Deception

The Federal Trade Commission (FTC) is the primary regulator of deceptive advertising in the U.S. It was created by the FTC Act in 1914.

Section 5 of the Act gave the Commission the authority to regulate "unfair methods of competition." The Act was later changed, by the Wheeler-Lea Amendment, to give the FTC authority over both "unfair methods of competition" and "unfair or deceptive acts or practices." It is through this latter power that the FTC regulates deceptive advertising.

Commissioners of the FTC act like judges, hearing cases when marketers are charged with violating the FTC Act. The Commission also publishes advertising guidelines for marketers, which are not law but merely advisory, and adopts trade regulation rules, which are law.

Basic Principles

According to its 1993 Policy Statement on Deception, the FTC considers a marketing effort to be deceptive if: (1) there is a representation, omission, act or practice, that (2) is likely to mislead consumers acting reasonably under the circumstances, and (3) that representation, omission, or practice is "material." The term "material" refers to the fact that some deceptive claims are trivial, and that the FTC will only regulate deceptions that are important to consumers, i.e., those that affect consumers' "choice of, or conduct regarding, a product."

Evidence

To prove that an ad claim is, in fact, deceptive, the FTC is not generally concerned with what the claim says, but what it conveys to consumers. If that conveyed message differs from the reality of the product attribute being advertised, the claim is considered deceptive. This requires the Commission to look at two types of evidence: (1) evidence concerning what message is conveyed to consumers, and (2) evidence concerning the product attribute's true qualities.

The former requires looking into the heads of consumers. The FTC considers surveys the best form of evidence to discover what message is conveyed by an ad, though sometimes the Commission relies on other evidence. The question of how best to unearth the inner thoughts of consumers has been an issue of significant research efforts and theoretical discussion.

The second form of evidence can require a variety of different methods of assessing a product's attributes. If, for example, the claim refers to the fuel mileage of an automobile, laboratory testing of the vehicle's fuel efficiency would normally be required. However, the FTC requires that advertisers conduct such testing prior to making the ad claim. If a claim is made without evidence in hand that the product will perform as advertised, the claim will be considered deceptive. This is known as "substantiation," and the Commission's requirements are detailed in the 1984 FTC Substantiation Policy.

Remedies

Most cases started by the FTC never require the Commission to make a final decision about the deceptiveness of an advertiser's claim. Those cases end, instead, in a "consent order," whereby the advertiser simply agrees to do what the FTC staff asks. No hearing is required.

In those cases that do end in a final FTC decision, if the claim is found deceptive, the advertiser will face one of three possible remedies: (1) a Cease and Desist Order, which requires the advertiser to stop making the claim, (2) an Affirmative Disclosure Order, which forces the advertiser to provide consumers with more information, or (3) Corrective Advertising, which is a form of affirmative disclosure that is intended to correct lingering deception that results from a long history of deceiving the consumer.

Puffery

Historically, claims that were "mere exaggerations" or "hyperbole" were considered to be puffery, and therefore not deceptive. Terms like "the best" or "the greatest" were sales talk, and the FTC would not regulate them. After all, everyone knows that "Wonder Bread" is not really a wonder, and "The Greatest Show on Earth" is not what everyone considers the greatest. Puffery, therefore, was a form of opinion statement, and considered unregulable.

Some observers have expressed concern that the "puffery defense" was a loophole through which many deceptive claims fell. The Commission has been criticized for allowing deceptive claims to slip through under the guise of puffery.

On the other hand, the FTC has defined puffery as claims that (1) reasonable people do not believe to be true product qualities, and (2) are incapable of being proved either true or false. Consequently, if deception is the creation of a "false belief" about the product in the mind of a consumer, claims that fall into the FTC definition of puffery cannot be deceptive. By definition, such claims can be neither false nor can they create belief. This means that if deceptive claims have slipped through regulation as puffs, it is because the FTC has failed to follow its own definition.