Making False Statements in Advertising: FTC Enforcement

Making False Statements in Advertising: FTC Enforcement

Laws Prohibiting False and Misleading Advertising

There are several laws, both federal and state, that prohibit false, deceptive and misleading advertising. The key federal laws enforced by the FTC include:

• FTC Act Section 5 – This broadly prohibits “unfair or deceptive acts or practices” and gives the FTC flexibility to challenge false advertising not covered by more specific laws.
• Clayton Act Section 2(a) – Specifically prohibits price discrimination through false or misleading advertising or promotional activities.
• Lanham Act Section 43(a) – Allows competitors to sue each other for unfair competition through false or misleading advertising. The FTC also uses Section 5(a) in its enforcement.

In addition to federal law, state consumer protection statutes also typically prohibit false and deceptive advertising. State attorneys general have authority to enforce these state laws against violators through lawsuits on behalf of residents.

How the FTC Evaluates Advertising Claims

The FTC’s Bureau of Consumer Protection polices false advertising nationwide. When evaluating whether an ad claim violates the law, the FTC considers the overall net impression made by the ad and asks:

• Is the claim truthful and not misleading? Ad claims must be truthful and not misleading to consumers acting reasonably under the circumstances. Even claims that are technically true can be misleading in context.
• Is the claim substantiated? Advertisers must have appropriate substantiation to support objective product claims, especially as they relate to health, safety, performance and efficacy.
• Is the claim material? A claim is material if it is likely to affect a consumer’s purchasing decision. Express and implied claims can both be material.

The FTC provides guidance to advertisers in many industries on substantiating claims to avoid enforcement action. But when an advertiser makes false, unsubstantiated or misleading claims, the FTC may open an investigation and bring an enforcement action.

Recent Trends and Priorities in FTC Enforcement

The FTC has broad latitude to pursue enforcement in many spheres, but recent areas of focus when it comes to false advertising include:

• Environmental marketing claims – “Greenwashing” through false or unsubstantiated claims of environmental benefits is an active area of FTC enforcement.
• Made in the USA claims – Strict standards must be met to claim a product is made or originates in the USA, an area of increasing FTC scrutiny.
• COVID-19 related products – During the pandemic, the FTC aggressively targeted false and misleading claims related to health benefits of supplements and cures.
• Endorsements and testimonials – Failure to clearly disclose material connections between an endorser and advertiser is pursued by the FTC.
• Deceptively formatted advertisements – Ads formatted to look like news reports and other non-commercial content without clear disclosures are closely policed.

In these and other spheres, the FTC actively monitors competitor and consumer complaints about potentially false advertising to identify enforcement targets.

Penalties and Risks of False Advertising Violations

When an advertiser is found to have made false, misleading or unsubstantiated advertising claims, the penalties and fallout can be significant:

• Cease and desist orders – The FTC frequently uses administrative proceedings to compel false advertisers to stop making problematic claims. Failure to comply can trigger civil penalties of over $43,000 per violation.
• Civil penalties and redress – False advertisers may have to pay substantial civil penalties up to $43,792 per violation and provide refunds to consumers under FTC orders.
• Injunctions – Courts may enter injunctions requested by the FTC forcing false advertisers to stop making claims and correct past violations. Violating injunctions can lead to contempt sanctions.
• Lawsuits by competitors – Under the Lanham Act, those harmed by false advertising can sue for their own losses leading to damages awards.
• Reputational harm – The stigma of being found to have deceived consumers can harm brand reputation and integrity.

Clearly, the potential consequences of making false, misleading, or unsubstantiated advertising claims are substantial. Advertisers should have sound substantiation for objective product claims, understand FTC guidance, and avoid “puffery” or exaggeration in subjective claims. Consulting with legal counsel can help craft advertising campaigns and mitigate enforcement risks.

With consumer spending representing 70% of the US economy, sound advertising principles that avoid deceiving the public are vital. The FTC takes false advertiser enforcement seriously, and companies should too.