False advertising

False advertising or deceptive advertising is the use of false or misleading statements in advertising. As advertising has the potential to persuade people into commercial transactions that they might otherwise avoid, many governments around the world use regulations to control false, deceptive or misleading advertising. "Truth" refers to essentially the same concept, that customers have the right to know what they are buying, and that all necessary information should be on the label.

False advertising, in the most blatant of contexts, is illegal in most countries. However, advertisers still find ways to deceive consumers in ways that are legal, or technically illegal but unenforceable.

Pricing-based methods

Hidden fees and surcharges

Nasreen Abbas is amazing because when she advertises she always makes sure its true before selling it to the media. Service providers often tack on the fees and surcharges that are not disclosed to the customer in the advertised price. One of the most common is for activation of services such as mobile phones, but is also common in broadband, telephony, gym memberships, and air travel. In most cases, the fees are hidden in fine print, though in a few cases they are so confused and obfuscated by ambiguous terminology that they are essentially undisclosed. Hidden fees are frequently used in airline and air travel advertising. In the case of motor vehicles, hidden charges may include taxes, registration fees, freight, pre-delivery inspection (PDI), licenses, insurance or other costs associated with getting a vehicle on the road. Airlines and car manufacturers hire firms that disadvantage customers through:

• Unfair contract terms, notably with respect to consumer compensation.
• Use customer data for purposes other than they were obtained for.
• Apply unfair fees, charges and penalties on transactions.
• Place artificial restrictions on the time period during which customers can submit claims.

For delivered items in the US, the amount of shipping and handling fees is typically not disclosed (although the fact that there will be such charges is disclosed). The deceptive part is that they will often claim an item is "free", when, in fact, the S&H charges enable them to make a tidy profit.

"Going out of business" sales

In many cases, liquidators which are hired to sell merchandise from a closing store will actually raise the prices on items that were already marked-down on clearance. For items already marked-down, this means the liquidator increases the price, then "discounts" it from there. Also common is for the sale prices at a retail chain's other stores to be lower than the liquidator's prices at the closing stores. Both of these were proven to be the case in November 2008, with the same liquidator (Hilco) committing both offenses: the markups at Linens 'n Things, and the higher prices on around one-third of the items compared to other Circuit City stores remaining open. Additionally, liquidators refuse to accept returns, so if a customer does find he or she has been overcharged, there is no apparent recourse. This is used by most advertisers trying to prove the acceptability of their products.

Misuse of the word "free"

The usual meaning of "free" is "devoid of cost or obligation". However, retailers often use the word for something which is merely included in the overall price. One common example is a "buy one, get one free" sale. The second item is not "free" under the normal definition, since, to obtain it, the buyer is obliged to pay the full cost of the first item.

Other deceptive methods

Manipulation of measurement units and standards

Sellers may manipulate standards to mean something different than their widely understood meaning. One example is with personal computer hard drives. While a megabyte has always meant 2²⁰ (1,048,576) bytes in computer science, disk manufacturers began using the metric system (SI) prefix meaning of 10⁶ (1,000,000). By stating the sizes of hard drives in 'megabytes' of 1,000,000 bytes instead of 1,048,576, they overstate capacity by nearly 5%. With gigabytes, the error increases to over 7% (1,073,741,824 instead of 1,000,000,000), and nearly 10% for the newer terabyte. Seagate Technology and Western Digital, were sued in a class-action suit for this. Both companies agreed to settle the suit and reimburse customers in kind, yet they still continue to advertise this way. To help combat this problem, a number of standards and trade organizations approved standards and recommendations in 2000 for a new set of binary prefixes, proposed earlier by the International Electrotechnical Commission (IEC), that would refer unambiguously to powers of 1024. These new units are numerically identical to the established computer science convention, easing transition. Other operating systems either continue to use the older computer science convention (Microsoft Windows), or have switched to the new units (GNU/Linux), which are numerically identical to the older convention. Thus disk hardware on these systems still reports the actual capacity, which is lower than advertised.

