The topics of misinformation and disinformation frequently arise in conversations about news coverage. But the question of truth is not just relevant to the media we consume. It is also a significant issue to consider for a business’s advertisements.
Truth in advertising is regulated by the Federal Trade Commission (FTC). Regardless of where an advertisement appears—internet, radio, TV, billboard, or other medium—if it does not comply with truth-in-advertising laws, the FTC may take enforcement action against the business that runs the ad. States also have consumer protection laws that govern deceptive advertising.
FTC and state attorneys general may impose penalties against companies that run a deceptive or false ad. And while truth in advertising is the law, it is also a good business practice that can prevent reputational harm.
Truth in Advertising Explained
Satirist Stephen Colbert coined the term “truthiness” to describe a particular statement that seems or is felt to be true, but is not based on evidence, logic, or facts. In our information-saturated culture, it can be difficult to tell fact from fiction, but this problem goes back many thousands of years. Plato differentiated philosophy—or the pursuit of truth—from sophistry, or reasoning meant to mislead.
Truth can be slippery, but nobody can deny the importance of separating fact from fiction. The information we receive influences the actions we take. When an advertisement makes claims about a product or service, that claim may be crucial to a consumer’s decision to buy or use that product or service.
This is what the FTC calls a “material” claim, and it is one of the factors the agency considers[1] when determining if an ad is deceptive.”= The FTC also consider the following factors:
- The viewpoint of the reasonable consumer: The FTC does not just focus on particular words. It looks at the context of the words, phrases, and pictures to gauge what the ad is conveying to the typical consumer viewing the ad.
- Express and implied claims. An express claim is a precise claim made in the ad, such as “Product X prevents the common cold.” An implied claim is made indirectly or through reference (for example, “Product X contains Ingredient Y, which prevents colds.”). In the second case, a reasonable consumer might conclude that Product X prevents colds, even though this claim is not explicitly made.
- Material omission: Information left out of an ad may give a false impression about the product. For example, if you are selling books and do not mention that the books are abridged versions of the originals, the FTC might find that to be a material omission and consider the ad deceptive.
- Whether the advertiser has sufficient proof of the claims they make in the ad. The FTC looks at whether a company has objective evidence supporting its advertising claim.
Examples of FTC False Advertising Enforcement Actions
To get a better understanding of the types of advertisements the FTC considers false and misleading, it is helpful to look at several past agency enforcement actions:[2]
- Turbo Tax: The FTC took issue with TurboTax’s advertisement of its tax filing service as “free,” when in fact, this “free” service is unavailable to millions of taxpayers, including gig economy workers.
- Walmart: The FTC sued Walmart for falsely marketing bamboo textile products that used toxic chemicals in the manufacturing process as environmentally friendly.
- Lithionics: The battery maker was hit with an FTC complaint related to its labeling of products as “Made in USA” even though they allegedly contained significant imported content.
- Snapchat: The mobile messaging app developer settled FTC charges that it deceived consumers about the disappearing nature of messages sent on the app, the amount of user data it collected, and its data protection measures.
- Dannon: Dannon settled FTC charges that it exaggerated the health benefits of its Activia yogurt and made claims that were not scientifically supported.
The FTC does not focus equally on all advertising claims. It pays the closest attention to ads that make the following types of claims:
- Claims about health or safety (for example, claims about sunscreen, water filters, and power tool safety features)
- Claims that consumers would have difficulty evaluating on their own (e.g., “Product X lowers your energy costs by 25”)
Depending on the nature of the false advertising violation, the FTC may impose remedies that include cease and desist orders, monetary penalties, and corrective advertising and disclosures. A company that violates a cease and desist order may be subject to a fine of $46,517 per day for continued violations.
Social Media
In recent years, the FTC has also begun enforcing truth-in-advertising consumer laws with respect to social media advertisements. The agency has given special attention to the use of influencers to market goods and whether proper disclosures are given when influencers endorse goods or services and have received some type of benefit in exchange.
