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Advertising and Marketing Law for Small Businesses in California

Advertising and Marketing Law for Small Businesses in California

The U.S. Federal Trade Commission (FTC) monitors a wide range of advertising and promotion activities, including digital marketing — i.e., advertising goods or services on the internet – in order to protect consumers by preventing anticompetitive, deceptive, and unfair business practices.  For a list of the advertising behaviors the FTC monitors, see: https://www.ftc.gov/tips-advice/business-center/guidance/advertising-marketing-internet-rules-road.  State and local consumer protection agencies do as well.  Further, failure to meet these requirements can result in lawsuits directly from consumers.

This article provides some tips on compliance with digital marketing rules. Always keep in mind the golden rule: be truthful and don’t deceive potential customers.

Note: These FAQs provide some general guidance on the advertising and marketing law information available for California small businesses and their owners. This document does not constitute legal advice and cannot substitute for expert consultation. If you have specific questions that are related to your business, it is best to consult an attorney.

 

 

BASIC PRINCIPLES OF ADVERTISING LAW FOR SMALL BUSINESSES

Q: Are there federal guidelines to be aware of?

Yes — the FTC Act § 5A.

  • Prohibits unfair and deceptive advertising and marketing practices, such as:
    • False or unsubstantiated product claims
    • Omission of material information
  • Applies broadly to all commercial messages, including but not limited to the following:
    • All traditional advertising
    • Press releases
    • Privacy releases
    • Web and mobile content
    • Mobile apps

 

Q: Are there state guidelines to be aware of?
Many states have consumer protection laws that are also applicable to advertising, covering areas such as:   

  • Unfair or Deceptive Acts and Practices – Little FTC Acts
  • Many arcane/esoteric laws governing sale activities:
    • Pricing laws
    • Disclosures at retail
    • Rain check policies
    • Return policies
    • Rebates and coupons
    • Prize promotion laws

 

COMPLEX SUBSTANTIATION AND ENHANCED DISCLOSURE

Q: What are the basic principles of substantiation?
All advertising claims must be truthful, accurate and adequately substantiated. Additionally, both express and implied claims must be supported. Substantiation for advertising claims must exist before the advertising is disseminated.

 

The Net Impression test is used to determine whether a appears to be misleading. This test looks at what impression an advertisement gives a consumer. The following are factors that are considered in the test:

  • All reasonable interpretations must be supported
  • Images and other elements may convey claims

What might a reasonable consumer conclude is the claim?

Q: How do I determine the level of substantiation required?
The reasonable basis standard is used to determine the level of substantiation. What constitutes a reasonable basis depends on:

  • Type of product advertised
    • Supplements/nutraceuticals/functional foods
  • Type of claim
    • Health/Safety àhighest standards
  • Benefits of a truthful claim
  • Consequence of a false claim

Amount of substantiation experts in the field believe is reasonable

 

Q: What is the importance of including material information?
Ads may be considered misleading if material information is omitted. Good disclosures of additional materials information may prevent inaccurate impressions. All material information must be clearly and conspicuously disclosed proximate to the claim or offer

Definitions:

“Material”

  • Information likely to influence the purchase decision:
    • Total costs to receive/use the product/service
    • Offer expiration dates
    • Eligibility/Qualifications
    • Restrictions on availability of the offer (i.e., at participating locations)
  • What might reasonably influence a buy decision
    • Beware of “door openers” that leave out material info

 

“Clear and Conspicuous” Disclosure

  • Cannot contradict other messages in the ad (only modify)
  • Cannot be buried or in “mouse type”
  • Must appear close to the claim qualified
  • Text should be against a contrasting background
  • No distracting graphics/copy

Must be communicated to consumer before purchase process begins

 

Q: Do different claims require different levels of substantiation?
Yes.

  • Health and Safety Claims
    • Highest level of substantiation
    • Claims that a product can prevent, treat, or cure a condition must have competent and reliable scientific evidence
      • EX: Don’t say you cure or treat COVID-19
  • Performance Claims
    • Testing is needed for claims about product attributes or performance
    • All testing should:
      • Fit the claim
      • Relate directly to the product advertised
      • Test competitive products
      • Maintain objective procedures
      • Apply industry guidelines and scientific principles
  • Weight Loss Claims
    • Companies need scientific proof to support objective claims made in their ads beforeany ads are run
    • Weight loss claims are a hot target of FTC enforcement actions
  • Made in the USA Claims
    • FTC: a product advertised as “Made in the USA” should be “all or virtually all” made in the US.
    • CA: a product can only be labeled “Made in the USA” if the foreign made parts do not constitute more than 5% of the final value of the product (or 10% if the foreign parts are not available from a domestic source).
  • Environmental/Sustainable Claims
    • FTC’s Green Guides
      • Addresses general environmental benefit, recyclable, compost-ability, degradability, and “free-of” claims (among others)
      • Does not address sustainable and upcycle claims
    • What does “sustainable” mean?
    • Marketers are responsible for substantiating consumers’ reasonable understanding of these claims
    • NOTE: some states have specific laws governing environmental claims

 

  • “All Natural” Claims
    • “Natural” claims are not addressed by the FTC’s Green Guides.
    • FDA has not yet defined “natural” for use on food and beverage products.
    • “Natural” claims have been a hot bed of litigation and notable settlements.
      • The Honest Company, Inc. – $ 7.35 million

 

POTENTIAL CLAIMS AND ACTIONS

*The National Advertising Division (NAD) of the Better Business Bureaus is a self-regulatory organization that acts on complaints by consumers and between businesses, and also monitors advertising and sales practices and brings cases on its own initiative.  Compliance with NAD decisions is voluntary, but failure to do so typically results in case referrals to the FTC and/or State Attorneys General.

 

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