Advertising Law: A Plain Language Guide for Businesses and NonProfits

Thank you to the Rose Foundation for its support in making this guide possible.

Creating and publishing advertisements helps get the word out on your business, product, or services. But ads can create legal liability from individual consumers or government regulators. So, how do you advertise in a way that avoids trouble with state or federal law?

In this guide, we’ll discuss key advertising laws and regulations as they apply to a wide range of industries. This guide was made with businesses in mind looking to comply with federal and state advertising regulations. We hope this guide jumpstarts conversations on how your business runs ads or how your business will modify ads to better comply with advertising regulations.

Table of Contents

· Disclaimer: This guide is Not a Substitute for Legal Advice

· Advertising Basics

· Federal laws that apply to advertising

o What do businesses need to look out for with federal laws when making and publishing advertisements about my product, services, or business?

§(1) The Federal Trade Commission (FTC) Act

§(2) Section 43(a) of the Lanham Trademark Act (Lanham Act)

o How do these federal laws interact with state-based laws?

· California advertising laws

· Online Advertising

o Disclosures in the Online Advertising Space

o Native Advertising

Disclaimer: This Guide is Not a Substitute for Legal Advice

This guide is not a substitute for advice from a lawyer because each person’s case is different. A guide like this can only provide general information about advertising laws relevant to certain situations. Given the changing nature of advertising laws and regulations, keep in mind that this information might change from time to time.

Because each business’ advertising needs are different, the wide range of advertising situations cannot be fully covered in this limited guide. This guide is not a proper substitute for legal advice directly tailored to a business’s or individual’s advertising needs. This guide was created by practicing attorneys licensed in the state of California. If you have specific questions about local advertising regulations outside of California, you may want to seek local counsel in your area.

That said, we understand how difficult and confusing it can be to know what advertisements can and cannot say under federal and state regulations. We also know that it might not be feasible to hire a lawyer to understand current advertising regulations. So, we’ve drafted this guide to get you started on learning about advertising law.

Advertising Basics

Before we get into what federal laws might apply to your situation, it’s helpful to understand advertising basics about when an advertising claim is made. An advertising claim is a direct or implied promise of a benefit or value from a product or service that can be objectively measured, evaluated, and proven. Claims can be verbal, visual, or implied by tone, mood, or situation.

Claims can be found in what a business says and suggests about its products or services. Any communication directed at consumers about a business’s products or services may have advertising claims. Claims can be found in advertisements, product packaging, marketing and promotional materials, press releases or other publicity materials, point-of-purchase displays, websites, social media platforms, mobile applications, and more.

Advertising claims can be either express or implied:

· Express claims are statements or depictions of a product or service that are plain or direct.

· Implied claims are statements or depictions of a product or service that are indirect.

Regardless of whether claims are express or implied, it’s important to look at a product or service’s advertised claims in their entirety rather than in isolation. If the advertisement can be reasonably interpreted in multiple ways, each reasonable interpretation must be true. As you review applicable laws and regulations that may concern your type of advertising, keep these general considerations in mind when deciding how best to move forward with how you conduct advertising.

Federal laws that apply to advertising

While there may be differences in state and local regulations on advertising depending on where you’re located, there are a few federal laws and regulations that control the advertising landscape. These include the following:

· The Federal Trade Commission Act (FTC Act)

· The Federal Communications Commission Act (FCC Act)

· Section 43(a) of the Lanham Trademark Act (Lanham Act)

· Self-Regulatory Principles for Online Behavioral Advertising

What do businesses need to look out for with federal laws when making and publishing advertisements about my products, services, or business?

Several factors go into considering what you can and cannot do with advertisements. Generally, advertisements are governed by a combination of federal, state, and local laws. Each of these regulations take into account different considerations and do not necessarily apply to all kinds of advertisements for all kinds of products, services, and businesses. We’ll briefly provide an overview of some of the important federal regulations, but if you have specific questions, feel free to reach out to New Media Rights.

(1) The Federal Trade Commission (FTC) Act

Generally, the FTC Act prohibits unfair or deceptive advertising in any medium. Similarly, any claim in advertising must be supported by, or substantiated, with the appropriate kinds of evidence to back up an advertisement’s claim.

Ads Must Be Truthful and Non-deceptive

Under federal truth in advertising law, false and deceptive advertisements are prohibited, regardless of how those ads are shared with the public. An advertisement is deceptive if it has a statement or omits information that is likely to mislead reasonable consumers, and that statement or omission is “material” (i.e., important to a consumer’s decision to purchase).