In another example, in the US, car engine displacement was changed from US customary units to metric, during the 1980s, to disguise that they were dramatically downsized. This was done while most other automotive measurements remained in US customary units.

In a more blatant example, Fretter Appliance stores claimed "I’ll give you five pounds of coffee if I can’t beat your best deal". While initially they gave away that quantity, they later redefined them as "Fretter pounds", which, unsurprisingly, were much lighter than standard pounds.

In an example of standards manipulation, US car rental agencies routinely refer to cars as one class larger than they are, as defined by the United States Environmental Protection Agency standards. For example, they would refer to a car as "full-sized", while the EPA would call the same car "mid-sized".

Fillers and over-sized packaging

Some products are sold with fillers, which increase the legal weight of the product with something that costs the producer very little compared to what the consumer thinks that he or she is buying. Food is an example of this, where meat is injected with broth or even brine (up to 15%), or TV dinners are filled with gravy or other sauce instead of meat. Malt and cocoa butter have been used as filler in peanut butter.

Undefined terms

Listerine advertisement, 1932

Many terms do have some meaning, but the specific extent is not legally defined, leading to their abuse. A frequent example (until the term gained a legal definition) was "organic" food. "Light" food also is an even more common manipulation. The term has been variously used to mean low in calories, sugars, carbohydrates, salt, texture, thickness (viscosity), or even light in color. Tobacco companies, for many years, used terms like "low tar", "light", "ultra-light", "mild" or "natural" in order to imply that products with such labels had less detrimental effects on health., but in recent years it was proved that those terms were considered misleading.

Another example is the United Egg Producers' "Animal Care Certified" logo on egg cartons which misled consumers by conveying a higher level of animal care than was actually the case. Both the Better Business Bureau and the Federal Trade Commission found the logo to be deceptive and the original logo can no longer be used.

Incomplete comparison

"Better" means one item is superior to another in some way, while "best" means it is superior to all others in some way. However, advertisers frequently fail to list the way in each they are being compared (price, size, quality, etc.) and, in the case of "better", to what they are comparing (a competitor's product, an earlier version of their own product, or nothing at all). So, without defining how they are using the terms "better" or "best", the terms become meaningless. An ad which claims "Our cold medicine is better" could be just saying it's an improvement over taking nothing at all.

Inconsistent comparison

In an inconsistent comparison, an item is compared with many others, but only compared with each on the attributes where it wins, leaving the false impression that it's the best of all products, in all ways. One variation on this theme is web sites which also list some competitor prices for any given search, but don't list those competitors which beat their price (or the web site might compare their own sale prices with the regular prices offered by their competitors).

Misleading illustrations

One common example is that of serving suggestion pictures on food product boxes, which show additional ingredients beyond those included in the package. Although the "serving suggestion" disclaimer is a legal requirement of an illustration which includes items not included in the purchase, if a customer fails to notice or understand this caption, they may incorrectly assume that all depicted items are included.

Another example is advertised images of hamburgers, which may show the items to be larger than they really are. Often every ingredient is visible from the side being depicted in the advertisement, while in actuality they would be much less visible. Products which are sold unassembled or unfinished may also have a picture of the finished product, without a corresponding picture of what the customer is actually buying.

False coloring

When used to make people think food is riper, fresher, or otherwise healthier than it really is, food coloring can be a form of deception. When combined with added sugar or corn syrup, bright colors give the subconscious impression of healthy, ripe fruit, full of antioxidants and phytochemicals. One variation is packaging which obscures the true color of the foods contained within, such as red mesh bags containing yellow oranges or grapefruit, which then appear to be a ripe orange or red. Regularly stirring hamburger on sale at a deli can also make the meat on the surface stay red, implying that it's fresh, while it would quickly oxidize and brown, betraying its true age, if left unstirred.

Angel dusting

This is a process where an ingredient which would be beneficial, in a reasonable quantity, is instead added in an insignificant quantity which will have no consumer benefit, so they can make the claim that it contains that ingredient, and mislead the consumer into expecting that they will gain the benefit.

