What Small Businesses Should Know about Advertising and the Law
Small businesses should be aware of all laws pertaining advertising. According to the FTC, ads must be truthful and non-deceptive and have evidence to back up their claims. Laws apply to ads for specialized products like consumer leases, credit, 900 telephone numbers, and products sold through mail order or telephone sales. Every state has consumer protection laws that govern ads running in that state.
What makes an advertisement deceptive?
According to the FTC, 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.
Causes or is likely to cause substantial consumer injury which a consumer could not reasonably avoid.
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.
Source: Federal Trade Commission