Advertising and Marketing on the Internet: Rules of the Road
The Internet is connecting advertisers and marketers to customers from Boston to Bali with text, interactive graphics, video and audio. If you’re thinking about advertising on the Internet, remember that many of the same rules that apply to other forms of advertising apply to electronic marketing. These rules and guidelines protect businesses and consumers – and help maintain the credibility of the Internet as an advertising medium. The Federal Trade Commission (FTC) has prepared a complete guide to give you an overview of some of the laws it enforces. This is an abbreviated. Visit www.ftc.gov to review the entire guide.
Advertising must tell the truth and not mislead consumers. In addition, claims must be substantiated.
GENERAL OFFERS AND CLAIMS PRODUCTS AND SERVICES
The Federal Trade Commission Act allows the FTC to act in the interest of all consumers to prevent deceptive and unfair acts or practices. In interpreting Section 5 of the Act, the Commission has determined that a representation, omission or practice is deceptive if it is likely to:
* mislead consumers and
* affect consumers’ behavior or decisions about the product or service.
In addition, an act or practice is unfair if the injury it causes, or is likely to cause, is:
* not outweighed by other benefits and
* not reasonably avoidable.
The FTC Act prohibits unfair or deceptive advertising in any medium. That is, advertising must tell the truth and not mislead consumers. A claim can be misleading if relevant information is left out or if the claim implies something that’s not true. For example, a lease advertisement for an automobile that promotes “$0 Down” may be misleading if significant and undisclosed charges are due at lease signing.
In addition, claims must be substantiated, especially when they concern health, safety, or performance. The type of evidence may depend on the product, the claims, and what experts believe necessary. If your ad specifies a certain level of support for a claim – “tests show X” – you must have at least that level of support.
Sellers are responsible for claims they make about their products and services. Third parties – such as advertising agencies or website designers and catalog marketers – also may be liable for making or disseminating deceptive representations if they participate in the preparation or distribution of the advertising, or know about the deceptive claims.
Advertising agencies or website designers are responsible for reviewing the information used to substantiate ad claims. They may not simply rely on an advertiser’s assurance that the claims are substantiated. In determining whether an ad agency should be held liable, the FTC looks at the extent of the agency’s participation in the preparation of the challenged ad, and whether the agency knew or should have known that the ad included false or deceptive claims.
Advertising directed to children raises special issues. That’s because children may have greater difficulty evaluating advertising claims and understanding the nature of the information you provide. Sellers should take special care not to misrepresent a product or its performance when advertising to children. The Children’s Advertising Review Unit (CARU) of the Council of Better Business Bureaus has published specific guidelines for children’s advertising that you may find helpful.
PROTECTING CONSUMERS’ PRIVACY ONLINE
The Internet provides unprecedented opportunities for the collection and sharing of information from and about consumers. But studies show that consumers have very strong concerns about the security and confidentiality of their personal information in the online marketplace. Many consumers also report being wary of engaging in online commerce, in part because they fear that their personal information can be misused.
These consumer concerns present an opportunity for you to build on consumer trust by implementing effective voluntary industry-wide practices to protect consumers’ information privacy. The FTC has held a number of workshops for industry, consumer groups and privacy advocates to explore industry guidelines to protect consumers’ privacy online.
In June 1998, the FTC issued Online Privacy: A Report to Congress. The Report noted that while over 85 percent of all websites collected personal information from consumers, only 14 percent of the sites in the FTC’s random sample of commercial websites provided any notice to consumers of the personal information they collect or how they use it. In May 2000, the FTC issued a follow-up report, Privacy Online: Fair Information Practices in the Electronic Marketplace. While the 2000 survey showed significant improvement in the percent of websites that post at least some privacy disclosures, only 20 percent of the random sample sites were found to have implemented four fair information practices: notice, choice, access and security. Even when the survey looked at the percentage of sites implementing the two critical practices of notice and choice, only 41 percent of the random sample provided such privacy disclosures. You can access the FTC’s privacy report at www.ftc.gov.
The Children’s Online Privacy Protection Act (COPPA) and the FTC’s implementing Rule took effect April 21, 2000. Commercial websites directed to children under 13 years old or general audience sites that have actual knowledge that they are collecting information from a child must obtain parental permission before collecting such information.
The FTC also launched a special site at www.ftc.gov/kidzprivacy to help children, parents and site operators understand the provisions of COPPA and how the law will affect them.
LAWS ENFORCED BY THE FEDERAL TRADE COMMISSION
Listed here are some FTC laws about specific marketing practices and the promotion of products and services in specific industries. For copies of the rules and commentaries relevant to your Internet enterprise, contact: Consumer Response Center, Federal Trade Commission, Washington, DC 20580; toll-free: 1-877-FTC-HELP (382-4357); TDD: 1-866-653-4261. Or visit the FTC at www.ftc.gov.
Multi-level marketing (MLM)
MLM – also known as “network” or “matrix” marketing – is a way of selling goods and services through distributors. These plans typically promise that people who sign up as distributors will get commissions two ways – on their own sales and on the sales their recruits have made.
Pyramid schemes – a form of multi-level marketing – involve paying commissions to distributors only for recruiting new distributors. Pyramid schemes are illegal in most states because the plans inevitably collapse when no new distributors can be recruited. When a plan collapses, most people – except those at the top of the pyramid – lose their money.
MLMs should pay commissions for the retail sales of goods or services, not for recruiting new distributors. MLMs that involve the sale of business opportunities or franchises, as defined by the Franchise Rule, must comply with the Rule’s requirements about disclosing the number and percentage of existing franchisees who have achieved the claimed results, as well as cautionary language.
It’s deceptive to misrepresent – directly or indirectly – that a product offers a general environmental benefit. Your ads should qualify broad environmental claims – or avoid them altogether – to prevent deception about the specific nature of the benefit. In addition, your ads shouldn’t imply significant environmental benefits if the benefit isn’t significant. Say a trash bag is labeled “recyclable” without qualification. Because trash bags ordinarily are not separated from other trash for recycling at a landfill or incinerator, it is unlikely that they will be used again. Technically, the bag may be “recyclable,” but the claim is deceptive because it asserts an environmental benefit where there is no significant or meaningful benefit.
The FTC periodically joins with other law enforcement agencies to monitor the Internet for potentially false or deceptive online advertising claims.
If your advertisements don’t comply with the law, you could face enforcement actions or civil lawsuits. For advertisers under the FTC’s jurisdiction, that could mean:
* orders to cease and desist, with fines up to $11,000 per violation should they occur.
* injunctions by federal district courts. Violations of some Commission rules also could result in civil penalties of up to $11,000 per violation. Violations of court orders could result in civil or criminal contempt proceedings.
* in some instances, refunds to consumers for actual damages in civil lawsuits.