Tragic (Legal) Mistake 1: Your Failure To Substantiate Ad Claims Causes The FTC To Freeze Your Bank Accounts
Your Failure To Substantiate Ad Claims Causes The FTC To Freeze Your Bank Accounts… Even Though You Were Truthful!
By Chip Cooper, Esq.
What Is False Advertising?
In short, false advertising consists of an ad claim that is either –
* literally false, or
* is likely to mislead, deceive, or confuse consumers.
What’s an Ad Claim?
This is the way the FTC defines “ad claim”:
* a statement regarding the performance, features and/or benefits of a product or service,
* that is intended to persuade a consumer to respond favorably to a call to action (CTA).
The Call To Action (CAT) is what you want the prospect to do – sign up on your squeeze page, sign up for a webinar, provide information, take a survey, or purchase a product or service.
An ad claim is an explicit or implicit statement that a product or service has a feature or benefit. Implied claims are held to the same standard as explicit claims.
Tip: The key to evaluating an ad claim is the net impression conveyed by all elements of the claim, including the text and context of the ad, name of product or service, labels, and surrounding images.
That’s pretty basic stuff.
What’s an Earnings Claim?
The FTC also has a definition for a special type of ad claim known as an “earnings claim” which relates to products or services that show consumers how to make money or promise a financial benefit.
This is how the FTC defines “earnings claim”:
* An oral, written, or visual representation
* That states a specific level of potential sales, income, gross or net profit, or
* Facts which suggest a specific level of the above.
Examples of earnings claim include statements regarding future financial benefits when coupled with –
* A photo of a marketer standing by a new Mercedes automobile (facts that suggest a specific level of financial benefit, i.e. sufficient to purchase a similar automobile); and
* Screen shots of the marketer’s PayPal account showing a large number of sales transactions (facts that suggest a similar level of financial benefit).
Tip: The important thing to remember here is that ad claims are regulated by the FTC. If the ad claim does not follow FTC rules, it gives the FTC grounds to file a lawsuit for false advertising.
It’s important to distinguish and ad claim from “puffery”.
Why is this important? The short answer is that “puffery” is not considered to be an ad claim. So, “puffery” is not regulated by FTC rules, and therefore can’t be deceptive.
Tip: “Puffery” is always legal in all circumstances. And ad claims many not be. That’s it. That’s why it’s important to have a clear understanding of what amounts to “puffery”. Ad claims (if they amount to false advertising) can get you into big trouble with the FTC. Puffery can’t.
What Is Puffery?
“Puffery” is a legal term that for an exaggerated statement made for promotional purposes which states subjective rather objective views, and is so exaggerated that consumers are not likely to be mislead, deceived, or confused.
Two U.S Circuit Courts of Appeals have defined puffery as “exaggerated advertising, blustering and boasting upon which no reasonable buyer would rely.”
One of the keys for distinguishing puffery from and a regulated ad claim is whether the claim at issue –
* is quantifiable, and
* capable of being proven false using scientific methods.
An Example of Puffery
A great example of puffery involves the claim made by Papa John’s “Better Ingredients. Better Pizza.”
In the case of Pizza Hut, Inc. v Papa John’s Intern., Inc., the 5th Circuit Court of Appeals found that the claim was puffery, not an ad claim. The Court found the claim to be the epitomy of puffery – boasting and exaggeration. In addition, the Court pointed out that the statement was generic in that it did not –
* identify any specifics regarding “better”, and
* did not offer any comparison with a competitor’s product.
It’s also fair to conclude that the claim was not quantifiable, nor was it capable of being proven false using scientific methods.
What Is NAD?
NAD is an acronym that stands for the National Advertising Division of the Council of Better Business Bureaus.
NAD is a self-regulatory organization that reviews truth in advertising issues, specifically factual ad claims for accuracy.
NAD’s decisions regarding advertising issues assist advertisers in evaluating their ad claims. Compliance with NAD’s decisions in voluntary.
