ADVERTISING ETHICS:Basic Principles, Evidence, Remedies, Puffery

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Business Ethics MGT610

LESSON 39

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.

Business Ethics MGT610

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 un-regulable.

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. See our bibliography on puffery and puffery quotes.

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