Entrepreneurs should understand advertising laws before marketing their product.
Entrepreneurs should understand advertising laws before marketing their product.

An aggressive marketing strategy can be a valuable tool for an entrepreneur seeking the attention of new customers and investors.  However, given their limited budgets, entrepreneurs should be aware of the laws governing advertising to avoid costly marketing mistakes which could bankrupt the company. The best way to effectively communicate your marketing message without exposing yourself to liability is to understand and follow the laws governing advertising.

The Federal Trade Commission Act

Under the Federal Trade Commission Act, advertisements must be truthful and  non-deceptive, advertisers must have evidence to back up their claims, and advertisements cannot be unfair.  An ad is considered to be deceptive if it contains a statement (or omits information) that is likely to mislead consumers and the information is material- or important- to a consumer’s decision to use or buy the product. Ads are deemed unfair if they cause substantial injury that a consumer could not reasonably avoid and if the benefits consumers receive do not outweigh the injury caused.  An example of an advertising campaign that recently strayed from these rules were ads for Yaz birth control pills which gave consumers the impression that Yaz was a drug useful in treating acne and general mood problems, which in fact were unapproved uses of the drug. The FTC sued Yaz for these misleading ads, which resulted in the drug manufacture having to run corrective ads at a cost of $20 million, in addition to paying fines levied by the FTC and FDA.

The Lanham Act

The Lanham Act allows business competitors to privately sue advertisers for false advertising. Competitors can sue under the Lanham Act so long as they can prove that the advertiser made factually false claims about the product, the ad deceived a large segment of the targeted population, the deception was a main part of the ad, the product was sold across state lines, and the company bringing suit was likely to be harmed by the advertising. For example, in 2004 dental floss manufacturers sued Pfizer for its advertising campaign for the mouthwash Listerine. Pfizer’s ads stated that clinical tests showed that the mouthwash was as effective as flossing in fighting plaque and gingivitis.  Even though Pfizer had some clinical data involving Listerine, the court found that the cited studies did not support Pfizer’s proposition.  The court enjoined Pfizer from running the ads and ordered Pfizer to recall all mislabeled bottles of Listerine.

State Laws

Finally, it is important to note that each state also has its own set of consumer protection laws protecting the public against unfair competition and deceptive advertising practices. Consumers typically have more power to privately sue companies for false or deceptive advertising under state laws than federal laws.

Advertising Tips for Entrepreneurs

By familiarizing yourself with the above-mentioned laws and by following a few simple guidelines, entrepreneurs can avoid false advertising claims.

1.  Don’t lie.   The classic case of false advertising is saying something that is not literally true.  For example, if you sell sneakers and advertise that wearing them helps tones muscles and lose weight, when in fact they don’t, you could be liable for false advertising. (see this story on toning shoes).

2.  Don’t imply things that aren’t true.  Even if you don’t outright lie, but rather advertise with ambiguous statements or images that are open to interpretation, you may still be liable for false marketing. In one example of an implicitly false ad, Polar Corp., the maker of seltzer, created an ad showing a polar bear holding their competitor’s Coke soda bottle.  In the ad, the polar bear tosses the can of Coke into a trashcan labeled “Keep the Artic pure.” The court held that Polar’s ad implied Coke was not pure, misrepresenting the nature and quality of Coke.  This ambiguity was sufficient grounds for Coke to bring a claim of false advertising against the soft drink company.

3.  Have data to back up your factual claims.   While puffery or exaggerated commendations- for example “these jeans are the best”- are tolerated in the field of marketing, be careful of making more qualified statements unless you have the data to back it up. Airborne, which entered the market 10 years ago claimed to prevent colds and boost your immune system but lacked factual evidence to back up its claims. As a result, Airborne found itself settling a false advertising lawsuit for over $23 million.

4.  Don’t knock on your competitor unless it is fair.  Mentioning your competitor’s product in an ad in order to compare your products is permissible, so long as you don’t make claims about a competitor’s product that you can’t prove.  For example, if you claim your laundry detergent gets clothes five times brighter than your competitor’s detergent, you had better have the data to back that up, or you can expect your competitor to contemplate bringing a false advertising claim against you under the Lanham Act.