So, even though NAD decisions are voluntary, they should be given considerable weight in evaluation of ad claims, and ads that may be puffery.
Examples of NAD Decisions Re Puffery
Here is a collection of 4 NAD decisions that should provide some valuable insight regarding how to determine the difference between puffery and an regulated ad claim.
* Exaggeration/Boastful Statements – Issue is whether the statement can be proven true or false, or is it so vague that no one will treat it as factual –
o Puffery:
* “America’s Favorite Pizza”
* “America’s Best Loved Coffee”
* “The Earth’s Most Comfortable Shoes”
o Not Puffery (Regulated Ad Claim)
* “The Antioxidant Superpower”
* “Trusted By Moms”
* “Leading Brand”
* Comparative Ad That Identifies Competitors – Issue is whether the statement identifies competitors or certain aspects of the competitor’s products –
o Puffery:
* “Beech-Nut is a better choice”
o Not Puffery (Regulated Ad Claim)
* “Taste The Best at a Sensible Price” (when shown next to the competitor’s products)
* Comparative Ad That Identifies Measurable Results – Issue is whether the advertiser claims superiority of a specific attribute of product that a specific attribute of another product –
o Puffery
* “Better Ingredients. Better Pizza.” (when no specific ingredients are identified)
o Not Puffery (Regulated Ad Claim)
* “Tastes Most Like Butter Even Better”
* “The best Compact Coffee Solution”
* Discover The Better Taste of Progresso”
* Statement Placed Near Product Performance or Disease Prevention Claims – Issue is whether the exaggerated claim is located close to other quantifiable claims –
o Puffery
* “World’s Most Effective Energy Drinks” (placed on top of product website and not next to any performance claims of product)
o Not Puffery (Regulated Ad Claim)
* “Cheat Death”, “Live Preserver”, “The New Shape of Protection” (placed beside a statement describing the horrors of cancer)
(The foregoing analysis is based on an article by Gurnani, Abhishk K. and Talati, Ashish R., FDLI, “The World’s Most Trusted Article on Puffery”, American Bar Association, November/December, 2008.)
Tip: If you’re going to be aggressive with marketing statements, you should be careful to stay on the side of puffery. Don’t cross the line to regulated ad claims. If you do cross the line, you’ll be subject to the Prior Substantiation Rule.
Regulated Ad Claims – The Prior Substantiation Rule
The basic ides is that if you make a regulated and claim, then you must, prior to disseminating the ad, develop substantiation for the claim either by –
* scientific data, or
* results determined though consumer surveys.
Prior Substantiation Rule: This is the FTC’s statement of the “prior substantiation rule taken from an actual case:
“Before disseminating an advertisement, the advertiser must substantiate all claims – express and implied – that the ad conveys to reasonable consumers”.
As discussed above, the Prior Substantiation Rule does not apply to puffery.
Back in 1984, the FTC issued a statement regarding its policy for prior substantiation of ad claims:
* “First, we reaffirm our commitment to the underlying legal requirement of advertising substantiation that advertisers and ad agencies have a reasonable basis for advertising claims before they are disseminated.”
* “The Commission intends to continue vigorous enforcement of this existing legal requirement that advertisers substantiate express and implied claims, however conveyed, that make objective assertions about the item or service advertised.”
* “Objective claims for products or services represent explicitly or by implication that the advertiser has a reasonable basis supporting these claims.”
* “These representations of substantiation are material to consumers. That is, consumers would be less likely to rely on claims for products and services if they knew the advertiser did not have a reasonable basis for believing them to be true.”
* “Therefore, a firm's failure to possess and rely upon a reasonable basis for objective claims constitutes an unfair and deceptive act or practice in violation of Section 5 of the Federal Trade Commission Act.”
You should understand that the FTC often makes inquiries to advertisers in cases where the FTC wants to see prior substantiation. This inquiry may be made prior to filing a lawsuit.
