Essential Advertising Rules for Your Businesses
Whether your business is a mom and pop operation or has a multistate presence, it is important to be familiar with the applicable state and federal advertising laws. This article outlines basic advertising rules -- where they come from and how they operate -- and offers tips on how to make sure your business is in compliance.
Where Advertising Rules Come From
The advertising rules that dictate what businesses can and can't say in ads come from applicable state and federal laws. Typically, these laws focus on truth in advertising, deceptive advertising practices, and unfair advertising. State and federal laws and agencies aim to curb these advertising practices, require businesses to be truthful about their products or services, and to substantiate claims that they make in advertisements.
There is a fine, but generally clear, line between a business making unsubstantiated claims (which violate the law) and simply making subjective boasts about their product. For example, you can claim to have the best tasting coffee, but you cannot advertise that everyone who drinks your coffee loves it or that drinking your coffee will help you live longer.
Overview of Federal & State Law and Enforcement
The Federal Trade Commission (FTC) enforces advertising laws at the federal level, and every state also has a consumer protection agency which enforces state advertising laws. Additionally, the state attorney general and district attorney have the power to litigate against companies whose advertising harms citizens within their jurisdiction.
The FTC develops, reviews and enforces federal consumer protection laws and has the power to litigate claims through its Division of Advertising Practices.
General FTC Advertising Rules
Under the watchful eye of the FTC, the following general advertising rules must be followed:
- Ads must be truthful and non-deceptive
- Businesses must have evidence to back up their claims
- Ads can't be unfair, meaning the advertisement can't cause substantial injury to consumers that consumers can't reasonably avoid. For example, ads cannot make claims about health benefits that will lead reasonable consumers to buying a product, who only find out later that the product is actually harmful.
The FTC wields enormous power in enforcement and will first attempt to work out claims privately with the advertiser. If the advertiser doesn't comply, the FTC can sue the company on behalf of harmed consumers and force the advertiser to run new ads that correct statements or implications of previously false, deceptive, or unfair ads. For example, television ads for Yaz birth control pills make mention of a previous ad that "may" have misled consumers. This corrective ad campaign was the result of the FTC and FDA winning a court battle and forcing the drug maker to run corrective ads (which cost the drug maker $20 million, in addition to fines levied by the FTC and FDA).
The Lanham Act
While the FTC enforces consumer protection laws on behalf of consumers, the Lanham Act allows business competitors to privately sue advertisers for false advertising. The Lanham Act principally concerns violation of trademark law, but competitors can also file lawsuits for false advertising. To sue under the Lanham Act, you must prove the following:
- Advertiser made factually false claims about the product
- Advertisement did or could deceive a large segment of the target population
- Deception was an important part of the ad
- Product was sold across state lines
- Competitor (plaintiff) was likely to be harmed by the deception
Note that while the Lanham Act protects consumers (from trademark confusion and false advertising), only competitors can sue under the act.
As mentioned, each state also has its own set of consumer protection laws which protect consumers against unfair competition and deceptive advertising practices. Whereas under federal law consumers have very limited rights to sue, under state laws, consumers typically have more power to privately sue companies for false or deceptive advertising.
For example, if you own a business and you believe a competitor is using a deceptive ad that could lead consumers to falsely believe that the product they are selling is actually coming from your company, you have several options. You could report the ad to the FTC and they could deal with it, you could sue under the Lanham Act (either for false advertising or trademark infringement, or both), or you could sue under your state's unfair competition laws. If you're a consumer, however, you can only sue in state court, assuming that you purchased the product based upon the deceptive advertisement.
The Policy of Truth
Telling the truth is the simplest rule, but is also where the most trouble comes from. Slight exaggerations and boasting ("the best coffee!") are expected and for the most part allowed in advertisements, but don't get too tricky with your wording or rely on technicalities to remain truthful. For example, you might be able to truthfully say that your tent is great in rainy conditions, but don't extend the assertion to wind if you haven't tested it or it just stands up to a slight breeze.
Additionally, if you're a blogger or communicate using twitter and are being paid by a company to promote their goods, you must disclose the relationship. Not only is it the right, honest thing to do, the FTC has ruled that not doing so amounts to deceptive online advertising.
See Advertising Mistakes: Lessons Learned the Hard Way to learn more.
No Deceptive Pricing
All bargain ads tout extra low sale prices, and this is of course allowed. Just be certain that the sale price is actually a lower price than the regular price of the item. If you're selling a shirt on sale for $50, it had better be the sale price and not the regular price. Making up a fictitious regular price in order to tout a "lower" sale price is deceptive and you risk not only being sued, but losing the faith of your customers.
Additionally, don't advertise that something is "free" unless it really is free. If a customer has to pay for any additional service, state this fact clearly in the advertisement. Consumers understand "free" to generally mean that they must buy another item at a regular price to collect the free product. Advertising that something is free but then charging customers more for regularly priced items in order to collect the free item is deceptive and illegal.
Free offers and rebates are great marketing tools, just make sure that your offer is honest and above board.
No Baiting and Switching
Related to deceptive pricing is the classic bait and switch, where an advertiser lures customers into the store with an offer but does so with no intention or desire to sell that item at that price. Typically, businesses who use bait and switch advertising seek to sell a higher priced product or one of which they have too much inventory. All advertisement must be part of a bona fide effort to sell the advertised product.
Have Enough of the Advertised Product in Stock
If you run an advertisement touting a computer at half off, be sure to have enough of that product to meet reasonable consumer demand. If you don't, then clearly state that you have limited quantities so that consumers expect it. If you don't, you run the risk the ad being ruled a bait and switch or running afoul of certain states' laws which require a certain amount of advertised inventory be in stock.
Don't Knock Your Competition -- Unless It's Factually Accurate
Mentioning your competition in an advertisement in order to compare the products is fine. However, when you make claims about a competitor that haven't or can't be proven, you crossover into dangerous ground. The competitor may be able to sue under a variety of federal and state laws, and consumers may be able to sue under state laws.
For example, you can say that a competitor sells only athletic shoes when touting your wide variety of athletic gear, including shoes, clothing and accessories. However, you should not denigrate their business by claiming their sales associates are unknowledgeable or unprofessional. (You can, of course, tout your sales associates' knowledge and professionalism, you just shouldn't do it by denigrating the competitor, particularly by name.)
Testimonials and Endorsements
Whether you use celebrity endorsements or testimonials of regular customers, make sure that what they are saying is true. Unless the endorser is a celebrity or expert, if you're paying an endorser, it must be disclosed. Additionally, when using a testimonial of a normal user of your products, when showing the product's use, it must be during the normal use of the product. If you've retouched an important part of a photo or the product is being used in any other manner than its normal, intended use, it must be disclosed.
Get Matched with a Small Business Attorney at No Charge
While an element of exaggeration in advertising typically comes with the territory, you must make sure that your claims are not factually false or otherwise unsubstantiated. The rules can sometimes get tricky, so you may want to contact a business and commercial law attorney to make sure you're in compliance. Get started today with a free small business attorney match, with no obligation.