How Business Owners Can Avoid a False Advertising Lawsuit

The idea of lying is a tricky one. We all know it’s wrong to lie, but how do you know when that line has been crossed? This question is particularly relevant to advertising in business. As a businessman, how do you know when someone will bring a claim of false advertising against you, when all you were trying to do was extol the merits of your product?

As a quick overview, a few major laws govern the area of false advertising in business. On a federal level, two prominent statutes govern this issue: the Lanham Act and the Federal Trade Commission (FTC) Act. Under the FTC Act, only the FTC can bring a claim against businesses, while under the Lanham Act, any private individual can bring a claim against businesses. In addition to these federal statutes, many states have also enacted their own laws against false advertising, which will vary by state.

So under these laws, what are some principles for determining which ads are false, and thus punishable, and which ones are not? Four situations are listed below. The first two, I believe, would be fairly obvious to any person. The last two situations are not as obvious and would be important to take note of.

1. Stealing trademarks.

A company’s trademark is a word, set of words, or logo that identify a product as originating from that company. It should be no surprise that using a company’s trademark without permission can get you into all kinds of legal trouble. There are many reasons why the law around trademark protection is so strong: trademarks protect companies’ reputations, and they also protect customers by acting as a guarantee of what the product is. Don’t think you can get away with trademark infringement even if you are a very small company: companies typically are very protective of their trademarks and are quick to notice any potential infringement.

2. Ads that are literally false.

This category would be the classic case of false advertising. It is saying something which is not literally true. For example, take a company making pain-relieving medication. If the company says that their medication relieves headaches faster than any other medication, when it in fact does not, this would be false advertising.

3. Ads that are impliedly false.

These ads do not make statements that can be proven as definitively false. Instead, they are ambiguous or open to more than one interpretation. In these cases, courts will typically find false advertising if consumer surveys show that the ads have a tendency to give consumers false ideas.

For example, one shaving company advertises that its shaving razor has a moisturizing strip “six times smoother” than its competitor’s moisturizing strip. This statement is accompanied by a picture of someone running his hands over his face. Literally, this ad is saying nothing more than the fact that the company’s moisturizing strip itself is smoother than the competitor’s moisturizing strip. However, consumers viewing this ad would probably believe the ad is saying the company’s shaving razor will provide a smoother shave overall than the competitor’s razor. Thus, this ad will be subject to a claim of false advertising.

In another example, a soft drink company creates an ad showing a polar bear holding a competitors’ product, a can of Coke. The polar bear then tosses this can of Coke into a trashcan labeled “Keep the Artic pure.” Consumers viewing this ad could take it to mean that Coke is not a “pure” soft drink, whatever that may entail. Thus, this ad is enough to bring a claim of false advertising.

4. Puffery

It’s normal in sales talk to use adjectives describing how your product is the “best”, “greatest”, or what have you. But when does using these sorts of words to describe your product get you into trouble?

If your ad falls into the category of “puffery”, then it’s fine. Puffery is defined as words so exaggerated that consumers would not take them seriously, or words that consumers know to be just hype. On the other hand, if there is an objective way to determine whether your statement is accurate or not, then the ad moves beyond puffery and could be considered false advertising.

Examples of puffery would be words such as: “best,” “wonderful,” “comparable in quality,” “a bargain.” However, saying something such as “the world’s lowest price” is an objectively verifiable fact, and thus could get you in trouble for false advertising.

The Big Idea

What does this all mean to you as a business owner? After reading through the laws and cases governing this matter, I can tell you that the law can get pretty detailed and technical. Your best bet, of course, would be to hire an attorney to make sure that your ads and disclosures are in compliance with the law. If that’s not the case, then I also want to point out that the law in this matter, though it gets very technical, generally follows common sense.

For example, if you’re going to use a company’s trademark on one of your products, even if you think that trademark placement would actually help the company, get permission first. If you’re going to make comparisons between products, make sure you have verified your claims.

Of course, there will always be close cases. In those situations, I would suggest that using a little restraint and caution is the way to go. Watch out for any implicitly misleading statements, or cases of puffery gone too far. But, as with all business decisions, trust your instincts, and take confidence in the fact that the law in this area aims to be generally reasonable.