Q&A: misleading advertising practices in USA

Misleading advertising

How is editorial content differentiated from advertising?

Editorial content is intended to inform, educate or entertain. Unlike advertising, editorial content is not intended to sell a product. In recent years, the lines between editorial content and advertising have blurred, resulting in the rise of ‘native advertising’ or ‘sponsored content’, which often looks like editorial content but is paid for or influenced by an advertiser. It is best practice to treat sponsored content as if it were a traditional advertisement through the use of clear labelling and disclosures.

 Under Federal Trade Commission (FTC) guidance, sponsored content should be clearly delineated from editorial content. Clear, prominent, and frequent labelling that content is paid for or influenced by an advertiser should be present on each piece of sponsored content, including on social media platforms and on every page of a website, so that consumers can quickly identify the content as an advertisement and not unvarnished opinion. Clear and conspicuous disclosures, placed in close proximity to the sponsored content, are also required and may include:

• 'an advertisement' or ‘ad’;
• 'sponsored content';
• 'brought to you by __'; and
• 'promoted by __'.

How does your law distinguish between ‘puffery’ and advertising claims that require support?

In the United States, ‘puffery’ is generally viewed as exaggerated statements or empty superlatives that no reasonable consumer would rely upon. For example, ‘the best coffee ever’ functions as puffery because the statement is so subjective that no consumer expects it to be truthful. By contrast, advertising claims are routinely relied upon by consumers to assist with purchasing decisions and therefore require sufficient evidence showing that the advertiser has a reasonable basis to make its claim before the claim is made.

Courts typically evaluate whether an advertiser’s claim is puffery or advertising by considering whether a claim is:

• general or specific;
• capable of measurement;
• couched in terms of fact or opinion; and
• is likely to be relied upon by consumers.

While the line between puffery and advertising claims is often thin, advertisers may look to these factors to help assess their claims and minimise potential liability.

What are the general rules regarding misleading advertising? Must all material information be disclosed? Are disclaimers and footnotes permissible?

As a general rule, advertisements must be truthful and non-deceptive, fair and have evidence to support their claims (‘substantiation’). An advertisement can be viewed as misleading if it fails to disclose material, relevant information or suggests something about a product that is not true. Information is considered ‘material’ if a consumer would rely on it when deciding whether or not to make a purchase.

Disclaimers and disclosures are permissible, and can be helpful to provide additional information or limit or clarify an advertiser’s claim. All disclaimers and disclosures must be clear and conspicuous to allow consumers to be able to notice, read or hear, and easily comprehend the information provided. Best practice dictates that disclaimers be in close proximity to their related claims, prominently placed, understandable to the average consumer and not cluttered by additional distracting elements. For longer advertisements, disclaimers should be repeated. Disclaimers cannot contradict the main claims of an advertisement, and false or deceptive advertising claims cannot be cured with the use of a disclaimer.

Must an advertiser have proof of the claims it makes in advertising before publishing? Are there recognised standards for the type of proof necessary to substantiate claims?

Under federal and some state laws, an advertiser must have evidence that provides a ‘reasonable basis’ for each of its advertisement’s material claims (‘substantiation’) before publication. This is known as the prior substantiation doctrine and failure to have such evidence in hand can constitute a violation of the Federal Trade Commission Act (FTC Act). The amount of substantiation required for a claim varies, but advertisers must have, at minimum, the amount and type of evidence that an advertisement claims (or suggests) to consumers. Thus, an advertisement that expressly claims ‘studies show four out of five dentists prefer XYZ toothpaste’ requires that the advertiser have a reliable study supporting this statement. Likewise, an advertisement that implies that four out of five dentists prefer XYZ toothpaste must have the level of substantiation suggested by the advertisement. Implied claims are determined by whether a ‘significant minority’ of consumers infer the claim, and may be drawn from images, charts and written or verbal statements.

When an advertisement’s claim does not overtly identify a necessary level of supporting evidence, a reasonable-basis standard is applied. The reasonable-basis standard weighs the following factors: type of claim, product, consequences of a false claim, benefits of a truthful claim, cost of developing substantiation for the claim, and degree of substantiation that experts in the field believe is reasonable. Expert testimony or consumer surveys are helpful to further inform this analysis. In cases where advertisers’ claims relate to health or safety, the reasonable basis standard is higher. Health and safety claims must be supported by ‘competent and reliable scientific evidence’, such as tests, studies, research or analyses conducted in a manner generally accepted by the relevant scientific community. To the extent possible, all substantiation tests must also replicate real-world conditions and situations.

Are there specific requirements for advertising claims based on the results of surveys?

