations about a product’s features, performance, price, safety or effectiveness.
The advertisement is also analyzed to
determine what the advertisement doesn’t
say. If the failure to include information
leaves consumers with a misimpression
about the product, it’s deemed deceptive.
For example, if a company advertised a
gold widget, the ad could be deceptive if it
didn’t disclose that the widget was gold-plated.
Also, all claims made in an advertisement
must have a ‘reasonable basis’ for the
claims made. A ‘reasonable basis’ means
objective evidence that supports the claim.
The kind of evidence depends on the claim.
At a minimum, an advertiser must have the
level of evidence that the ad says it has. For
example, the claims that ‘75 percent of consumers prefer our widgets’ must be supported by a reliable consumer survey to
that effect. If the ad isn’t specific, the FTC
and courts looks at several factors to determine what level of proof is necessary,
including what experts in the field think is
needed to support the claim. Advertisements that make health or safety claims
must normally be supported by ‘competent
and reliable scientific evidence.’
What are the risks in false advertising?
The remedies and penalties that the FTC
or the courts have imposed include cease
and desist orders, injunctions, civil penalties, consumer redress and other monetary
remedies. Civil penalties range from thousands to millions of dollars, depending on
the nature of the violation. Sometimes
advertisers have been ordered to give
refunds to all consumers who bought the
product. Other remedies could include corrective advertising, mandatory disclosures
and other informational remedies.
Also, keep in mind that false advertising
from a competitor about your products can
give you a right to sue under the federal
Lanham Act and various state laws.
How does one prevent false advertising?
First, every advertisement should be
examined to ensure that you understand
every claim the advertisement contains.
Second, make certain that you have the
proof to support the claim, even if it’s
implied. Third, make certain you’re knowledgeable about the myriad federal and
state laws that may govern the advertising
of your product or service.
ED NOVOTNY is a shareholder in the Atlanta office of Baker,
Donelson, Bearman, Caldwell & Berkowitz, PC and concentrates
his practice in business litigation. Reach him at (678) 406-8704
or [email protected].