The FTC typically considers claims material if they significantly involve health, safety or other areas with which a reasonable consumer would be concerned. For example, the FTC has found information to be material when it concerns the purpose, safety, effectiveness, or cost of the product. This means that whenever you are explicitly conveying important information about a product or service, you must avoid misleading consumers or leaving out any information that a consumer or user might think is important to know before purchasing your product or service. 

The failure to include important information can leave consumers with the wrong impression about your product. For example, if a company advertised a collection of books, the ad would be deceptive if it did not disclose that consumers were actually receiving the abridged versions of the books.

A key point to remember about deception is that an advertiser does not have to actually deceive a consumer in order for the advertising to be considered deceptive. In other words, a consumer does not actually have to show that they were deceived. Rather, the company only needs to have the tendency and capacity (ability) to deceive. 

Context is essential in determining whether an advertisement is deceptive; the FTC will generally look at what the ad conveys overall rather than any particular word or phrase.

Ads Must Be Fair

The FTC act prohibits unfair advertisements in any medium. An advertisement is considered unfair if it (1) causes or is likely to cause substantial consumer injury (2) that the consumer could not reasonably avoid (meaning that there was no way to avoid the injury), and (3) that injury is not outweighed by the product or advertisement’s benefit to consumers. In most cases, “substantial injury” includes monetary loss/harm, or unnecessary health and safety risks. If the injury outweighs the benefit, the ad is likely to be unfair.

Ads Must Be Substantiated

Advertised claims about a product or service must be substantiated. This means that any claims made about a product or service need to have proof to back up those claims. The best practice is to have a reasonable basis for making the claim before you even make it (in other words, the claim should be substantiated before sharing the ad with the public. If an advertisement alleges to back up its claim with a particular level of support (such as laboratory test or studies), the advertiser must possess that evidence.

Take the earlier toothpaste example. If the toothpaste company puts an ad on tv that states that their toothpaste “prevents cavities,” that would be an express claim for which the company must have proof to back up. Even implied claims like “this toothpaste kills the bacteria that cause cavities” require proof to back up the statements. Although the ad does not literally state that it helps prevent cavities, by inference, a reasonable consumer could logically conclude that by killing the bacteria that cause cavities, the toothpaste would prevent cavities.

Ads Must Have Proper Disclosures

When an ad makes express or implied claims that are likely to be misleading without certain qualifying information, the information must be shared (i.e., “disclosed”). A disclosure cannot be used to “fix” a false claim. Rather, it can only be used to help qualify or limit the claim so that you can avoid a misleading impression. Often, disclosures consist of a word or phrase that may be easily incorporated into the text, along with the claim.

For example, an online product listing for “Imitation Pearl Necklace” is a simple, but clear and conspicuous disclosure about the type of pearl necklace being sold. The disclosure word “imitation” preceding the word “pearl” keeps consumer expectations in check by explaining the nature of the pearls themselves. If a disclosure provides information that contradicts a material claim, the disclosure will not be sufficient to prevent the ad from being deceptive. For example, if the online ad says it’s an “authentic pearl necklace,” but the disclosure says that the pearl is man-made, then that contradicting disclosure would not prevent the ad from being deceptive.

The goal for any required disclosure is to be clear and conspicuous. Whether a disclosure is clear and conspicuous depends on how consumers actually perceive and understand the disclosure within the context of the entire ad. The “overall net impression” –whether the claims consumers take from the ad are truthful and substantiated—is the key to a clear and conspicuous disclosure. So, disclosures that are not visible or understood by the consumer cannot hope to correct potentially misleading claims, because they wouldn’t change the overall impression.

How and where to place appropriate disclosures will depend heavily on the nature of the ad and what a reasonable consumer would take away from an ad, even if the consumer did not read every detail. Advertisers should draw attention to a disclosure if the disclosure is particularly important for the consumer to understand. For a disclosure to be effectively communicated, disclosures should be placed as closely as possible to the representations the disclosures are meant to modify. For example, a disclosure placed randomly on an advertisement (or where a consumer might not find it) would not be a clear and conspicuous disclosure. Some factors to consider in creating a clear and conspicuous disclosure include:

· the placement of the disclosure in the advertisement and its proximity to the claim it is qualifying;

· the prominence of the disclosure;

· whether the disclosure is unavoidable;

· the extent to which items in other parts of the advertisement might distract attention from the disclosure;

· whether the disclosure needs to be repeated several times in order to be effectively communicated, or because consumers may enter the site at different locations or travel through the site on paths that cause them to miss the disclosure; 

· 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. 

