Many businesses owners think that a deceptive ad is one that makes a claim the advertiser knows to be untrue. Like so many things in this life, it’s not that simple.
Prior to the early 20th century, advertisers could freely promise anything under the sun to convince people to buy their product. Truth was a casualty of commerce. All that changed in 1938, when Congress passed a broad prohibition against “unfair and deceptive acts or practices,” and empowered the Federal Trade Commission to enforce these new consumer protection laws. Since that time, the FTC’s Bureau of Consumer Protection has been granted greater and greater authority to administer a wide variety of other consumer protection laws, including the Telemarketing Sales Rule, the Pay-Per-Call Rule and the Equal Credit Opportunity Act.
There are also specific laws that apply to ads for specialized products like consumer leases, credit, 900 telephone numbers, and products sold through mail order or telephone sales. Although the FTC only has jurisdiction over interstate commerce, every state has consumer protection laws that govern ads running in that state.
Thanks to this confusing quagmire of federal and state legislation, advertising in the early 21st century is a far trickier affair than it was in the early 21st, and many businesses run the risk of inadvertently crossing the line between a compliant ad and one that the law deems deceptive.
Briefly stated, advertising must be truthful, fair, and substantiated. According to the FTC, an ad is deceptive if it contains a statement or omits information that: (a) is likely to mislead consumers acting reasonably under the circumstances; and (b) is “material” in that it influenced a consumer’s decision to buy.
The “reasonable consumer” standard
The FTC determines whether an ad is deceptive by examining it from the point of view of the “reasonable consumer,” which is a person of average sophistication and intelligence that looks at the ad. Regulators essentially ask themselves, what conclusions would an average Joe reach after viewing the ad? Rather than focusing on certain words, the FTC looks at all elements of the ad in context to determine what it conveys to consumers. For example, a TV commercial consists of video and audio. Regulators will typically turn off the sound and watch the commercial, and then close their eyes and listen to the audio to determine if the conclusions drawn about the product could be different. If so, they will likely deem the ad to be deceptive.
Express vs. implied claims
Another factor in determining whether an ad is deceptive involves the express and implied claims the ad makes. An express claim is literally made in the ad while an implied claim is one made indirectly or by inference. For example, the phrase “Acme Ointment cures athlete’s foot” is an express claim because it expressly states that it cures athlete’s foot. In contrast, the phrase “Acme Ointment kills the fungus that causes athlete’s foot” is an implied claim, because it doesn’t expressly state that the product will cure athlete’s foot. However, a reasonable consumer is certainly likely to conclude that it will, in fact, cure their athlete’s foot. Regardless of whether a claim is express or implied, the advertiser must have sufficient evidence to support them.
Misleading by Omission
Regulators also look at what an ad does not say, if failing to mention something important misleads consumers in some fashion. For example, an ad with a picture of a living room set that quotes a price of $99.00 would be misleading if the advertiser failed to disclose the fact that the quoted price was for an end table, and not the whole set.
To determine whether an ad is deceptive, the claim or omission at issue must be “material” – that is, important to a consumer’s decision to buy or use the product. Material claims include those relating to a product’s performance, features, safety, price, or effectiveness. In contrast, subjective claims relating to a product’s appearance (i.e., “the prettiest car on the market”), are generally not material to a person’s decision to buy the product.
The challenge to advertisers is ensure that an ad says everything possible to maximize responses and conversions, while at the same time does not cross the line into illegal deception. One of the major difficulties in overcoming this challenge is the fact that the people who create the ads are generally much more intelligent and sophisticated than the people who look at them. In other words, its tough to put yourself into the shoes of the so-called “reasonable consumer.”
A good rule of thumb is to never say anything about a product’s performance, features, or effectiveness – or fail to mention anything important about safety, price, or condition- that would lead a person of average intelligence to draw a conclusion that you can’t back up.
Seth D. Heyman is a San Diego attorney with extensive experience in entity formation, corporate law, advertising law, contracts, regulatory law, international business, and Internet law. He has drafted, negotiated, and reviewed countless contracts, including software license agreements, international joint ventures, sales agreements, employment contracts, web development agreements, and similar business arrangements for clients in China, Canada, Europe, Central America, and throughout the United States. He has served as in-house counsel for dozens of successful companies, both public and private, and was responsible for regulatory compliance, contract management, corporate governance, and HR best practices for multiple organizations in many diverse industries, including telecommunications, energy, marketing, and technology development. Mr. Heyman offers his clients insight and guidance on federal and state direct mail, TV, radio, telemarketing and e-mail marketing laws, as well as online promotions, Internet privacy rules, data protection regulations, and similar matters.