Thursday, October 20, 2011

The Grey Area of False Advertising

Most people don't realize the complexity of false advertising.  Many people assume when an ad is misleading, it is false advertising.  Not so.  For something to be considered "false advertising" it must meet additional criteria.

It must be interpreted from the viewpoint of someone who reasonably discerns the meaning of advertisements. If other consumers will likely interpret an ad in the same incorrect way, it would be considered a "misleading" advertisement. I have received phone calls from people who considered an advertisement misleading, but their interpretation of the advertisement was unreasonable. In fact, the term "false advertising" is flung around so often, I'm afraid it will lose its importance.

Pepsi had a commercial in the 90s for their Pepsi Stuff rewards system. At the end of the commercial, it claimed that a Harrier jet would be 7,000,000 Pepsi Points and showed a kid land one in front of his school.  Some guy tried to claim the jet by buying $700,000 worth of Pepsi.  A federal court ruled that "no objective person could reasonably have concluded that the commercial actually offered consumers a Harrier jet." For reference, each Harrier Jet costs $30,000,000 (30M) and the program to develop them cost $6,500,000,000 (6.5B), putting the actual cost of each harrier at about $85,000,000 (85M).

It must be likely to affect a consumer's buying decision. It has to have the ability to sway their decision of whether or not to buy. It has to be enticing. The advertisement may have incorrect information, but if it is not essential to the product being sold, then it's probably not going to be considered false advertising. This criteria has all but vanished. Nearly every defendant in a false advertising case used to say that the case against them was trivial and had little effect on consumers' buying decisions.  Because so many defendants claimed this, judges stopped taking the plea seriously.  The FTC rarely has to establish this criteria in court cases.What it means in actual practice is that the FTC or other consumer protection agencies rarely prosecute over small amounts of money obtained through false advertising.

It must be likely to mislead a "substantial number" of customers who read the ad. According to the BBB's resources, "Neither the FTC nor the courts have identified a threshold level or percentage of consumers that will satisfy the "substantial number" test."  Instead, The FTC tries to identify the reaction of the group targeted by the advertisement.  If that group is likely to be misled, the advertisement will probably be challenged. So, it has basically been turned into an addendum to the first criteria.

It must be intentional. Typos don't count. If a customer sees a brand new Cadillac Escalade on sale for $6,317, a reasonable consumer should assume that the advertiser simply forgot to put a zero on the end of the price.  The consumer cannot demand that the dealer sell the vehicle for $50,000 below sticker price because of a typo. If an advertiser does not include information because he thinks it unimportant, only to find that people were misled by its omission, the advertiser is responsible for misleading his customers. Mostly, businesses are not held liable for honest mistakes, as long as they are rectified in a timely manner.

False Advertising is a tricky beast to tackle. There is so much information about it, that it's difficult to become an expert on the subject.  There are city ordinances, state laws and regulations, federal laws and regulations, and a considerable number of court cases that set precedent for how laws are interpreted. For instance, there are many state laws that say only that ads can't be "misleading" and don't give any details.  At that point it is up to lawyers and courts to determine if the advertisement was, in fact, misleading. Court cases set precedent for the cases to follow until they have successfully defined what actually is misleading and what is not.  To give an idea of how much information on advertising law exists, I have included a picture of my reference materials for Advertising Review.

In those books and papers are about 4000 pages of laws, regulations, policies and court decisions involving misleading advertisements. Even with extensive rules, regulations and laws, ethical grey areas simmer just below the brim of false advertising, neither honest, nor illegal, surfacing and receding, flirting with our tolerance threshold.

I ran across a company that offered coaching sessions to help people get their website-based businesses up and running.  The website said the sessions were hosted by professional consultants. The program cost $4000 for 8 sessions--$500 for each half-hour session. Steep, but people were willing to pay for professional consultations.  It turned out that the "consultation sessions" were Q&A sessions via phone with low-wage operators who read from a script.  For $1000 an hour, budding entrepreneurs could hire a top-notch expert business consultant to personally address the issues for their individual websites.  They got ripped off.  But it would be hard to prosecute this company for engaging in "false advertising." After all, they did give coaching sessions, even though they were second-rate, and the company only claimed that a "professional" would coach them, not an "expert."

There is also a group of meaningless words in advertising. "Best" is chief among the meaningless words.  Advertisers figured out that the word "best" is completely subjective.  When someone says they got the "best deal" on some thingamajig, others my have a different opinion of the price or value of said thingamajig.  So ads constantly and perpetually use "Best." Best deal. Best Store in Town. Best Prices. Best Value. Etc. On occasion, I have challenged the use of the word, but rarely. After all, it is subjective.

Another meaningless advertising word is "unique." Technically, everything is unique in some way. A flaw in a pair of blue jeans makes it unique. Two side-by-side red Lego® pieces, identical in every way, are both unique because only one of them is to the left and only one of them is to the right.  Advertisers picked up on this and started advertising the "unique" tastes of mass produced food products. It may be terrible, but if you make "unique" sound like a compliment, then it gives the impression of superiority....sometimes. The worst is when firms say that they offer a unique experience for their clientele. It can give the impression that the client will have information and expertise lacking in their competitors.  This can be very close to false advertising because they may not offer anything particular that other companies do not.  They get away with it because something, somehow is a just a little different, and therefore "unique." Consumers should just keep in mind that "unique" does not mean "better."

Use of the words above is commonly referred to as "puffery"--exaggerations expected to be made by the seller based on his or her own opinion of the product or service.  Sometimes the use of these words are acceptable and accurate. Other times, they blur the line between false advertising and acceptable boasting.

If something just sounds too good to be true, but you can't place your finger on why that is, look for the above examples. Look for details about the product or service before buying. Ask friends. Look at Consumer Reports and Angie's List if you're a subscriber.  Contact the BBB and obtain a business review. These things will help you evaluate the information you're provided from an advertisement.

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