When it’s not possible to place a disclosure in close proximity to a certain claim that might be considered deceptive, advertisers can either modify the original claim so it can no longer be interpreted as misleading (because at that point a disclosure wouldn’t be necessary) or not use the advertisement at all. For more information on disclosures in the online setting, please visit the Disclosures in the Online Advertising Space section.

(2) Section 43(a) of the Lanham Trademark Act (Lanham Act)

Section 43(a) of the Lanham Act is a statute designed to guard against unfair competition claims such as unregistered trademark infringement, false advertising, false designation of origin, and false endorsement. The Act primarily prevents deceptive conduct that causes consumer confusion, and deceptive commercial advertising. Individual consumers cannot sue under this section of the Lanham Act. Only parties that are typically “engaged in interstate commerce” (meaning that they are buying and selling products/services across the country) or whose competitive or commercial interests have been harmed. This means that typically a business would bring this type of claim against (most likely) another business or person selling goods and services.

Unregistered Trademark Infringement

Under the Lanham Act, a trademark can be any word, name, symbol, or device (or some combination of these items) used by a person or used to distinguish an individual’s products or services from others in the marketplace. Generally, there are three categories of trademarks:

(1) trademarks & service marks (which indicate the source/origin of goods and distinguishes those goods from the goods of others),

(2) trade names (the name under which a business entity conducts business), and

(3) trade dress (refers to the total image and overall appearance of a product).

Trademarks serve a variety of important functions, such as identifying a product’s source, ensuring the consistent quality of goods and services, and protecting consumers from confusion. For example, when you go to your local grocery store and purchase a 2-liter bottle filled with a caramel-colored soft drink labeled with a mark of “Coca Cola,” you recognize the soft drink is made by the producers of Coca Cola Company, and you can trust that the liquid inside the bottle will have the same taste and quality that comes with purchasing a bottle of Coca Cola from the Coca Cola Company. But when a trademark fails to indicate a single source, such as when suppliers use similar marks, it may cause confusion among consumers. 

While there is no established method of guarding against consumer confusion when advertising your product or service, the key inquiry for trademark infringement is whether the use of a mark is likely to confuse consumers about the product or service’s affiliation, connection, or association between two parties.

Another factor to consider when determining whether there is a likelihood of confusion is whether there is consumer confusion about a product or service’s origin, sponsorship, or approval of the goods or services.

Depending on the jurisdiction, courts will generally look to a list of several factors to evaluate the likelihood of consumer confusion: 

• The strength of the trademark owner’s trademark (i.e., how much the mark stands out or how distinctive it is)

• The similarity between the parties’ marks

• How related the parties’ goods and services are to each other

• The likelihood that the trademark owner will expand its goods and services to include the alleged infringer’s goods and services (i.e., are the alleged infringer’s goods within the “natural zone of expansion” of the trademark owner?)

• The similarity of the parties’ trade channels and target consumers 

• Whether there is evidence that consumers were actually confused

• The alleged infringer’s intent in using the allegedly infringing mark

• The sophistication of potential purchasers of the defendant’s allegedly infringing goods 

• The quality of the alleged infringer’s goods or services

Keep these factors in mind as you look to advertise your product or service. When you have a specific mark, design, or logo that you would like to incorporate into how you advertise your products or services, it may be worth assessing your risk exposure to potential trademark infringement claims with a local trademark attorney. A trained attorney with experience in trademark law can help advise you on the potential risks involved with your mark relating to your specific situation. It’s worth it to hire an attorney to do this work upfront. Changing products, services, branding and advertisements due to infringement is expensive. Loss of business relationships and legal costs to defend a lawsuit are also expensive. 

False Advertising

While you can get creative with how you advertise a product or service, you cannot get away with making false advertising claims related to another person’s products or services. False advertising can take form in any statement, word, symbol, description, or device in a commercial advertisement that conveys a false or misleading message to consumers about the nature, qualities, characteristics, or geographic origin of another person’s goods or services. 

False advertising claims apply to commercial advertisements. Generally, a statement is considered to be commercial advertising if it involves commercial speech (speech made to influence the purchasing decisions of the consuming public), influences consumers to purchase a certain good or use certain services, and is disseminated sufficiently to the purchasing public (the “dissemination requirement”).

Commercial advertisements consist of more than just widespread advertising campaigns. The dissemination requirement depends on the typical level of dissemination in the relevant industry and market. Disseminating information to a small number of customers in a relatively small industry may be seen as a commercial advertisement whereas dissemination to a small number of customers in a larger market is not a commercial advertisement. 

