Ten Things: Marketing Law Basics for In-House Counsel

Recently, a client asked me to review some advertising copy, something I had not done for several years.  It got me thinking about how much I always liked working with the marketing team when I was an in-house lawyer.  They are the “cool kids” at most companies; fun, sophisticated, and always handing out the best snacks.  And, they have lots of good swag to give away too.  More importantly, they bring a shit load of legal issues to the table which, depending on your point of view, can be a positive or a negative.  I tend to be a glass-half-full guy so I took all the crazy the marketing team could deliver as an opportunity to hone my skills (and maybe nab a free t-shirt, coffee mug, or Travelocity Gnome).  And, since I knew nothing about marketing or advertising law when I started in-house, it was a chance to learn something new – which is always a positive in my book.  After a rough start, I came to appreciate that “marketing law” covers a lot of ground, touching a host of legal issues.  Because of that, all in-house lawyers should have a basic understanding of the different facets (and how the legal department can best help the business navigate the problem areas).  Not sure what I am talking about?  Well, read on! This edition of “Ten Things” discusses what in-house lawyers need to know about marketing law:

1.  What is “marketing” law?  Generally, marketing law is the set of rules and regulations that help ensure advertisers are being truthful about what their products and services can do, that comparisons to other products and services are accurate and fair, and that conflicts of interest are revealed (e.g., paid endorsements and influencers).  It focuses heavily on preventing deceptive advertising practices and otherwise ensuring that advertisements are honest, transparent, and do not mislead, deceive, or abuse consumers.  As you will see below, there is much more to marketing law than just truthful advertising.  The good news is that legitimate businesses and advertisers usually have little to worry about and willingly comply with applicable laws and regulations to avoid legal issues, maintain consumer trust, and protect their brand reputation.  Still, while there are (and always have been and always will be) businesses that have low regard for such laws, many otherwise law-abiding businesses can run afoul of the complex web of rules and regulations simply because they are unaware of some particular quirk or twist that can turn a seemingly innocent advertising gimmick into a serious legal issue.  This is where the legal department can step up and add value, i.e., by keeping the marketing team up to-date and in compliance with the law.

2.  The legal framework. In the US, many different laws touch advertising.  At the federal level, the Federal Trade Commission (“FTC”) enforces truth in advertising laws under Section 5 of the FTC Act, which gives it broad powers to “prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce.” Each state has its own version of Section 5, usually enforced by the consumer protection division of the state attorney general’s office (see, for example, California’s “Unfair Competition Law”).   The FTC also enforces special advertising laws relating to alcohol, tobacco, and nutritional supplements. The Food and Drug Administration (“FDA”) handles advertising related to pharmaceuticals.  The Department of Transportation is responsible for the rules regarding the advertising of airfares.  Here are just some of the additional laws that apply to other types of marketing and advertising:

3.  FTC policy statements.  If you want to get up to speed on marketing/advertising law in the US in a hurry (or help the marketing team do the same), the FTC has created numerous policy statements and guidelines on key advertising issues.  Here are the ones I think are the most useful to in-house lawyers.  Some have been around for a while, but that doesn’t mean they are any less useful:

4.  What is the NAD?  Not all advertising disputes end up in court or before the FTC. The US advertising industry founded the National Advertising Division (“NAD”) (and the National Advertising Review Board) as a system of self-regulation to build consumer trust in advertising and support fair competition in the marketplace. The NAD’s staff of sophisticated advertising lawyers reviews truth-in-advertising challenges from businesses, trade associations, consumers, or on their own initiative. They also review claims made in comparative advertising, endorsements, testimonials, and other promotional materials (which are the types of claims that bring most businesses in front of the NAD in the first place).  When a complaint is filed with the NAD, it conducts a review of the advertising in question. This includes reviewing evidence provided by both the complainant (which can be a competitor) and the advertiser, and it considers relevant laws, regulations, and industry guidelines. Once the review is complete, the NAD issues a decision on whether the challenged advertising is truthful and substantiated. If the NAD determines that an advertisement is misleading or lacks proper substantiation, it will recommend that the advertiser modify or discontinue the advertising. Compliance with its recommendations is voluntary, but most advertisers comply because, if not, the NAD sends its conclusions on to the FTC (and you will get a call – something I learned firsthand).  So, there’s that.  More importantly, NAD case decisions represent a large body of US advertising law, comprising an important resource for in-house lawyers.

5.  Be accurate and truthful.  Okay, we’ve covered a lot of background.  Now it’s time to dig into the real basics of advertising law and where in-house lawyers can help the most day in and day out.  The number one rule when it comes to advertising is that all advertising must be truthful and accurate.  You can add “and not deceptive or misleading” to the pile here to give it a sharper point.  For example, you cannot say your product is organic when it is not.  You cannot say it will cure a cold when it will not.  Likewise, you cannot call your product “free” unless it is truly free (i.e., you are not recouping the cost through some other mechanism).  You cannot advertise cars or trucks at a super low price yet only have one available for sale at that price. And you cannot say a product is selling for 25% off the regular price when you have never sold any of the product at the “regular” price. Remember that graphs and images matter here as well.  If you are advertising that your wrinkle cream can reduce the appearance of wrinkles, don’t use touched-up photos to show the amazing power of your product.  The context for all of this is whether a “reasonable person” can read or see the advertisement and not be deceived or misled – though in my experience regulators tend to go with the dumbest reasonable person who ever lived as the test.  Truth in advertising also covers “bait and switch” tactics, i.e., that the consumer can truly receive whatever product, service, or benefit you are advertising.  If not, it’s a problem.