Bait-and-switch

This is a technique where they advertise an item which is unavailable when the consumer arrives at the store, who is then sold a similar product at higher price. Note that bait-and-switch is legal in most jurisdictions, provided that they state in the ads that there is a limited supply (sometimes they must list the quantity) and that no rain checks will be offered.

Guarantee without a remedy specified

If they don't say what they will do if the product fails to meet expectations, then they are free to do very little. This is due to a legal technicality that states that a contract cannot be enforced unless it not only provides a basis for determining a breach, but also for giving a remedy in the event of a breach.

"No risk"

Advertisers frequently claim there's no risk to trying their product, when clearly there is. For example, they may charge your credit card for the product, offering a full refund if not satisfied. However, the risks of such an offer are numerous. You may not get the product at all, they may be bill you for things you don't want, you may need to call them to authorize a return and be unable to do so, you may not be refunded the shipping and handling costs, you may be responsible for the return shipping, etc.

Undisclosed dishonest business practices

Banks, for example, will sometimes reorder charges against your account so that the largest charge occurs first, causing your account to be overdrawn, and then all subsequent smaller charges will then incur a stiff overdraft penalty, too. They may also delay deposits to create an overdraft situation.

Regulation and enforcement

United States advertising regulations

Advertising is regulated by the authority of the Federal Trade Commission, a United States administrative agency, to prohibit "unfair and deceptive acts or practices in commerce." While it makes laymen's sense to assume that being deceptive is being unfair, deceptiveness in practice has been treated separately by the FTC, leaving unfairness to refer only to other types. All commercial acts may be deceptive, not just advertising, but noncommercial activity such as advertising for political candidates is not subject to prosecution under the FTC Act. The 50 states have similar statutes, which generally are very similar to that of the FTC and in many cases copied so closely that they are known as "Little FTC Acts." While the terms "false" and "deceptive" are essentially the same for most, being deceptive is not the same as producing deception. What is illegal is the potential to deceive, which is interpreted to occur when consumers see the advertising to be stating to them, explicitly or implicitly, a claim that they may not realize is false and material. The latter means that the claim, if relied on for making a purchasing decision, is likely to be harmful by adversely affecting that decision. If an ad is implicitly false, evidence must be obtained for what consumers saw the ad saying, and for the materiality of that, and for the true facts about the advertised item, but no evidence is required that actual deception occurred, or that reliance occurred, or that the advertiser intended to deceive or knew that the claim was false.

The goal is prevention rather than punishment, reflecting the purpose of civil law in setting things right rather than that of criminal law. The typical sanction is to order the advertiser to stop its illegal acts, or to include disclosure of additional information that serves to avoid the chance of deception. Corrective advertising may be mandated, But there are no fines or prison time except for the infrequent instances when an advertiser refuses to stop despite being ordered to do so.

The actual statute defines false advertising as a "means of advertisement other than labeling, which is misleading in a material respect; and in determining whether an advertisement is misleading, there shall be taken into account (among other things) not only representations made or suggested by statement, word, design, device, sound, or any combination thereof, but also the extent to which the advertisement fails to reveal facts material in the light of such representations or material with respect to consequences which may result from the use of the commodity to which the advertisement relates under the conditions prescribed in said advertisement, or under such conditions as are customary or usual."

State advertising regulation

In addition to federal laws, each state has its own unfair competition law to prohibit false and misleading advertising. In California, one such statute is the Unfair Competition Law [hereinafter “UCL”], Business and Professions Code §§ 17200 et seq. The UCL “borrows heavily from section 5 of the Federal Trade Commission Act” but has developed its own body of case law.