False or misleading advertisements can be literal or implied. To determine whether a message is false or misleading, courts typically focus on two questions:

1. Does the message have a verifiable, factual statement OR a non-factual opinion or “puffery”?

2.Does the degree of ambiguity AND truthfulness of the message lend itself to a finding of consumer deception?

Both of these factors require a fact-specific analysis depending on the nature of the commercial advertisement, but we offer a few helpful tips as you evaluate the message of your commercial advertisement across these factors. If the statement is a non-factual opinion or puffery, then the analysis generally stops at question one because puffery is generally not considered to be misleading. “Puffery” statements are generally statements that no reasonable buyer would view as statements of objectively true fact, and that generally boast about the qualities or characteristics of a product or service. Puffery statements generally do not make any specific claims, or are so exaggerated that it is unlikely that consumers would rely on the statement to make a decision as to whether to purchase. Take for example KFC’s slogan of “finger lickin’ good.” The statement simply highlights the delicious flavor of its food, and no reasonable buyer would accept this statement as an objectively true fact.

False advertising claims also require a showing of deception unless the statement is literally false. Depending on the jurisdiction, courts may require proof that the statement actually deceived consumers or simply had a tendency to deceive consumers. Regardless, a showing of deception will require proof of how consumers actually do react (not how consumers are likely to react). This can be established with a survey sent to consumers. Other persuasive evidence of actual deception might also be acceptable to a court.

It is also unclear how much of the relevant population would need to be actually deceived. The exact number will depend on the jurisdiction, but courts generally hold that a 15% deception rate of the relevant population being deceived is sufficient for false advertising claims. 

False Designation of Origin

False designation of origin claims (otherwise known as unfair competition claims) occur when a party misrepresents its goods or services as those of another party (“passing off” or “reverse passing off” claims depending on the circumstances) or a party misrepresents the geographic origin of its goods. 

A passing off claim is when an unauthorized party expressly or impliedly misrepresents that its (usually inferior) goods or services are the goods or services of another. Some false designation of origin claims stem from trademark infringement or counterfeiting claims. Similarly, a false designation of origin claim can come up in a false advertising claim if a party’s products are depicted in another’s advertisements.

A reverse passing off claim is when the alleged infringing party represents that the rightful trademark owner’s goods or services are its own. However, using a plaintiff’s branded products to assemble its own substantially different branded product is not considered a reverse passing off claim. 

A false designation of geographic origin claim is when a party misrepresents the geographic origin of its goods or services. Among these three types of cases, courts evaluate passing off claims using the same “likelihood of confusion” test that is used in trademark infringement claims (see “Unregistered Trademark Infringement” section under our discussion of the Lanham Act).

False Endorsement

Although the Lanham Act does not expressly guard against false endorsement, courts have interpreted section 43(a) to include false endorsement claims. False endorsement occurs when a party uses a public figure’s persona in a manner that falsely implies his or her endorsement of the party’s goods or services. Generally, the use of a public figure’s persona has to be likely to confuse reasonable consumers into thinking the public figure endorsed the party’s goods or services.

Courts takes into consideration two factors to determine if there is enough evidence to support a false endorsement claim:

1. The level of public recognition of the public figure among the targeted consumers; and

2.The extent to which the public figure’s persona has been exploited without permission generally (i.e., is it common for other parties to use the public figure’s persona without permission?)

Suppose your business is looking to use endorsements in product or services advertising. In that case, it is important to assess the best strategy for obtaining the appropriate permissions from the individual making the endorsement. “Honesty is the best policy” should be your guiding principle as you incorporate endorsements into your advertising. If someone did not specifically endorse your product or service, it’s best not to use that person’s likeness in any way to mislead consumers into believing he/she endorsed that product or service. 

How do these federal laws interact with state-based laws?

Remember that the FTC is responsible for enforcing advertising laws under the FTC Act, meaning that the FTC actually files a complaint/lawsuit rather than a private individual. However, the FTC does not frequently bring these types of enforcement actions, and most FTC enforcement proceedings are settled before the FTC even files a complaint because it is less costly than litigation, and generally keeps the offending companies from admitting any liability.

As a result, any decision in these settlements (also known as “consent decrees”) really only applies to that particular company and does not outright prohibit other companies from engaging in the same sort of practices, whereas if it went to court and was decided by a judge, it would become precedent that other companies must follow. However, these consent decrees do help set expectations and guidelines for behaviors that the FTC considers to be in violation of the law.