6.  Substantiate your claims.  Second, can you substantiate all the claims made in the advertisement?  For example, if you say your noise-reducing headphones cut ambient noise by 50%, where are the studies and science to back up that claim?  If the marketing team doesn’t have the proof, do not make the claim.  And watch out for marketing team members pulling things from the internet as substantiation.  Just because someone put it on the internet doesn’t make it true.[1]  When it comes to substantiation, there is a concept known as “puffery.”   Puffery is typically described as “opinion” or “expressive views” that no reasonable person could take literally, i.e., statements that generally cannot be proven or disproven. For example, saying you write the “world’s best blog” is puffery. It cannot be proven true or false, and no reasonable person would take it literally.  Someone may read your blog and hate it, calling the author an idiot.[2]  What they cannot do is go to court and allege that the “world’s best blog” statement is false advertising. However, the line between puffery and deception is not a bright one.  Statements you feel are opinion may cross over into deception depending on the circumstances and the context.  In short, you cross over the line when your puffery is no longer opinion but can be proven untrue.  For example, years ago Pennzoil had an ad about how its oil protected best against engine failure.  Pennzoil claimed it was puffery, but Castrol Oil was able to prove the claim to be false and Pennzoil got tagged in court.  Your job, as in-house counsel, is to patrol the line and stop all of the intrepid cool kids in marketing from crossing into the no-man’s-land of deception… (yes, that did sound better in my head…).

7.  Be fair with competitors.  Next up is comparison advertising, i.e., where your marketing team wants to compare the company’s products and services to those of a competitor.  Guess what?  This is completely legitimate and legal, so long as it is truthful and not false or deceptive.  Section 43(a) of the Lanham Act is helpful in understanding where the lines are drawn in comparative advertising:

Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which—

(1) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or

(2) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or  geographic origin of his or her or another person’s goods, services, or commercial activities,

shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

There is a lot to focus on when it comes to getting comparison advertising right.  For the most part, here is what the business needs to know (though legal should review every comparative ad as there is lots of nuance here): (a) be truthful – not a hint of deception or playing loose; (b) keep things light-hearted if possible; (c) ensure you can back up every claim made in the ad; (d) clearly identify the competitor you are comparing your product or service to; (e) only compare your product or service against products and services intended for the same use and purpose, i.e., “like for like;” and (f) do not disparage your competitor’s product or service, discuss why yours is better.

Lastly, when it comes to competitors do not forget to keep trademark and copyright law top of mind.  In particular, have a process in place with marketing to obtain and clear trademarks and to ensure that no one is downloading images from the internet to use in advertisements (a common problem for many companies as there are plenty of incorrect assumptions among employees about what constitutes “fair use”).  Similarly, you cannot use music without a license, especially popular music and even if just playing in the background at the office (and be careful with live-streaming ads because if you pick up music in the background you can get sued for not having a license to use that music).

8.  Endorsements and influencers. One of the more recent issues in advertising and marketing law is the use of endorsements and influencers to promote products. While it is great when individuals recommend your products to others (especially on social media), you cannot hide that you are paying them or compensating them in some way in exchange for the endorsement – even if they truly believe your products or services are terrific.  Transparency is critical.   Here are some key rules and guidelines to share with the business team:

  • Endorsement disclosure: The FTC requires disclosure of any material connection between the endorser and the advertiser that could affect the endorsement’s credibility. This includes any financial or business relationship, such as payment, gifts, or free products.
  • Clear and conspicuous disclosure: Disclosures must be clear, prominent, and easily understandable to consumers.  If an influencer includes links in their content, where they earn a commission for sales generated by consumers clicking through those links, they must disclose this connection to their audience.
  • Honesty and transparency: Endorsements must reflect the honest opinions, beliefs, and experiences of the influencer. Influencers should not make false or misleading claims about the product or service being endorsed.  Influencers should not make unsupported claims about the results that consumers can expect from using the endorsed product or service, i.e., all claims should be truthful and substantiated.
  • Native advertising: When endorsements are integrated into content that may appear as “non-commercial,” such as advertorials or social media posts, influencers must disclose the commercial nature of the content clearly and conspicuously.
  • You’re responsible.  Both advertisers and influencers share responsibility for compliance with FTC guidelines, i.e., if your influencer screws up you are on the hook with the regulator. Provide any influencers with clear instructions on disclosure requirements and check your influencer’s content for compliance.

