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The role of advertising in our free market society is to help develop products that meet consumer demands and stimulate effective price competition. Advertising informs consumers about the availability of products, their characteristics and price information. Such information is vital to our competitive process. Advertisers use unfair business practices to gain an unfair advantage over their competitors and mislead consumers. The following essay examines the common types of deceptive acts and practices involved and the federal government agency that regulates advertisers. Government regulation provides a delicate balance between free commercial enterprise and consumer protection.
Businesses rely on advertising as a vital communication tool in reaching potential consumers. Important information about the company and the characteristics of the product is passed on to consumers in an attempt to provide them with products that meet their wants and needs. In addition to the press, radio and television, the laws governing advertising also cover signs, billboards, pamphlets, images or emblems, and direct and oral advertisements to consumers. To some extent, advertising is protected by our courts under “commercial freedom of expression” guidelines. However, information transmitted to consumers must be perceived as “truthful” to be protected against arbitrary government intrusion.
Consumers are protected from advertisers who intentionally or inadvertently mislead when promoting their products. Two main areas from which consumers are protected are misleading advertising and unfair acts or practices. False advertising is when an advertisement is misleading through a statement, word, device, sound, or omission made or suggested of material fact regarding the consequences that may result from the use of the product. This definition refers to food, drugs, devices, and cosmetics. Additionally, an advertisement can be viewed as a false or misleading representation due to an implied representation.
In general terms, an act or practice is considered unfair when it causes harm to consumers, harm to public policy or when it is based on the immoral, unethical or unscrupulous nature of the practice. A good example of how advertising harms consumers was when regulators decided that it was unfair for cigarette manufacturers to ignore the health risks of cigarette smoking. This led to legislation requiring health warnings on cigarette advertising.
The Federal Trade Commission is the federal government body that regulates, monitors, and challenges advertising claims that are believed to be illegally misleading. The FTC uses the following criteria when determining to challenge an advertising representation:
1) The ad makes a representation, has an omission, or uses a practice that is likely to mislead the consumer. The representation can be explicit (literal claim) or implicit (indirect or by inference) in the advertisement.
2) The representation, omission, or practice is misleading when viewed from the perspective of a reasonable consumer.
3) The representation, omission or practice is material. The FTC assesses the extent to which the questionable ad influences buying behavior or patterns. A representation, omission, or practice is material when purchasing behaviors or patterns are affected.
The FTC has the authority to sanction offending companies that violate the misleading advertising rules. There are several types of remedies and penalties available to the FTC to enforce the law. Such remedies and penalties include:
Injunction – A court order that prohibits or compels future conduct.
Cease and desist orders: prohibits the company from participating in the act or practice that was found to be misleading.
Affirmative Disclosure Orders: The company is prohibited from making the claim in the future without making further disclosure.
Corrective Advertising – forces the advertiser to declare in all future advertising that specific claims made in the past were false.
Multiple Product Order – Applies to all future advertising for all products sold by the company.
Consent order: the company agrees to cease certain activities without admitting wrongdoing.
The basic goal of the FTC is to increase the accuracy of product information available to consumers. They do this by imposing regulations on very specific advertising practices such as; mock demos, endorsements or testimonials, price-based promotions, advertisements related to credit availability, and product tagging.
To avoid FTC scrutiny, advertisers must have the ability to substantiate their claims about a product’s attributes or performance on a “reasonable basis.” An advertiser who claims that their product “kills the germs that cause colds and flu” or “stimulates the loss of 25 pounds of weight in one week” must gather sufficient evidence of the validity of the claims, usually before they go to print. or broadcast the announcement. If a complaint is filed with the FTC regarding the accuracy of an advertising claim, the FTC will evaluate the reasonableness of the advertisers’ justification to determine whether it serves the public interest. The reasonable basis doctrine applies to food, drugs, devices, and cosmetics because its effect on the public is direct and its use can be life-threatening.
The enormous amount of money spent on advertising is a testament to the importance of advertising in our economic system. In a sense, advertising fuels the economy. Unfortunately, the integrity of the advertising community must be monitored. Misleading advertising legislation is continually updated and improved to reflect changing product lines that appeal to an audience with specific and growing needs and wants. Government regulation provides the balance between the important issues of free commercial expression, free commercial enterprise, and consumer protection.