Before you advertise with us, there is one thing you must know: everything included in your commercial or advertisement must be true. The Federal Trade Commission, who oversees truth-in-advertising, takes a dim view on commercials that mislead or downright lie to consumers, even if by accident. Raising the ire of the FTC can cripple the biggest of businesses and annihilate the small ones.
Take Red Bull for example. In August of 2014, the energy drink maker paid $13,000,000 to settle a false advertising claim. In addition, the company had to pay $10 in cash or $15 in product to everyone who had bought a Red Bull product between 2001 and 2014.
According to the plaintiffs in the Red Bull suit, the company claimed its product could improve physical and mental performance beyond the benefits offered by coffee or other caffeine products. They even cited several scientific studies to support the product’s benefits. But when they were asked to produce these findings, the company could not because they did not exist.
Know The Law
Title 15-Chapter 2-Subchapter 52 of the U.S. code deals explicitly with false and deceptive advertising. The statute says: (A) Unlawfulness. It shall be unlawful for any person, partnership, or corporation to disseminate, or cause to be disseminated, any false advertisement – (1) By United States mails, or in or having an effect upon commerce, by any means, for the purpose of inducing, or which is likely to induce, directly or indirectly the purchase of food, drugs, devices, services, or cosmetics; or (2) By any means, for the purpose of inducing, or which is likely to induce, directly or indirectly, the purchase in or having an effect upon commerce, of food, drugs, devices, services, or cosmetics. (B) The dissemination or the causing to be disseminated of any false advertisement within the provisions of subsection (a) of this section shall be an unfair or deceptive act or practice in or affecting commerce within the meaning of section 45 of this title.
Each state has their own set of laws concerning false and deceptive advertising. So how can you know for sure if the commercials you hear are fair and legal? Here are some answers to some questions asked frequently of the FTC:
What truth-in-advertising rules apply to advertisers?
Under the Federal Trade Commission Act
- Advertising must be truthful and non-deceptive;
- Advertisers must have evidence to back up their claims; and
- Advertisements cannot be unfair.
Additional laws apply to ads for specialized products like consumer leases, credit, 900 telephone numbers, and products sold through mail order or telephone sales. And every state has consumer protection laws that govern ads running in that state.
What makes an advertisement deceptive?
According to the FTC’s Deception Policy Statement, an ad is deceptive if it contains a statement – or omits information – that:
- Is likely to mislead consumers acting reasonably under the circumstances; and
- Is “material” – that is, important to a consumer’s decision to buy or use the product.
What makes an advertisement unfair?
According to the Federal Trade Commission Act and the FTC’s Unfairness Policy Statement, an ad or business practice is unfair if:
- it causes or is likely to cause substantial consumer injury which a consumer could not reasonably avoid; and
- it is not outweighed by the benefit to consumers.
How does the FTC determine if an ad is deceptive?
A typical inquiry follows these steps:
- The FTC looks at the ad from the point of view of the “reasonable consumer” – the typical person looking at the ad. Rather than focusing on certain words, the FTC looks at the ad in context – words, phrases, and pictures – to determine what it conveys to consumers.
- The FTC looks at both “express” and “implied” claims. An express claim is literally made in the ad. For example, “ABC Mouthwash prevents colds” is an express claim that the product will prevent colds. An implied claim is one made indirectly or by inference. “ABC Mouthwash kills the germs that cause colds” contains an implied claim that the product will prevent colds. Although the ad doesn’t literally say that the product prevents colds, it would be reasonable for a consumer to conclude from the statement “kills the germs that cause colds” that the product will prevent colds. Under the law, advertisers must have proof to back up express and implied claims that consumers take from an ad.
- The FTC looks at what the ad does not say – that is, if the failure to include information leaves consumers with a misimpression about the product. For example, if a company advertised a collection of books, the ad would be deceptive if it did not disclose that consumers actually would receive abridged versions of the books.
- The FTC looks at whether the claim would be “material” – that is, important to a consumer’s decision to buy or use the product. Examples of material claims are representations about a product’s performance, features, safety, price, or effectiveness.
- The FTC looks at whether the advertiser has sufficient evidence to support the claims in the ad. The law requires that advertisers have proof before the ad runs.
What kind of evidence must a company have to support the claims in its ads?
Before a company runs an ad, it has to have a “reasonable basis” for the claims. 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 it says it has. For example, the statement “Two out of three doctors recommend ABC Pain Reliever” must be supported by a reliable survey to that effect.
If the ad isn’t specific, the FTC 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. In most cases, ads that make health or safety claims must be supported by “competent and reliable scientific evidence” – tests, studies, or other scientific evidence that has been evaluated by people qualified to review it.
In addition, any tests or studies must be conducted using methods that experts in the field accept as accurate.
Are letters from satisfied customers sufficient to substantiate a claim?
No. Statements from satisfied customers usually are not sufficient to support a health or safety claim or any other claim that requires objective evaluation.
My company offers a money-back guarantee. Very few people have ever asked for their money back. Must we still have proof to support our advertising claims?
Yes. Offering a money-back guarantee is not a substitute for substantiation. Advertisers still must have proof to support their claims.
Our best advice to small business owners: be truthful about what the goods and services you advertise. You can’t afford to do otherwise.