9.  Deception.  While discussed as part of several paragraphs above, I want to focus on the issue of “deception” in marketing because it forms the basis for the largest fines and penalties (so it’s worth some extra attention).  The FTC takes a very dim view of misleading or deceptive advertising and has even gone so far as to discuss “Myths and Half-Truths” about deceptive advertising – a document that should be read by all in-house lawyers and shared with the marketing team.  To be blunt, the marketing landscape is littered with advertising campaigns that went wrong in a hurry due to false or deceptive claims, including companies like Volkswagen, Dannon, and Red Bull – costing these companies millions of dollars in fines, legal fees, and damaged reputations.[3]   Using consumer’s personal data in ways that violate your privacy notice or the law is another area of deception that can have serious consequences for the company.  More recently, regulators are cracking down hard on so-called “dark patterns,” i.e., advertisers using manipulative and deceptive techniques online to influence user behavior or specific actions that may not be in the user’s best interest.  Some examples include: (a) use of pre-selected checkboxes or misleading wording; (b) hiding or obfuscating additional charges, fees, or subscription terms during the purchasing process, leading users to unknowingly spend more than they intended; (c) manipulating the user’s attention or focus to distract them from important information or to steer them towards a particular option. For example, making the “opt-out” or “cancel” button difficult to find while highlighting the “proceed” or “accept” button; (d) making it easy for users to sign up or subscribe to a service but deliberately making it difficult or confusing to cancel or unsubscribe; and (e) creating a false sense of urgency or scarcity to rush users into making a decision, often through bogus time-limited offers or limited stock claims. If there is one place where the legal department can provide immediate, cutting-edge value to the marketing department it is in the area of dark patterns where the rules are fuzzy but the consequences painful.

10.  Best practices.  I suspect that you are now realizing there is a lot more to marketing law than just being truthful with advertising.  Here is my list of things the legal department should focus on when trying to ensure that the marketing department stays well within the lines:

  • Set up a process with the marketing department to ensure that the legal department reviews all advertisements, endorsements, influencer deals, contests/sweepstakes, etc.
  • If the above is not in the cards (e.g., manpower issues) then set up regular meetings with the marketing department to review the rules of the road, answer questions, and show real-life examples of advertising done incorrectly (nothing sinks in faster than see something that really happened vs. the lawyer’s hypothetical world).
  • Stay up to date on advertising laws.
  • Get a handle on how personal data is used within your company (and does it comply with your policies and the law).
  • Prepare a short checklist on a card for the members of the marketing department setting out the core requirements of truthful advertising, such as:
    • Accurate and Truthful
    • Substantiated
    • Fair Comparisons with Competitors
    • Copyrights Matter – Do Not Use Images Off the Internet
    • No Dark Patterns
    • Proper Disclosure of Endorsements and Influencers
    • Respect Data Privacy
    • No “Bait and Switch”
    • If in Doubt, Call Legal!
  • Understand if there are specific advertising laws that apply to your company’s products and services, e.g., airlines, drugs, etc.
  • Spot-check company advertisements, social media posts, and the website to ensure compliance and spot issues before they become a big problem.
  • Identify outside counsel with the right marketing law expertise that you can call on when faced with tricky issues (or if things go sideways).

*****

I know you need another issue to stay on top of like you need a hole in your head.  But helping ensure that the company is compliant with advertising laws is a simple way to prevent much bigger problems and headaches (and protect the company’s brand and reputation too).  While there is a lot to digest, the basics of truthful advertising are pretty straightforward and anyone can learn them quickly.  If you don’t know where to start, read the FTC’s “Advertising FAQs: A Guide for Small Business” or watch this great YouTube webinar from Dorsey & Whitney on Advertising Law Basics 101.  If you live outside the USA, my gut is that the rules are pretty similar but be sure to learn the specifics wherever you practice – and check out the International Trademark Association’s “Overview of Advertising Law” for a global perspective.

Sterling Miller

June 30, 2023

My fifth book, Showing the Value of the Legal Department: More Than Just a Cost Center is available right now, including as an eBook!  The first printing sold out, but the second printing is now back in stock.  It may be the bestest and greatest book about legal department value ever written!  You can buy it HERE.

Cover of Value Book

Two of my books, Ten Things You Need to Know as In-House Counsel – Practical Advice and Successful Strategies and Ten (More) Things You Need to Know as In-House Counsel – Practical Advice and Successful Strategies Volume 2, are also on sale on the ABA website (including as e-books).

I have published two other books: The Evolution of Professional Football, and The Slow-Cooker Savant.  I am also available for speaking engagements, webinars/CLEs, coaching, training, and consulting.

Connect with me on Twitter @10ThingsLegal and on LinkedIn where I post articles and stories of interest to in-house counsel frequently.  

“Ten Things” is not legal advice nor legal opinion and represents my views only.  It is intended to provide practical tips and references to the busy in-house practitioner and other readers.

If you have questions or comments, or ideas for a post, please contact me at sterling.miller@sbcglobal.net, or if you would like a CLE for your in-house legal team on this or any topic in the blog, contact me at smiller@hilgersgraben.com.

[1] Usually, a lesson the legal department must teach Generation Z (and I mourn for those stuck with Generation Alpha).

[2] Which is why my mom is banned from reading my blog.  She is tough!

[3] See https://www.businessinsider.com/false-advertising-scandals-2016-3#activia-yogurt-said-it-had-special-bacterial-ingredients-2

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