Advertising and Marketing Basics
Under the law, claims in advertisements must be truthful, cannot be deceptive or unfair, and must be evidence-based. For some specialized products or services, additional rules may apply.
Rules of the Road
The Internet is connecting advertisers and marketers to customers from Boston to Bali with text, interactive graphics, video and audio.
If you’re thinking about advertising on the Internet, remember that many of the same rules that apply to other forms of advertising apply to electronic marketing.
These rules and guidelines protect businesses and consumers, and help maintain the credibility of the Internet as an advertising medium.
The Federal Trade Commission (FTC) has prepared this guide to give you an overview of some of the laws it enforces.
ADVERTISING MUST TELL
THE TRUTH AND NOT
IN ADDITION, CLAIMS
MUST BE SUBSTANTIATED.
GENERAL OFFERS AND CLAIMS PRODUCTS AND SERVICES
The Federal Trade Commission Act allows the FTC to act in the interest of all consumers to prevent deceptive and unfair acts or practices.
In interpreting Section 5 of the Act, the Commission has determined that a representation, omission or practice is deceptive if it is likely
mislead consumers and affect consumers. behavior or decisions about the product or service.
In addition, 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.
The FTC Act prohibits unfair or deceptive advertising in any medium.
That is, advertising must tell the truth and not mislead consumers.
A claim can be misleading if relevant information is left out or if the claim implies something that is not true.
For example, a lease advertisement for an automobile that promotes $0 Down may be misleading if significant and undisclosed charges are due at lease signing.
In addition, claims must be substantiated, especially when they concern health, safety, or performance.
The type of evidence may depend on the product, the claims, and what experts believe necessary.
If your ad specifies a certain level of support for a claim, tests show you must have at least that level of support.
Sellers are responsible for claims they make about their products and services.
Third parties, such as advertising agencies or website designers and catalog marketers, also may be liable for making or disseminating deceptive representations if they participate in the preparation or distribution of the advertising, or know about the deceptive claims.
Advertising agencies or website designers are responsible for reviewing the information used to substantiate ad claims. They may not simply rely on an advertiser’s assurance that the claims are substantiated.
In determining whether an ad agency should be held liable, the FTC looks at the extent of the agency’s participation in the preparation of the challenged ad, and whether the agency knew or should have known that the ad included false or deceptive claims.
To protect themselves, catalog marketers should ask for material to back up claims rather than repeat what the manufacturer says about the product.
If the manufacturer doesn’t come forward with proof or turns over proof that looks questionable, the catalog marketer should see a yellow .caution light. and proceed appropriately, especially when it comes to extravagant performance claims, health or weight loss promises, or earnings guarantees. In writing ad copy, catalogers should stick to claims that can be supported.
Most important, catalog marketers should trust their instincts when a product sounds too good to be true.
Other points to consider:
Disclaimers and disclosures must be clear and conspicuous.
That is, consumers must be able to notice, read or hear, and understand the information.
Still, a disclaimer or disclosure alone usually is not enough to remedy a false or deceptive claim.
Demonstrations must show how the product will perform under normal use.
Refunds must be made to dissatisfied consumers, if you promised to make them.
Advertising directed to children raises special issues. That’s because children may have greater difficulty evaluating advertising claims and understanding the nature of the information you provide.
Sellers should take special care not to misrepresent a product or its performance when advertising to children.
Advertising FAQ's: A Guide for Small Business
What truth-in-advertising rules apply to advertisers?
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.
Additional laws apply to ads for specialized products like consumer leases, credit, 900 telephone numbers, and products sold through mail order or telephone sales. And every state has consumer protection laws that govern ads running in that state.
What makes an advertisement deceptive?
According to the FTC’s Deception Policy Statement, an ad is deceptive if it contains a statement – or omits information – that:
- Is likely to mislead consumers acting reasonably under the circumstances; and
- Is “material” – that is, important to a consumer’s decision to buy or use the product.
What makes an advertisement unfair?
- it causes or is likely to cause substantial consumer injury which a consumer could not reasonably avoid; and
- it is not outweighed by the benefit to consumers.
How does the FTC determine if an ad is deceptive?
A typical inquiry follows these steps:
The FTC looks at the ad from the point of view of the “reasonable consumer” – the typical person looking at the ad. Rather than focusing on certain words, the FTC looks at the ad in context – words, phrases, and pictures – to determine what it conveys to consumers.
