Essential Advertising Rules for Your Businesses
You may have heard of truth-in-advertising laws, but once you're a small business owner, the laws apply to you. These laws affect print, audio, video, and social media advertising. They impact your blogging and may even affect influencers who use your product in webcasts. This article summarizes advertising laws and how to ensure your business complies.
Federal and State Laws and Enforcement
Once you open a new business, your next goal is getting people to buy your product or service. Whether you have a large or small business, you must obey the same advertising laws as everyone else. Whether you have a nationwide online business or stick to a local brick-and-mortar shopfront, this is true. What are these business laws, and who is responsible for enforcing them?
Federal Trade Commission
Congress created the Federal Trade Commission (FTC) with the aptly named Federal Trade Commission Act. Its role is to oversee consumer protection laws and advertising regulations. The FTC develops, reviews, and enforces federal consumer protection laws and has the power to litigate claims through its Division of Advertising Practices. The FTC ensures advertising is generally truthful and claims are supported by evidence.
The FTC enforces advertising laws at the federal level. Each state also has a consumer protection agency enforcing state advertising laws. The state attorney general and district attorney have regulatory enforcement over deceptive advertising and business practices within their jurisdictions.
In general, FTC and state guidelines require advertisements and claims about products to:
- Be truthful
- Be supported by evidence
- Include all information needed for a consumer to make a reasonable decision about purchasing the product
An advertisement cannot be false or misleading. Intentional misrepresentation or omission is false advertising. An ad that implies a product does something it does not may also be false advertising, even if the business did not intend it that way. For instance, a juice drink advertisement showing a sick child drinking it and then happily playing may imply the juice cures the illness unless the ad provides other information.
The Lanham Act
The Lanham Act (15 U.S.C. § 1125) is primarily a trademark protection act. However, a U.S. Supreme Court decision held that the act allows a business to sue a competitor for false advertising. Lexmark International v. Static Control Components (2014) affirmed that a business may file a claim for business damages if the plaintiff can show they:
- Fall within the "zone of interests" protected by the act. This means the plaintiff is a business that has lost or will lose sales due to the defendant's false advertising or has suffered damage to its business reputation.
- Suffered damages because of the defendant's actions. To prove damages, the plaintiff must show that they lost business directly traceable to the defendant's advertising and no other cause. In the Lexmark case, Lexmark falsely told purchasers that using products with Static Control microchips was a violation of federal law, which is false.
The Lexmark decision affects businesses, not consumers. None of Lexmark's direct competitors or Static Control's customers would be able to sue for damages in this case, nor would any end users of the ink cartridges. The advertising must affect the company bringing the lawsuit.
The Dodd-Frank Act
You may not have heard about the Dodd-Frank Act unless your business is a bank. This financial law, enacted in 2010 after the housing crisis of 2008, affects more types of businesses than banks and mortgage lenders. Because of the abuses of predatory lenders during the early 2000s, Dodd-Frank tasked the Consumer Financial Protection Bureau (CFPB) with devising rules preventing illegal financial marketing strategies. The CFPB and FTC were jointly given enforcement powers over these rules.
Financial disclosure requirements prevent lenders from using deceptive or coercive advertising claims to encourage consumers to make unwanted purchases. For instance, an auto dealer advertising "zero down, zero interest for the first year" must disclose any additional fees or costs due at signing.
Online Advertising Standards
The FTC has released guidance for online advertisers, bloggers, and influencers. The same laws apply to online ads as to print or broadcast advertising. There are a few additional warnings for the newer medium.
- Endorsements must have clear and unambiguous disclosure stating any material connection between the endorser and the product. If the manufacturer paid or compensated an influencer to endorse the product, they must state the relationship. Otherwise, the FTC has said it is deceptive advertising.
- Reviews must be genuine comments by actual users. The Consumer Review Fairness Act (CRFA) covers everything from billboards to online reviews and penalizes businesses that remove negative ads.
- Endorsers and reviewers must have used your product. If an influencer mentions your coffee during a podcast but hasn't tasted it, that's fine, as long as they mention they haven't drunk any yet. Reviewers of your service must be customers.
- Health claims and medical products are subject to rigorous scrutiny. Health apps are popular, but be sure yours complies with the FTC guidelines for deceptive ads before selling them.
Common Sense Standards
The best rule is common sense. The FTC's two main rules are "reasonable consumer" and "intent to deceive." As long as your advertising is not intentionally deceptive and a reasonable person would know that they are seeing an advertisement, you're probably in the clear.
Tell the Truth
We expect ads to oversell their product, so the FTC allows a little hype or "puffery." Deception is not. The difference is easy to spot: Puffery is subjective. "This is the best coffee I ever had!" Deception is allegedly objective. "Nine out of 10 coffee drinkers said Our Brand Coffee is better than Their Brand Coffee." Unless you performed that test, that is a deceptive ad.
Prices and Labeling
Everyone likes a sale. Every law student has heard of the store that advertised a mink coat "on sale" for $1 and then told throngs of buyers they meant they had "a" mink coat for sale at that price. One class-action lawsuit later, businesses no longer run those types of ads. These are bait-and-switch ads, and there are federal and state prohibitions against these ads.
If there is a limited supply of the advertised product, your advertisement must include a disclaimer stating there is a limited supply. If an offer is limited to the first 10 callers, a common telemarketing ploy, that must be a prominent part of your pitch.
The FTC does not oversee labeling claims for food or medical products. That is the job of the Food and Drug Administration (FDA). If your product or service makes any medical claims, your ad must include a disclaimer stating the FDA has not evaluated your product.
Refunds and Warranties
If you offer a store refund, state and federal law dictates how and where you must post your policy. For instance, California requires sellers to post their policy unless they pay a full refund within seven days after purchase. Verify your state law before offering an online refund.
A warranty guarantees that a product will function as advertised, or it may be returned for a full return of the price. Some warranties require the buyer to pay shipping and handling on the return. Again, your policy must clearly state these requirements.
The FTC requires online marketers to have clear links to their online refund and warranty policies. Customers must be able to click directly to the warranty or return page if they want to return a faulty purchase.
Let an Attorney Help You With Advertising Rules
Disseminating false advertising is not your goal. Advertising rules are sometimes confusing. When you're starting out, you need assistance from a nearby communications and media lawyer to avoid enforcement action from the FTC.
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