As the United States cautiously emerges from the depths of the pandemic, researchers are forecasting double-digit gains in ad spending for 2022. If you’re part of the wave of companies developing new advertising campaigns, you’ll want to brush up on legal requirements designed to ensure that your ads are truthful, fair, and evidence-based. Failure to follow these rules can lead to regulator or competitive lawsuits, reputational harm, loss of consumer trust, significant fines or damages, and in some cases, requirements for corrective disclosures.
The Federal Trade Commission (FTC), State Attorneys General, and the National Advertising Division of BBB National Programs have been active in enforcing legal requirements in this area, including, in some instances, against company executives in their individual capacities. Recent FTC activities, in particular, provide important guidance for advertisers:
- Substantiate your claims: Make sure you have substantiation for your claims in the form of competent and reliable evidence. Failure to adequately substantiate your claims in advance can result in your claims automatically being deemed unsupported. The FTC, U.S. Department of Justice (DOJ), and the U.S. Food and Drug Administration (FDA) recently filed a complaint alleging that the principals behind a product called Earth Tea falsely stated that the product prevented or treated COVID-19. Even though the defendants cited a 15-person study conducted in India to support their claims, the FTC noted that the results do not rise to the level of providing “competent and reliable scientific evidence” to support the health claims. In another action involving multinational company BASF and its distributor DIEM Labs, which settled with an agreement to pay consumers $416,914 in redress, the FTC alleged that the company’s post-hoc analyses following failed clinical trials did not support its claims that its fish oil supplements would reduce liver fat. As has been customary in many recent FTC enforcement actions, the FTC named DIEM Labs’ co-owner/CEO and its director of sales, alleging that he was directly involved in identifying alternative analyses of the clinical trial. Given the FTC’s recent findings of individual liability, it’s especially important to pay close attention to advertising claims.
- If you use influencers, have them disclose their connection to you: The FTC just announced that it was returning close to $1 million to users of teas and skincare products marketed by companies that made dubious health claims. The FTC also alleged that the companies paid influencers like CardiB to promote the product in Instagram posts, without requiring them to adequately disclose their material connection to the companies. Although the influencers disclosed that the endorsements were paid-for, the disclosures did not appear until consumers clicked the “more” option. The FTC also sent warning letters to the influencers themselves. Although the U.S. Supreme Court last year curtailed the FTC’s ability to get money back to consumers for these types of cases, the FTC is exploring other avenues to seek money from violators, as we described in a previous client advisory.
- If you offer a subscription service with a negative option feature, obtain consumers’ informed consent to recurring charges and provide a simple mechanism to stop those charges. The phrase “negative option marketing” broadly refers to transactions in which sellers interpret a consumer’s failure to reject an offer or cancel an agreement as consent to be charged for goods or services. The Restore Online Shoppers Confidence Act (ROSCA) allows the FTC to seek civil penalties if a merchant uses this technique without the consumer’s informed consent or without providing the consumer a simple mechanism to stop recurring charges. The FTC has alleged violations of ROSCA in numerous recent cases and has obtained millions of dollars in penalties under that Act. Of note, in its recent settlement with Moviepass, the FTC did not allege any problem with the negative option feature itself, but alleged a ROSCA violation based on overall deceptive advertising of the underlying product. The FTC also announced a new Enforcement Policy Statement on Negative Option Marketing, warning companies against “deploying illegal dark patterns that trick or trap consumers into subscription services,” and noting that it is ramping up enforcement efforts in this area. Companies implementing a subscription service with a negative option feature should proceed with caution.
