General Advertising Policies For Small Businesses



Advertising FAQs:
A Guide for Small Business

GENERAL ADVERTISING POLICIES

What truth-in-advertising rules apply to advertisers?

Under the Federal Trade Commission Act:

  • Advertising must be truthful and non-deceptive;
  • Advertisers must have evidence to back up their claims; and
  • Advertisements cannot be unfair.

Additional laws apply to ads for specialized products like consumer leases, credit, 900 telephone numbers, and products sold through mail order or telephone sales. And every state has consumer protection laws that govern ads running in that state.

What makes an advertisement deceptive?

According to the FTC's Deception Policy Statement, an ad is deceptive if it contains a statement - or omits information - that:

  • Is likely to mislead consumers acting reasonably under the circumstances; and
  • Is "material" - that is, important to a consumer's decision to buy or use the product.

What makes an advertisement unfair?

According to the Federal Trade Commission Act and the FTC's Unfairness Policy Statement, an ad or business practice is unfair if:

  • it causes or is likely to cause substantial consumer injury which a consumer could not reasonably avoid; and
  • it is not outweighed by the benefit to consumers.

How does the FTC determine if an ad is deceptive?

A typical inquiry follows these steps:

  • The FTC looks at the ad from the point of view of the "reasonable consumer" - the typical person looking at the ad. Rather than focusing on certain words, the FTC looks at the ad in context - words, phrases, and pictures - to determine what it conveys to consumers.

  • The FTC looks at both "express" and "implied" claims. An express claim is literally made in the ad. For example, "ABC Mouthwash prevents colds" is an express claim that the product will prevent colds. An implied claim is one made indirectly or by inference. "ABC Mouthwash kills the germs that cause colds" contains an implied claim that the product will prevent colds. Although the ad doesn't literally say that the product prevents colds, it would be reasonable for a consumer to conclude from the statement "kills the germs that cause colds" that the product will prevent colds. Under the law, advertisers must have proof to back up express and implied claims that consumers take from an ad.

  • The FTC looks at what the ad does not say - that is, if the failure to include information leaves consumers with a misimpression about the product. For example, if a company advertised a collection of books, the ad would be deceptive if it did not disclose that consumers actually would receive abridged versions of the books.

  • The FTC looks at whether the claim would be "material" - that is, important to a consumer's decision to buy or use the product. Examples of material claims are representations about a product's performance, features, safety, price, or effectiveness.

  • The FTC looks at whether the advertiser has sufficient evidence to support the claims in the ad. The law requires that advertisers have proof before the ad runs.

What kind of evidence must a company have to support the claims in its ads?

Before a company runs an ad, it has to have a "reasonable basis" for the claims. A "reasonable basis" means objective evidence that supports the claim. The kind of evidence depends on the claim. At a minimum, an advertiser must have the level of evidence that it says it has. For example, the statement "Two out of three doctors recommend ABC Pain Reliever" must be supported by a reliable survey to that effect. If the ad isn't specific, the FTC looks at several factors to determine what level of proof is necessary, including what experts in the field think is needed to support the claim. In most cases, ads that make 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. In addition, any tests or studies must be conducted using methods that experts in the field accept as accurate.

Are letters from satisfied customers sufficient to substantiate a claim?

No. Statements from satisfied customers usually are not sufficient to support a health or safety claim or any other claim that requires objective evaluation.

My company offers a money-back guarantee. Very few people have ever asked for their money back. Must we still have proof to support our advertising claims?

Yes. Offering a money-back guarantee is not a substitute for substantiation. Advertisers still must have proof to support their claims.

What kind of advertising claims does the FTC focus on?

The FTC pays closest attention to:

  • Ads that make claims about health or safety, such as:

ABC Sunscreen will reduce the risk of skin cancer.

ABC Water Filters remove harmful chemicals from tap water.

ABC Chainsaw's safety latch reduces the risk of injury.

  • Ads that make claims that consumers would have trouble evaluating for themselves, such as:

ABC Refrigerators will reduce your energy costs by 25%.

ABC Gasoline decreases engine wear.

ABC Hairspray is safe for the ozone.

Ads that make subjective claims or claims that consumers can judge for themselves (for example, "ABC Cola tastes great") receive less attention from the FTC.

How does the FTC decide what cases to bring?

The FTC weighs several factors, including:

  • FTC jurisdiction. Although the FTC has jurisdiction over ads for most products and services, Congress has given other government agencies the authority to investigate advertising by airlines, banks, insurance companies, common carriers, and companies that sell securities and commodities.
  • The geographic scope of the advertising campaign. The FTC concentrates on national advertising and usually refers local matters to state, county, or city agencies.
  • The extent to which an ad represents a pattern of deception, rather than an individual dispute between a consumer and a business or a dispute between two competitors. State or local consumer protection agencies or private groups such as the Better Business Bureau (BBB) often are in a better position to resolve disputes involving local businesses or local advertising. To get the address and phone number of your state Attorney General's office, your local consumer agency, or the nearest BBB, check your telephone directory.
  • The amount of injury - to consumers' health, safety, or wallets - that could result if consumers rely on the deceptive claim. The FTC concentrates on cases that could affect consumers' health or safety (for example, deceptive health claims for foods or over-the-counter drugs) or cases that result in widespread economic injury.