The FTC looks at both “express” and “implied” claims. An express claim is literally made in the ad. For example, “ABC Mouthwash prevents colds” is an express claim that the product will prevent colds. An implied claim is one made indirectly or by inference. “ABC Mouthwash kills the germs that cause colds” contains an implied claim that the product will prevent colds. Although the ad doesn’t literally say that the product prevents colds, it would be reasonable for a consumer to conclude from the statement “kills the germs that cause colds” that the product will prevent colds. Under the law, advertisers must have proof to back up express and implied claims that consumers take from an ad.
The FTC looks at what the ad does not say – that is, if the failure to include information leaves consumers with a misimpression about the product. For example, if a company advertised a collection of books, the ad would be deceptive if it did not disclose that consumers actually would receive abridged versions of the books.
The FTC looks at whether the claim would be “material” – that is, important to a consumer’s decision to buy or use the product. Examples of material claims are representations about a product’s performance, features, safety, price, or effectiveness.
- The FTC looks at whether the advertiser has sufficient evidence to support the claims in the ad. The law requires that advertisers have proof before the ad runs.
What kind of evidence must a company have to support the claims in its ads?
Before a company runs an ad, it has to have a “reasonable basis” for the claims. A “reasonable basis” means objective evidence that supports the claim. The kind of evidence depends on the claim. At a minimum, an advertiser must have the level of evidence that it says it has. For example, the statement “Two out of three doctors recommend ABC Pain Reliever” must be supported by a reliable survey to that effect. If the ad isn’t specific, the FTC looks at several factors to determine what level of proof is necessary, including what experts in the field think is needed to support the claim. In most cases, ads that make health or safety claims must be supported by “competent and reliable scientific evidence” – tests, studies, or other scientific evidence that has been evaluated by people qualified to review it. In addition, any tests or studies must be conducted using methods that experts in the field accept as accurate.
Are letters from satisfied customers sufficient to substantiate a claim?
No. Statements from satisfied customers usually are not sufficient to support a health or safety claim or any other claim that requires objective evaluation.
My company offers a money-back guarantee. Very few people have ever asked for their money back. Must we still have proof to support our advertising claims?
Yes. Offering a money-back guarantee is not a substitute for substantiation. Advertisers still must have proof to support their claims.
What kind of advertising claims does the FTC focus on?
The FTC pays closest attention to:
- Ads that make claims about health or safety, such as:
ABC Sunscreen will reduce the risk of skin cancer.
ABC Water Filters remove harmful chemicals from tap water.
ABC Chainsaw’s safety latch reduces the risk of injury.
- Ads that make claims that consumers would have trouble evaluating for themselves, such as:
ABC Refrigerators will reduce your energy costs by 25%.
ABC Gasoline decreases engine wear.
ABC Hairspray is safe for the ozone.
Ads that make subjective claims or claims that consumers can judge for themselves (for example, “ABC Cola tastes great”) receive less attention from the FTC.
How does the FTC decide what cases to bring?
The FTC weighs several factors, including:
- FTC jurisdiction. Although the FTC has jurisdiction over ads for most products and services, Congress has given other government agencies the authority to investigate advertising by airlines, banks, insurance companies, common carriers, and companies that sell securities and commodities.
- The geographic scope of the advertising campaign. The FTC concentrates on national advertising and usually refers local matters to state, county, or city agencies.
- The extent to which an ad represents a pattern of deception, rather than an individual dispute between a consumer and a business or a dispute between two competitors. State or local consumer protection agencies or private groups such as the Better Business Bureau (BBB) often are in a better position to resolve disputes involving local businesses or local advertising. To get the address and phone number of your state Attorney General’s office, your local consumer agency, or the nearest BBB, check your telephone directory.
- The amount of injury – to consumers’ health, safety, or wallets – that could result if consumers rely on the deceptive claim. The FTC concentrates on cases that could affect consumers’ health or safety (for example, deceptive health claims for foods or over-the-counter drugs) or cases that result in widespread economic injury.
What penalties can be imposed against a company that runs a false or deceptive ad?
The penalties depend on the nature of the violation. The remedies that the FTC or the courts have imposed include:
- Cease and desist orders. These legally-binding orders require companies to stop running the deceptive ad or engaging in the deceptive practice, to have substantiation for claims in future ads, to report periodically to FTC staff about the substantiation they have for claims in new ads, and to pay a fine of $42,530 per day per ad if the company violates the law in the future.
