Advertising FAQ

If a competitor is falsely advertising, what can I do about it?

You can bring a lawsuit against the competitor. You can report your complaint to the Federal Trade Commission (FTC) or other government agency. Or, you can report it to an industry watchdog, such as the Better Business Bureau (BBB).

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How do government agencies investigate and pursue false advertising claims?

After determining that a complaint may have merit, the agency may demand in writing that the advertiser substantiate its claims. If the advertiser cannot provide substantiation, the agency may demand that the advertiser cease and desist from using the unsubstantiated advertising. If it is clear that the advertisement is deceptive, the agency may issue a cease and desist demand from the outset, without a demand for substantiation.

Often an agency will propose that the advertiser agree to a "consent decree" in lieu of formal proceedings. The agency may require that the advertiser withdraw the advertising in question, agree not to engage in false or misleading advertising in the future, pay a fine or fee to cover the costs of investigation and issue corrective advertising.

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What about industry regulation of advertising?

The Better Business Bureau (BBB) often hears and mediates disputes over advertising. Its Code of Advertising contains guidelines for proper advertising, and its National Advertising Division (NAD) addresses complaints by consumers or competitors about national advertising. The BBB and NAD begin by notifying the advertiser about the complaint and giving it the opportunity to respond. If they determine the complaint is valid, they will issue a recommendation that the advertiser change its advertising. The advertiser may appeal the decision to the BBB's National Advertising Review Board (NARB). To avoid further action, advertisers usually abide by the NARB's decision. If they do not, the matter is referred to the Federal Trade Commission (FTC).

Television and radio networks also have their own standards for advertising, and they will consider and act on complaints about advertisements they broadcast. Often, they will refuse to run a challenged advertisement unless the advertiser provides substantiation for its claims.

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What are the advantages and disadvantages to bringing a lawsuit?

If you want to stop a competitor's false advertising immediately, the best way to proceed is to bring a lawsuit and ask for a temporary restraining order or preliminary injunction. If you want to claim money damages from your competitor, litigation is your only choice.

On the other hand, litigation can be expensive, and it demands a significant commitment of time and resources from a company. If you do not win an early injunction, you may have to litigate for two years or more before the court issues a final decision.

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What are the advantages and disadvantages of referring a complaint to a government agency?

Having a government agency pursue a false advertising claim does not cost anything, and the government has very powerful weapons in its legal arsenal to force companies to stop or correct their advertising. However, you first have to persuade the government that your case is worth taking. Federal agencies are often not interested in false advertising complaints that are local in nature. Many agencies, state as well as federal, are overloaded and will not take on a case unless they see it as high profile and important to the public. False advertising that involves health claims, public safety, consumer fraud and other things that clearly harm the public is much more likely to get the government's attention than a simple commercial dispute between two companies.

In addition, the government often works slowly. It can be many months before it sends a letter demanding substantiation. Government agencies also work in secret. Therefore, even if your company is the victim, the agency will not tell you much, if anything, about its investigation. Finally, even if the government obtains a fine from the advertiser, you will not see the money. It will go to the public or, more likely, the public treasury to finance future enforcement activities.

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What are the advantages and disadvantages of proceeding through the Better Business Bureau?

It does not cost anything to have the Better Business Bureau (BBB) and its National Advertising Division (NAD) pursue a claim, and they often operate on a faster timetable than government agencies. Because the BBB and NAD represent the industry's self-regulation, advertisers are often more likely to accept their recommendations than a court judgment (which can be appealed). Moreover, if a company engaging in false advertising does not adopt the agency's recommendations, the BBB will often refer it immediately to the Federal Trade Commission (FTC).

Unlike a court decision obtained by private litigation or government enforcement, a decision of the NAD is not legal precedent, and it will not contain provisions regarding future advertising. Even if the advertiser does go through the process and agrees to change its advertising, there is nothing to regulate its future advertising, as there might be in a court order.

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My product is best showcased when compared to my competitor's product. Can I run comparative advertising?

In the U.S., comparative advertising is permitted, provided that it is substantiated, truthful and not misleading. For instance, price and quality comparisons must be recently substantiated before an advertisement is run, as outdated comparisons may be false or misleading. It is important not to hold up another's trademark to ridicule, because that can lead to liability under trademark laws. In addition, disparagement of another's product or business is trade libel, and this may lead to a claim for damages.

Please note that many other countries prohibit or restrict comparative advertising. Do not engage in comparative advertising in any country without first verifying with counsel that it complies with local laws.

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I am in a competitive industry, and everyone challenges each other's advertising. What should I do to protect my company?

Be sure that your advertising is well substantiated. Make sure that in the event of a complaint, you can document your claims with accurate, reliable and current evidence. Your attorney can assist you in developing a procedure to help ensure that if your advertising is ever challenged, your substantiation evidence will be admissible in court.

Be sure your insurance coverage is in order. Comprehensive general liability policies typically cover "advertising injury," but there are often exclusions. Consult with your insurance agent and your attorney to determine what is and is not covered.

And be sure to monitor your competitor's advertising. If you believe that a competitor is engaging in false advertising, consult your counsel immediately. You can lose your rights if you do not act quickly.

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I would like to run a sweepstakes or a contest to promote my products. Are there any special legal restrictions?

Yes. The laws governing sweepstakes and contests are very complicated, and if you do not follow them precisely, you can expose your company to civil and criminal liability—or the possibility of paying out far more in prize money than you had planned. Never launch a promotion of either type without the assistance of counsel experienced in this area.

U.S. federal law and the laws of all 50 states prohibit lotteries, which are defined as games that include (1) a prize, (2) chance, and (3) consideration (monetary or non-monetary). To avoid being deemed an illegal lottery, either the element of chance or the element of consideration must be removed. If chance is removed, you have a game of skill, or a contest. If consideration is removed, you have a game of chance, or a sweepstakes. The laws of the states vary on what constitutes chance or consideration, and there are many legal traps for the unwary.

In addition, various states and Canadian provinces impose their own disclosure and administrative requirements. Failing to comply with those requirements can lead to serious consequences. It is critical that each contest or sweepstakes have a clear, unambiguous and complete set of official rules prepared by counsel.

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I do a lot of advertising on the Internet. What should I be concerned about?

The Internet is a new medium and there is much uncertainty as to how laws designed for print and broadcast media will apply to it. Common sense dictates that anything that is inappropriate to advertise in traditional media will also be unlawful on the Internet.

Remember that the Internet has no borders. If your Website is intended to attract customers from other countries, be sure that the statements on your Website comply with the advertising laws of those countries. Companies that have mail-order businesses on the Internet must be concerned about whether the products they are selling may be lawfully sent to a specific jurisdiction.

The Federal Trade Commission (FTC) has recently turned its attention to the Internet. It has levied fines against companies found to be promoting fraudulent schemes and engaging in other forms of false advertising online. The National Advertising Division (NAD) of the Better Business Bureau (BBB) has also been involved in regulating the Internet and has challenged online advertising it believes to be false.

Internet advertisers should also be concerned about "spamming." The colloquial name for "excessive multiposting," spamming is the practice of sending out large numbers of copies of the same commercial message to people who have not requested it. This is considered to be an abuse of Internet resources and may lead to liability if it interferes with others' computer operations.

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