Basically, false advertising is any advertising that deceives consumers. This includes misleading or deceptive advertising that technically may to true, but may be misunderstood by consumers. In most cases false advertising leads a consumer to believe that certain benefits will be received, when they're not.
The Federal Trade Commission (FTC) has the authority under Section 5 of the FTC Act to file lawsuits against advertisers believed to be making false advertising claims. This authority extends to traditional media - print, television, radio, and telephone.
The FTC's authority for false advertising has also been extended to cover online advertising, and the FTC has been very aggressive in its enforcement on the Web. Since 1994, the FTC has brought over 100 enforcement actions against online businesses.
However, claims for false advertising aren't limited to the FTC. The attorneys general of various states have also been just as active filing claims based on state laws that are similar in concept to the FTC Act.
Why It's Relatively Easy to Inadvertently Make False Advertising Claims
Most Internet entrepreneurs don't intend to make false or misleading claims.
What most Internet entrepreneurs don't know is that It's relatively easy to inadvertently make a false or misleading claim. The primary reasons are:-
-most SaaS and ecommerce websites write their own marketing copy, and
- many websites are not updated periodically.What's marketing copy?
You can boil down it down to this - it's the clever stuff you write to sell your site and it's product and/or services. And it doesn't have to be presented in the format of a typical "advertisement". It may simply be in the form of your pricing and descriptions of your products and services - and even in the text of your website legal compliance documents such as your Terms of Use.
Danger signs include incorrect product or service descriptions, incorrect pricing, or photos or online demos that don't portray your products or services accurately or completely. Maybe your descriptions, pricing, photos, and demos - and even your website legal documents -- were not misleading when they were first added to your website, but you've failed to update them over time -- with the result that now they're now out-of-date and misleading to consumers.
The 5 Rules
In interpreting the FTC Act, the FTC has determined that a representation, omission, or practice is false or misleading if it is likely to:
- mislead consumers, and
- affect consumers' behavior or decisions about a product or service.
In addition, an act or practice is false and misleading if the injury caused (or likely to be caused) is:
- substantial,
- not outweighed by other benefits, and
- not reasonably avoidable.
These rules are also reflected in various state statutes that also prohibit false advertising.
Recent Illustrative Cases
The best way to get a feel of how these rules are interpreted is to take a look at some of the cases construing them. Here's a short list of illustrative cases.
1. Earlier this month, Lifestyle Lift, a cosmetic surgery company, has reached a settlement with the State of New York over its attempts to fake positive consumer reviews on the Web. The company will pay $300,000 in penalties and costs to the state. The company had ordered employees to pretend they were satisfied customers and write glowing reviews of its face-lift procedure on websites, according to New York's attorney general. Lifestyle Lift also created its own websites of face-lift reviews to appear as independent sources.
2. In May, 2009, a trial court in Washington state ordered Expedia to pay class action plaintiffs $184,000 based on its ruling that Expedia's website Terms of Use amounted to a breach of contract. Expedia's Terms of Use stated: "service fee goes to covering costs". Plaintiffs alleged that more than costs were included in the service fees and relied on an internal Expedia email that estimated service fees would generate $2-$3,000,000 in net profit for the company in one quarter. The court stated that "plaintiffs correctly conclude that profits, not costs, are the subject matter of these 'service fees.'" Therefore, according to the court, Expedia's contractual definition of service fees that was found in its Terms of Use constituted a breach of contract because Expedia "collected profits along with covering costs."
3. In 2007, the FTC filed an action against Payneless Credit Repair, LLC and its owner for making the following claims on the company's website: "Fast, Legal, Effective, Credit Report Repair ... We will fight to remove negative items from your credit reports, so you can improve your credit score . . . " The FTC alleged that the defendants violated the FTC Act by falsely representing that they can improve consumers' credit reports by permanently removing negative information, even when the information is accurate and not obsolete.
4. In 2005, the FTC filed an action against MP3DownloadCity.com for the following ad: "And best of all people are not getting sued for using our software. yes! it is 100% legal". The FTC alleged that MP3DownloadCity.com violated the FTC Act by falsely claiming that membership in its service made P2P file sharing legal.
Conclusion
Writing your own website advertising copy - as well as your website legal documents - can get you in trouble if you're not careful.
Sometimes you can be a little too clever. Other times, you may have simply failed to keep your product descriptions, pricing, or website documents up-to-date.For these reasons, it's a good idea to be familiar with the FTC's false advertising 5 rules and to review your website periodically to ensure that all statements are true, accurate, complete - and not misleading
Conclusion
Writing your own website advertising copy - as well as your website legal documents - can get you in trouble if you're not careful.
Sometimes you can be a little too clever. Other times, you may have simply failed to keep your product descriptions, pricing, or website documents up-to-date.For these reasons, it's a good idea to be familiar with the FTC's false advertising 5 rules and to review your website periodically to ensure that all statements are true, accurate, complete - and not misleading
