Creating and publishing advertisements helps get the word out on your business, product, or services. But ads can create legal liability from individual consumers or government regulators. So, how do you advertise in a way that avoids trouble with state or federal law?
In this guide, we’ll discuss key advertising laws and regulations as they apply to a wide range of industries. This guide was made with businesses in mind looking to comply with federal and state advertising regulations. We hope this guide jumpstarts conversations on how your business runs ads or how your business will modify ads to better comply with advertising regulations.
Table of Contents
o What do businesses need to look out for with federal laws when making and publishing advertisements about my product, services, or business?
Disclaimer: This Guide is Not a Substitute for Legal Advice
This guide is not a substitute for advice from a lawyer because each person’s case is different. A guide like this can only provide general information about advertising laws relevant to certain situations. Given the changing nature of advertising laws and regulations, keep in mind that this information might change from time to time.
Because each business’ advertising needs are different, the wide range of advertising situations cannot be fully covered in this limited guide. This guide is not a proper substitute for legal advice directly tailored to a business’s or individual’s advertising needs. This guide was created by practicing attorneys licensed in the state of California. If you have specific questions about local advertising regulations outside of California, you may want to seek local counsel in your area.
That said, we understand how difficult and confusing it can be to know what advertisements can and cannot say under federal and state regulations. We also know that it might not be feasible to hire a lawyer to understand current advertising regulations. So, we’ve drafted this guide to get you started on learning about advertising law.
Before we get into what federal laws might apply to your situation, it’s helpful to understand advertising basics about when an advertising claim is made. An advertising claim is a direct or implied promise of a benefit or value from a product or service that can be objectively measured, evaluated, and proven. Claims can be verbal, visual, or implied by tone, mood, or situation.
Claims can be found in what a business says and suggests about its products or services. Any communication directed at consumers about a business’s products or services may have advertising claims. Claims can be found in advertisements, product packaging, marketing and promotional materials, press releases or other publicity materials, point-of-purchase displays, websites, social media platforms, mobile applications, and more.
Advertising claims can be either express or implied:
· Express claims are statements or depictions of a product or service that are plain or direct.
· Implied claims are statements or depictions of a product or service that are indirect.
EXAMPLE: Express or Implied Claims
Imagine packaging for a toothpaste brand has two claims: (1) the toothpaste kills bacteria that causes cavities, and (2) the toothpaste prevents cavities. The first claim is an implied claim because it implies that it will help prevent cavities. The second claim is an express claim because the packaging plainly and directly states that the toothpaste prevents cavities.
Regardless of whether claims are express or implied, it’s important to look at a product or service’s advertised claims in their entirety rather than in isolation. If the advertisement can be reasonably interpreted in multiple ways, each reasonable interpretation must be true. As you review applicable laws and regulations that may concern your type of advertising, keep these general considerations in mind when deciding how best to move forward with how you conduct advertising.
Federal laws that apply to advertising
While there may be differences in state and local regulations on advertising depending on where you’re located, there are a few federal laws and regulations that control the advertising landscape. These include the following:
· The Federal Trade Commission Act (FTC Act)
· The Federal Communications Commission Act (FCC Act)
· Section 43(a) of the Lanham Trademark Act (Lanham Act)
· Self-Regulatory Principles for Online Behavioral Advertising
What do businesses need to look out for with federal laws when making and publishing advertisements about my products, services, or business?
Several factors go into considering what you can and cannot do with advertisements. Generally, advertisements are governed by a combination of federal, state, and local laws. Each of these regulations take into account different considerations and do not necessarily apply to all kinds of advertisements for all kinds of products, services, and businesses. We’ll briefly provide an overview of some of the important federal regulations, but if you have specific questions, feel free to reach out to New Media Rights.
(1) The Federal Trade Commission (FTC) Act
The Bottom Line: Ads must be truthful and non-deceptive, fair, and substantiated. Context is key when determining whether an ad is deceptive under the FTC Act. Failing to include important information can leave the wrong impression about your product. Using appropriate disclosures, having evidence to back up claims, and focusing on the overall impression that an ad conveys are all important steps to take to avoid deception.
Generally, the FTC Act prohibits unfair or deceptive advertising in any medium. Similarly, any claim in advertising must be supported by, or substantiated, with the appropriate kinds of evidence to back up an advertisement’s claim.
Ads Must Be Truthful and Non-deceptive
Under federal truth in advertising law, false and deceptive advertisements are prohibited, regardless of how those ads are shared with the public. An advertisement is deceptive if it has a statement or omits information that is likely to mislead reasonable consumers, and that statement or omission is “material” (i.e., important to a consumer’s decision to purchase).
The FTC typically considers claims material if they significantly involve health, safety or other areas with which a reasonable consumer would be concerned. For example, the FTC has found information to be material when it concerns the purpose, safety, effectiveness, or cost of the product. This means that whenever you are explicitly conveying important information about a product or service, you must avoid misleading consumers or leaving out any information that a consumer or user might think is important to know before purchasing your product or service.
The failure to include important information can leave consumers with the wrong impression about your product. For example, if a company advertised a collection of books, the ad would be deceptive if it did not disclose that consumers were actually receiving the abridged versions of the books.
A key point to remember about deception is that an advertiser does not have to actually deceive a consumer in order for the advertising to be considered deceptive. In other words, a consumer does not actually have to show that they were deceived. Rather, the company only needs to have the tendency and capacity (ability) to deceive.
Context is essential in determining whether an advertisement is deceptive; the FTC will generally look at what the ad conveys overall rather than any particular word or phrase.
