False advertising

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False advertising or deceptive advertising is the use of false or misleading statements in advertising, and misrepresentation of the product at hand, which may negatively affect many stakeholders specifically consumers. 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[edit]

Hidden fees and surcharges[edit]

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 and credit cards, 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.[1] 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.[2] Airlines and car manufacturers hire firms that disadvantage customers through:[3]

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). Advertisers will often claim an item costs "only" a small amount (or is even "free") when, in fact, the shipping charges enable them to make a profit.

"Going out of business" sales[edit]

In many cases, liquidators 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 and then "discounts" it from there. By marking up their prices before discounting, these companies are maintaining their previous profit margin. 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. Liquidators typically refuse to accept returns, so if a customer notices being 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"[edit]

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[edit]

Manipulation of measurement units and standards[edit]

Sellers may manipulate standards to mean something different than their widely understood meaning. One example is with personal computer hard drives. While a megabyte (MB) 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) as their hardware standard. By stating the sizes of hard drives in MB as 1,000,000 bytes instead of 1,048,576 bytes, they overstate capacity by nearly 5%. With gigabytes (GB) the error increases to over 7% (1,073,741,824 instead of 1,000,000,000), and nearly 10% for the larger and increasingly common terabyte (TB). 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.[4][5] 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 oversized packaging[edit]

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.[6]

Manipulation of terms[edit]

Listerine advertisement, 1932. The FTC found that the claim of these advertisements, reduced likelihood of catching cold, was false.

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. Unlike the term "Organic", the term "Natural" has no legal definition when describing food products. Labels such as "All-Natural" are frequently used but are essentially meaningless. 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.[7]

Another example is the United Egg Producers' "Animal Care Certified" logo on egg cartons which, according to the Better Business Bureau, misled consumers by conveying a higher sense of animal care than was actually the case. The trade commission did not rule on the matter but did encourage UEP to change the logo, which they did, to read "United Egg Producers Certified".[8]

Incomplete comparison[edit]

"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 is an improvement over taking nothing at all.

Inconsistent comparison[edit]

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 is 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 do not 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[edit]

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. Many fast food restaurants engage in misleading illustrations, and it becomes an issue of what the consumer thinks they will get versus what they actually get in terms of a product or service.

False coloring[edit]

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 is fresh, while it would quickly oxidize and brown, showing its true age, if left unstirred.

Angel dusting[edit]

Angel dusting 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. For example, a cereal may claim it contains "12 essential vitamins and minerals," but the amounts of each may be only 1% or less of the Reference Daily Intake, providing virtually no benefit to nutrition.

Bait-and-switch[edit]

Bait-and-switch is a technique where advertisers advertise an item which is unavailable when the consumer arrives at the store, who is then sold a similar product at higher price. Bait-and-switch is legal in the United States, provided that ads state 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[edit]

If a company does not 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 provides a basis not only for determining a breach but also for giving a remedy in the event of a breach.[9]

"No risk"[edit]

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

Acceptance by default[edit]

This refers to a contract or agreement where no response is interpreted as a positive response in favor of the business. An example of this is where a customer must explicitly "opt-out" of a particular feature or service, or be charged for that feature or service. Another example is where a subscription automatically renews unless the customer explicitly requests it to stop. This is even conducted when the customer may have specified a specific length of subscription up front, that is then exceeded and renewed without notification to the customer.

Undisclosed dishonest business practices[edit]

Banks, for example, will sometimes reorder charges against an account to maximize the number of overdrafts. The bank processes the largest charge occurs first, causing the account to be overdrawn, so that all subsequent smaller charges also overdraft, resulting in multiple overdraft fees, even if, under the original order, only one overdraft would have occurred.[10] in 2011, several banks, including Bank of America, JPMorgan Chase, TD Bank and Citizens Financial Group paid hundreds of millions in settlements over the practice.[10] Similarly, where a sequence of transactions includes both deposits and withdrawals, a bank may sequence the transactions so that the withdrawals are processed before the deposits, to create an overdraft.[11]

Regulation and enforcement[edit]

United States[edit]

In the United States, the federal government regulates advertising through the Federal Trade Commission (FTC), and additionally enables private litigation through various statutes, most significantly the Lanham Act (trademark and unfair competition). In the 2013-2014, the United States Supreme Court is reviewing two false advertising cases: Static Control v. Lexmark (who has standing to sue under the Lanham Act for false advertising) and POM Wonderful v. Coca-Cola.

