The role of advertising in our free market society is to help develop products that meet consumer demands and stimulate effective price competition. Advertising informs consumers about the availability of products, their features, and pricing information. Such information is vital to our competitive process. Advertisers use unfair business practices to gain an unfair advantage over their competitors and mislead consumers. The following essay examines the common types of deceptive acts and practices involved and the federal government agency that regulates advertisers. Government regulation provides a delicate balance between free commercial enterprise and consumer protection.
Businesses rely on advertising as a vital communication tool to reach potential consumers. Important information about the company and product features is passed on to consumers in an attempt to offer them products that meet their wants and needs. In addition to print, radio, and television, the laws governing advertising also cover signs, billboards, pamphlets, images or emblems, and direct and oral advertisements to consumers. To some extent, advertising is protected by our courts under “commercial freedom of expression” guidelines. However, information transmitted to consumers must be perceived as “true” to be protected against arbitrary government intrusion.
Consumers are protected from advertisers who intentionally or inadvertently mislead when promoting their products. Two main areas that consumers are protected from are misleading advertising and unfair acts or practices. False advertising is when an advertisement is misleading through a statement, word, device, sound, or omission made or suggested of material facts regarding the consequences that may result from the use of the product. This definition refers to food, drugs, devices and cosmetics. Additionally, an advertisement may be viewed as a false or misleading representation due to an implied representation.
In general terms, an act or practice is considered unfair when it causes harm to consumers, damages public policy or when it is based on the immoral, unethical or unscrupulous nature of the practice. A good example of how advertising harms consumers was when regulators decided it was unfair for cigarette manufacturers to ignore the health risks of cigarette smoking. This led to legislation requiring health warnings in cigarette advertising.
The Federal Trade Commission is the federal government agency that regulates, monitors, and challenges advertising claims that are believed to be illegally misleading. The FTC uses the following criteria when determining whether to challenge an advertising representation:
1) The ad makes a representation, omissions, or uses a practice that is likely to mislead the consumer. The representation may be explicit (literal claim) or implicit (indirect or inferential) in the advertisement.
2) The representation, omission or practice is misleading when examined from the perspective of a reasonable consumer.
3) The representation, omission or practice is material. The FTC evaluates the extent to which the questionable advertisement influences purchasing behavior or patterns. A representation, omission or practice is material when purchasing behaviors or patterns are affected.
The FTC has the authority to penalize offending companies that break the deceptive advertising rules. There are various types of remedies and penalties available to the FTC to enforce the law. Such remedies and sanctions include:
Injunction: A court order that prohibits or compels future conduct.
Cease and Desist Orders: Prohibits the business from engaging in the act or practice that was determined to be deceptive.
Affirmative Disclosure Orders: The company is prohibited from making the claim in the future without further disclosure.
Corrective Advertising: Requires the advertiser to state in all future advertising that specific claims made in the past were false.
Multiple Product Order: Applies to all future advertising for all products sold by the company.
Consent Order: The company agrees to cease certain activities without admitting wrongdoing.
The basic goal of the FTC is to increase the accuracy of product information available to consumers. They do this by imposing regulations on very specific advertising practices such as; mock demos, endorsements or testimonials, price-based promotions, announcements regarding credit availability, and product labeling.
To avoid FTC scrutiny, advertisers must be able to substantiate their claims about a product’s attributes or performance on a “reasonable basis.” An advertiser who claims that their product “kills germs that cause colds and flu” or “stimulates weight loss of 25 pounds in a week” must gather sufficient proof of the validity of the claims, usually before it goes to print. or broadcast the ad. If a complaint is filed with the FTC regarding the accuracy of an advertising claim, the FTC will evaluate the reasonableness of the advertisers’ justification to determine if it serves the public interest. The reasonable basis doctrine applies to food, drugs, devices, and cosmetics because their effect on the public is direct and their use can be life-threatening.
The enormous amount of money spent on advertising is a testament to the importance of advertising in our economic system. In a sense, advertising feeds the economy. Unfortunately, the integrity of the advertising community must be monitored. Deceptive advertising legislation is continually updated and improved to reflect changing product lines that appeal to audiences with specific and growing needs and wants. Government regulation provides the balance between the important issues of free commercial expression, free business enterprise, and consumer protection.