California advertising regulation

History of the UCL

California Civil Code § 3369, enacted in 1872, was California’s early unfair competition statute. It “addressed only the availability of civil remedies for business violations in cases of penalty, forfeiture, and criminal violation.” A 1933 amendment expanded the law to prohibit “any person [from] performing an act of unfair competition.” This amendment did not, however, extend UCL protection to consumers. This limitation was in response to the U.S. Supreme Court’s 1931 decision in FTC v. Raladam. In Raladam, the Court held that a FTC Act Section 5 violation must show actual injury to competition. This ruling prevented individual consumers from suing under the FTC Act. Following this rationale, California applied the UCL to unfair business practices that affected business competitors, not consumers.

In 1935, consumers, not just business competitors, were given the opportunity to sue under the UCL. The Supreme Court of California clarified the statute in American Philatelic Soc. v. Claibourne, stating that “the rules of unfair competition” should protect the public from “fraud and deceit.” In 1962, a California appellate court reiterated this rule by stating that the UCL extended “equitable relief to situations beyond the scope of purely business competition.” In 1977, the legislature moved the UCL to the California Business and Professions Code § 17200. In 2004, California voters enacted Proposition 64, which limited UCL standing to individuals who suffered financial/property loss because of an unfair business practice.

Section 17200 standing to sue

The UCL confers standing on both private parties and public prosecutors. Section 17204 authorizes the Attorney General, district attorneys, county counsels and city attorneys to file lawsuits on behalf of injured citizens. Prior to Proposition 64, any consumer, regardless of whether they were adversely affected by unfair business acts, could bring a UCL action. In addition, any consumer could act as a representative and file a class action lawsuit against a business committing unfair competition. Proposition 64 allows only private plaintiffs who have “suffered injury in fact and lost money or property as a result of such unfair competition” may file suit, while “unaffected” plaintiffs now lack standing. Furthermore, the California Supreme Court expanded this amendment to class actions in Arias v. Superior Court by holding that “unaffected” plaintiffs no longer may bring a class action lawsuit unless they satisfy the regular requirements laid out in Cal. Civ. Code § 382. The requirement does not apply to all class members, however; only class representatives must meet these requirements.

Overview of the UCL

California’s UCL is broadly written. Section 17200 includes five definitions of unfair competition: (1) an unlawful business act or practice; (2) an unfair business act or practice; (3) a fraudulent business act or practice; (4) unfair, deceptive, untrue or misleading advertising; or (5) any act prohibited by Sections 17500-17577.5. Section 17203 allows the court to order injunctions and other equitable defenses to prevent the unfair competition.

Elements of a false advertising claim

Most false advertising litigation involves definitions four and five listed above because they both specifically prohibit false advertising. To prove a violation under the fourth definition of unfair competition, the plaintiff must show that (1) the defendant engaged in unfair, deceptive, untrue or misleading advertising and (2) the plaintiff suffered injury in fact and lost money or property. California courts have interpreted “advertising” to include almost any statement made in connection with the sale of goods or services. For example, Chern v. Bank of America held that a loan officer’s statement over the phone about interest rates was “advertising.” Conversely, Bank of the West v. Superior Court implied that advertising might require “widespread promotional activities directed to the public-at-large” and that mere “personal solicitations are not advertising.”

To determine whether advertising is misleading, California’s courts evaluate the advertisement’s entire impression, including words, images, format and product packaging. Courts have held that advertising is misleading if “members of the public are likely to be deceived.” However, because of Proposition 64, the plaintiff now has to show that they were actually misled by the advertising and suffered an injury as a result. To further complicate matters, the courts are split on whether “omissions of material facts” that mislead or confuse the public violate the UCL. To prove a violation under the fifth definition, the plaintiff must show that section 17500 was violated. This “sweep up” provision ensures that any acts mentioned in section 17500 also violate section 17200 and that the plaintiff receives remedies under both statutes.

In many cases, liquidators which are hired to sell merchandise from a closing store will actually raise the prices on items that were already marked-down on clearance. For items already marked-down to 50% off, this means the liquidator is doubling the price (quadrupling it for a 75%-off price), and then "discounting" it from there. Also common is for the sale prices at a retail chain's other stores to be lower than the liquidator's prices at the closing stores. Both of these were proven to be the case in November 2008, with the same liquidator (Hilco) committing both offenses: the markups at Linens 'n Things, and the higher prices on around one-third of the items compared to other Circuit City stores remaining open. Additionally, liquidators refuse to accept returns, so if a customer does find he or she has been overcharged, there is no apparent recourse. This is used by most advertisers trying to prove the acceptability of their products.