Advertisers must have the level of evidence that an advertisement claims it has to comport with requirements of the prior substantiation doctrine. A reliable survey is therefore required to substantiate claims based on survey results. For example, if an advertisement states that two out of three dentists recommend XYZ toothpaste, the advertiser should have a reliable survey, conducted using methods that experts in the field accept as accurate, to support these claims.

The survey must be reliably conducted, with unbiased administration and sufficient numbers of randomised respondents, in relevant geographic markets. There are numerous published court and National Advertising Division (NAD) decisions addressing the requirements of good surveys.

What are the rules for comparisons with competitors? Is it permissible to identify a competitor by name?

Truthful and non-deceptive comparative advertising is generally encouraged. Comparative advertising typically identifies two or more distinct brands by name, picture or another distinctive characteristic and evaluates the brands’ objective features, such as ingredients, style or price, against each other. When properly executed, comparative advertising is a helpful means to provide important information to consumers, assist in thoughtful and informed purchases, encourage innovation, and even decrease prices in the marketplace.

A key consideration for a comparative advertiser is whether the advertising is honestly informing consumers of the advantages of its products as opposed to those of a competitor. Failure to advertise in an honest and non-deceptive manner may trigger liability for false advertisement or product disparagement. As with all other advertising claims, comparative advertisers should also have sufficient evidence to substantiate their claims. For example, if an advertiser claims its product is superior to a competitor’s product, then it must have proof to support that claim, preferably in the form of head-to-head testing.

It is generally accepted that advertisers may compare unlike products (‘apples to oranges’ comparisons) so long as material differences in the products are disclosed in the advertisement.

Do claims suggesting tests and studies prove a product’s superiority require higher or special degrees or types of proof?

An establishment claim suggests to consumers that a product’s superiority has been scientifically established, and therefore requires the specific substantiation claimed by the advertiser. For example, if an advertiser claims its product has been ‘medically proven’ to work, then the advertiser must have substantiation that will sufficiently satisfy the relevant medical community that the claim is true. Such substantiation may be provided via tests, analyses or other studies.

In court under the Lanham Act, a plaintiff may prevail by showing that the advertiser’s tests or studies, cited in the ad, are flawed. This is an exception to the normal burden of proof on the plaintiff to come forward with independent evidence that the challenged claim is false.

Are there special rules for advertising depicting or demonstrating product performance?

Generally, an advertiser may demonstrate the product’s performance in an advertisement but will need to be able to substantiate that the performance depicted reflects the typical, or real-world, performance a customer would expect. A demonstration should be real, typical, follow product use instructions and accurately show a product’s features without special effects. Advertisers should consider implied product claims that are communicated during a product demonstration. If the performance is a dramatisation, the dramatisation should be disclosed and should still accurately reflect typical product performance. Advertisers should not use extreme or unrealistic conditions, known as a torture test, to demonstrate a product’s performance, especially with comparative advertisements (eg, pouring wine through a water filter). Television networks may require a ‘producer’s affidavit’ attesting to the fact that a video of a demonstration reflects what actually took place and that there were no hidden means of altering performance.

Are there special rules for endorsements or testimonials by third parties, including statements of opinions, belief or experience?

Yes, the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising, known as the 'Endorsement Guides,' are intended to help advertisers ensure that their endorsements and consumer reviews are truthful and not misleading (16 CFR Part 255). The Guide includes information regarding endorsements from consumers, celebrities, experts and organisations. Any type of third-party endorser who received anything of value to promote or review a product should disclose that they were paid. Endorsers should not talk about their experience with a product if they have not tried the product or make claims that they are unable to prove or would not reflect the results of a typical user. Further, any connection between the endorser and advertiser that would affect how people understand the endorsement should be disclosed in a clear and conspicuous manner. This guidance also applies to ‘influencer’ endorsements on social media platforms, such as Instagram or TikTok, where the influencer must disclose that their content is an advertisement. After a three-year-long review process, the FTC published an update to the Endorsement Guides in 2023, the first update since 2009, which further heightened liability and special consideration for endorsements directed at children. Further, the FTC released a notice for the proposed rule, titled Rule on the Use of Consumer Reviews and Testimonials. The rule focuses on many aspects of deceptive consumer review practices, including fake reviews, purchased reviews, insider reviews, and review suppression. 

Are there special rules for advertising guarantees?