Ads Must Be Fair
The FTC act prohibits unfair advertisements in any medium. An advertisement is considered unfair if it (1) causes or is likely to cause substantial consumer injury (2) that the consumer could not reasonably avoid (meaning that there was no way to avoid the injury), and (3) that injury is not outweighed by the product or advertisement’s benefit to consumers. In most cases, “substantial injury” includes monetary loss/harm, or unnecessary health and safety risks. If the injury outweighs the benefit, the ad is likely to be unfair.
Ads Must Be Substantiated
Advertised claims about a product or service must be substantiated. This means that any claims made about a product or service need to have proof to back up those claims. The best practice is to have a reasonable basis for making the claim before you even make it (in other words, the claim should be substantiated before sharing the ad with the public. If an advertisement alleges to back up its claim with a particular level of support (such as laboratory test or studies), the advertiser must possess that evidence.
Take the earlier toothpaste example. If the toothpaste company puts an ad on tv that states that their toothpaste “prevents cavities,” that would be an express claim for which the company must have proof to back up. Even implied claims like “this toothpaste kills the bacteria that cause cavities” require proof to back up the statements. Although the ad does not literally state that it helps prevent cavities, by inference, a reasonable consumer could logically conclude that by killing the bacteria that cause cavities, the toothpaste would prevent cavities.
Ads Must Have Proper Disclosures
When an ad makes express or implied claims that are likely to be misleading without certain qualifying information, the information must be shared (i.e., “disclosed”). A disclosure cannot be used to “fix” a false claim. Rather, it can only be used to help qualify or limit the claim so that you can avoid a misleading impression. Often, disclosures consist of a word or phrase that may be easily incorporated into the text, along with the claim.
For example, an online product listing for “Imitation Pearl Necklace” is a simple, but clear and conspicuous disclosure about the type of pearl necklace being sold. The disclosure word “imitation” preceding the word “pearl” keeps consumer expectations in check by explaining the nature of the pearls themselves. If a disclosure provides information that contradicts a material claim, the disclosure will not be sufficient to prevent the ad from being deceptive. For example, if the online ad says it’s an “authentic pearl necklace,” but the disclosure says that the pearl is man-made, then that contradicting disclosure would not prevent the ad from being deceptive.
The goal for any required disclosure is to be clear and conspicuous. Whether a disclosure is clear and conspicuous depends on how consumers actually perceive and understand the disclosure within the context of the entire ad. The “overall net impression” –whether the claims consumers take from the ad are truthful and substantiated—is the key to a clear and conspicuous disclosure. So, disclosures that are not visible or understood by the consumer cannot hope to correct potentially misleading claims, because they wouldn’t change the overall impression.
How and where to place appropriate disclosures will depend heavily on the nature of the ad and what a reasonable consumer would take away from an ad, even if the consumer did not read every detail. Advertisers should draw attention to a disclosure if the disclosure is particularly important for the consumer to understand. For a disclosure to be effectively communicated, disclosures should be placed as closely as possible to the representations the disclosures are meant to modify. For example, a disclosure placed randomly on an advertisement (or where a consumer might not find it) would not be a clear and conspicuous disclosure. Some factors to consider in creating a clear and conspicuous disclosure include:
· the placement of the disclosure in the advertisement and its proximity to the claim it is qualifying;
· the prominence of the disclosure;
· whether the disclosure is unavoidable;
· the extent to which items in other parts of the advertisement might distract attention from the disclosure;
· whether the disclosure needs to be repeated several times in order to be effectively communicated, or because consumers may enter the site at different locations or travel through the site on paths that cause them to miss the disclosure;
· whether disclosures in audio messages are presented in an adequate volume and cadence and visual disclosures appear for a sufficient duration; and
· whether the language of the disclosure is understandable to the intended audience.
When it’s not possible to place a disclosure in close proximity to a certain claim that might be considered deceptive, advertisers can either modify the original claim so it can no longer be interpreted as misleading (because at that point a disclosure wouldn’t be necessary) or not use the advertisement at all. For more information on disclosures in the online setting, please visit the Disclosures in the Online Advertising Space section.
(2) Section 43(a) of the Lanham Trademark Act (Lanham Act)
The Bottom Line: Ads and business practices should not be deceptive or confuse consumers. Changing products, services, trademarks, branding and advertisements due to trademark infringement claims and other claims under the Lanham Act is expensive, and can lead to the loss of business relationships and high legal costs to defend a lawsuit. It’s important to consider branding and trademark decisions upfront to make sure that consumers won’t be confused about your company, products, and practices.
Section 43(a) of the Lanham Act is a statute designed to guard against unfair competition claims such as unregistered trademark infringement, false advertising, false designation of origin, and false endorsement. The Act primarily prevents deceptive conduct that causes consumer confusion, and deceptive commercial advertising. Individual consumers cannot sue under this section of the Lanham Act. Only parties that are typically “engaged in interstate commerce” (meaning that they are buying and selling products/services across the country) or whose competitive or commercial interests have been harmed. This means that typically a business would bring this type of claim against (most likely) another business or person selling goods and services.
Unregistered Trademark Infringement
Under the Lanham Act, a trademark can be any word, name, symbol, or device (or some combination of these items) used by a person or used to distinguish an individual’s products or services from others in the marketplace. Generally, there are three categories of trademarks:
(1) trademarks & service marks (which indicate the source/origin of goods and distinguishes those goods from the goods of others),
(2) trade names (the name under which a business entity conducts business), and
(3) trade dress (refers to the total image and overall appearance of a product).
