The role of advertising in our free market society is to help develop products that satisfy consumer demands and to spur effective price competition. Advertising informs consumers about the availability of products, their features, and price information. Such information is vital to our competitive process. Advertisers employ unfair business practices in order to gain an unfair advantage above their competitors and to deceive 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 business 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 conveyed to consumers in an attempt to offer them products that satisfy their wants and needs. In addition to print, radio, and television, laws governing advertising also cover signs, billboards, pamphlets, pictures or emblems, and direct and oral advertisements to consumers. To a certain degree advertising is protected by our courts under “commercial freedom of speech” guidelines. However, the information conveyed to consumers must be perceived as “truthful” in order to be protected against arbitrary government intrusion.
Consumers are protected from advertisers that intentionally or inadvertently mislead in promoting their products. Two main areas that consumers are protected from are false advertising and unfair acts or practices. False advertising is when an advertisement is misleading through a made or suggested statement, word, device, sound, or omission of material facts with respect to consequences which may result from the use of the product. This definition pertains to food, drugs, devices, and cosmetics. In addition, an advertisement can be viewed as being a false or misleading representation because of an implied representation.
Generally speaking an act or practice is considered to be unfair when it causes injury to consumers, injury to public policy or when it is based on immoral, unethical, or unscrupulous nature of the practice. A good example of how advertising leads to injury to consumers was when regulators decided that it was unfair for cigarette manufacturers to omit the health risks of cigarette smoking. This led to legislation requiring health warnings in cigarette advertising.
The Federal Trade Commission is the federal government body that regulates, monitors, and challenges advertising claims believed to be illegally deceptive. The FTC uses the following criteria when determining to challenge an advertising representation:
1) The ad makes a representation, has an omission, or uses a practice that is likely to mislead the consumer. The representation may be explicit (literal claim) or implied (indirect or by inference) 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 ad influences behavior or purchasing patterns. A representation, omission, or practice is material when behaviors or purchasing patterns are affected.
The FTC has the authority to punish offending companies that compromise deceptive advertising regulations. There are various types of remedies and sanctions 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 firm 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 making an additional disclosure.
Corrective advertising – compels the advertiser to state in all future advertising that the specific claims made in the past were false.
Multiple product order – applies to all future advertising of all products sold by the firm.
Consent order – company agrees to cease certain activities without admitting wrong doing.
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 demonstrations, endorsements or testimonials, promotions based on price, advertisements concerning the availability of credit, and product labeling.
In order to avoid FTC scrutiny advertisers must have the ability to substantiate their claims about a product’s attributes or performance through “reasonable basis.” An advertiser that claims their product “kills germs that cause colds and flu,” or “stimulates 25 pounds of weight loss in one week” must gather sufficient evidence of the claims validity, usually before the ad is printed or broadcast. If a complaint is made to the FTC concerning the accuracy of an advertisements claim, the FTC will assess the reasonableness of the advertisers substantiation in order to determine if it serves the public interest. The reasonable basis doctrine applies to food, drugs, devices and cosmetics because their effect to the public is direct and their use might endanger life.
The tremendous amount of money spent on advertising is a testament to the importance of advertising in our economic system. In a sense advertising fuels the economy. Unfortunately, the integrity of the advertising community must be monitored. Deceptive advertising legislation is continually being updated and improved to reflect the changing product lines that appeal to a public with specific growing needs and wants. Government regulation provides the balance between the important issues of commercial free speech, free business enterprise, and consumer protection.