Is Your Ad Deceptive?

by John Munro April 22 2008, 01:14

I. Introduction   

Small business owners often take out an advertisement in a local paper or, more in line with the times, advertise on a website.  The advertisement, however, can sometimes create liability for the business owner if the ad is found to be deceptive. [1]  This article will discuss the different sources of the law regarding deceptive advertising and then generally describe what makes an advertisement deceptive.  It will then explore the trends and adaptation of the law regarding web logs and advertising.  In conclusion, this article will present considerations that a small business owner should take into account when deciding to post an advertisement.

II.  Sources of Deceptive Advertisement Regulation

Laws regulating deceptive advertising exist at both the state and federal levels.  Modern advertisement law was shaped in the early twentieth century with the intention of encouraging the dissemination of truthful information and sanctioning the spread of false information. [2]  The Federal Trade Commission Act allows this federal action and specifically states that the agency is empowered to prevent the use of unfair or deceptive practices in commerce. [3]  The Lantham Act also provides a federal cause of action for false advertising. [4]  Although the Lantham Act primarily focuses on trademarks, unfair competition is addressed in section 43(a), and creates civil liability for the use of deceptive advertising in commerce. [5]

Most states have passed their own deceptive trade practices laws. [6]  These laws are usually similar to their federal counterparts and are called little FTC (Federal Trade Commission) acts. [7]  The little FTC acts allow for the state to intervene in situation of unfair trade practices but unlike the FTC Act, often allow individuals to bring actions for violations of the state's deceptive trade practice law. [8]

Individuals and business also have avenues to challenge or dispute deceptive advertising outside of the state or federal government.  The FTC has stated that local organizations may be in a better position to resolve local disputes. [9]  The Better Business Bureau is an example of such an organization that creates incentives for small business owners to refrain from unfair trade practices.  The National Division of the Council of Better Business Bureaus offers a forum for both consumers and competitors to bring claims regarding deceptive advertising. [10]  The availability of information from organizations such as the Better Business Bureau provides market incentives for fair trade practices.  The market often corrects for deceptive advertisements through lower sales from duped consumers and the resulting skeptical consumer base. [11]

III.  What is Deceptive Advertising?

The FTC has described its analysis of deceptive advertising to consist of three elements. [12]  The first element is that the deception must be a representation, omission, or practice that is likely to mislead the customer. [13]  In the most obvious situations, a statement or representation that expresses a claim that is simply untrue is deceptive advertising.  It is important to note, however, that the FTC has found an advertisement deceptive through an implied claim as well. [14]  An implied claim is one that a consumer would reach when reading the advertisement even if it is not explicitly stated. [15]  Both express and implied claims require proof that the claim is true in the order to prevail if the advertisement is challenged. [16]

The second characteristic that the FTC uses to analyze a deceptive advertising claim is that of the reasonable consumer. [17]  The characteristics of the consumer group is considered when judging if an advertisement is deceptive. [18]  The advertisement is viewed in the circumstances where it was placed to determine if a consumer would reasonably reach a conclusion that is false or misleading. [19]  The advertiser is not liable for any conclusion reached by an extreme viewpoint or wild train of thought.

The third and final characteristic used in the analysis is to determine if the representation, omission, or practice is material. [20]  The question of materiality basically hinges on whether the representation would affect the consumer's decision regarding the product. [21]  Statements or omissions on the part of a business that affect health or safety are also considered to be automatically material. [22]  The overall aim of this part of the analysis is to determine if an injury has occurred of if the potential for injury (economic or health) exists. [23]  Although the characteristics above do not fully describe all the factors regarding liability for a deceptive advertisement, this framework generally describes the characteristics used by the FTC.

IV. Web Logs and Deceptive Advertising

Information advertising is the type of advertising that asserts factual claims to a wide audience. [24]  It is only when the factual claims are unproven or simply untrue that the advertiser may be liable for deceptive advertising. [25]  When the advertisement is not in a traditional medium, or the advertisement does not specifically endorse a product, the traditional analysis becomes more difficult.  The internet has given rise to web logs or 'blogs' that convey information on everything from consumer products to philosophy.  This type of information is just as likely to create misleading or untrue conclusions in the mind of consumers yet is the creator liable for deceptive advertising?  A pure weblog is unlikely to lead to liability for deceptive advertising because it does not propose a commercial transaction.  If the blog only conveys information it is likely not to be considered commercial speech and not subject to the restrictions of federal law such as the Lantham Act or the FTC Act. [26]  When blogs become sponsored, the distinction between non-commercial and commercial speech becomes more unclear.  If a blog is completely sponsored and is no longer only disseminating information or entertaining, it becomes very similar to a traditional advertising campaign. [27]  Regulation preventing deception of the public should apply here as well. [28]  Overall, a balancing act must be employed in middle ground situations.  Courts and regulatory bodies must balance the suppression of speech against the potential harm to consumers from deceptive messages.

V. Conclusion

The discussion above has a few lessons and implications for the small business owner.  First, deceptive advertising is regulated on a variety of levels.  Federal, state, unofficial, and market forces all regulate advertising.  Despite this myriad of regulation, the framework for determination of deceptive advertising remains somewhat similar across these groups.  If an advertisement does not mislead a reasonable consumer, then the representation, omission, or practice is unlikely to raise any eyebrows.   Fortunately for the small business owner, the framework can be applied across regulatory bodies as well as across media.


[1] - Federal Trade Comm'n, Advertising Practices, Answers for Small Business, 3 (2001).

[2] - Ellen P. Goodman, Commercial Speech in an Age of Emerging Technology and Corporate Scandal, 58 S.C.L. Rev. 683, 688 (2007).

[3] - Id.

[4] - Kevin M. Lemley, Resolving the Circuit Split on Standing in False Advertising Claims and Incorporation of Prudential Standing in State Deceptive Trade Practices Law: The Quest for Optimal Levels of Accurate Information in the Marketplace, 29 U. Ark. Little Rock L. Rev. 283, 285 (2007).

[5] - Goodman, supra note [2] at 689.

[6] - Lemley, supra note [4] at 319.

[7] - Id.

[8] - Id.

[9] - Federal Trade Comm'n, supra note [1] at 4.

[10] - Lemley, supra note [4] at 319.

[11] - Id.

[12] - FTC Policy Statement on Deception, 103 F.T.C. 110, 174 (1984).

[13] - Id.

[14] - Id.

[15] - Federal Trade Comm'n, supra note [1] at 4.

[16] - Id.

[17] - Supra note [12] at 174.

[18] - Id.

[19] - Id.

[20] - Id.

[21] - Id.

[22] - Id.

[23] - Id.

[24] - Goodman, supra note [2] at 700.

[25] - Supra note [12] at 174

[26] - Goodman, supra note [2] at 700.

[27] - Id. at 701.

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