So, this means that while it is important to follow federal laws related to advertising, and certain behaviors will cause the FTC to bring an enforcement action, it is often much more likely that a private individual or class of individuals would bring a lawsuit under state law.

California advertising laws

(1) California’s False Advertising Law (FAL)

California’s False Advertising Law (FAL) prohibits advertising goods and services using any statement that is 1) false or misleading/deceptive, or 2) that one should have known to be misleading had they exercised reasonable care. This law applies to a person (which includes any individual or partnership), firm, corporation, or association (or an employee of one of these) who offers goods or services in or from California. The FAL also encompasses statements that are accurate/truthful, but nonetheless tend to mislead. For example, if you were to provide some information about a product, but not include other information that might affect someone’s decision to purchase that product, then that could be considered false advertising under the FAL. The FAL prohibits both intentionally false advertising and negligently false advertising. 

Deceptive or Misleading Statements

So what statements are considered deceptive or misleading? Evaluating a statement for potentially deceptive or misleading traits is a very fact specific assessment. Although there is no concrete rule to determine whether a statement is deceptive or misleading, we can look to previous FAL claims to gain an understanding of what is or is not considered deceptive or misleading. Here are some court case rationales that may serve as guideposts for advertising practices specific to the FAL:

• Whether an advertisement is “misleading” is judged by the effect it would have on a reasonable consumer. So, the ad would have to be deceptive to a reasonable person in ordinary circumstances.

  • The “reasonable consumer” standard requires a probability that a “significant” portion of the general consuming public or of targeted consumers, acting reasonably in the circumstances, could be misled.

• An advertising claim does not become false and deceptive merely because it will be unreasonably misunderstood by a small portion of the group of people the statements were directed at.

• A perfectly true statement given in a way that is likely to mislead or deceive the consumer is actionable under the FAL. For example, if a true statement were made but the ad didn’t disclose other relevant information that might influence the consumer’s decision to purchase the product.

• Generalized, vague, and unspecified assertions are “puffery” upon which a reasonable consumer could not rely, and thus are not considered to be false advertising under the FAL. 

• Advertising that states in general terms that one product is superior to another would not violate the FAL. However, misdescriptions of specific or absolute characteristics of a product would violate the FAL. For example, if an advertisement for a solar-powered camping lamp said that it was “far brighter than any lamp ever before offered for your campsite,” that would likely be considered puffery, and not violate the FAL. But if the advertiser then quantified that superior brightness with statements like “36,000 candle power and 10-hour life,” that would be considered a violation of the FAL.

• Intent of the advertiser and knowledge of the customer are both irrelevant to determining whether or not members of the public are likely to be deceived under the FAL.

• Uber’s claim to be “committed to improving the already best in class safety and accountability of the Uber platform, for both riders and drivers,” was not merely an assertion that the company placed a high priority on safety, because the statement also incorporated assertions that a reasonable consumer might rely on as based in fact. A statement about “commitment to improving safety” would likely be considered vague puffery and not a violation of the FAL, because language like “commitment” is not measurable. But a reasonable consumer could think that Uber’s “best in class safety” is an objective fact and measurable.

• Claims tend to arise under the FAL for things like price. For example, if an ad says “Today through Friday only $14.99,” but the regular price is $14.99, then this would be misleading to a reasonable consumer. Even though the statement is technically accurate, it implies that if the customer purchases during this limited time, they will be receiving a deal (when they actually will not).

The non-exhaustive list of guiding principles above does not include specific guidance to particular industries or particular statements. For particular guidance on how you would like to conduct your advertising practices, it is highly recommended you reach out to local counsel to assist you in advising you on your advertising practices.

Reasonable Care

“Reasonable care” or “duty of care” under the FAL is the legal obligation to use reasonable care to avoid injuring others. Remember that the FAL prohibits advertising which is known to be misleading. But the FAL also imposes upon businesses advertising its products or services a duty to exercise reasonable care so that the business should be able to know when its advertising statements are untrue or misleading. What this means is that if the statements were not known to be untrue/misleading, the law also allows a court to focus on whether the business should have known that the ad would be untrue or misleading. So, the question becomes what did the business do (if anything) to assess the truthfulness and accuracy of the ad (i.e., did they exercise reasonable care before releasing the ad?).

Businesses do not exercise reasonable care by blindly relying on representations made by others. If certain information the business relies on to support its advertisements can be verified or investigated by the business through reasonable means, the business is expected to take that extra verification step. In addition, when facts are present which would put reasonable people on notice of possible misrepresentations, the failure to verify and investigate those facts violates this duty of care.

