All businesses that have a product or service to sell must advertise, and a competitive marketplace can lead to a range of dubious methods. Most of the time, businesses might exaggerate some aspect of their products and services, like calling them “The Best _______ in the World,” but some advertisements cross a line into unlawful territory. Claims that are outright misleading or false, especially those that could harm consumers or other businesses, are often prohibited by state and federal consumer protection laws.
A common form of false advertising involves deceptive or misleading product descriptions, particularly claims that a product has certain features or benefits that it does not, or that it is of a higher quality than it actually is. Examples include:
In 2010, for example, Dannon was ordered to pay about $45 million in damages to plaintiffs in a class action lawsuit alleging false claims about two yogurt products, Activia and DanActive. Advertisements for the products claimed the products had “clinically proven” health benefits. The company charged more for the products, and consumers were induced to purchase the products, based on these claims. In addition to monetary damages, the court ordered Dannon to modify its advertising.
Another common false advertising scheme involves hidden fees or surcharges, which can cause the final price paid by a consumer to be substantially higher than the advertised price. This might occur with telecommunications companies, when the service provider hides additional, unauthorized charges on consumers’ bills. The Federal Trade Commission (FTC) calls this practice “cramming.” Airlines also have been the subject of complaints about hidden fees charged to passengers.
“Going out of business” sales might involve deceptive pricing practices, such as when a liquidator inflates prices while claiming that they have been marked down.
Advertisers might mislead consumers by using a different standard of measurement, making a product seem larger or smaller than it actually is. Food products might include packing material to make them appear larger, or filler to increase the weight.
In a recent instance of this behavior, computer hard drive manufacturer Western Digital settled a class action lawsuit in 2006 involving claims about hard drive capacity. In computer science, one kilobyte (KB) equals 1,024 bytes of memory, based on the binary numeral system used by computers. One megabyte (MB) would be equal to the square of one KB, or 1,048,576 bytes. The class action lawsuit alleged that Western Digital and other manufacturers used the decimal system, in which one KB equals 1,000 bytes and one MB equals one million bytes. The company’s 80-gigabyte (GB) hard drive, using the binary system, allegedly held only 74.4 GB of data.
Comparing one’s product to a competitor’s product is inherently tricky, and advertisers may deceive consumers by focusing on attributes where their product exceeds their competitor’s, while ignoring other attributes. Advertisers might use comparative words with vague or ambiguous meaning, such as “stronger” or “better,” without placing the comparison in the proper context.
This type of advertising can result in disputes between businesses, such as the lawsuit filed by Pizza Hut against its competitor Papa John’s in 1997 over the slogan “Better Ingredients. Better Pizza.” The Fifth Circuit Court of Appeals ruled that the slogan was “not an objectifiable statement of fact” that consumers might rely upon and dismissed the lawsuit. Pizza Hut v. Papa John’s Int’l, 227 F.3d 489, 491 (5th Cir. 2000).
Businesses may offer a guarantee or warranty for their services that does not specify a remedy and then decline to provide any relief to consumers. Contract law typically requires certainty in terms for a contract to be enforceable, so laws regulating deceptive and false advertising must fill in the gap.
The federal Lanham Act allows civil lawsuits for false advertising that “misrepresents the nature, characteristics, qualities, or geographic origin” of goods or services. 15 U.S.C. § 1125(a). The FTC also enforces false advertising laws on behalf of consumers.
States have their own laws regulating false advertising and other deceptive trade practices. California, for example, prohibits dissemination of information about products or services that is “untrue or misleading,” with both civil and criminal enforcement. CA Bus. & Prof. Code § 17500.