- Civil penalties, consumer redress and other monetary remedies. Civil penalties range from thousands of dollars to millions of dollars, depending on the nature of the violation. Sometimes advertisers have been ordered to give full or partial refunds to all consumers who bought the product.
- Corrective advertising, disclosures and other informational remedies. Advertisers have been required to take out new ads to correct the misinformation conveyed in the original ad, notify purchasers about deceptive claims in ads, include specific disclosures in future ads, or provide other information to consumers.
Will the FTC review my company’s ads before they run to make sure that we’ve complied with the law?
FTC staff cannot clear your ads in advance. However, there is guidance to help you comply with the law. Information about advertising particular kinds of products (for example, foods, dietary supplements, or “environmentally friendly” merchandise), advertising credit, and guidelines for advertising on the Internet is available at www.ftc.gov. For more general information on advertising policies, call the FTC’s Division of Advertising Practices at 202-326-3090.
How can I keep up-to-date on what’s going on at the FTC?
The Federal Trade Commission website (www.ftc.gov) is updated almost every day, so bookmark it for instant access to FTC news and views, including recent enforcement actions, speeches, public hearings, and other business information. Before running an ad, check out what the FTC has had to say about products or advertising claims similar to yours. From the homepage, you can search the entire FTC website using key words or phrases. For example, a search using the word “diet” will yield cases, reports, news releases, and other materials related to FTC policies about the advertising of diet products and services. In addition, you can visit www.consumer.gov for consumer and business information from the FTC, FDA, SEC, and other federal agencies. You also may want to check with the Better Business Bureau for tips on truthful advertising, the BBB’s voluntary Code of Advertising, and information about scams targeting small businesses.
How does the FTC address the needs of small businesses?
In its continuing commitment to regulatory reform, the FTC has repealed almost 50% of its trade regulation rules and has streamlined and simplified remaining rules. The FTC’s Small Business Compliance Assistance Policy Statement describes other forms of assistance available to small businesses to help them comply with truth-in-advertising laws. For example, the Business Guidance section of the FTC’s website (www.ftc.gov) includes an expanding library of materials written especially for small businesses. Small businesses also may contact the FTC headquarters or one of the FTC’s regional offices with specific inquiries about how to comply with the law. In addition, one of the FTC’s top law enforcement priorities is fighting fraudulent and deceptive practices aimed at small businesses. The agency has taken the lead in challenging deceptive invention promotion services, questionable franchise opportunities, bogus office supply scams, and other practices that prey on aspiring entrepreneurs.
What can my company do if a competitor is running an ad that I think is deceptive?
- Explore your legal options under federal and state statutes that protect businesses from unfair competition. For example, the Lanham Act gives companies the right to sue their competitors for making deceptive claims in ads.
- File a complaint with the National Advertising Division (NAD) of the Council of Better Business Bureaus, if your competitor’s ad is running nationally or regionally. The NAD is a private, self-regulatory group affiliated with the BBB. It investigates allegations of deceptive advertising and gives advertisers a mechanism for resolving disputes voluntarily.
- Call your local BBB or file an online complaint with the Better Business Bureau if the ad is local. Many BBBs have procedures for resolving disputes between businesses.
- Contact the radio station, television station, or publication where the ad ran. Let them know that they’re running an ad you think may be deceptive.
- Contact your state Attorney General’s Office or your city, county, or state Office of Consumer Affairs. To get their phone numbers, check your telephone directory.
- Contact the FTC. By mail: Federal Trade Commission, Consumer Response Center, 600 Pennsylvania Avenue, NW, Washington, DC 20580; by telephone: toll-free 1-877-FTC-HELP.
If my company files a complaint about a competitor with the FTC, will the FTC resolve the dispute?
The FTC is authorized to act when it appears that a company’s advertising is deceptive and when FTC action is in the public interest. Although the FTC cannot intervene in an individual dispute between two companies, the agency relies on many sources – including complaints from consumers and competitors – to find out about ads that may be deceptive. To file a complaint against a competitor who you believe has engaged in false advertising, contact:
Federal Trade Commission
Consumer Response Center
600 Pennsylvania Avenue, NW
Washington, DC 20580
Toll-free 1-877-FTC-HELP (382-4357)
Online Complaint Form
If my company files a complaint against a competitor with the FTC, will we be kept informed about the status of any investigation?
No. The FTC keeps investigations confidential. Matters become public only after the FTC reaches a settlement with a company or files a lawsuit. However, you can be assured that complaints received from companies alleging that competitors are advertising deceptively are reviewed carefully.