Trademarks serve a variety of important functions, such as identifying a product’s source, ensuring the consistent quality of goods and services, and protecting consumers from confusion. For example, when you go to your local grocery store and purchase a 2-liter bottle filled with a caramel-colored soft drink labeled with a mark of “Coca Cola,” you recognize the soft drink is made by the producers of Coca Cola Company, and you can trust that the liquid inside the bottle will have the same taste and quality that comes with purchasing a bottle of Coca Cola from the Coca Cola Company. But when a trademark fails to indicate a single source, such as when suppliers use similar marks, it may cause confusion among consumers.
While there is no established method of guarding against consumer confusion when advertising your product or service, the key inquiry for trademark infringement is whether the use of a mark is likely to confuse consumers about the product or service’s affiliation, connection, or association between two parties.
EXAMPLE: Confusion About Product Affiliation, Connection, or Association
Assume amateur game developer Greg made an app that was essentially a library of a variety of computer games that can be played on an Apple computer from a single app. Greg named his app “Apple Games” since it was an app that could be used to play games on an Apple computer. Greg puts Apple Games on the marketplace. Chad, a consumer, finds Greg’s product and purchases Apple Games because he believed Apple Games was an app created and developed by Apple.
Here, there is a strong likelihood Greg infringed on Apple’s trademark because by naming his app “Apple Games” it caused confusion among consumers about the company that the product was associated with. Naming Greg’s product “Apple Games caused consumers (like Chad) to believe that his product was associated with Apple, an established technology company, instead of Greg, an amateur game developer.
Another factor to consider when determining whether there is a likelihood of confusion is whether there is consumer confusion about a product or service’s origin, sponsorship, or approval of the goods or services.
EXAMPLE: Confusion Regarding Product Origin, Sponsorship, or Approval
Let’s say that Greg was also working on a new electronic accessory for Apple iPhones. When Greg was ready to launch his product, he made sure to include the “Made for iPhone” logo on the packaging of his product to convey to consumers the product was designed for iPhones. But, unknown to Greg, the “Made for iPhone” logo can only be used after going through Apple’s special licensing and certification program. Greg’s unauthorized use of the logo may cause consumers to assume that Apple has given its stamp of approval to the accessory. This is an example of confusion about a product’s origin, sponsorship, and approval because using the logo communicates to consumers that the accessory has been designed to connect specifically to iPhone, and has been certified by the developer to meet Apple performance standards, when in fact, it has not.
Depending on the jurisdiction, courts will generally look to a list of several factors to evaluate the likelihood of consumer confusion:
Keep these factors in mind as you look to advertise your product or service. When you have a specific mark, design, or logo that you would like to incorporate into how you advertise your products or services, it may be worth assessing your risk exposure to potential trademark infringement claims with a local trademark attorney. A trained attorney with experience in trademark law can help advise you on the potential risks involved with your mark relating to your specific situation. It’s worth it to hire an attorney to do this work upfront. Changing products, services, branding and advertisements due to infringement is expensive. Loss of business relationships and legal costs to defend a lawsuit are also expensive.
While you can get creative with how you advertise a product or service, you cannot get away with making false advertising claims related to another person’s products or services. False advertising can take form in any statement, word, symbol, description, or device in a commercial advertisement that conveys a false or misleading message to consumers about the nature, qualities, characteristics, or geographic origin of another person’s goods or services.
False advertising claims apply to commercial advertisements. Generally, a statement is considered to be commercial advertising if it involves commercial speech (speech made to influence the purchasing decisions of the consuming public), influences consumers to purchase a certain good or use certain services, and is disseminated sufficiently to the purchasing public (the “dissemination requirement”).
Commercial advertisements consist of more than just widespread advertising campaigns. The dissemination requirement depends on the typical level of dissemination in the relevant industry and market. Disseminating information to a small number of customers in a relatively small industry may be seen as a commercial advertisement whereas dissemination to a small number of customers in a larger market is not a commercial advertisement.
False or misleading advertisements can be literal or implied. To determine whether a message is false or misleading, courts typically focus on two questions:
1. Does the message have a verifiable, factual statement OR a non-factual opinion or “puffery”?
2.Does the degree of ambiguity AND truthfulness of the message lend itself to a finding of consumer deception?
Both of these factors require a fact-specific analysis depending on the nature of the commercial advertisement, but we offer a few helpful tips as you evaluate the message of your commercial advertisement across these factors. If the statement is a non-factual opinion or puffery, then the analysis generally stops at question one because puffery is generally not considered to be misleading. “Puffery” statements are generally statements that no reasonable buyer would view as statements of objectively true fact, and that generally boast about the qualities or characteristics of a product or service. Puffery statements generally do not make any specific claims, or are so exaggerated that it is unlikely that consumers would rely on the statement to make a decision as to whether to purchase. Take for example KFC’s slogan of “finger lickin’ good.” The statement simply highlights the delicious flavor of its food, and no reasonable buyer would accept this statement as an objectively true fact.
WARNING: The Fine Line of “Puffery” – Avoid Statements That Can Be Fact-Checked Through Testing
Generally, businesses should avoid any specific statements of qualities or superiority that can be fact-checked through testing. The courts found the following examples of advertising claims DO NOT constitute puffery (and were ultimately misleading) because the claims were capable of being measured:
False advertising claims also require a showing of deception unless the statement is literally false. Depending on the jurisdiction, courts may require proof that the statement actually deceived consumers or simply had a tendency to deceive consumers. Regardless, a showing of deception will require proof of how consumers actually do react (not how consumers are likely to react). This can be established with a survey sent to consumers. Other persuasive evidence of actual deception might also be acceptable to a court.
NOTE: Literally False Statements
A statement is literally false if the statement is reasonably interpreted as a statement of objective fact, specific and measurable, and capable of being proven false. A statement that can be reasonably interpreted in multiple ways cannot be literally false. Similarly, if the statement is implied, merely suggestive, or requires the consumer to draw a conclusion, it is not literally false.