What penalties can be imposed against a company that runs a false or deceptive ad?

The penalties depend on the nature of the violation. The remedies that the FTC or the courts have imposed include:

  • Cease and desist orders. These legally-binding orders require companies to stop running the deceptive ad or engaging in the deceptive practice, to have substantiation for claims in future ads, to report periodically to FTC staff about the substantiation they have for claims in new ads, and to pay a fine of $42,530 per day per ad if the company violates the law in the future.
  • Civil penalties, consumer redress and other monetary remedies. Civil penalties range from thousands of dollars to millions of dollars, depending on the nature of the violation. Sometimes advertisers have been ordered to give full or partial refunds to all consumers who bought the product.
  • Corrective advertising, disclosures and other informational remedies. Advertisers have been required to take out new ads to correct the misinformation conveyed in the original ad, notify purchasers about deceptive claims in ads, include specific disclosures in future ads, or provide other information to consumers.

Will the FTC review my company's ads before they run to make sure that we've complied with the law?

FTC staff cannot clear your ads in advance. However, there is guidance to help you comply with the law. Information about advertising particular kinds of products (for example, foods, dietary supplements, or "environmentally friendly" merchandise), advertising credit, and guidelines for advertising on the Internet is available at www.ftc.gov. For more general information on advertising policies, call the FTC's Division of Advertising Practices at 202-326-3090.

How can I keep up-to-date on what's going on at the FTC?

The Federal Trade Commission website (www.ftc.gov) is updated almost every day, so bookmark it for instant access to FTC news and views, including recent enforcement actions, speeches, public hearings, and other business information. Before running an ad, check out what the FTC has had to say about products or advertising claims similar to yours. From the homepage, you can search the entire FTC website using key words or phrases. For example, a search using the word "diet" will yield cases, reports, news releases, and other materials related to FTC policies about the advertising of diet products and services. In addition, you can visit www.consumer.gov for consumer and business information from the FTC, FDA, SEC, and other federal agencies. You also may want to check with the Better Business Bureau for tips on truthful advertising, the BBB's voluntary Code of Advertising, and information about scams targeting small businesses.

How does the FTC address the needs of small businesses?

In its continuing commitment to regulatory reform, the FTC has repealed almost 50% of its trade regulation rules and has streamlined and simplified remaining rules. The FTC's Small Business Compliance Assistance Policy Statement describes other forms of assistance available to small businesses to help them comply with truth-in-advertising laws. For example, the Business Guidance section of the FTC's website (www.ftc.gov) includes an expanding library of materials written especially for small businesses. Small businesses also may contact the FTC headquarters or one of the FTC's regional offices with specific inquiries about how to comply with the law. In addition, one of the FTC's top law enforcement priorities is fighting fraudulent and deceptive practices aimed at small businesses. The agency has taken the lead in challenging deceptive invention promotion services, questionable franchise opportunities, bogus office supply scams, and other practices that prey on aspiring entrepreneurs.

What can my company do if a competitor is running an ad that I think is deceptive?

You can:

  • Explore your legal options under federal and state statutes that protect businesses from unfair competition. For example, the Lanham Act gives companies the right to sue their competitors for making deceptive claims in ads.
  • File a complaint with the National Advertising Division (NAD) of the Council of Better Business Bureaus, if your competitor's ad is running nationally or regionally. The NAD is a private, self-regulatory group affiliated with the BBB. It investigates allegations of deceptive advertising and gives advertisers a mechanism for resolving disputes voluntarily.
  • Call your local BBB or file an online complaint with the Better Business Bureau if the ad is local. Many BBBs have procedures for resolving disputes between businesses.
  • Contact the radio station, television station, or publication where the ad ran. Let them know that they're running an ad you think may be deceptive.
  • Contact your state Attorney General's Office or your city, county, or state Office of Consumer Affairs. To get their phone numbers, check your telephone directory.
  • Contact the FTC. By mail: Federal Trade Commission, Consumer Response Center, 600 Pennsylvania Avenue, NW, Washington, DC 20580; by telephone: toll-free 1-877-FTC-HELP.

If my company files a complaint about a competitor with the FTC, will the FTC resolve the dispute?

The FTC is authorized to act when it appears that a company's advertising is deceptive and when FTC action is in the public interest. Although the FTC cannot intervene in an individual dispute between two companies, the agency relies on many sources - including complaints from consumers and competitors - to find out about ads that may be deceptive. To file a complaint against a competitor who you believe has engaged in false advertising, contact:

Federal Trade Commission
Consumer Response Center
600 Pennsylvania Avenue, NW
Washington, DC 20580
Toll-free 1-877-FTC-HELP (382-4357)
Online Complaint Form

If my company files a complaint against a competitor with the FTC, will we be kept informed about the status of any investigation?

No. The FTC keeps investigations confidential. Matters become public only after the FTC reaches a settlement with a company or files a lawsuit. However, you can be assured that complaints received from companies alleging that competitors are advertising deceptively are reviewed carefully.

Can I find out if the FTC already has an investigation against a company?

The FTC can tell you if it has already taken formal action (e.g., filed or settled a lawsuit) against a particular company or against similar kinds of advertisements or products. But the FTC cannot disclose whether an investigation is going on. To find out if a company or product has been the subject of a recent FTC action, search the FTC's website (www.ftc.gov).

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