(2) California’s Unfair Competition Law

Typically, a violation of the FAL necessarily leads to a violation of California’s Unfair Competition Law (UCL). The UCL prohibits unfair competition, which is any unlawful, unfair or fraudulent business practice, OR unfair, deceptive, untrue, or misleading advertising. Similar to the federal law, a practice can be unfair if it violates public policy and causes injury to consumers that outweighs the benefits. The UCL has been dubbed a “little FTC Act” because California’s state law incorporates similar core principles and rationales as those found in the FTC Act. As a result, judicial interpretations of the FTC Act have influenced interpretations and understanding of California’s UCL. There is a lot of overlap between the UCL and the FTC Act discussed above. For purposes of this guide, we will focus specifically on advertising that is considered unfair, deceptive, untrue, or misleading. 

Advertising under the UCL is broadly defined to include virtually any statement made in connection with the sale of goods or services, including statements and pictures of labels. To show certain kinds of advertising is unfair, deceptive, untrue, or misleading, evidence must show a reasonable consumer was likely to be deceived by the advertising.

So, similar to the federal standard, this means that a consumer does not actually have to be deceived, but rather the conduct only has to be likely to mislead. Common examples of deceptive business practices include pretending to be affiliated with or endorsed by a better-known brand, or luring customers into a sale by advertising a cheap price and then having only higher-priced options available (aka “bait-and-switch”). 

The UCL also treats “puffery” in advertisements similarly to the FTC Act. “Puffery” is distinguished by vague and highly subjective claims that no reasonable consumer would accept as a factual assertion that is specific or detailed.

If suit were brought under the UCL, a court could award an injunction (which is a court order that would order the wrongdoer to stop the practice) against the wrongdoer or “restitutionary damages” (which is generally returning the benefit the wrongdoer gained from the wrongdoing). The goal is generally to be fair, to prevent the wrongdoer from the practice and to restore things that were wrongfully acquired, rather than awarding someone for any actual losses suffered. But in the end, paying damages or having to comply with an injunction can have real consequences for a business. Ensuring that business practices and advertisements are fair and not misleading can be very important to avoiding some practical hardships.

(3) California Consumers Legal Remedies Act (CLRA)

The CLRA prohibits 24 specific types of business practices, including certain types of advertising. It allows consumers to bring individual or class action lawsuits to recover actual damages, or the actual loss suffered by a consumer. We won’t list all of the 24 prohibited practices here, but here’s a short list of some of the ones that may be the most relevant to keep in mind that should be avoided:

· Misrepresenting the source or certification of a good

• Misrepresenting that the goods are affiliated or associated with another, or endorsed or approved by another (or that it has some sort of connection with someone when it doesn’t)

• Saying the goods are new or original when they are actually used or reclaimed, or otherwise misrepresenting quality

• Advertising goods with the intent not to sell them as advertised

• Advertising goods with the intent not to supply a reasonably expectable demand, unless the ad discloses that the quantity is limited

• Making false or misleading statements of fact about price reductions

• Representing that a part, replacement, or repair is needed when it’s not

The CLRA does not apply to commercial or government contracts, to contracts formed by nonprofit organizations and other noncommercial groups, or to rental agreements. Similarly, the CLRA does not apply to the owners or employees of any advertising medium that disseminates deceptive advertising unless the owners or employees of the advertising medium had knowledge of deceptive methods, acts, or practices.

Generally, a violation of the FAL or CLRA is also a violation of the UCL. One issue that often arises when trying to determine whether ads/statements are misleading to a reasonable consumer involves generalized or exaggerated statements. Generalized, vague and unspecified statements are generally considered to be “puffery,” meaning that they don’t make any specific claims, or are so exaggerated that it is unlikely that consumers would rely on the statement to make a decision as to whether to purchase. This means that puffery is generally not misleading. However, misdescriptions of specific or absolute characteristics of a product are considered to be misleading. 

The Kellogg’s cereal example highlights the fine line between advertised statements that are allowed and advertised statements that are prohibited. Businesses taking notes from the Kellogg’s example should consider when an advertised claim crosses the threshold between an exaggerated claim (puffery) and a statement that can be measured and verified. In the Kellogg’s example, Kellogg’s did not verify or investigate the accuracy of its stated claims like including “essential nutrients” or the cereal was “nutritious.” Before a business commits to any kind of advertising claim, businesses should ask if a reasonable consumer would understand the statement as an objective fact or a subjective claim. 

