How the FTC Conducts Online Advertising Investigations

How the FTC Conducts Online Advertising Investigations

The Federal Trade Commission, or FTC, is the main federal agency that regulates online advertising in the United States. The FTC enforces laws related to truth in advertising, consumer protection, and data privacy for online ads. When companies are suspected of violating these laws, the FTC can open investigations and take enforcement actions.

This article provides an overview of how the FTC conducts investigations into potential violations of online advertising laws. We’ll cover the key laws involved, the investigation process, and the types of enforcement actions the FTC can take. The goal is to give businesses and advertisers a helpful guide on what to expect if the FTC comes knocking!

Laws the FTC Enforces for Online Ads

There are a few main laws that give the FTC authority over online advertising practices:

• The FTC Act – This prohibits “unfair or deceptive acts or practices” in commerce. False, misleading, or unsubstantiated advertising claims violate this law.
• The CAN-SPAM Act – This sets rules for commercial emails, like requiring opt-out options and prohibiting deceptive subject lines.
• The Children’s Online Privacy Protection Act (COPPA) – This requires websites to get parental consent before collecting data on kids under 13.
• The Restore Online Shoppers Confidence Act (ROSCA) – This regulates practices like negative option enrollments and post-transaction third-party charges.

The FTC uses these laws, along with its rulemaking authority, to regulate online advertising. For example, it has rules on endorsements, disclosures, and affiliate marketing.

How Investigations Get Started

FTC investigations typically start in one of three ways:

1. Consumer complaints – Anyone can file a complaint about a company’s marketing practices through the FTC’s online form or phone hotline. If the FTC receives a lot of complaints about a particular company, it may open an investigation.
2. Referrals from other agencies – The FTC often works jointly with agencies like the FDA, FCC, and state attorneys general. These partners will refer cases to the FTC that involve online advertising violations.
3. Proactive surveillance – The FTC routinely monitors the marketplace, including social media platforms, to identify potential violations. For example, it may notice a spike in affiliate marketing spammers and launch an industry-wide investigation.

The FTC prioritizes cases where it believes substantial consumer harm is occurring. Once the agency decides to move forward with an investigation, here’s what happens behind the scenes:

The Investigation Process

An FTC investigation into online advertising practices typically involves these key steps:

1. Document requests – The FTC sends civil investigative demands (similar to subpoenas) to the advertiser asking for information. This may include data on complaints, financial records, and details on specific marketing claims and campaigns.
2. Written questions – The FTC may submit written questions that the company must answer under oath. This may be dozens of very detailed questions about their ads and data collection practices.
3. Employee interviews – FTC attorneys may interview company executives and employees under oath. They ask about roles, responsibilities, and knowledge of any problematic practices.
4. Research – FTC lawyers review all the materials provided and research the company’s marketing claims independently. They may do test purchases or analyses to substantiate any concerns.
5. Settlement negotiations – If the FTC has concerns, it often gives the company a chance to settle the investigation before an enforcement action. Settlements may include fines, consumer refunds, and agreements to change practices.

Companies under investigation can expect frequent requests for information and interviews over a period of many months. The FTC takes its time gathering evidence to determine if law violations occurred.

FTC Enforcement Options

When an online advertising investigation concludes, there are a few ways the FTC may take enforcement action:

• Administrative complaints – The FTC can file a formal complaint against the advertiser and litigate the charges before an administrative law judge. If violations are found, the judge can order remedies.
• Federal court injunctions – For serious violations, the FTC can work with the Department of Justice to seek an injunction and order in federal court banning the deceptive advertising practices.
• Monetary penalties – Most enforcement actions include some form of civil penalty or fine, especially if consumer harm occurred. For example, the FTC fined Facebook $5 billion in 2019 over privacy violations.
• Consumer refunds – In cases where consumers paid money as a result of deceptive ads, the FTC may establish a refund program to return funds to victims.

Injunctive relief banning the marketing practices is the most common outcome. The goal is to stop the violations and deter similar wrongdoing industry-wide. Criminal prosecution of individuals is very rare in FTC advertising cases.

Avoiding Investigations

To steer clear of FTC investigators, here are some best practices for online advertisers:

• Have substantiation for any claims about your product’s performance, health benefits, endorsements, or other representations.
• Disclose all costs, terms, restrictions, and material connections with endorsements upfront and clearly.
• Allow consumers to easily opt-out of email and mobile messaging lists.
• Get parental consent before collecting data on children under 13.
• Honor all cancellation, return, and refund policies you promote.
• Secure all consumer data you retain and have a privacy policy explaining how it’s used and protected.

It also helps to stay on the FTC’s radar – review its business guidance, watch for new rules and advisories, and stay up to date on settlements in your industry. If you have any doubts about an advertising approach, talk to an attorney to assess the risks.

The FTC’s advertising rules and expectations have ramped up considerably in the digital age. But by ensuring transparent disclosures, substantiated claims, and respect for consumer privacy and choices, advertisers can avoid unwanted legal trouble.

References

FTC. “Advertising and Marketing on the Internet: Rules of the Road.” https://www.ftc.gov/business-guidance/resources/advertising-marketing-internet-rules-road

FTC. “Truth in Advertising.” https://www.ftc.gov/news-events/media-resources/truth-advertising

FTC. “A Brief Overview of the Federal Trade Commission’s Investigative, Law Enforcement, and Rulemaking Authority.” https://www.ftc.gov/about-ftc/what-we-do/enforcement-authority