- Be cautious about how you treat consumer reviews: The FTC recently announced that retailer Fashion Nova would pay $4.2 million to settle FTC allegations that it blocked negative reviews of products. The FTC also provided guidance to businesses on “Soliciting and Paying for Online Reviews: A Guide for Online Marketers” and “Featuring Online Customer Reviews: A Guide for Platforms.” Among other things, the FTC cautions businesses to treat reviews equally (e.g., don’t feature positive ones more prominently), solicit reviews neutrally (e.g., don’t ask for reviews only from people who you think will leave positive ones), and make sure that if you hire reputation management companies, they are not manipulating consumer reviews. Relatedly, in 2017, Congress passed the Consumer Review Fairness Act, which imposes civil penalties on companies that contractually restrict a consumer’s ability to communicate honest reviews. In addition to bringing several cases to enforce this provision, the FTC has stated that it can take action even if a company doesn’t follow through on its threats.
- Review your B2B, as well as B2C, advertising claims: Although the FTC has traditionally focused on advertising claims for traditional consumer-facing products and services, many recent FTC cases have focused on false, misleading, or unsubstantiated claims to small businesses and gig-economy workers. For example, the FTC charged Amazon with misleading claims about earnings that were targeted to drivers; Dun & Bradstreet with misleading claims to small businesses about a product that purported to improve their credit; and just last week, HomeAdvisor—an affiliate of Angi (formerly Angie’s List)—with misleading claims about the quality and source of leads it sells to general contractors and small lawn care businesses searching for potential customers.
- If you engage in targeted advertising, review your privacy practices: One recent FTC enforcement action targeted an ad exchange for misstatements about its collection of geolocation information and children’s information. Indeed, pay special attention if your service is directed to children: The FTC and State Attorneys General enforce the Children’s Online Privacy Protection Act (COPPA), which requires parental consent before collection of information about kids under 13. And as the FTC’s recent action against the company formerly known as Weight Watchers highlights, even if a product is purportedly directed to parents, if it is intended for use by kids, COPPA applies.
- Pay special attention to certain types of claims:
- “Made in USA” claims: Last year, the FTC announced a new rule requiring that marketers making unqualified “Made in USA” claims on a label be able to prove that their products are “all or virtually all” made in the United States. The rule codifies an earlier Enforcement Policy Statement on U.S. Origin Claims, but allows the FTC to seek a range of remedies, including redress, damages, and penalties of up to $43,280 for each violation. Two noteworthy points: First, the Rule applies only to unqualified claims—not qualified claims like “assembled in USA,” “Made in USA from imported leather,” “designed in USA,” etc. The FTC’s Policy Statement will continue to apply in these circumstances. Second, although the statutory grant of authority to conduct this rulemaking is limited to “labeling,” the FTC interpreted the term “label” broadly to cover physical and digital labels, whether on websites, on product packaging, or affixed to the product itself.
- Energy and environmental claims: Companies are increasingly responding to consumer demand for sustainable products and environmentally friendly packaging with green marketing claims. But companies should be careful about making unqualified claims, and they should have substantiation for all claims. The FTC has brought numerous cases alleging deceptive environmental marketing claims, ranging from organic claims to biodegradability claims, to more specific claims about particular products such as paints or LED light bulbs. Of note, in 2020, the FTC reported that Volkswagen and Porsche repaid more than $9.5 billion to car buyers under the FTC’s orders stemming from the companies’ deceptive “clean diesel” advertising. Companies should review the FTC’s Guides for the Use of Environmental Marketing Claims, also known as the Green Guides, for additional important guidance, before touting the environmental benefits of their products. The FTC has announced its intention to initiate a review of the Green Guides in 2022. Given that many fashion brands have complained to the FTC about so-called greenwashing in the fashion industry, the FTC is sure to take up this issue, among others, in any review.
One additional note: Make sure that you have the necessary rights to use the content in your advertisement, whether it’s photographs, graphics or data, or references to people or brand names. You’ll want to confirm that you own the material, or that you have permission to use it, or that it is protected solidly by principles of fair use.
If you have any questions about the requirements discussed in this advisory, or about advertising issues in general, please contact Aaron Hendelman, John Slafsky, or Alyssa Worsham in the trademark and advertising practice, or Maneesha Mithal, Lydia Parnes, or Tracy Shapiro in the privacy and cybersecurity practice.