The FTC may either initiate a –
* a compulsory inquiry by subpoena or civil investigative, or
* an informal information request seeking voluntary cooperation such as with the issuance of an “access letter”.
After an investigation, if the FTC determines that there is “reason to believe” that the ad in question amounts to false advertising, the FTC may sue you – either by filing an administrative complaint or a complaint in a U.S. District Court. In both cases, the FTC has the burden of proving its false advertising allegations.
How To Substantiate Your Ad Claims
A detailed discussion of ad claim substantiation is beyond the scope of this book. However, the general principles discussed below should point you in the right direction.
Remember, both direct (absolute and express) claims and implied claims are required to be substantiated.
An example of an implied claim would be a claim using a comparative approach, such as “Better Than All The Rest” (implying that the product is better than the remainder of the specific products in the category).
Substantiation of these claims means the verification, confirmation, and evidence or proof that an ad claim is true. Consumers need to have confidence that an advertiser has a reasonable basis for making a claim.
Here are some examples of direct claims and the related challenges regarding substantiation and back-up:
* If you claim “Best Value”, understand that it’s a bold promise – essentially, you’re promising that your offer is worth more than the asking price – if you're going to make this claim, you'd better have the proof on your product/service description page.
* If you claim “We’re No. 1”, you need to be very specific regarding how you determine no. 1 – no. 1 at what? – in gross sales, in sales growth for a specific period, in the number of widgets sold?
* If you claim the “Latest And Greatest”, “Next Generation” or words to that effect, you should substantiate how the claim is true – explain specifically how you justify the claim in relation to other competitive products on the market.
* If you claim “User Friendly” or “Easy-To-Use”, you need to be specific regarding substantiation of specifically how much time a certain task routinely takes, exactly which steps are automated, etc.
For claims that advertise a level of substantiation – “Tests Prove” or “Studies Show” – you need at least the advertised level of substantiation.
For scientific claims – such as for weight loss or dietary supplements – the FTC requires “competent and reliable scientific evidence” including –
* Tests, analyses, research, studies, or other
evidence based on the expertise of professionals in
the relevant area,
* That have been conducted and evaluated in an objective manner by persons qualified to do so, and
* Using procedures generally accepted in the profession to yield accurate and reliable results
The following is not “competent” scientific evidence and/or does not constitute adequate substantiation:
* Anecdotal evidence alone from customers (for example, non-factual evidence based on the experiences of a few people, for example, a person tells how his breath feels fresher after using a certain brand of toothpaste); however, anectdotal evidence when coupled with a few well-controlled studies may be sufficient);
* Newspaper, magazine, or Wikipedia articles;
* Sales materials from the manufacturer;
* Low rate of product returns or money-back guarantee;
* Testimonials.
Testimonials Are Considered To Be Ad Claims
Testimonials are essentially the other side of the ad claim coin –
* Ad claims are made by you, the marketer about your products or services;
* Testimonials are made by others for you and your products and services.
The FTC has made it clear that testimonials and expert endorsements must be substantiated –
* as though they were made by the marketer itself, or
* be properly disclaimed.
A testimonial or endorsement must represent –
* the experience that is representative of a typical customer can expect with the product or service, or
* be properly disclaimed.
o There is no exception for personal opinion of a person giving a testimonial.
o The testimonial must give the honest opinions, findings, beliefs, or experience of the testimonials.
o Any material connection between the testimonialist and the marketer must be disclosed (as discussed in the next chapter).
How To Make Sure Your Testimonials Are “Properly Disclaimed”
A clear and conspicuous disclaimer is required for testimonials that do not reflect experience that is representative of what a typical customer can expect.
An example of a proper disclaimer for a weight loss claim would be: “On Average, Users Reported Positive Effect
After 12 Weeks of Use”.
Vague, non-specific disclaimers won’t work any more, such as –
* “Results Not Typical”, or
* “Your Results May Vary”.
