In my last post I introduced the truth-in-advertising rules included in the Federal Trade Commission Act (“FTC Act”) and mentioned that Section 5 of the FTC Act specifically declares unfair or deceptive acts or practices unlawful. In this post we explore in more detail the manner in which the Federal Trade Commission (“FTC”) enforces its deception mandate including the guidance promulgated by the FTC in its Policy Statement on Deception (“Deception Policy Statement”).
Under the Deception Policy Statement, which can be found as an appendix to Cliffdale Associates, Inc., 103 F.T.C. 110, 174 (1984), an advertisement will be considered to be deceptive if there is a representation, omission or practice that is likely to mislead consumers acting reasonably under the circumstances; and is "material" (i.e., important to the decision of a consumer regarding purchase or use of a product). A misrepresentation is an express or implied statement contrary to fact. A misleading omission occurs when qualifying information necessary to prevent a practice, claim, representation, or reasonable expectation or belief from being misleading is not disclosed. Not all omissions are deceptive, even if providing the information would benefit consumers. In determining whether an omission is deceptive, the FTC examines the overall impression created by a practice, claim, or representation. For example, the practice of offering a product for sale creates an implied representation that it is fit for the purposes for which it is sold. Failure to disclose that the product is not fit constitutes a deceptive omission. Omissions may also be deceptive where the representations made are not literally misleading, if those representations create a reasonable expectation or belief among consumers which is misleading, absent the omitted disclosure. Practices that have been found misleading or deceptive in specific cases include false oral or written representations, misleading price claims, sales of hazardous or systematically defective products or services without adequate disclosures, failure to disclose information regarding pyramid sales, use of bait and switch techniques, failure to perform promised services, and failure to meet warranty obligations.
FTC analysis can be broken down into "express" and "implied" claims. A claim is “express” if it is literally made in the advertisement. For example, the phrase "ABC Mouthwash prevents colds" is an express claim that ABC Mouthwash will prevent colds. On the other hand, a claim is “implied” if it is made indirectly or by inference. For example, the phrase "ABC Mouthwash kills the germs that cause colds" contains an implied claim that ABC Mouthwash will prevent colds because it is reasonable for a consumer to conclude from the statement "ABC Mouthwash kills the germs that cause colds" that using the product will prevent colds. In cases of implied claims, the FTC will often be able to determine meaning through an examination of the representation itself, including an evaluation of such factors as the entire document, the juxtaposition of various phrases in the document, the nature of the claim, and the nature of the transactions. In other situations, the FTC will require extrinsic evidence that reasonable consumers reach the implied claims including expert opinion, consumer testimony (particularly in cases involving oral representations), copy tests, surveys, or any other reliable evidence of consumer interpretation.
The content in this post has been adapted from material that will appear in Business Transactions Solutions (February 2008) and is presented with permission of Thomson/West. Copyright 2008 Thomson/West. For more information or to order call 1-800-762-5272.