False Advertising and State Attorneys General
The FTC has jurisdiction over most product and service ads, but it focuses on national advertising. Other matters are typically referred to local agencies.
State attorneys general are the primary enforcers of state consumer laws. All fifty states and Washington, DC, have a consumer protection statute that is the state equivalent of the FTC Act. Often, it is called an Unfair and Deceptive Acts and Practices Act or Consumer Protection Act. In addition, the FTC Act gives state attorneys general the authority to enforce some types of “unfair or deceptive acts or practices in or affecting commerce.”[3] Some states also have separate false advertising laws.
The specific definitions of—and prohibitions against—false advertising are found in state laws, which generally authorize attorneys general to initiate and conduct investigations and file lawsuits against companies that violate state consumer laws. According to the National Association of Attorneys General, state attorneys general can impose the following types of remedies:
- Injunctions
- Consumer restitution
- Monetary penalties
- Revocation or suspension of licenses/permits
- Specific performance (an order requiring the company to perform a specific act)
In recent years, state attorneys general have aggressively enforced consumer protection laws in the area of false advertising, including the following notable actions:
- New York ($5.1 million judgment[4])
- Hawaii ($834 million state court order[5])
- California and Washington ($188.6 million multistate settlement[6])
As a small business owner who only advertises locally, you should probably be more concerned about running afoul of your state consumer protection statute than the FTC Act. But if you do advertise nationwide or on social media, you run the risk of popping up on the FTC’s radar.
While you should screen all of your ads for material that could be considered false and misleading, pay attention to trends that could shape enforcement priorities. For example, during the pandemic, state attorneys general prioritized healthcare and businesses trying to profit from false claims about coronavirus treatments. Research false advertising enforcement actions by your state attorney general to get a better idea of what they might be likely to target.
Keep in mind that cases are typically referred to the FTC and state attorneys general by consumers. Honesty is the best policy. Clever advertisements and bold claims can get people’s attention, but if you do not shoot straight with your customers and deliver on your promises, you may not only lose their business but also end up in a costly dispute.
Finally, a relatively unknown federal law called the Lanham Act could give a competitor or other commercial party grounds to sue you for false advertising. However, they have to prove several elements in order to have a case. One of these elements is that your advertising is causing them economic or reputational harm[7].
Whether you need legal advice as you are preparing to run your first ad campaign, want a second opinion on an ad campaign you are concerned might violate the rules, or require counsel to defend against false advertising claims, our business lawyers are here to help. Call or click to schedule a meeting.
[1] Advertising FAQ’s: A Guide for Small Business, Fed. Trade Comm’n, https://www.ftc.gov/business-guidance/resources/advertising-faqs-guide-small-business (last visited Aug. 22, 2022).
[2] Protecting Consumers from Fraud and Deception, Fed. Trade Comm’n, https://www.ftc.gov/news-events/topics/truth-advertising/protecting-consumers(last visited Aug. 22, 2022).
[3] Federal Trade Commission Act, 15 U.S.C. §§ 41-58.
[4] Attorney General James Secures $5.1 Million Judgment against New York City Stem Cell Clinic for Scamming Patients Out of Thousands Through False Advertising, N.Y. Att’y Gen. (Nov. 24, 2021), https://ag.ny.gov/press-release/2021/attorney-general-james-secures-51-million-judgment-against-new-york-city-stem.
[5] $834 Million Order Entered in Hawai‘i State Court against Bristol-Myers Squibb and Sanofi for Failing to Investigate and Disclose Ineffectiveness of Plavix®, Dept. of the Att’y Gen. (Feb. 15, 2021), https://ag.hawaii.gov/wp-content/uploads/2021/02/News-Release-2021-13.pdf.
[6] California Department of Justice Announces $188.6 Million Multistate Settlement with Medical Device Manufacturer Boston Scientific Corporation, State of Cal. Dept. of Just. (Mar. 23, 2021)
[7] Deborah R. Gerhardt et al., An Empirical Study of False Advertising Claims under the Lanham Act, https://law.duke.edu/sites/default/files/fac/workshop/Gerhardt_paper.pdf.