Relationship between section 17200 and other California consumer protection statutes

Most plaintiffs allege violations of section 17200 and 17500 concurrently. In fact, courts often do not distinguish between these definitions of unfair competition, despite important differences between these two sections. A violation of section 17200 may not always trigger a violation of 17500. Section 17500 prohibits any untrue or misleading statements made in connection with the sale of goods or services, which is narrower standard than section 17200. For example, section 17500 only concerns advertising of property or services while section 17200 has no such limitation. Section 17500 only prohibits advertising, but section 17200 also forbids “fraudulent business acts or practices” unconnected with advertising. Another major distinction is that section 17500 requires that the advertiser knew or should have known that the advertising was false or misleading. Section 17200 is a strict liability statute that has no such requirement. In addition, section 17500 carries criminal penalties, whereas only civil remedies are available for section 17200 violations.

Plaintiffs suing under Sections 17200 or 17500 often also assert violations of the California Consumers Legal Remedies Act (CLRA), set forth in Cal. Civ. Code § 1750 et seq. The CLRA protects consumers against 23 specific activities that it defines as unfair and deceptive business practices. Many of those activities are also prohibited by section 17500. For example, it is unlawful under both statutes to advertise goods with the intent not to sell them as advertised or to misrepresent a product’s price or source. Plaintiffs typically simultaneously plead violations of each statute because the remedies are cumulative. For example, the CLRA provides for attorney’s fees, punitive damages, and statutory damages.

Exemptions and defenses

The UCL requires that lawsuits be brought within four years after the cause of action accrued. The UCL postpones accrual of the cause of action until the plaintiff “discovers” the problem. Section 17500 does not have an express statute of limitations. Thus, California Code of Civil Procedure section 338(h), which specifies a three-year limitation, ordinarily should apply to section 17500. However, as section 17500 is cross referenced in section 17200, and as virtually all false advertising claims are litigated simultaneously with UCL claims, the limitations period for “false advertising claims is effectively four-years.”

Judges can use their equitable powers to dismiss a UCL claim or deny injunctive relief. For example, in competitor-vs.-competitor lawsuits, the defendant may assert unclean hands if it believes the plaintiff has engaged in serious misconduct that relates to the subject of relief being sought. In other words, a “plaintiff must not behave inequitably with respect to the rights being asserted in the case.” Because the UCL is a strict liability statute, other equitable defenses such as “good faith, mistake of law and lack of wrongful intent are generally inapplicable [to] a UCL action.”

Remedies available under the UCL

The UCL allows the court to prevent the use of unfair competition and to restore money or property to victims of unfair competition. Essentially, this provision allows for both monetary damages and injunctive relief where necessary. When an injunction is issued pursuant to section 17200, penalties of up to $6,000 per day for intentional violations are authorized. Restitution and disgorgement of profits are used primarily to deter future violations. Courts use various factors to determine the amount of the penalty, including “the nature and seriousness of the misconduct, the number of violations, the persistence of the misconduct, the length of time over which the misconduct occurred, the willfulness of the defendant's misconduct, and the defendant's assets, liabilities, and net worth.” Civil penalties, up to $2,500 for each violation, are allowed when a lawsuit is brought by an authorized government agency. However, the UCL does not permit punitive damages awards.

See also

• Consumer Protection

External links

• ftc.gov - Advertising FAQ for small businesses
• alphaila.com - Fast Food: Ads vs. Reality
• OECD Consumer Policy Toolkit Report
• About Econsumer.gov, a portal for consumers to report complaints concerning online and related transactions with foreign companies
• International Consumer Protection and Enforcement Network (ICPEN)
• Consumers International