EXAMPLE: Pizza Hut vs. Papa Johns
In 1995, popular pizza chain Papa Johns adopted the phrase “better ingredients, better pizza” as their brand slogan. Papa John’s found itself in hot water when the pizza chain used a national advertising campaign to suggest consumers preferred the taste of Papa John’s pizza when compared to Pizza Hut pizzas. One of the advertisements in the campaign stated that Papa John’s “won big time” in taste tests over Pizza Hut. Other advertisements claimed Papa John’s sauce and dough were better than Pizza Hut’s because they were made with fresh tomatoes and filtered water.
Pizza Hut claimed Papa John’s engaged in deceptive advertising in violation of federal advertising law by arguing customers relied on Papa John’s slogan to base their pizza-buying decision. Although a jury found Papa John’s claims of better sauce and dough were false or misleading, the federal court of appeals said the jurors were never asked if consumers relied on Papa’s John’s “better” claims when deciding what pizza to buy. Although Papa John’s did not have to pay Pizza Hut any damages, Papa John’s did have to engage in a years-long battle against one of its fiercest competitors.
It is also unclear how much of the relevant population would need to be actually deceived. The exact number will depend on the jurisdiction, but courts generally hold that a 15% deception rate of the relevant population being deceived is sufficient for false advertising claims.
EXAMPLE: False Advertising Based on False or Misleading Statements
Some examples of false advertising might look like any of the following. Note these examples assume the statements are false or misleading:
False Designation of Origin
False designation of origin claims (otherwise known as unfair competition claims) occur when a party misrepresents its goods or services as those of another party (“passing off” or “reverse passing off” claims depending on the circumstances) or a party misrepresents the geographic origin of its goods.
A passing off claim is when an unauthorized party expressly or impliedly misrepresents that its (usually inferior) goods or services are the goods or services of another. Some false designation of origin claims stem from trademark infringement or counterfeiting claims. Similarly, a false designation of origin claim can come up in a false advertising claim if a party’s products are depicted in another’s advertisements.
A reverse passing off claim is when the alleged infringing party represents that the rightful trademark owner’s goods or services are its own. However, using a plaintiff’s branded products to assemble its own substantially different branded product is not considered a reverse passing off claim.
A false designation of geographic origin claim is when a party misrepresents the geographic origin of its goods or services. Among these three types of cases, courts evaluate passing off claims using the same “likelihood of confusion” test that is used in trademark infringement claims (see “Unregistered Trademark Infringement” section under our discussion of the Lanham Act).
EXAMPLES: Differentiating passing off and reverse passing off claims
Assume that Greg is working on a line of wireless earbuds called Waterpods. They look and function like Apple’s popular Airpods product, but are designed for use in the water and work great with Apple products. To make Apple consumers feel more comfortable buying Greg’s Waterpods, Greg made sure to model Waterpods’ packing with packaging of Apple’s Airpods. Additionally, Greg kept the Apple logo on the packaging. This is an example of Greg trying to pass off his Waterpods as an Apple product.
Now let’s say that a new version of the Apple Airpods was released that can be used underwater. Rather than continuing to manufacture his Waterpods, Greg purchases the new version of Apple Airpods, paints over the Apple logos, repackages them under his company name and sells them as Waterpods. Customers now start to associate the quality of Apple’s Airpods with Greg’s Waterpods. This is an example of reverse passing off.
Although the Lanham Act does not expressly guard against false endorsement, courts have interpreted section 43(a) to include false endorsement claims. False endorsement occurs when a party uses a public figure’s persona in a manner that falsely implies his or her endorsement of the party’s goods or services. Generally, the use of a public figure’s persona has to be likely to confuse reasonable consumers into thinking the public figure endorsed the party’s goods or services.
EXAMPLES: False Endorsement Claims
The following uses of a public figure’s persona have led to a false endorsement claim:
Courts takes into consideration two factors to determine if there is enough evidence to support a false endorsement claim:
1. The level of public recognition of the public figure among the targeted consumers; and
2.The extent to which the public figure’s persona has been exploited without permission generally (i.e., is it common for other parties to use the public figure’s persona without permission?)
EXAMPLE: False Endorsement Claims
Suppose that Greg finally gets his latest smartphone he designed off the ground and successfully brings it into the market. After a full year, Greg’s smartphone becomes extremely popular with consumers, but Greg wants to boost his sales. To do so, Greg edits a photo of Alec Baldwin so that, instead of the credit card Baldwin was originally holding, it would appear that Baldwin is holding Greg’s new smartphone. Greg has not contacted Baldwin or sought out any formal endorsement from Baldwin relating to Greg’s new smartphone. Greg publishes the edited photo on his online shop where consumers can purchase Greg’s smartphone. Consumers who look at Greg’s smartphone online might reasonably believe that Alec Baldwin endorses Greg’s new smartphone. Consequently, Greg might be liable for false endorsement.
Suppose your business is looking to use endorsements in product or services advertising. In that case, it is important to assess the best strategy for obtaining the appropriate permissions from the individual making the endorsement. “Honesty is the best policy” should be your guiding principle as you incorporate endorsements into your advertising. If someone did not specifically endorse your product or service, it’s best not to use that person’s likeness in any way to mislead consumers into believing he/she endorsed that product or service.
How do these federal laws interact with state-based laws?
Remember that the FTC is responsible for enforcing advertising laws under the FTC Act, meaning that the FTC actually files a complaint/lawsuit rather than a private individual. However, the FTC does not frequently bring these types of enforcement actions, and most FTC enforcement proceedings are settled before the FTC even files a complaint because it is less costly than litigation, and generally keeps the offending companies from admitting any liability.
