Avoid Unlawful Advertising: Seven Rules for Your Business

Comply with laws against deceptive or misleading advertising.

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Advertising is regulated by both federal and state law. Under the law, your ad is unlawful if it tends to mislead or deceive. Your intentions don't matter. If your ad is deceptive, you'll face legal problems even if you have the best intentions in the world. In addition, if your ad contains a false statement, you have violated the law. The fact that you didn't know the information was false is irrelevant.

The Federal Trade Commission (FTC) is the main federal agency that takes action against unlawful advertising. State and local governments also go after businesses that violate advertising laws; usually this is the responsibility of the state attorney general, the consumer protection agency, and the local district attorney. Consumers and competitors may also be able to proceed directly against the advertiser.

The Federal Trade Commission

For the most part, the FTC relies on consumers and competitors to report unlawful advertising. If FTC investigators are convinced that an ad violates the law, they usually try to bring the violator into voluntary compliance through informal means. If that doesn't work, the FTC can issue a cease-and-desist order and bring a civil lawsuit on behalf of people who have been harmed. The FTC can also seek a court order (injunction) to stop a questionable ad while an investigation is in progress. In addition, the FTC can require an advertiser to run corrective ads -- ads that state the correct facts and admit that an earlier ad was deceptive.

Over the years, the FTC has taken action against many businesses accused of engaging in false and deceptive advertising. A significant number of those administrative actions have been tested in court. By and large, courts have upheld even the most stringent FTC policies.

State Laws Against False Advertising

Most states also have laws -- usually in the form of consumer fraud or deceptive practices statutes -- that regulate advertising. Under these laws, state or local officials can seek injunctions against unlawful ads and take legal action to get restitution to consumers. Some laws provide for criminal penalties -- fines and jail -- but criminal proceedings for false advertising are rare unless fraud is involved.

Consumers often have the right to sue advertisers under state consumer protection laws. Such cases usually are based on one of two legal theories: unfair competition or commercial disparagement. A competitor harmed by unlawful advertising, or faced with the likelihood of such harm, generally has the right to seek an injunction and possibly an award of money (damages) as well, although damages are often difficult to prove. For example, someone who purchases a product or services in reliance on a false or deceptive ad might sue in small claims court for a refund or join with others (sometimes ten of thousands of others) to sue for a huge sum in another court.

The following rules will help keep your ads within safe, legal limits.

Rule 1 -- Be Accurate

Make sure your ads are factually correct and that they don't tend to deceive or mislead the buying public. Don't show a picture of this year's model of a product if what you're selling is last year's model, even if they look almost the same.

Be truthful about what consumers can expect from your product. Don't say ABC pills will cure headaches if the pills offer only temporary pain relief. Don't claim a rug shampooer is a wizard at removing all kinds of stains when in fact there are some it won't budge.

Waterproof or fireproof means just that -- not water resistant or fire resistant under some circumstances. The term polar, when attached to winter gear, suggests that it will keep people warm in extreme cold, not that it's just adequate when the temperature drops near freezing.

Rule 2 -- Get Permission

Does your ad feature someone's picture or endorsement? Does it quote material written by someone not on your staff or employed by your advertising agency? Does it use the name of a national organization such as the Boy Scouts or Red Cross? If so, get written permission.

Under U.S. copyright law, the "fair use" doctrine allows limited quotations from copyrighted works without specific authorization from the copyright owner. In some circumstances, this doctrine provides legal justification for the widespread practice of quoting from favorable reviews in ads for books, movies, and plays -- and even vacuum cleaners. However, with the exception of brief quotes from product or service reviews, you should always seek permission to quote protected material. For more on the fair use doctrine and many other aspects of copyright law and practice, see The Copyright Handbook: What Every Writer Needs to Know, by Stephen Fishman (Nolo).

Rule 3 -- Treat Competitors Fairly

Don't knock the goods, services, or reputation of others by giving false or misleading information. If you compare your goods and services with those of other companies, double check your information to make sure that every statement in your ad is accurate.

Rule 4 -- Have Sufficient Quantities on Hand

When you advertise goods for sale, make every effort to have enough on hand to supply the demand that it's reasonable to expect. If you don't think you can meet the demand, state in your ad that quantities are limited. You may even want to state the number of units on hand.

State law may require merchants to stock an advertised product in quantities large enough to meet reasonably expected demand, unless the ad states that stock is limited. California, for example, has such a law. In other states, merchants may have to give a rain check if they run out of advertised goods in certain circumstances. Make sure you know what your state requires.

Rule 5 -- Watch Out for the Word "Free"

If you say that goods or services are "free" or "without charge," be sure there are no unstated terms or conditions that qualify the offer. If there are any limits, state them clearly and conspicuously.

Let's assume that you offer a free paintbrush to anyone who buys a can of paint for $8.95 and that you describe the kind of brush. Because you're disclosing the terms and conditions of your offer, you're in good shape so far. But there are pitfalls to avoid.

  • If the $8.95 is more than you usually charge for this kind of paint, the brush isn't free and you shouldn't call it free.
  • Don't reduce the quality of the paint that the customer must purchase or the quantity of any services (such as free delivery) you normally provide. If you provide a lesser product or service, you're exacting a hidden cost for the brush.
  • Disclose any other terms, conditions, or limitations.

What counts is the overall impression created by the ad -- not the technical truthfulness of the individual parts. Taken as a whole, your ad must fairly inform the ordinary consumer.

Rule 6 -- Be Careful When You Describe Sales and Savings

You should be absolutely truthful in all claims about pricing. The most common pitfall is making doctored price comparisons with other merchants or with your own "regular" prices. (For more information on deceptive pricing, read Consumer Protection Laws and Your Business.)

Rule 7 -- Observe Limitations on Offers of Credit

Don't advertise that you offer easy credit unless it's true. A business that's not careful in this area can be charged with engaging in an unfair or deceptive practice that violates FTC law. You don't offer easy credit if:

  • You don't extend credit to people who don't have a good credit rating.
  • You offer credit to people with marginal or poor credit ratings but you require a higher down payment or shorter repayment period than is ordinarily required for credit-worthy people.
  • You offer credit to poor credit risks, but once all the fine print is deciphered, the true cost of credit you charge exceeds the average charged by others in your retail market.
  • You offer credit to poor risks at favorable terms but employ draconian (although legal) collection practices against buyers who fall behind.

If you advertise specific credit terms, you must provide all relevant details, including the down payment, the terms of repayment, and the annual interest rate. (For more information on extending credit, see Consumer Credit Laws and Your Business.)

For detailed legal and practical information about running a business, get Legal Guide for Starting & Running a Small Business, by Fred Steingold (Nolo).

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