Online Advertising

Disclosures in the Online Advertising Space

The FTC makes clear the same consumer protection laws that apply to commercial activities in other media also apply in the online advertising space, including activities in the mobile marketplace. (See discussion above on the FTC Act). Specific to disclosures in the online space, it is important that disclosures are clear and conspicuous. The following are traditional factors to evaluate whether disclosures are likely to be clear and conspicuous in the context of online advertisements.

Proximity and placement

In traditional advertising mediums (television, newspaper, etc.), the closer a disclosure is to the claim it qualifies, the better. While the same approach can be used with online mediums like websites and mobile applications, there are certain disclosure challenges in the online setting because of the potential depth of interactivity (e.g., pop-up screens, scrolling, etc.). In such cases, it’s important for advertisers to look at empirical research to understand places where consumers will and will not notice a disclosure.

A disclosure is more likely to be effective if the disclosure-warranting claim (the “triggering claim”) can be viewed on the same screen as the disclosure. Presenting a disclosure on the same screen might not always be possible when considering various screen sizes between computers, tablets, smartphones, and other connected devices. In these situations, it’s usually adequate to place disclosures in places where a consumer might need to scroll to find the disclosure. However, advertisers should use text or visual cues to encourage consumers to scroll down to the appropriate locations so disclosures are noticeable.

Visual design can also give consumers a heads up that they need to continue scrolling to find important information. Scroll bars along the edges are not effective visual cues to encourage consumers to scroll because consumers may not look at a scroll bar or use a device that displays a scroll bar. Similarly, visual cues that would signal the bottom of the webpage may discourage further scrolling, like “terms of use,” “privacy policy,” or a section of blank space.

In practice, what this means is important disclosures tied to a product or service should be placed in locations where an online consumer would expect the disclosure to be. When at all possible, consumers should not have to scroll to read disclosures. Website managers tasked with placing these disclosures on their respective online platforms should be aware of consumer behaviors to help strategically place disclosures in appropriate locations.

Hyperlinking to a Disclosure

Hyperlinks to a disclosure on a separate webpage can be useful when the disclosure is long or bears repeating for multiple claims requiring the same or similar disclosure. Hyperlink disclosures are common for serious health and safety issues where a disclosure in closer proximity to a health or safety claim might not be as effective as a disclosure on a separate webpage. However, using hyperlinks for disclosures is risky because consumers may overlook disclosures conveyed through a hyperlink. Disclosures that are an essential part of a claim or are particularly important for a consumer to know should be placed on the same page and immediately next to the claim instead of being conveyed through a hyperlink. Hyperlink disclosures should be clearly labeled to communicate the specific nature of the information to which it leads (e.g., “Service Plan Options,” “Health & Safety Information,” etc.). Other factors that may contribute to the effectiveness of hyperlinks include: 

• The key labeling or description of the hyperlink;

• Consistency in the use of hyperlink styles;

• The placement and prominence of the hyperlink on the webpage or screen; and 

• The handling of the disclosure on the click-through page or screen

When possible, relevant information like price and additional fees should not have to be found by clicking on a hyperlink. No matter what your style of hyperlinks will be on your website, it is important all hyperlinks on the website are consistent and increase the likelihood that consumers will know when a link is available.

After users click on a hyperlink, the “click-through page” (the page or screen the hyperlink leads to) must contain the complete disclosure and that disclosure must be displayed prominently. Once users are on the click-through page, the click-through page should convey its message quickly and understandably from a single source. Users should not have to click or search additional pages or screens to find information the hyperlink was meant to disclose.

Prominence of disclosures

Disclosures should be displayed in a way that draws users’ attention. For example, use of large sized disclosures, contrasting colors, and prominently displayed graphics help make disclosures more noticeable. Disclosures should not be buried in long paragraphs where users are unlikely to read them. 

Distracting factors

The effectiveness of a disclosure can also depend on a number of distractors surrounding the disclosure. Elements of an entire ad, like graphics, sound, text, links that lead to other screens or sites, or “add to cart” buttons may result in consumers not noticing, reading, or listening to the disclosure. Television ads that have moving visuals behind a text message make the text hard to read and may distract consumers’ attention from the message. Similarly, in the online context, graphics such as flashing images, GIFs and other animated graphics may reduce the prominence and overall effectiveness of a disclosure.