Can I find out if the FTC already has an investigation against a company?
The FTC can tell you if it has already taken formal action (e.g., filed or settled a lawsuit) against a particular company or against similar kinds of advertisements or products. But the FTC cannot disclose whether an investigation is going on. To find out if a company or product has been the subject of a recent FTC action, search the FTC’s website (www.ftc.gov).
SUMMARY OF AMENDMENTS TO ADVERTISING RULES AND NEW
REQUIREMENTS FOR TEAMS AND TEAM LEADERS
EFFECTIVE JULY 1, 2018
All advertising must contain the following:
*The full name of the Principal Broker or the Brokerage Firm MUST be displayed in a meaningful
and conspicuous manner. The advertising MUST include the “Telephone Number” of the Broker
or the Brokerage Firm (or Branch Office).
*For “comparison purposes” the name of any Licensee or Team which is advertised cannot be
displayed in a print (font) which is larger or bolder than the name of the Broker or Brokerage Firm.
*For “comparison purposes” the telephone number of any Licensee or Team which is advertised
cannot be displayed in a print (font) which is larger or bolder than the telephone number of the
Broker or the Brokerage Firm.
*The name of the Principal Broker or the Brokerage Firm should appear exactly as the name
appears on the Wall License which was issued to establish the Brokerage.
Please review Rule 3.3 (enclosed) for a more detailed explanation of the changes. Exemptions to
the Advertising Rule are listed at the bottom of this Summary.
A Team must consist of at least one Associate Broker and one or more (other) Brokers or
*Are affiliated with the same Principal Broker (or managing broker), work together on a regular
basis from the same Brokerage office (Main or Branch), represent themselves to the public as
being part of a “single entity” and register with the MREC to designate themselves by a collective
name such as “Team or Group.”
*The name of the Team may NOT contain the phrase(s) “Real Estate,” “Real Estate Brokerage,”
“Realty,” or any other term that would lead the public to believe that the Team is offering real
estate brokerage services independent of a Broker. All Team names MUST be approved by the
MREC prior to their use in advertising. Registration Forms are available at the MREC.
*Teams must designate a Team Leader who is a Broker Associate with a minimum of one years’
experience as a real estate licensee.
*A Team Leader may not (also) be a Principal Broker or a Managing Broker of a Branch Office
and neither the Broker nor the Branch Office Manager may delegate their statutorily specific
supervisory responsibilities over the other Team Members to the Team Leader.
*The Team Leader must provide a list of all Team Members to the Principal Broker or the Branch
Managing Broker (where all licenses are displayed) so they can be approved by each and the Team
or Group can, afterward approval, be “Registered” with the MREC.
*The Principal Broker must register each approved Team, Team Leader, Team Member and
unlicensed employee/assistant with the MREC on forms provided by the Commission for that
purpose. The Principal Broker/Branch Manager/Team Leader must maintain current copies of all
Team Members and report all changes with the Commission within five (5) working days of any
addition to or deletion from the original registration.
*An advertisement MUST include the name of the Principal Broker/Brokerage Firm and their
Telephone Number and MAY include the name of a Team or a Licensee, or BOTH (with or without
a telephone number) as long as each is compliant with the Advertising Rule.
Please review Rule 3.5 (enclosed) for a more detailed explanation of the changes.
DEFINITION OF ADVERTISEMENT:
“Advertisement” means any oral, written, visual, printed or electronic media advertisement and
encompasses any correspondence, mailing, newsletter, brochure, business card, for sale or for lease
signage or sign rider, promotional items, automobile signage, telephone directory listing, radio and
television broadcasts, telephone solicitation and electronic media to include e-mails, text
messaging, public blogs, social media-networking websites, and/or internet displays.
SPECIFIC EXEMPTIONS FROM ADVERTISING RULES:
*Individual Name Tags for licensees.
*Wearing Apparel including shirts, hats, caps, etc.
*Telephone Numbers need not be affixed to Buildings (offices or branches).
*Branding Items which do not name a “specific” Broker/Brokerage – car tags.
*Promotional/Novelty items – cups, pens/pencils, huggees, magnets, spinners, glasses, toys, etc.
*Generic Open House or Directional Signage – no specific names.
*E-mail/Text messaging between licensee & individual after establishing Agency Relationship.
*“Shared Communications” using electronic media which are beyond the control of a licensee.