Yes, the FTC’s Guides for the Advertising of Warranties and Guarantees are designed to help inform advertisers of the necessary requirements for warranties or guarantees included in the advertisement (see 16 CFR Part 239). A guarantee, such as ‘satisfaction guaranteed’, ‘lifetime guarantee’ or ‘money-back guaranteed’, is considered an additional factual claim that must be substantiated. The advertiser must have sufficient evidence to support its claim that the product will perform as described, because it is insufficient that the advertiser will simply issue a refund if the product does not meet the guarantee. Guarantees are understood to be unconditional unless the terms are clearly communicated, such as requirements for returns or proof of purchase. Warranties on products costing more than US$15 must be available prior to purchase (see FTC Pre-Sale Availability Rule, 16 CFR section 702).

Are there special rules for claims about a product’s impact on the environment?

Yes, the FTC’s Guides for the Use of Environmental Marketing Claims, known as the ‘Green Guides’, are designed to help advertisers avoid making environmental claims that may mislead consumers (see 16 CFR Part 260). The Green Guides discourage misrepresentation or overstatement of environmental claims and unqualified general environmental benefit claims. The guidance recommends that advertisers avoid broad, vague or unsupported claims, avoid omitting pertinent information and ensure claims are supported with reliable evidence. The FTC has issued warning letters and brought claims against deceptive environmental advertisements, most commonly regarding environmental buzzwords such as ‘sustainable’, ‘recyclable’ and ‘renewable’. The Green Guides were last updated in 2012 and the FTC sought public comment regarding potential updates to the Green Guides in 2023. Recently, regulators and consumers have been especially interested in 'recyclable' and 'net zero' or 'carbon neutral' claims given shifting public perception and scientific advancement related to these claims. The FTC will likely provide proposed updates to the Green Guides within the next year, possibly including a rulemaking. Some states have additional requirements, especially concerning 'recyclable' claims, such as California.

Are there special rules for describing something as free or a free trial or for special price or savings claims?

Yes, the FTC’s Guide Concerning Use of the Word ‘Free’ and Similar Representations provides guidance on how to properly set forth promotional devices related to free products. A ‘free’ advertisement generally suggests a special offer in which the customer pays nothing for the additional free article and pays nothing further for the original article. All conditions and obligations must be clearly and conspicuously disclosed to the consumer. Businesses that offer frequent sales may also be at risk for a fictitious pricing claim alleging that a non-sale, or regular price, does not exist (see 16 CFR Part 251).

In recent years, the FTC has pursued various cases related to online marketers offering ‘free trials’ that contained automatic renewals, known as negative option billing. The FTC’s negative option marketing policy requires a business to provide clear and conspicuous disclosures, obtain express informed consent to enrolment in the negative option, a simple mechanism for cancelling the service and receipt of confirmed authorisation (FTC Act, 15 USC 45(a); ROSCA, 15 USC 8401–05; Telemarketing Sales Rule, 16 CFR pt 425; EFTA, 15 USC 1693; FTC Policy Statement). In March 2023, the FTC released a notice of proposed rulemaking proposing amendments to the Rule Concerning Subscriptions and Other Negative Option Plans. The final rule has not been released, but the amendments highlight the FTC's focus on 'dark patterns' and specifically simple 'click-to-cancel' mechanisms. Many states have automatic renewal laws that impose additional requirements, including written confirmation of the material terms and conditions and consumer reminders that plans will automatically renew.

Are there special rules for claiming a product is new or improved?

Yes, a few general rules do apply to the use of the word ‘new’ and advertising products as ‘improved’. The NAD applies a general rule that ‘new’ claims should only be made for a period of six months after national roll-out for a product not previously on the market. The use of ‘new’ may also depend on the type of product. Textiles should not be advertised as new if they have been reclaimed or respun and tyres should not be advertised as new when describing retreads. Advertisers should be aware of the risks in using ‘new’ for repurposed products. Advertisers may wish to claim a product is ‘new and improved’, a superiority claim over a prior version of a similar product. Advertisers should ensure that the product change is an actual improvement by ensuring the improvement is consumer-relevant with testing to show the alteration makes a difference for consumers in a relevant way.

Are there special rules for claiming where a product is made (such as country of origin)?

Yes, there are special rules for claims based on a product’s country of origin. One of the most prominent rules is for products claiming ‘Made in the USA’, which the FTC discusses in its Enforcement Policy Statement on US Origin Claims. The FTC requires products advertised with a ‘Made in the USA’ claim to be all or virtually all made in the United States, which ordinarily requires that all significant parts and processing that go into the product are of US origin. The advertiser should consider the site of final assembly and processing, the proportion of US manufacturing costs, and the remoteness of any foreign content. Additionally, other disclosures about the country of origin may be required for specific products. For example, textile products are required to disclose the country of origin for the product under the Textile and Wool Act.