As a result, any decision in these settlements (also known as “consent decrees”) really only applies to that particular company and does not outright prohibit other companies from engaging in the same sort of practices, whereas if it went to court and was decided by a judge, it would become precedent that other companies must follow. However, these consent decrees do help set expectations and guidelines for behaviors that the FTC considers to be in violation of the law.
So, this means that while it is important to follow federal laws related to advertising, and certain behaviors will cause the FTC to bring an enforcement action, it is often much more likely that a private individual or class of individuals would bring a lawsuit under state law.
California advertising laws
(1) California’s False Advertising Law (FAL)
The Bottom Line: Advertising should not be known to be untrue or misleading, and businesses are expected under the FAL to know when their advertising could be untrue or misleading. To avoid violating FAL, businesses should verify and investigate their advertising claims and avoid claims that can be construed as untrue or misleading. While certain puffery claims don’t violate FAL, there is a fine line between puffery and objectively measurable facts. Businesses should not be “hands off” with their advertising practices and should have a thorough understanding of what claims its advertisements are making about their products and/or services. Businesses should also assess how the reasonable consumer might perceive these advertisements and what steps should be taken to minimize consumer confusion. When a business is on the wrong side of a false advertising lawsuit, it is important to be able to show they took reasonable care to avoid consumer confusion.
California’s False Advertising Law (FAL) prohibits advertising goods and services using any statement that is 1) false or misleading/deceptive, or 2) that one should have known to be misleading had they exercised reasonable care. This law applies to a person (which includes any individual or partnership), firm, corporation, or association (or an employee of one of these) who offers goods or services in or from California. The FAL also encompasses statements that are accurate/truthful, but nonetheless tend to mislead. For example, if you were to provide some information about a product, but not include other information that might affect someone’s decision to purchase that product, then that could be considered false advertising under the FAL. The FAL prohibits both intentionally false advertising and negligently false advertising.
Deceptive or Misleading Statements
So what statements are considered deceptive or misleading? Evaluating a statement for potentially deceptive or misleading traits is a very fact specific assessment. Although there is no concrete rule to determine whether a statement is deceptive or misleading, we can look to previous FAL claims to gain an understanding of what is or is not considered deceptive or misleading. Here are some court case rationales that may serve as guideposts for advertising practices specific to the FAL:
The non-exhaustive list of guiding principles above does not include specific guidance to particular industries or particular statements. For particular guidance on how you would like to conduct your advertising practices, it is highly recommended you reach out to local counsel to assist you in advising you on your advertising practices.
“Reasonable care” or “duty of care” under the FAL is the legal obligation to use reasonable care to avoid injuring others. Remember that the FAL prohibits advertising which is known to be misleading. But the FAL also imposes upon businesses advertising its products or services a duty to exercise reasonable care so that the business should be able to know when its advertising statements are untrue or misleading. What this means is that if the statements were not known to be untrue/misleading, the law also allows a court to focus on whether the business should have known that the ad would be untrue or misleading. So, the question becomes what did the business do (if anything) to assess the truthfulness and accuracy of the ad (i.e., did they exercise reasonable care before releasing the ad?).
Businesses do not exercise reasonable care by blindly relying on representations made by others. If certain information the business relies on to support its advertisements can be verified or investigated by the business through reasonable means, the business is expected to take that extra verification step. In addition, when facts are present which would put reasonable people on notice of possible misrepresentations, the failure to verify and investigate those facts violates this duty of care.
(2) California’s Unfair Competition Law
The Bottom Line: The UCL follows many of the core principles of the FTC Act. A consumer does not actually have to be deceived by an ad or business practice to violate the UCL. Rather, the ad/conduct only has to be likely to mislead a consumer. Violating the UCL can have real consequences for a business that might range from paying a large fine to facing an injunction. It is important to consider whether a business’ ad might be deceptive or misleading to a reasonable consumer in order to avoid costly (and potentially business-ending) consequences.
Typically, a violation of the FAL necessarily leads to a violation of California’s Unfair Competition Law (UCL). The UCL prohibits unfair competition, which is any unlawful, unfair or fraudulent business practice, OR unfair, deceptive, untrue, or misleading advertising. Similar to the federal law, a practice can be unfair if it violates public policy and causes injury to consumers that outweighs the benefits. The UCL has been dubbed a “little FTC Act” because California’s state law incorporates similar core principles and rationales as those found in the FTC Act. As a result, judicial interpretations of the FTC Act have influenced interpretations and understanding of California’s UCL. There is a lot of overlap between the UCL and the FTC Act discussed above. For purposes of this guide, we will focus specifically on advertising that is considered unfair, deceptive, untrue, or misleading.
Advertising under the UCL is broadly defined to include virtually any statement made in connection with the sale of goods or services, including statements and pictures of labels. To show certain kinds of advertising is unfair, deceptive, untrue, or misleading, evidence must show a reasonable consumer was likely to be deceived by the advertising.
So, similar to the federal standard, this means that a consumer does not actually have to be deceived, but rather the conduct only has to be likely to mislead. Common examples of deceptive business practices include pretending to be affiliated with or endorsed by a better-known brand, or luring customers into a sale by advertising a cheap price and then having only higher-priced options available (aka “bait-and-switch”).
The UCL also treats “puffery” in advertisements similarly to the FTC Act. “Puffery” is distinguished by vague and highly subjective claims that no reasonable consumer would accept as a factual assertion that is specific or detailed.
