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Any business (and affiliates and marketers) that engages in interstate commerce will be subject to federal laws. Interstate marketing and advertising practices are regulated by the Federal Trade Commission (“FTC”) under the FTC Act. Services and goods offered through the Internet are considered to be a “use in commerce” since the services are available to a national or global audience. The FTC regulates Internet advertising, marketing activities and sales to consumers as the watchdog agency. The same consumer protection laws that apply to commercial activities in other media apply to the Internet. Under Section 5 of the FTC Act, illegal advertising practices are categorized as either an unfair method of competition or an unfair or deceptive act or practice.

Any activity that is likely to cause consumer confusion as to source, sponsorship or affiliation of any good or service is essentially an “unfair” act or practice under the FTC Act. However, the real culprit for interstate businesses, affiliates and other Internet marketers is avoiding advertising claims which are unfair or deceptive. There is no hard definition of what practices are considered “unfair” or “deceptive,” under the FTC Act.

But, in the simplest terms, all advertisements:

 

  1. must be truthful and not misleading;
  2. must have evidence to back up any claims made in the ad; and
  3. cannot be unfair.

 

Complying with FTC laws really boils down to a single standard that your advertisements or marketing practices will be judged under. This “standard” is known as ‘materially misleading.’ This is basically the crux of website advertising law and the standard by which all Internet claims and representations are measured to determine whether they are deceptive. Either an ad or claim is materially misleading, or it isn’t deceptive. This standard is defined by a series of guidelines, rules and policy statements published by the FTC. The FTC rules and guidelines illustrate what the FTC believes is illegal under the technical language of the FTC Act.

The principle guidelines on advertising are contained in the FTC’s Policy Statement on Deception. Under the FTC’s Statement, an advertisement or marketing practice is deceptive if there is a representation, omission of information or some other practice that is likely to mislead a reasonable consumer and which is likely to influence or otherwise “affect the consumer’s conduct or decision with regard to a product or service,” to that customer’s detriment.

In terms of Internet advertising, an unfair or deceptive act or trade practice is usually made by publishing a false advertisement. The Act specifically states that using a false advertisement in commerce is unlawful and doing so is also categorized as an unfair or deceptive act or practices. The term false advertisement means an advertisement, other than labeling, which is misleading in a material respect. As you can imagine, flat out lies about your products or services, or those that you promote or endorse, are going to be misleading and illegal. Simply stated, you cannot make any false claims. However, a claim can be misleading in many other ways and this is where most Internet businesses land into trouble.

If you don’t understand the nature of what is considered materially misleading, you could very easily violate FTC laws. You MUST understand all the ways a claim may mislead a consumer and you MUST know what is considered a claim or representation in the first place. This is really the key to understanding FTC laws. For instance, a claim can be literally true, but if it is only true in limited circumstances, or if it is subject to more than one interpretation, one of which is not true, or misleading in its overall effect, it is deceptive. I am going to take you through each element of an advertisement from the FTC’s point of view so you can master this understanding. Again, either you can pay an attorney to look at your specific ads, throw them up blind, or take the time to learn the fundamentals yourself.

A. Overall Context Matters

A claim can be suggested by the overall context of an advertisement. This means a representation or claim can be made or suggested by any “statement, word, design, device, sound, or any combination thereof”. In other words, the FTC won’t just look at the words of an advertisement by itself to determine if it is misleading. Other than the words of the ad, the name of the product, the nature of the product, any visual or audio depictions or symbolism can all provide the context to establish a claim. Even the website name or metatags can provide the context for a claim. The overall experience conveyed by viewing the ad in relation to the rest of the website sets the context for a particular claim.

The U.S. District Court, Third Circuit stated the FTC standard regarding context of an ad clearly. “The tendency of the advertising to deceive must be judged by viewing it as a whole, without emphasizing isolated words or phrases apart from their context.” Beneficial Corp. v. FTC (1976). Using illustrative pictures on your website to demonstrate the effectiveness or results of a product is a common example. Without stating some direct, express claim in words, these pictures would be just as effective in suggesting some claim to your visitors.

EXAMPLE: You operate a website called homesavers.com which offers loan modification and “foreclosure rescue” services. The title of your webpage is labeled as “save home” and your home page contains a picture of a “happy and relieved” couple sitting at a kitchen table looking at their laptop which shows homesavers.com on the screen. The website advertisements include a heading titled “Begin the process of saving your home now” and other claims of “if you act now, we can save your home.” Without any qualifying disclosures, the overall context of the website may imply that consumers can expect to save their homes by using homesavers.com.

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