False Advertising Frequently Asked Questions on United States

What constitutes false advertising and what types of materials are subject to the false advertising laws? Is advertising protected by the First Amendment?

False advertising is defined by the Lanham Act (which governs trademarks and advertising used in interstate commerce) as any false or misleading statement or representation which "misrepresents the nature, characteristics, qualities or geographic origin" of the goods, services or commercial activities of the advertiser or of another person. Similar definitions apply under the Federal Trade Commission Act and the various state statutes that regulate advertising.

All forms of commercial advertising and promotion are covered by these statutes, including: radio and television ads, print ads, product packaging, brochures, pamphlets, coupons, video presentations, website materials, press releases and oral statements made by the seller's agents or sales force. The presentation or dissemination of purely scientific papers or articles regarding a company's product are generally not considered advertising; however, any promotional materials that accompany the presentation or distribution of such studies are deemed to be advertising. Statements made by independent retailers about a particular product sold in the store are not generally considered to be statements of the manufacturer unless they are made as the result of a script or other informational material disseminated by the manufacturer.

Advertising is considered "commercial speech" and thus is not afforded the protection accorded to political speech under the First Amendment. This is true even in cases where the advertising deals with an issue of arguable public importance, such as the cost of private health care insurance or an allegation that a particular company is evil and is linked to Satanism. U.S. Healthcare, Inc. v. Blue Cross of Greater Philadelphia, 898 F.2d 914 (3d Cir. 1990); Proctor & Gamble Co. v. Amway Corp., 242 F.3d 539 (5th Cir. 2001).

Who can challenge advertising claims that are believed to be false and in what forums can such claims be challenged?

There are numerous ways in which advertising claims can be challenged.

Lanham Act: One of the most popular avenues is a federal court lawsuit under 43(a)(1)(B) of the Lanham Act. Lanham Act lawsuits can be brought by a competitor or any other commercial party who is likely to be injured by the advertising. Consumers may not bring claims under this statute.

NAD: Where a competitor does not wish to undergo the time and cost of a lawsuit, it may challenge the claim at the National Advertising Division of the Better Business Bureau ("NAD"). Located in New York City, NAD offers an industry "self-regulatory" process whereby advertising challenges can be adjudicated by NAD's staff of attorneys. Although NAD has no power to enforce its decisions, or even to compel participation in a proceeding, most companies voluntarily participate and abide by NAD's decisions. NAD also monitors national advertising and, from time to time, brings its own challenge to national advertising. Consumers can also file challenges with NAD, although such challenges are rare.

FTC: The Federal Trade Commission has authority to regulate false, deceptive or unfair advertising under 5 of the FTC Act. Prior to the early 1980s, when competitors began to utilize the Lanham Act as a basis for false advertising challenges, most false advertising proceedings originated with the FTC. Today, the FTC focuses its enforcement efforts on national advertising campaigns that use invasive tactics (such as adware, spyware, spamming, pretexting or violations of Do-Not-Call lists), target particular consumers (such as Hispanics, consumers with poor credit histories, or children), or contain claims that would be difficult for an ordinary consumer to evaluate (such as health, safety, and weight loss claims or business opportunity claims). In addition, the FTC publishes numerous Guidelines that govern certain types of advertising, such as endorsements and testimonials, retail pricing ("sale", "free", "cents off", etc.), warranties and guarantees, and truth-in-lending. FTC has also published Guidelines regulating the labeling for specific products, such as appliances and electronic goods, and textile, fiber, wool and fur products. Finally, FTC has issued more than 20 "Industry Guides" that include provisions relating to advertising; these Guides cover industries ranging from mirrors and jewelry to tires and reconditioned auto parts to wigs and ladies handbags.

State Laws: Every state has one or more statutes prohibiting false advertising or consumer fraud within the state. For example, all 50 states and the District of Columbia have enacted so-called "little FTC acts" which mirror the FTC Act's prohibition of unfair or deceptive acts and practices. Most states have additional statutes that address false advertising and consumer fraud. While competitors have standing to sue under most of these statutes, the vast majority of cases are brought by state attorney generals and private attorneys representing a class of consumers. The statutes typically allow the Attorney General to seek injunctive relief as well as fines and monetary relief on behalf of all affected consumers in the state. Because consumers have no standing to sue under the federal Lanham Act, these state statutes provide the only avenue for a consumer class action.

Regulatory Agencies: Various regulatory agencies have rules and regulations that govern the advertising of products within their jurisdictions. For example, the Food and Drug Administration (FDA) has jurisdiction over the labeling, advertising and promotion of prescription drugs. Likewise, the Bureau of Alcohol, Tobacco Firearms and Explosives (BATF) has jurisdiction over the labeling of products within its jurisdiction, such as alcoholic beverages. Neither competitors nor consumers have standing to pursue claims under these statutes; however, competitors frequently call the agency's attention to advertising that they believe violates the agency's guidelines.

Sweepstakes: Lotteries, sweepstakes and games of chance (frequently used in connection with advertising) are subject to separate regulation by the FTC and the states. All states prohibit private lotteries. Two-thirds of the states have comprehensive statutes that regulate sweepstakes and games of chance; many states even have a pre-contest filing requirement that must be complied with prior to the start of a sweepstakes promotion. The FTC has promulgated rules regarding games of chance conducted in the retail food and gasoline industries. The FTC has also applied its regulatory scrutiny to games of chance involving other industries. Accordingly, before undertaking a sweepstakes promotion, the advertiser must make certain (1) that it does not constitute an unlawful lottery and (2) that it complies with the requirements of the FTC and the laws of all states in which the promotion will occur.

Municipal Regulation: A handful of cities (including New York City) have detailed ordinances and regulations that govern advertising that appears within the City. For the most part, only the municipality can take action to enforce these regulations.

What can a company do to insure that its advertising does not run afoul of one or more false advertising laws and regulations?

Every advertisement or promotional piece should be carefully reviewed by an attorney knowledgeable about false advertising laws and regulations. Most companies employ one or more in-house attorneys who review...

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