If you’ve placed advertising in an ezine, you’ve no doubt been advised by the publisher of his or her advertising guidelines. Typically these guidelines go something like this: “Six lines, 65 characters per line plus URL/email. No adult, hate,race.”
Unfortunately, the publisher’s guidelines typically don’t go on to require that the ad conform with the U.S. Federal Trade Commission (“FTC”) guidelines for advertising on the Internet. As a result, many of the classified ads you see in ezines, on classified ad sites and wherever else such ads appear are, simply put, unlawful.
In this article, we’ll take a look at what the law requires in this area as amplified by the FTC’s published guidelines on the subject. And if you’re not located in the U.S., don’t think they don’t apply to you. The laws on deceptive and misleading advertising are very similar from country to country so this discussion probably applies to you too. Even if your country’s laws are different, if your ad is going to readers in the U.S. that may be enough to catch you anyway.
GENERAL PRINCIPLES
The basic legal principles that apply to advertising generally apply equally to advertising on the Internet. There are three:
1. advertising must be truthful and not misleading;
2. advertisers must have substantiation for their claims; and
3. advertisements must not be unfair.
TRUTH IN ADVERTISING
In its policy statement on deception (http://www.ftc.gov/bcp/policystmt/ad-decept.htm) the FTC notes that there are three elements that underlie all deception cases:
1. there is a representation, omission or practice that is likely to mislead the consumer. For example, “false oral or written representations, misleading price claims, sales of hazardous or systematically defective products or services, without adequate disclosures, failure to disclose information regarding pyramid sales, use of bait and switch techniques, failure to perform promised services, and failure to meet warranty obligations”;
2. the perspective of a consumer acting reasonably in the circumstances or, if the representation or practice is directed to a particular group, the perspective of that group acting reasonably; and
3. the representation, omission or practice must be a “material” one. This means it must be likely to affect the consumer’s conduct or decision with regard to the product or service.
In short, therefore, the Commission will find deception if “there is a representation, omission or practice that is likely to mislead the consumer acting reasonably in the circumstances, to the consumer’s detriment”.
Role of Disclosures and Disclaimers
The FTC places particular emphasis on disclosures and disclaimers when considering whether an advertisement is truthful and not misleading. Now, obviously, in your ezine ad you don’t have room to go into all the ins and outs of your product or service. But that’s OK because the ad is not really your sales pitch, it’s what you use to try and generate a click through to your sales pitch.
That’s not to say that anything goes in your classified ad and that it’s only your sales letter that you need to be careful with. Try using a headline like “MAKE $60,000 IN 60 DAYS” when the product you’re promoting sells for $20 a pop and you yourself are lucky to make one sale a week and see how far that gets you with the FTC.
But most “reasonable” consumers recognize puffery when they see it and will not be deceived into believing a product or service referred to in an ad with a headline like “CHANGE YOUR LIFE TODAY!” is, in fact, a magic wand.
But when it comes to your salesletter or website, watch out. This is where you need to be very careful about your representations, and include appropriate disclaimers and disclosures where necessary. Here’s the FTC’s guidelines for effective disclosures:
“Disclosures that are required to prevent an ad from being misleading … must be clear and conspicuous. In evaluating whether disclosures are likely to be clear and conspicuous in online ads, advertisers should consider the placement of the disclosure in an ad and its proximity to the relevant claim. Additional considerations include the prominence of the disclosure, whether items in other parts of the ad distract attention from the disclosure; whether the ad is so lengthy that the disclosure needs to be repeated; 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.”
Content of Disclosures and Disclaimers
Advertisers are required to identify all express and implied claims that the ad conveys to consumers and, when doing so, focus on the overall impression of the ad and not just individual phrases or statements.
If those claims are likely to be misleading to the “reasonable” consumer, then the advertiser must disclose qualifying information to remove any possibility of deception. Such qualifying information must be disclosed clearly and conspicuously in a place where the reader of the claim will see either the qualification itself or a prominent link to it.
Note also that a disclosure only qualifies or limits a claim to prevent it creating a misleading impression. It CANNOT cure a false claim. If the disclosure contradicts the claim, the claim itself must be modified for it is deceptive.
For a full copy of the FTC’s “Dot Com Disclosures” guidelines, visit http://www.ftc.gov/bcp/conline/pubs/buspubs/dotcom/index.html.
SUBSTANTIATION OF CLAIMS
If you claim that by purchasing your new viral marketing product, the consumer can generate $50,000 in 60 days in additional revenues, you’d better have a reasonable basis for doing so. In other words, when you get an informal access letter from the FTC asking for substantiation (or, if you fail to respond, a formal civil investigative demand), be prepared to produce documents and records that provide support for your claim that your consumer’s revenues will increase $50,000 in 60 days as a direct result of purchasing and using your product.
If you could not provide, if asked to do so, substantiation for a claim you intend to make in your online ad, it is misleading to include it.
The kind of evidence needed for substantiation depends on the claim. A claim such as “9 out of 10 women lost an average of 10 pounds in two seeks while taking ABC- Metabolizer” will require competent and reliable *scientific* evidence. Letters from satisfied customers do NOT constitute adequate substantiation for this purpose.
