Federal law regulates advertising

As President Donald Trump prepares to nominate two new commissioners and a chairman to the Federal Trade Commission, the agency charged with the protection of consumers and the promotion of competition is poised to be at its full commissioner capacity. The bipartisan commission works to protect consumers from unfair and fraudulent practices by addressing issues such as data security, antitrust law violations and deceptive advertising.

For consumers who need to brush up on the FTC’s role in consumer ads, attorney Janice Baker provides a primer on how the agency governs commercial claims in an article updated by Neal Patel of the Cincinnati office of Frost Brown Todd LLC.

Q Who establishes and enforces advertising laws?

A The Federal Trade Commission has broad authority to prohibit unfair or deceptive acts or practices for interstate advertisements under the Federal Trade Commission Act (“FTC Act”). Though the FTC’s mandate under the FTC Act is broad (“prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce”), the FTC has issued a number of guidelines to help advertisers avoid false and misleading advertisements. These guidelines address specific areas, including online advertising, using endorsements or testimonials, “Made in the USA” claims and others. In addition, all states have laws against unfair trade practices and false advertising; each state’s attorney general is charged with enforcement within that state.

Q What does it mean for an advertisement to be unfair or deceptive?

A Generally, an advertisement is deceptive if it contains a misrepresentation or omission that is likely to mislead reasonable consumers. Even if it is true, an advertisement may be considered deceptive if it is likely to mislead or cause injury, assuming the likelihood it will mislead or cause injury outweighs benefits to consumers or competitors.

Q Must advertisers provide information to support their claims?

A The FTC requires advertisers to have a reasonable basis for making objective claims in an advertisement prior to dissemination of the claim. For example, if an advertisement claims that “tests prove” a certain result, then the advertiser must have appropriate test results that prove the claim. While an advertiser generally need not provide proof proactively, support for the claim must be produced if challenged by the FTC or an attorney general. The level of support required depends on what claims are made or implied in the advertisement. The FTC evaluates certain factors to determine the level of proof needed. These factors include the type of product, type of claim, the benefit of a truthful claim, ease of substantiating a claim, consequences of a false claim, and the amount of substantiation experts in the field believe is reasonable.

Q Does the FTC also make sure advertisers don’t use other people’s copyrighted material or trademarks?

A The FTC does not regulate the use of “intellectual property” (copyrighted works or trademarks such as pictures, images, characters, songs, logos or brands) in advertisements. An advertiser must get permission or a license from the owner of a copyright or trademark before including the work or trademark in an advertisement. Advertisers who do not consult copyright or trademark owners open themselves to lawsuits from the owners of those rights.

Q Our company wants to run a promotional contest. What should we know before advertising it?

A Make sure you are not conducting an illegal lottery. All 50 states and federal laws prohibit illegal lotteries. An illegal lottery generally is a lottery that is not run by the state (or certain charities in some states) and has the following three elements: a prize (anything of value awarded to winners); chance (random selection of winners); consideration (monetary or some kinds of non-monetary value given to participate). Advertisers may eliminate the “chance” element by making the sweepstakes a contest of skill. Advertisers often eliminate the “consideration” element by providing an alternative method of entry, such as the opportunity to enter by mailing a postcard or sending an email, which does not require giving value to participate. With most of these contests happening on social media now, be sure to consult the FTC guidelines and each social media’s platform to understand what is allowed in those mediums.

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What can happen to those who violate advertising laws and regulations?

A There are many ways that the FTC and each state’s attorney general can deal with violators. For example, the FTC either may issue a “cease and desist” order to stop the illegal conduct and/or issue a “corrective” ad to counter the advertiser’s earlier misleading ads. The FTC may further “fence-in” the advertiser by prohibiting misleading ads across all of the advertiser’s other unrelated product lines. In addition, violations can result in lawsuits under federal or state law to recover damages caused by unfair or deceptive practices or acts or, for national advertising, challenges with the Council of Better Business Bureau’s National Advertising Division.

Articles appearing in this column are intended to provide broad, general information about the law. This article is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from a licensed attorney.