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Analysis: FTC revises rules for online advertising

Published April 22, 2013
Analysis by lawyer Steven Hansen

In May 2000, after public input, the Federal trade Commission (FTC) staff issued the initial .Com Disclosures guide to show how the Commission’s consumer protection statutes, rules, and guides apply to online advertising and sales and discussed FTC requirements that disclosures be presented clearly and conspicuously, in the context of online advertising. This 2000 guide (hereinafter “Guide”) has now been updated and refined further and was re-released in March 2013 to reflect the dramatic changes in the online world in the preceding eleven years. The full 53 page guide is available here for downloading or viewing.

We previously discussed the “Green Guides”, also issued by the FTC in October 2012 which discuss the details of how companies advertising their ‘eco-friendliness” or “green policies” or “claims” should be disclosed. This 2013 .Com guide is a bit more general and is focused more on the online world than print or television advertising, even though the same rules apply. Although the current guide does not cover every issue associated with online advertising disclosures, it does a good job of providing some clear examples of what not to do but is not intended to provide a “safe harbor” from potential liability. There are also many other issues to deal with in on line advertising, not discussed in this guide such as privacy, financial information, dealing with children, state law issues, warranties, pricing issues, product ordering etc.

UDAP is the “insider lingo” for “unfair or deceptive acts or practices” and unfair methods of competition. Section 5 of the Federal Trade Commission Act (“FTC Act”) is the primary federal law prohibiting UDAP, but virtually every state has also enacted their own UDAP law, many of which are patterned after Section 5 of the FTC Act. Section 5 of the FTC Act is the primary federal law that prohibits unfair or deceptive acts or practices and unfair methods of competition. Unfortunately, the FTC provides minimal guidance on the parameters of what may be considered unfair or deceptive, thus the need for the current .Com guide. Guides are “administrative interpretations of laws administered by the Commission.” Unlike the FTC Act, however, many state UDAP laws specifically grant consumers a private right of action against any business entity that engages in unfair or unconscionable acts or practices. This can be very problematic as these actions often grant plaintiff’s attorneys fees and can give rise to punitive damages, all of which are typically not covered by insurance. 

One of the first issues that stood out in the Guide was how it carefully pointed out that “online” referred to not just desktop computers but smart phones and tablets, as well as all sorts of social media such as Tweets, blog posts and Facebook as well as all sorts of “paid” “endorsement” types of advertising. One issue that struck me that was not discussed is how to handle social media posting by paid or sponsored athletes. (The FTC has issued separate “Endorsement Guides”) That appears to be with the scope of the law. Obviously the “Marketing” department needs to be thoroughly familiar with these guides and needs to direct sponsored athletes accordingly. And when in doubt contact legal counsel familiar with such FTC topics.

Trying to convey UDAP types of very broad or vague laws to many clients is difficult as they are often looking for bright line or “litmus tests” but I tell them that many laws are very “gray”.  The FTC makes it clear that whether a particular ad is deceptive, unfair, or otherwise violative of a Commission rule will depend on the specific facts at hand. The ultimate test is not the size of the font or the location of the disclosure, although they are important considerations; the ultimate test is whether the information intended to be disclosed is actually conveyed to consumers.

When it comes to online ads, the basic principles of advertising law apply:

  1. Advertising must be truthful and not misleading;
  2. Advertisers must have evidence to back up their claims (“substantiation”); and
  3. Advertisements cannot be unfair. (Unfair means is likely to cause substantial consumer injury that consumers could not reasonably avoid and that is not outweighed by the benefit to consumers or competition.)

I can take most ad copy for consumer products and find something that violates one of the three points above, especially the second point. For some reason marketing types like to get carried away with over the top assertions and don’t bother to track down and keep the substantiation for their claims. “Disclosures” are meant to avoid a misleading impression but cannot cure a false claim. The Guide focuses on disclosures, not curing false claims.

Disclosures that are required to prevent an advertisement from being deceptive must be presented “clearly and conspicuously.” Simply making the disclosure available somewhere in the ad, where some consumers might find it, does not meet the clear and conspicuous standard. The Guide details some of the factors to consider in whether a disclosure is “clear and conspicuous”:

  • 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. 

The Guide goes in to quite a bit of detail discussing empirical research regarding where consumers do and do not look on a screen (both on a large screen and a smart phone) and how to deal with all the differences in operating systems, devices, peripheral devices (such as printing) and of course the sophistication of the user. The guide also points out that disclosures that are an integral part of a claim or inseparable from it (such as certain health and safety disclosures) should not be communicated through a hyperlink. Instead, they should be placed on the same page and immediately next to the claim, and be sufficiently prominent so that the claim and the disclosure are read at the same time, without referring the consumer somewhere else to obtain this important information.  

The guide goes in to considerable details as well on how hyperlinks, frames, pop ups, order screens and on line banner ads should be done in terms of colors, graphics, placement, prominence, sequencing, other distractions on the site etc. It even goes into some detail as to how companies should track the effectiveness of disclaimers via hyperlinks, search engines and click throughs also keeping in mind that some consumers do not access your site thru the home page. The Guide also details how disclosures can be made via text, audio and video. One tidbit we found interesting was the FTC’s assertion that “simply because consumers click that they “agree” to a term or condition, does not make the disclosure clear and conspicuous.” There are 26 pages of well done examples of web disclosures and ads in the appendix.

The Guide is definitely worth a thorough reading (especially by your marketing and web people) if you are advertising or selling on line or have any online sales campaigns.  The Guide makes a valid point that although online commerce (including mobile and social media marketing) is booming, deception can dampen consumer confidence in the online marketplace. Keep in mind that most of the general principles of advertising law apply to online ads, but that new issues arise almost as fast as technology develops. As always, conferring with competent legal counsel is always advisable when entering into new or questionable advertising campaigns or for new/novel products.

Steven W. Hansen an attorney who defends product manufacturers, distributors and retailers in product liability lawsuits and provides consultation on all matters related to the manufacture and distribution of consumer products. For further questions visit www.swhlaw.com or send an e mail to legal.inquiry@swhlaw.com 

The information in this column is subject to change and may not be applicable in your state.  It is intended as a thought provoking discussion of general legal principles and does not constitute legal advice. Any opinions expressed herein are solely those of the author.

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