EXAMPLES: Non-Actionable Puffery Statements: Apple iBook G4
Back in 2012, a consumer of an Apple iBook G4 laptop sued Apple because his laptop broke. The consumer alleged one of the solder joints on the logic board of the iBook G4 degrades slightly each time the computer is turned on and off, eventually causing the joint to break and the computer to stop working shortly after Apple’s one-year warranty expired. Apple advertised the product as “mobile,” “durable,” “portable,” “rugged,” “built to withstand reasonable shock,” “reliable,” “high performance,” “high value,” an “affordable choice,” and an “ideal student laptop.” The court found these statements are generalized, non-actionable puffery because these statements are inherently vague, generalized, and not factual representations that a given standard has been met. The court found these statements do not claim or imply that the iBook G4’s useful life will extend for at least a couple of years like what the consumer believed. The court used the advertised statement that the iBook G4 is “durable” as an example statement of fact that may imply the iBook G4 is resistant to problems occurring because of its being dropped, but not that it will last for a duration beyond its expressed warranty.
If suit were brought under the UCL, a court could award an injunction (which is a court order that would order the wrongdoer to stop the practice) against the wrongdoer or “restitutionary damages” (which is generally returning the benefit the wrongdoer gained from the wrongdoing). The goal is generally to be fair, to prevent the wrongdoer from the practice and to restore things that were wrongfully acquired, rather than awarding someone for any actual losses suffered. But in the end, paying damages or having to comply with an injunction can have real consequences for a business. Ensuring that business practices and advertisements are fair and not misleading can be very important to avoiding some practical hardships.
EXAMPLE: Real Consequences for Deceptive Advertising Practices Under UCL
There was a case that involved a toymaker that created and sold a Disney Princess jewelry making kit. The toymaker packaged the toy so that the consumer could see about half of its contents through a window in the packaging, and the other half of the packaging was covered with a colorful paper insert containing images of Disney princesses, examples of the jewelry, and other messages. It looked like a full case of beads, but when the child would open the kit, they found the kit half full – the only beads in the kit were the ones that you could see through the window. This is an example of a “bait and switch,” a misleading or deceptive advertising practice. The toymaker was prohibited from continuing the practice, and actually ended up paying a significant fine (over $200,000) in exchange for cooperating with prosecutors and not having to admit liability.
(3) California Consumers Legal Remedies Act (CLRA)
The Bottom Line: Word choices used in advertisements can move the ad from puffery into misleading/deceptive quickly. If a reasonable person in ordinary circumstances could consider the choice of language to be deceiving in light of the actual performance or nature of the product, then the risk of liability increases. Remember that the common thread throughout all 3 of the California laws is whether the advertising is misleading, and that conduct is misleading if it likely to deceive a reasonable consumer. Avoiding misleading statements is the most important thing to do when forming advertising.
The CLRA does not apply to commercial or government contracts, to contracts formed by nonprofit organizations and other noncommercial groups, or to rental agreements. Similarly, the CLRA does not apply to the owners or employees of any advertising medium that disseminates deceptive advertising unless the owners or employees of the advertising medium had knowledge of deceptive methods, acts, or practices.
Generally, a violation of the FAL or CLRA is also a violation of the UCL. One issue that often arises when trying to determine whether ads/statements are misleading to a reasonable consumer involves generalized or exaggerated statements. Generalized, vague and unspecified statements are generally considered to be “puffery,” meaning that they don’t make any specific claims, or are so exaggerated that it is unlikely that consumers would rely on the statement to make a decision as to whether to purchase. This means that puffery is generally not misleading. However, misdescriptions of specific or absolute characteristics of a product are considered to be misleading.
EXAMPLE: The UCL, FAL and CLRA Applied: The Kellogg’s Case
A consumer sued Kellogg’s under the UCL, FAL, and CLRA claiming that Kellogg’s used statements to suggest that its advertised foods (specifically its cereal options) were healthy choices. Among other claims, the consumer claimed that using the statement “[n]o high fructose corn syrup” on a Frosted Flakes Box was misleading. The consumer argued people generally believe that products without high fructose corn syrup are generally healthier, but the statement did not factor in the added sugar. Because consumers did not understand the added sugar made the cereal have about the same health benefits as the same cereal with high fructose corn syrup, the suing consumer claimed people were being led to believe they were purchasing a healthy product, when in fact, they were not. Ultimately, the court rejected this argument because, while the statement “no high fructose corn syrup” distracted from the fact about the added sugar and overall unhealthiness of the cereal, it didn’t amount to a false statement or misrepresentation.
But, “no high fructose corn syrup” was not the only statement Kellogg’s used on its cereals. Kellogg’s used other statements that their cereals contained “essential nutrients,” the cereals were “nutritious,” or were “wholesome,” which the court found were not puffery, and thus potentially misleading. Even though these were general statements without specific, concrete meanings, these statements might cause a reasonable consumer to think that the product was healthy, when in fact the cereals actually had high amounts of added sugar. But statements like “unbelievably nutritious” or “positively nutritious” were puffery, because it was more obvious that these are exaggerations. Specifically, using adverbs like “unbelievably” depends on a subjective determination that is more exaggerated than just using “nutritious” alone, so the court noted that no consumer would reasonably rely on such exaggerations to make their decision to purchase the cereal.
The Kellogg’s cereal example highlights the fine line between advertised statements that are allowed and advertised statements that are prohibited. Businesses taking notes from the Kellogg’s example should consider when an advertised claim crosses the threshold between an exaggerated claim (puffery) and a statement that can be measured and verified. In the Kellogg’s example, Kellogg’s did not verify or investigate the accuracy of its stated claims like including “essential nutrients” or the cereal was “nutritious.” Before a business commits to any kind of advertising claim, businesses should ask if a reasonable consumer would understand the statement as an objective fact or a subjective claim.