Use repetitive elements to ensure disclosure of information in a non-deceptive way

Repeating a disclosure makes it more likely that a consumer will notice and understand it, and will also increase the likelihood that it will be seen by consumers who may be entering the website at different points. For example, some users of a website may take the time to navigate a website in the “proper way” (i.e., in a way where under normal circumstances the user would be exposed to all the relevant pages and disclosures necessary). Other users might be directed to a specific webpage with the use of a link where the user might not have been exposed to any disclosures that were meant to be shown before the linked page. Consequently, advertisers should consider whether consumers who see only a portion of their ad are likely to be misled because they either miss a necessary disclosure or do not understand its relationship to the claim it modifies. 

Disclosures within multimedia messages and ad campaigns

Not all online ads are restricted to text-based advertisements. Some online ads consist of audio messages, videos, animated segments, or augmented reality experiences with claims that require qualification. We can draw lessons from radio and television ads, where the disclosure should accompany the claim.

Disclosures within endorsements

Remember that an endorsement or testimonial is any advertising message that consumers are likely to believe reflects the opinions, beliefs, or experiences of a third party (i.e., someone other than the advertiser). Personal endorsements must reflect the actual experiences and beliefs of the endorser. Endorsements also cannot be false or misleading.

Generally, advertisers are liable for false or unsubstantiated statements made through endorsements, or for failing to disclose connections between themselves and the endorser that would affect the credibility of the endorsement. For example, a common situation that poses an issue if there’s no disclosure is when an endorser was paid to give their endorsement, or if they received a product for free in order to form their opinion. In the end, if the person endorsing a product is receiving compensation or a benefit that is not available to the public, a disclosure of that relationship/connection is required.

Keep in mind that the FTC thinks about compensation very broadly, even if the item the endorsing party receives isn’t a big-ticket item (such as a BOGO coupon or a sample). For example, let’s say you pay a blogger $300 to blog about your new toy. The blogger has to disclose in her blog that she was paid to write the article. Or let’s say you’ve found a YouTuber that gives reviews about children’s toys, and you provide her with your new toy for free so that she can vlog about it. She would need to include a disclaimer in her video that she received the toy from you for free.

Native Advertising

Native advertising is sponsored content that is intended to match the visual design of a hosting publication or website and to behave just like editorial content. These advertisements engage with consumers organically (or “natively”) in non-promotional ways to be relevant as possible and strengthen consumer ties to a brand. One example of native advertising is shown below:

Because native advertisements are formatted in a way where the content is seamlessly integrated into the visual design of a website, native advertisements blur the line between content and advertising. Platforms may incorporate native advertising because they are the kind of advertising consumers are drawn to for its content, even though they ultimately recognize that it is an advertisement. There are three core types of native advertising

• In-Feed/In-Content Native Advertising: appear on home pages, section fronts, within content on article pages, on product pages and social platforms. These native ads fit in to match both the layout and design of the surrounding content, and include disclosure language or other visual cues to let the consumer know that these are paid advertisements and not organic publisher or platform content. 

• Content Recommendation Advertising: type of native ad (article, video, product or web page) that are displayed alongside other editorial content, ads, and/or paid content. These ads are typically found below or alongside publisher content, such as an article or in a feed. 

• Branded/Native Content: paid content from a brand that is published in the same format as full editorial on a publisher’s site, generally in conjunction with the publisher’s content teams themselves. The content itself is, therefore, part of the native ad buy and should be considered as a native ad type.

Native advertising can be a problem when consumers cannot tell the difference between the other content on the site/platform, and the advertisement itself. Since the method of carrying out native advertising on any given platform will vary from owner to owner, there is no one-size-fits-all method of properly disclosing the advertising nature of these ads that are seamlessly integrated into the platform. However, there is guidance on how to help consumers distinguish between native paid advertising and editorial content.

The Interactive Advertising Bureau (IAB) advocates that, for paid branded content ad units, clarity and prominence of the disclosure is key. The disclosure must (1) use language that conveys the advertising has been paid for, thus making it an advertising unit, even if that does not contain traditional promotional advertising messages; and (2) be large and visible enough for a consumer to notice it in the context of a given page and/or relative to the device that the ad is being viewed on.

Similarly, the Federal Trade Commission also gives guidance on how businesses should handle native advertising. The FTC provides an in-depth guide on native advertising, which can be foundhere.

Conclusion

Although the laws that apply to advertising make up a large landscape, most of the laws seek to protect the consumer from confusion, and from being deceived or mislead into purchasing something that doesn’t meet their expectations. Taking the time to carefully craft effective advertisements for your products or services, and relay important disclosures with accurate language can make all the difference in complying with truth in advertising laws.

If you have questions about advertising for your business, contact New Media Rights using our contact form.