FAIRNESS IN ADVERTISING
According to the FTC’s policy statement on unfairness, to justify a finding of unfairness, the injury to the consumer must satisfy three tests:
1. it must be substantial;
2. it must not be outweighed by any countervailing benefits to consumers or competition; and
3. it must be an injury that the consumer him or herself could not reasonably have avoided.
Substantial
“Substantial” means more than trivial or merely speculative. As the FTC notes, “In most cases a substantial injury involves monetary harm, as when sellers coerce consumers into purchasing unwanted goods or services”.
On the other hand, “emotional impact or other more subjective types of harm … will not ordinarily make a practice unfair.” So, the mere fact that an ad is sexist, for example, and as a result offends some members of the community, will not, without more, render the advertisement “unfair” for the FTC’s purposes.
Countervailing Benefits to Consumers or Competition
It is possible for an injury to be outweighed by higher interests. An example the FTC cites is a case in point: “A seller’s failure to present complex technical data on his product may lessen a consumer’s ability to choose, … but may also reduce the initial price he must pay for the article. The Commission is aware of these tradeoffs and will not find that a practice unfairly injures consumers unless it is injurious in its net effects.”
Injury the Consumer Could Not Reasonably Have Avoided
There is a fine line between freedom of choice and regulatory intervention. Consumers are expected to survey the market and the available alternatives and to make an informed purchase decision. The Commission will generally only get involved where certain sales techniques operate to interfere with the consumer’s ability to effectively make his or her own decisions.
FTC examples of these types of sales techniques include exercising undue influence over highly susceptible classes of purchasers such as promoting fraudulent “cures” to seriously ill cancer patients or dismantling a home appliance for “inspection” and refusing to reassemble it until the consumer signs a service contract.
For a full copy of the FTC’s policy statement on unfairness, see http://www.ftc.gov/bcp/policystmt/ad-unfair.htm .
OTHER ISSUES
Refunds
Refunds must be made to dissatisfied customers if you promised to make them.
Franchises and Business Opportunity Rule
If you are selling a franchise or a business opportunity, you must give consumers a detailed disclosure document at least 10 days before the consumer pays any money or commits to a purchase.
Multi-Level Marketing
MLMs should pay commissions for the retail sale of goods or services, NOT for recruiting new distributors (pyramid schemes).
Free Products
If a product is advertised for free if another product is purchased, the consumer must pay nothing for the one item and no more than the regular price for the other. Such ads should describe all the terms and conditions of the free offer clearly and prominently.
Jewelry
The FTC has a Jewelry Guide about how to make accurate and truthful claims about jewelry you offer for sale.
Mail and Telephone Orders
Under the Mail or Telephone Order Merchandise Rule, you must have a reasonable basis for stating or implying that a product will be shipped within a certain period of time. If not, you are implying that you can ship within 30 days and you must have a reasonable basis for such implication.
There are various other rules that may impact on your business including 900 numbers, telemarketing, testimonials and endorsements, warranties and guarantees and the like.
For more information on these and other topics, see the FTC’s publication “Advertising and Marketing on the Internet: Rules of the Road” at http://www.ftc.gov/bcp/conline/pubs/buspubs/ruleroad.htm .
PENALTIES
The penalties imposed by the FTC against companies or individuals (via state mirroring legislation) that run a false or deceptive ad depend on the nature of the violation.
Here are the possibilities:
Cease and Desist Orders
These are legally binding orders that require the company to stop running the offending ad or engaging in the deceptive practice, to have substantiation for claims in future ads, to report periodically to the FTC about such substantiation and to pay a fine of $11,000 per day if the company violates the law in the future.
Civil penalties, consumer redress and other monetary remedies.
Corrective advertising, disclosures and other informational remedies.
Bans and bonds.
One effect of the prevalence of spam on the Internet that I have not heard mentioned before is that it desensitizes us to outrageous advertising claims. We EXPECT to see claims such as “make $60,000 in 60 days” even though we have conditioned ourselves to ignore them.
The danger, though, is the fact that we ARE so desensitized that it’s almost second nature to “reach” when writing our own ads. It’s easy to gild the lily, to make our opportunity, product or service sound a bit bigger and better than it really is. That’s the nature of advertising after all.
But on the Internet, we have to be more careful than the offline advertiser. Only on the Internet it seems, has hype been elevated to such an art form, so much so that we begin to think that we must do the same if our ad is to be noticed.
The challenge for us all, then, is to write winning ads that draw the attention of the reader while at the same time refraining from making claims that the reasonable reader may be misled by and by being fully prepared and able to substantiate any claims made.
By following these, in essence common sense, principles, we will go a long way to ensuring that OUR advertising practices don’t attract the attention of the wrong people!
2001-2002 Elena Fawkner
Elena Fawkner is editor of A Home-Based Business Online … practical business ideas, opportunities and solutions for the work-from-home entrepreneur. http://www.ahbbo.com/
