Legal Trends of Truthful Online Advertising

***This article was created for education/informational purposes and should not be considered legal advice. For specific legal questions concerning yourself or your business you should contact an attorney.

The Federal Trade Commission (FTC) is an independent agency of the United States government. They are tasked with consumer protection, and this includes the regulation of advertisers. Over the past 7 years or so the FTC has developed standards for online advertisers, and has been regularly increasing its activity in enforcing these standards. As anyone with experience will tell you, getting on the bad side of the FTC can be a death sentence for your online business, especially those just starting out. In addition to levying fines (up to $1,600 per violation) the FTC has also been known to follow lawsuits against individual businesses and has successfully frozen assets or even had entire businesses shut down.

In this article, we are going to discuss some of the most common errors made by small online businesses and how to avoid them. We will also discuss the latest set of guidelines set forth by the FTC called “.COM DISCLOSURES”.

Truth in Advertising Overview

When it comes to regulating advertisements, the FTC is primarily with ads that are unfair or deceptive. An advertisement is “unfair” if an advertiser does something that is likely to cause harm to a consumer. A “deceptive” advertisement is an advertisement that is misleading, or likely to confuse, a consumer. Advertisements may not contain statements that are untrue – “false advertising”.  Thus, an advertiser should be able to back up anything it claims in an ad. This is known as “substantiation”.

How does the FTC decide who to come after?

The FTC is a complaint driven organization. This means that they accept consumer complaints and act on them. They also accept complaints from competitors. 1.8 million consumer complaints were filed in 2011 alone. In addition, once the FTC begins an investigation they might also decide to look at other participants in the same or similar industry to determine if a certain deceptive tactic is rampant industry wide. This is how many relatively small businesses wind up getting in trouble with the FTC. The recent trend has been that the FTC is upping its efforts to reel in online businesses.  From 1978-1988 there were 138 proceedings related to false advertising. From March 2010 to April 2011 there were 110 proceedings, with vendors paying out a total of $368 million.

Understanding Disclaimers and Disclosures

Obviously, there are limitations as to the amount of factual information that can be included in an advertisement. One response to this is the use of disclaimers. The purpose of disclosures is to avoid misleading customers. While it is common, and most times acceptable to generally advertise your strengths without mentioning your weaknesses, there does come a point where certain information must be provided to avoid misleading a consumer.

For example: there was an instance in which eBay was advertising that Tiffany jewelry was sold on its website and eBay made statements that all the Tiffany jewelry was authentic. However, eBay knew that much of the jewelry was fake. This is a case of false advertising. First, since eBay knew that some of the jewelry was fake it was not allowed to advertise that ALL of it was authentic. Second, even if eBay didn’t mention anything about the jewelry being authentic, it still should have had a disclosure stating that some of the jewelry might be fake.

Two of the most common disclosures required are called “Earnings Disclaimers” and “Testimonial Disclaimers”.

Earnings Disclaimers come into play when you are offering a product to purports to improve the financial situation of the customer. This may be training programs that teach people how to get clients, or promotes some other product or service that provides an opportunity for a consumer to make money. At the very least, a proper earnings disclaimer should inform the customer that their level of financial success is dependent of several factors that are out of the advertisers control such as the amount of work they out in, their skill level, their personal network, and other various economic factors like market fluctuations.

Testimonial Disclosures are needed when you use endorsements or testimonials from others in promoting your own product. The general rule is that these endorsements must reflect the honest experience or opinion of the endorser. In addition, endorsements can NOT contain representations that would be deceptive or unsubstantiated as if the advertiser made them himself. In many cases an advertiser will select most positive reviews he has gotten from his customers if order to present her product or service in the best light. In these situations, your disclosure should make it clear that those testimonials represent a best-case scenario and do not indicate the average customer experience.

In addition, many advertisers will provide products to people for free in exchange for positive endorsements or testimonials. In these situations the advertiser is required to disclose that the person providing the endorsement received the product for free, or received some other benefit in exchange for providing an endorsement. Further, a person providing an endorsement for your product on their own blog or website should disclose that they received the product for free, or other benefit, at the top of the web page before the endorsement. Please note that these disclosures are not required when an endorser purchases your product with their own money and then decides to provide a testimonial after the fact.

How is the FTC currently regulating online advertisers/marketers?

As we previously discussed, the FTC has been cracking down on deceptive marketing practices online. Over the past several years they have released certain guidelines for internet marketers on how to advertise properly and how to effectively use disclaimers and endorsements.

The FTC reminds the internet marketing community that the three basic principles of advertising law are, 1) Advertising must be truthful; 2) Advertisers must have evidence to back up their claims, and; 3) Advertisements cannot be unfair.

The FTC has expended a lot of energy clarifying is stance on disclosures and how they should be presented. The safest way to provide a disclosure, from an advertiser’s perspective, is to put the disclosure/disclaimer right there in the ad copy, right next to the triggering claim. (** A “triggering claim” is a statement made in an advertisement that prompts the need for a disclosure). Furthermore, the disclosure should be clearly identifiable. This means no fine print. This could mean that the disclosure should be a different color from the ad text and it should contain the proper information needed to make the advertising claim complete.

It is often the case that a complete disclaimer would not fit into an advertisement. In this case many advertisers prefer to create hyperlinks and send consumers to a different page where the entire disclosure is spelled out. For many years the typical practice has been to provide a link at the bottom of a sales page with the link simply stating “disclosure”. This is not considered acceptable by the FTC. Firstly, the disclaimer or the link must be in very close proximity to the triggering claim. Secondly, the link must be clear that it is a link to a disclaimer and alert the consumer to the nature of the disclaimer.

Let’s take the example of an advertisement that makes the claim that a certain pet shampoo “eliminates the risk that your pet will ever get fleas”. However, the truth that the product only reaches that level of effectiveness when used a certain way and combined with other products/materials. This claim would obviously require a disclosure. There are two ways this disclaimer could be made. The first would be simply stating that information right under the triggering claim. However, for many reasons the advertiser may wish to provide a link to another page with a complete disclaimer and instructions on how to get the best use. Simply putting a link titled “disclaimer” next to the triggering claim is not acceptable. Instead, the link should state something along the lines of “In order to achieve the full effect of this product it must be used in a very specific way. Click here for more information”.

Another example would be a company selling digital home security cameras. The advertisement shows a picture of the camera and lists the price of the camera to be $99. However, the ad does not state that there is a $9 monthly service fee associated with the camera, and without the service the cameras are basically useless. In this case the service fee information should be clearly stated in close proximity to the camera picture and price. Advertisers should also understand that they may be required to make similar disclosures multiple times throughout their advertisement. The general rule is that each time the same triggering claim is made, the same disclosures must be made.

*** There are numerous ways in which one can advertise and thus the different types of advertisement claims that may trigger the need for a disclosure/disclaimer are limitless. If you are not sure whether or not your advertisements are legally complaint it is recommended that you obtain the services of an attorney.