Disclosures in the Online Advertising Space
The Bottom Line: Online disclosures must be clear and conspicuous. The type of disclosure needed depends on the claim being made, what medium it’s made in, and how important the disclosure is to the claim. But when in doubt, disclosures must be clear and conspicuous.
The FTC makes clear the same consumer protection laws that apply to commercial activities in other media also apply in the online advertising space, including activities in the mobile marketplace. (See discussion above on the FTC Act). Specific to disclosures in the online space, it is important that disclosures are clear and conspicuous. The following are traditional factors to evaluate whether disclosures are likely to be clear and conspicuous in the context of online advertisements.
Proximity and placement
In traditional advertising mediums (television, newspaper, etc.), the closer a disclosure is to the claim it qualifies, the better. While the same approach can be used with online mediums like websites and mobile applications, there are certain disclosure challenges in the online setting because of the potential depth of interactivity (e.g., pop-up screens, scrolling, etc.). In such cases, it’s important for advertisers to look at empirical research to understand places where consumers will and will not notice a disclosure.
A disclosure is more likely to be effective if the disclosure-warranting claim (the “triggering claim”) can be viewed on the same screen as the disclosure. Presenting a disclosure on the same screen might not always be possible when considering various screen sizes between computers, tablets, smartphones, and other connected devices. In these situations, it’s usually adequate to place disclosures in places where a consumer might need to scroll to find the disclosure. However, advertisers should use text or visual cues to encourage consumers to scroll down to the appropriate locations so disclosures are noticeable.
Visual design can also give consumers a heads up that they need to continue scrolling to find important information. Scroll bars along the edges are not effective visual cues to encourage consumers to scroll because consumers may not look at a scroll bar or use a device that displays a scroll bar. Similarly, visual cues that would signal the bottom of the webpage may discourage further scrolling, like “terms of use,” “privacy policy,” or a section of blank space.
In practice, what this means is important disclosures tied to a product or service should be placed in locations where an online consumer would expect the disclosure to be. When at all possible, consumers should not have to scroll to read disclosures. Website managers tasked with placing these disclosures on their respective online platforms should be aware of consumer behaviors to help strategically place disclosures in appropriate locations.
KEY TIPS: Text or Other Prompts to Easily Find Disclosures
An explicit instruction like “see below for important information on product’s composition” will alert consumers to scroll and look for such information. General statements like “see below” fail to tie a disclosure to a claim it is designed to qualify. Disclosures should indicate the subject matter or importance of the information that consumers will find. It helps to have more descriptive disclosure instructions to highlight the importance of certain information to consumers that would want to know such information. As another example, an explicit instruction like “click for important information on product’s side effects” is likely to be more useful to consumers than an instruction saying “click for product information.” The former instruction gives the consumer an idea of what information will be found by adhering to the instruction while the latter does not give any indication what information will be found.
Hyperlinking to a Disclosure
Hyperlinks to a disclosure on a separate webpage can be useful when the disclosure is long or bears repeating for multiple claims requiring the same or similar disclosure. Hyperlink disclosures are common for serious health and safety issues where a disclosure in closer proximity to a health or safety claim might not be as effective as a disclosure on a separate webpage. However, using hyperlinks for disclosures is risky because consumers may overlook disclosures conveyed through a hyperlink. Disclosures that are an essential part of a claim or are particularly important for a consumer to know should be placed on the same page and immediately next to the claim instead of being conveyed through a hyperlink. Hyperlink disclosures should be clearly labeled to communicate the specific nature of the information to which it leads (e.g., “Service Plan Options,” “Health & Safety Information,” etc.). Other factors that may contribute to the effectiveness of hyperlinks include:
When possible, relevant information like price and additional fees should not have to be found by clicking on a hyperlink. No matter what your style of hyperlinks will be on your website, it is important all hyperlinks on the website are consistent and increase the likelihood that consumers will know when a link is available.
KEY TIPS: Hyperlink Disclosures
Hyperlink labels leading to a disclosure should:
After users click on a hyperlink, the “click-through page” (the page or screen the hyperlink leads to) must contain the complete disclosure and that disclosure must be displayed prominently. Once users are on the click-through page, the click-through page should convey its message quickly and understandably from a single source. Users should not have to click or search additional pages or screens to find information the hyperlink was meant to disclose.
Prominence of disclosures
Disclosures should be displayed in a way that draws users’ attention. For example, use of large sized disclosures, contrasting colors, and prominently displayed graphics help make disclosures more noticeable. Disclosures should not be buried in long paragraphs where users are unlikely to read them.
The effectiveness of a disclosure can also depend on a number of distractors surrounding the disclosure. Elements of an entire ad, like graphics, sound, text, links that lead to other screens or sites, or “add to cart” buttons may result in consumers not noticing, reading, or listening to the disclosure. Television ads that have moving visuals behind a text message make the text hard to read and may distract consumers’ attention from the message. Similarly, in the online context, graphics such as flashing images, GIFs and other animated graphics may reduce the prominence and overall effectiveness of a disclosure.
Use repetitive elements to ensure disclosure of information in a non-deceptive way
Repeating a disclosure makes it more likely that a consumer will notice and understand it, and will also increase the likelihood that it will be seen by consumers who may be entering the website at different points. For example, some users of a website may take the time to navigate a website in the “proper way” (i.e., in a way where under normal circumstances the user would be exposed to all the relevant pages and disclosures necessary). Other users might be directed to a specific webpage with the use of a link where the user might not have been exposed to any disclosures that were meant to be shown before the linked page. Consequently, advertisers should consider whether consumers who see only a portion of their ad are likely to be misled because they either miss a necessary disclosure or do not understand its relationship to the claim it modifies.
