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Interview: Intellectual Property Attorney Richard Newman on False Advertising in the Consumer Age

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As our homes and store shelves become flooded with new products, companies often find themselves in a heated competition for consumer attention. This leads to practically every new cellphone being labeled a revolution, every new hamburger tastier and juicier, and every new TV screen the sharpest thing since crystal.

But businesses cross the line once they begin making promises that the product doesn’t fulfill or selling defective products. And when advertisers do fall on the wrong side of that line they can hold an entire company responsible for false information. The proliferation of junk in the world has led to a new age of false advertising claims, and a new need for lawyers to handle the workload.

Richard Newman is an intellectual property lawyer who’s worked for over 10 years in the field, and he says the main criterion to consider is whether an advertisement made a materially misleading statement about a product.

When does advertising go from selling/promoting a product to being “false advertisement”?

A false advertisement is one which is misleading in a material respect. 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.

Deception cases typically involve a material representation, omission, or practice that is likely to mislead a reasonable consumer. Practices that have been found misleading or deceptive include, without limitation: false verbal or written representations, misleading price claims, unsubstantiated representations, fabricated testimonials, failure to disclose material connections between advertisers and endorsers, failure to clearly and conspicuously disclose material limitations or conditions, and false comparisons.

Regulators examine advertising practices from the perspective of a reasonable consumer. The starting point in a regulatory compliance analysis is to analyze the “overall net impression” of what is being portrayed, in context. The fundamental inquiry is whether the act or practice is reasonably likely to affect a consumer’s conduct or decision with regard to a product or service, rather than whether the act or practice causes actual deception.

The bottom line is that if a representation contained in an advertisement tends to materially influence a consumer’s decision, all conditions, restrictions, and limitations must be disclosed clearly and conspicuously in order to prevent the advertisement from being considered deceptive.

What criteria have to be met to determine the public has been deceived?

Oftentimes, advertising disputes are resolved not by courts, but by industry self-regulators. The Federal Trade Commission is the nation’s consumer protection agency. At the state level, attorneys general are charged with protecting consumers from fraud and ensuring fair competition in the marketplace. Federal and state regulators generally tend to select cases that have met a specific threshold of consumer harm – a significant amount of harm to a very small number or a lesser amount of harm to a great number of consumers.

What are some notable examples of false advertising?

Some examples include failure to disclose conditions, restrictions, limitations and/or exclusions, such as, when making “Free” or similar offers; false, misleading and deceptive advertising claims targeted at children that tend to exploit unfairly a consumer group unqualified by age or experience to anticipate or appreciate the possibility that representations may be exaggerated or untrue; false and unsubstantiated claims, such as the claim that supplements cause rapid weight loss; and fabricated news reports or test results demonstrating the effectiveness of a product, when no such tests have been conducted.

What kind of advertising claims does the FTC focus on?

The Commission pays closest attention to advertisements that make claims about health or safety, that could result in widespread economic injury, and that consumers would have trouble evaluating for themselves. The agency concentrates on national advertising and usually refers local matters to state, county, or city agencies. In evaluating potential investigations and enforcement actions, the Commission will look at the extent to which an advertisement represents a pattern of deception, rather than an individual dispute between a consumer and a business or a dispute between two competitors. The degree of injury that could result if consumers rely on a deceptive claim is also relevant. 

What kinds of companies are more prone to advertising themselves or their products falsely?

The health, safety, nutrition, dietary supplement and weight loss related verticals are traditionally considered high-risk and are typically subjected to heightened regulatory standards as it pertains to issues such as claim substantiation. Similarly, consumer financial related products or services, such as debt consolidation, credit repair, mortgage modification, foreclosure rescue, and other debt- and credit-related claims are perceived by regulators as potentially predatory in nature. The promises to consumers within these verticals inherently attract increased scrutiny from the Federal Trade Commission and state attorneys general.

What kind of legal consequences can a company face if found guilty of false advertising?

Regulatory enforcement actions frequently involve monetary penalties, equitable injunctive relief, asset freezes, court-ordered restitution to consumers, and disgorgement of “ill-gotten gains.”  Settlements also typically include permanently banning defendants from engaging in certain conduct, as well as compliance reporting, compliance monitoring, and record keeping obligations.

How are the payouts in these cases determined?

The penalties that can be imposed against a company that runs false or deceptive advertisements depend upon the nature of the violation. The remedies that the FTC or the courts have imposed include legally-binding orders that require companies to cease running the deceptive advertisements or engaging in the deceptive practice, maintaining substantiation for claims in future advertisements, reporting periodically to Commission staff, monetary fines, asset freezes, equitable injunction, disgorgement, permanent advertising bans, individual liability, and corrective advertising.

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