Make Your Advertising Withstand FTC Scrutiny

Posted on Tuesday, February 26, 2019

When preparing advertising materials for your company, or hiring an agency to design them, keep in mind the three basic laws that are enforced by federal and state government agencies:

The Federal Focus

The FTC says it pays less attention to ads making "subjective claims or claims that consumers can judge for themselves." For example, an ad that states a food product "tastes great." On the other hand, federal regulators pay close attention to:

Claims about health or safety, such as a sunscreen that says it will reduce the risk of skin cancer.
Claims that consumers have trouble evaluating, such as hairspray that says it's safe for the ozone.

Claims in ads must be truthful and must not mislead consumers.
You must be able to substantiate any claims made in advertising.
Your advertisements must not be "unfair."

If you violate these rules, you could be liable for expensive fines and other legal sanctions. 

The Federal Trade Commission (FTC) has jurisdiction over the advertising of most products and services, but other government agencies can also get involved. For example, the Food and Drug Administration monitors products with medicinal benefits. And disputes are sometimes resolved by state and local consumer agencies or private groups such as the Better Business Bureau.

How does the FTC determine if an ad is deceptive? If a complaint is filed by a customer or competitor, regulators look at the material from the point of view of a "reasonable consumer."

Here are the highlights of what the FTC looks for when it investigates advertising:

The whole picture. Rather than focusing on certain words, the FTC says it looks at an ad in its entirety — "words, phrases, and pictures — to determine what it conveys to consumers."

"Express" and "implied" claims. Under the law, you must have proof to back up claims in your ads. When you literally make a statement, you're making an express claim. For example, the words "made from fresh-picked vegetables" on a can of soup is an express claim. An implied claim is one made indirectly or by inference. For example, using a picture of vegetables on a soup can with words "made from nature's best." Although the ad doesn't literally say that the product is made with vegetables, it would be reasonable for a consumer to conclude that it does.

What the ad doesn't say. Sometimes, failing to include information in an advertisement leaves consumers with a misimpression about the product. For example, if a company advertised a set of classic books, the ad would be deceptive if it did not disclose that the collection is actually made up of condensed versions of the books.

Significant factors. The FTC decides whether a claim is "material" to a consumer's decision to buy or use a product. Examples of material claims involve performance, features, safety, price or effectiveness.

The law requires you to have sufficient evidence to back any claims you make in an ad before it runs. The exact evidence depends on the claim. The FTC uses the example of a pain reliever claim that "two out of three doctors" recommend the product. A reliable survey must be done to support such a statement.

In most cases, the FTC insists health or safety claims must be supported by "competent and reliable scientific evidence — tests, studies, or other scientific evidence that has been evaluated by people qualified to review it."

If you have questions about the legality of your advertising program, consult with an attorney. Getting the word out about your products or services is essential to the success of your business — but a badly-worded advertisement can do more harm than good.

Posted in Tax Topics For Individuals, Tax And Accounting Topics For Business

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.