Advertising law encompasses state and federal laws and rules that govern how products can be advertised, including the content of ads as well as when and how they reach consumers. Advertising law involves antitrust, consumer information, communications, technology, and intellectual property law, specifically the use of trademarks and copyrights.
Sellers are legally responsible for claims they make about products and services in advertisements. Third parties, such as advertising agencies, also may be liable for making or disseminating deceptive representations if they contribute to the preparation or distribution of the advertising, or know about the deceptive claims. Advertisements with disclaimers and disclosures must be clear and conspicuous: Buyers must be able to see, read or hear, and understand the information. However, a disclaimer by itself usually does not make a deceptive claim acceptable.
First Amendment Protection
The First Amendment of the U.S. Constitution protects advertising, or commercial speech, although the Constitution affords commercial speech less protection than other categories of speech and is subject to government regulation, including federal and state rules prohibiting commercial speech that is found to be "deceptive."
In Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, 447 U.S. 557 (1980), the U.S. Supreme Court held that a state must justify restrictions on truthful, non-misleading commercial speech by showing that its actions directly and materially advance a substantial state interest and in a manner no more extensive than necessary to serve that interest. Courts now apply this standard to determine whether a state's limitations on advertising are permissible.
Federal Regulation of Advertising
Some federal statutes govern the advertisement of specific products or categories. The Federal Cigarette Labeling and Advertising Act of 1965, which required a health warning label be placed on tobacco products for sale, was amended in 1986 to ban radio and television advertising for cigarettes and smokeless tobacco products. Prescription drug advertisements, under Section 502(n) of the Food, Drug, and Cosmetic Act, 21 U.S.C. 301 et seq., must include the established name, the brand name if one exists, the formula showing quantitatively each ingredient, and a brief summary explaining side effects, contraindications, and effectiveness.
The Federal Trade Commission Act, signed into law by President Woodrow Wilson on September 26, 1914, allows the Federal Trade Commission (FTC) to act in the interest of consumers to prevent deceptive and unfair acts or practices: Advertising must tell the truth and not mislead consumers.
Under the Act, a representation, omission or practice is deceptive if it is likely to mislead consumers and affect consumers' behavior or decisions about the product or service. An act or practice is unfair if the injury it causes, or is likely to cause, is substantial, not outweighed by other benefits, and not reasonably avoidable. A claim in an ad can be misleading if relevant information is omitted or if the claim implies something that isn't true. Claims must be substantiated, or capable of being proven with some evidence, particularly if they involve health, safety, or performance. For example, an ad may not claim substantial benefits to the environment unless it can be proven; vague terms like "environmentally friendly" may be misleading or deceptive to consumers.
Content of Ads
Numerous FTC rules apply to advertising, though the FTC focuses on targeting false advertising and ads that make claims about health and safety. Specific FTC regulations govern advertisements that advertise free products; 900-numbers and other pay-per-call services; textiles; and jewelry, including gold, silver, platinum, pewter, diamonds, gemstones, and pearls.
If an ad includes a demonstration of a product or service, the demonstration must show how the product will perform under normal use by consumers. Similarly, any testimonials and endorsements in an ad must reflect the typical experiences of consumers, unless the ad clearly and conspicuously states otherwise. A disclaimer that not all consumers will get the same results is not enough to qualify a claim, and an advertiser cannot use testimonials or endorsements to make a claim that the advertiser cannot substantiate.
If an ad references a warranty on a product that can be purchased by mail, phone or computer, the ad must tell consumers how to get a copy of the warranty. Advertisements that offer a refund, including language such as "satisfaction guaranteed" or "money-back guarantee," require businesses to provide consumers with the terms of the offer and give full refunds for any reason.
Consumers may file claims with their local Better Business Bureau, which is not a government agency but a national organization that acts as an intermediary between consumers and businesses to resolve disputes, facilitate communication, and provide information on ethical business practices. If an advertisement does not comply with applicable laws, or FTC rules, a business could face state or federal enforcement actions or civil lawsuits. Advertisers under the FTC's jurisdiction may be given orders to cease and desist, with fines up to $11,000 per violation; injunctions by federal district courts; civil penalties of up to $11,000 per violation for certain rules; and refunds to consumers for actual damages in civil lawsuits.
The Lanham Act
Only the FTC can enforce FTC rules, but private parties, including consumers or businesses, can bring a legal action charging deceptive advertising under the Lanham Act. To establish a violation under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a)(1)(B), competitors or consumers must prove: (1) the advertiser made false statements of fact about its own or another's product; (2) the false advertisements actually deceived or had the tendency to deceive a substantial segment of the audience; (3) the deception was material; (4) the advertiser caused the false statement to enter interstate commerce; and (5) the party bringing the lawsuit was injured or is likely to be injured as a result of the deception.