Online Advertising Compliance Issues
The Federal Trade Commission ("FTC") has the authority to police unfair and deceptive trade practices under section 5 of the Federal Trade Commission Act. It has taken a leading role in monitoring online advertising practices and developing guidelines.
What are the basic legal requirements?
Under FTC rules and guidelines, advertisers must meet three separate tests. First, advertisements must not be deceptive, which means they may not mislead consumers by means of express or implied misrepresentations or by material omissions. Second, advertising may not be unfair, such that it causes substantial injury to consumers that is reasonably avoidable and is not outweighed by other benefits. Third, advertisers are required to have substantiation for specific claims for a product or service made in advertisements, in advance of publishing the advertisements. This means that if you make performance claims about a product, you must have adequate documentation of the testing to support your claims before publishing the advertisement, as after-the-fact testing does not suffice.
In fact, liability for unlawful advertising is not limited to the advertiser itself, but may include other parties who assisted in the preparation and dissemination of the advertisement. So, there is a potential of contributory liability, which can extend to parties (e.g., advertising agencies, website developers) who helped design the website.
How can third parties avoid potential liability?
Third parties should not mislead consumers. They should be fair towards customers and be able to support their claims regarding their products or services. Also, advertisement agencies, website developers, catalog marketers and other similarly situated parties can avoid potential liability by reviewing statements made in advertisements for accuracy and deception (e.g., omission of material information) and requesting supporting documents.
In recent years, the FTC has prosecuted online scams involving pyramid schemes, hoax investment schemes, and false advertising. State and local law enforcement agencies monitor online business practices. For example, in Minnesota v. Granite Gate Resorts, Inc., the Minnesota Attorney General prosecuted an online gambling business. In 2011, the California Retailer, Balls of Kryptonite, paid $500,000 to settle charges brought using the SAFE WEB Act powers that it had misled consumers about its compliance with the US-EU Safe Harbor Framework and violated the Mail Order Rule. The Mail Order Rule requires that anyone selling by mail or telephone have a reasonable basis to believe that products sold will be delivered either within the time stated or within 30 days if no time is stated. If there is an unexpected delay, the seller must contact the purchaser to explain the cause and duration of delay, and offer to cancel the order and issue a refund if the purchaser does not choose to continue waiting. In addition, if the customer is entitled to a refund, it must be paid within seven days of the time the customer becomes entitled to it.
For more information about online advertising compliance, you should consult with an attorney. At our law firm, we assist clients regarding online advertising and e-commerce related issues in order to help them avoid legal complications.