State governments have a variety of unfair competition laws, which regulate false advertising, trademark, and related issues.

Federal advertising regulations[edit]

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."[12] 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.[13] 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,[14][15] 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.[16]

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." [17]

State advertising regulation[edit]

In addition to federal laws, each state has its own unfair competition law to prohibit false and misleading advertising.[18] 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.[19]

See also[edit]

References[edit]

  1. ^ McArthur, D (April 30, 2008). "How does a $224 flight end up costing $826? [Internet]". Toronto: Globe and Mail. 
  2. ^ "Small Business". The San Francisco Chronicle. 
  3. ^ "Airlines, hire cars targeted over hidden fees". The Sydney Morning Herald. 2010-10-23. 
  4. ^ "Seagate settles suit over disk capacity". Neowin.net. 2007-11-03. Retrieved 2009-11-03. 
  5. ^ "Western Digital pays up in class action lawsuit". Neowin.net. 2006-07-18. Retrieved 2009-11-03. 
  6. ^ Wallechinsky, David (1975). The People's Almanac. Garden City: Doubleday. p. 1010. ISBN 0-385-04060-1. 
  7. ^ U.S. Food and Drug Administration (22 June 2010). "Light, Low, Mild or Similar Descriptors". Retrieved 12 June 2014. 
  8. ^ Barrionuevo, Alexei (2005-10-04). "Egg Producers Relent on Industry Seal". The New York Times. Retrieved 2010-03-27. 
  9. ^ "Restatement (Second) of Contracts §33". Retrieved June 2, 2012. 
  10. ^ a b Touryalai, Halah (July 2, 2012). "Shady Overdraft Fees Could Cost Banks Over $1 Billion". Forbes. Retrieved October 23, 2012. 
  11. ^ Landes, Luke (December 21, 2011). "How Five Banks Post Your Deposits and Withdrawals: Do They Trap You Into Overdraft Fees?". Consumerism Commentary. Retrieved October 23, 2012. 
  12. ^ 15 U.S.C. § 45.
  13. ^ Richards, Jef I., Deceptive Advertising, Erlbaum (1990), at p. 20.
  14. ^ Johar, Gita, "Intended and Unintended Effects of Corrective Advertising on Beliefs and Evaluations: An Exploratory Analysis", Journal of Consumer Psychology, 1996, 5(3), 209-230.
  15. ^ Johar, Gita Venkataramani and Carolyn J. Simmons, “The Use of Concurrent Disclosures to Correct Invalid Inferences,” Journal of Consumer Research, 2000, 26(4), 307-322.
  16. ^ Richards, id; Policy Statement on Deception, 103 FTC Decisions 110 (1984), appendix to Cliffdale Associates; originally a letter from FTC Chairman James C. Miller to Rep. John D. Dingell (October 14, 1983). For the history of changing from deception to deceptiveness as the standard, see Preston, Ivan L., The Great American Blow-Up: Puffery in Advertising and Selling, University of Wisconsin Press, revised ed. (1996), at Ch. 8.
  17. ^ Wilson, Lee. "The Advertising Law Guide: A Friendly Desktop Reference for Advertising Professionals." Allworth Press, NY, NY. 2000. 25.
  18. ^ See e.g. N.Y. ISC. Law §§ 2401-2409.
  19. ^ California Antitrust & Unfair Competition Law (Third), Volume 2: Unfair Competition (State Bar of California, 2003 Daniel Mogin & Danielle S. Fitzpatrick, eds.) at pg. 9.

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