Disclosures within multimedia messages and ad campaigns
Not all online ads are restricted to text-based advertisements. Some online ads consist of audio messages, videos, animated segments, or augmented reality experiences with claims that require qualification. We can draw lessons from radio and television ads, where the disclosure should accompany the claim.
KEY TIPS: Clear and Conspicuous Disclosures in Multimedia Messages
Disclosures in multimedia messages are clear and conspicuous based on an assessment of different factors depending on the nature of the multimedia message:
Disclosures within endorsements
Remember that an endorsement or testimonial is any advertising message that consumers are likely to believe reflects the opinions, beliefs, or experiences of a third party (i.e., someone other than the advertiser). Personal endorsements must reflect the actual experiences and beliefs of the endorser. Endorsements also cannot be false or misleading.
Generally, advertisers are liable for false or unsubstantiated statements made through endorsements, or for failing to disclose connections between themselves and the endorser that would affect the credibility of the endorsement. For example, a common situation that poses an issue if there’s no disclosure is when an endorser was paid to give their endorsement, or if they received a product for free in order to form their opinion. In the end, if the person endorsing a product is receiving compensation or a benefit that is not available to the public, a disclosure of that relationship/connection is required.
Keep in mind that the FTC thinks about compensation very broadly, even if the item the endorsing party receives isn’t a big-ticket item (such as a BOGO coupon or a sample). For example, let’s say you pay a blogger $300 to blog about your new toy. The blogger has to disclose in her blog that she was paid to write the article. Or let’s say you’ve found a YouTuber that gives reviews about children’s toys, and you provide her with your new toy for free so that she can vlog about it. She would need to include a disclaimer in her video that she received the toy from you for free.
KEY TIPS: Clear and Conspicuous Disclosures in Endorsements
Although the following are ways you can create conspicuous disclosures when you want to use an endorsement, they can also apply to other types of disclosures that you need to make in your ads:
· The disclosure should not be in legalese. Plain, simple, easy to understand language is best. When it comes to social media, using the #Ad may be sufficient to indicate that something is an advertisement, particularly on platforms that have a limited character count.
· The disclosure should be complete. It may not be enough for an endorser to say that they got something for free, especially if they also received compensation for a positive review. Anything that could potentially bias the review should be disclosed.
· The disclosure must be near the relevant content. Having one disclosure at the top of a web page or a link isn’t enough. It must be noticeable to the average viewer and near the content.
· It should be easy to read and stand out from the background, and be on screen long enough for the viewer to notice and understand it.
The Bottom Line: Native advertising is designed to engage with consumers organically, and can be a problem when consumers cannot tell the difference between the other content on the platform, and the advertisement itself. In short, transparency is key. It is generally considered deceptive to mislead consumers about the commercial nature of content, meaning that if you’re trying to convince the consumer that an ad is something other than an ad, that’s going to be considered misleading. So, when in doubt, clearly labelling ads as advertisements is a good way to avoid some of the confusion that can arise with native advertising.
Native advertising is sponsored content that is intended to match the visual design of a hosting publication or website and to behave just like editorial content. These advertisements engage with consumers organically (or “natively”) in non-promotional ways to be relevant as possible and strengthen consumer ties to a brand. One example of native advertising is shown below:
EXAMPLE: Native Advertising
Imagine an article on a website that is advertising content but looks very close to non-advertising content. The article is identified by the tag “Sponsored Content” and identifies the author. An ad is a native ad when it matches the form of the non-advertisement content on the outlet’s website. In this case, the advertising artcile has been formatted as an article and it is so similar to the other articles listed next to it that it organically fits on the page. It doesn’t look like an ad at first glance, since it is almost indistinguishable from the other articles near it. The only way to tell from the page of the website that the content is an ad is from the tag “Sponsored Content.” Compare this native advertisement to a more traditional banner ad on the website, which the website host has blocked out separately from the content section on the page, which is arguably not a native ad because it doesn’t “organically” blend in with the other sponsored content. It’s not an article for the news outlet like the sponsored content, but links off to the advertiser's website.
Because native advertisements are formatted in a way where the content is seamlessly integrated into the visual design of a website, native advertisements blur the line between content and advertising. Platforms may incorporate native advertising because they are the kind of advertising consumers are drawn to for its content, even though they ultimately recognize that it is an advertisement. There are three core types of native advertising
Native advertising can be a problem when consumers cannot tell the difference between the other content on the site/platform, and the advertisement itself. Since the method of carrying out native advertising on any given platform will vary from owner to owner, there is no one-size-fits-all method of properly disclosing the advertising nature of these ads that are seamlessly integrated into the platform. However, there is guidance on how to help consumers distinguish between native paid advertising and editorial content.
The Interactive Advertising Bureau (IAB) advocates that, for paid branded content ad units, clarity and prominence of the disclosure is key. The disclosure must (1) use language that conveys the advertising has been paid for, thus making it an advertising unit, even if that does not contain traditional promotional advertising messages; and (2) be large and visible enough for a consumer to notice it in the context of a given page and/or relative to the device that the ad is being viewed on.
Similarly, the Federal Trade Commission also gives guidance on how businesses should handle native advertising. The FTC provides an in-depth guide on native advertising, which can be foundhere.
KEY TIPS: FTC Guidance on Native Advertising
Although we will not go in-depth on the FTC’s guidance, here are some key takeaways for businesses:
Although the laws that apply to advertising make up a large landscape, most of the laws seek to protect the consumer from confusion, and from being deceived or mislead into purchasing something that doesn’t meet their expectations. Taking the time to carefully craft effective advertisements for your products or services, and relay important disclosures with accurate language can make all the difference in complying with truth in advertising laws.
If you have questions about advertising for your business, contact New Media Rights using our contact form.
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