Three quick and easy ways to get into trouble with deceptive testimonials –
* The testimonialist may not have experienced the reported result;
* The result may be attributable to other factors, such as (i) diet or exercise for weight loss, or (ii) prior experience with making money products;
* If a testimonial claims results that are not typical without a proper disclaimer.
* If the testimonialist falsely states or implies that he/she actually used the product or service.
Beware of Earnings Disclaimers!
Earnings disclaimers are commonly used to qualify earnings claims. Most earnings disclaimers may be boiled down the these elements –
* No promise you will make money;
* No promise you will not lose money;
* Internet businesses are risky; and
* Seek professional advice before purchasing any money-making scheme.
The problem with the way many Earnings Disclaimers – and a serious trap for the unwary – is that they’re offered to contradict earnings claims.
The FTC has made it very clear:
“[Disclaimers] should be presented clearly and conspicuously so that consumers can actually notice and understand it…. [A]dvertisers [cannot] use fine print to contradict other statements in an ad or to clear up misimpressions that the ad would leave otherwise.”
The NAD also weighed in:
“While disclosures may be used in advertising to reduce the potential for consumer confusion, they cannot be used to change the express meaning of a claim or to render truthful and otherwise misleading advertising claim.
And the 3rd Circuit Court of Appeals added this:
“One cannot escape liability for a literally false claim by pointing to a later disclaimer.”
Tip: Be very careful to not fall into the trap of believing that you can promise the moon with earnings claims, and it will all be legal if you simply post an Earnings Disclaimer to your website. Your Earnings Disclaimer will not be effective to “sanitize” or cure an otherwise deceptive ad claim. And the FTC may also claim that your attempt to render a deceptive ad claim to be truthful with the Earnings Disclaimer is, itself, a deceptive marketing practice.
What To Do If You Use Experts As Endorsers
* You must provide the qualifications that support the expert’s standing to be represented as an expert in the specific field of the endorsement.
* The expert must have a reasonable basis to provide the opinion expressed in the endorsement.
* The expert must actually use his/her expertise in evaluating the features or characteristics of product or service.
* The features or characteristics featured in the endorsement must be relevant to an ordinary consumer’s use of, or experience with, the product or service and which are also available to the ordinary consumer.
Ad Claims Come In All Shapes, Sizes, and Places
Don’t be lulled into sleep by thinking that ad claims only appear on your website’s sales pages.
Ad claims may appear in all shapes, sizes, and places. No matter what form the ad takes, the advertiser still must substantiate all ad claims before substantiation.
Ad claims may appear in other forms and places, such as:
* Website pages other than sales pages;
* Social media pages;
* Blogs;
* YouTube videos and other videos; and
* Contests (for example, an Oracle ad stating that its Exadata server is “5X Faster Than IBM… Or You Win $10,000,000”).
Also, be very careful with these hazards –
* Website reviews posted by customers;
* Social media pages;
* Guarantees;
* “Free” trials where customers have to cancel within a stated time period or their credit cards will be charged.
Tip: If you’re not really sure about how to substantiate ad claims, the best approach is to clearly understand puffery, and then to always stay on the side of puffery without crossing the line to regulated ad claims.
Conclusion
The rules for substantiation are very complex.
For this reason, a good way to start with compliance is to ensure that you have a clear understanding of –
* puffery and how puffery is different from an ad claim, and
* the fact that ad claims are not just on your sales page; they may be other website pages, social media pages, blogs, videos.
Then you can stay clearly on the side of puffery until you determine that you need to cross the line to making an ad claim. At that time, you can review the substantiation rules and proceed with the ad claim and substantiation.
The worst of all situations would be to unintentionally make ad claims. Because if you make ad claims unintentionally, you certainly wouldn’t be substantiating them.
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Disclaimer: This article is provided for informational purposes only. It’s not legal advice, and no attorney-client relationship is created. Neither the author nor FTC Guardian, Inc. is endorsed by the Federal Trade Commission.
