False advertising

False advertising

False advertising or deceptive advertising is the use of false or misleading statements in advertising. 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 not illegal.


Pricing-based methods

Hidden fees and surcharges

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, 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, registation fees, licences, insurance or other costs associated with getting a vehicle on the road.[2] Airlines and car hire firms that disadvange customers through[3]:

  • Unfair contract terms, notably with respect to consumer compensation.
  • Use customer data for purposes other than they were obtained for.
  • Apply unfair fees, charges and penalties on transactions.
  • Place artificial restrictions on the time period during which customers can submit claims.

"Going out of business" sales

In many cases, liquidators which are 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 to 100% off, this means the liquidator is doubling the price (quadrupling it for a 100%-off price), and then "discounting" it from there. 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. Both of these were proven to be the case in November 2008, with the same liquidator (Hilco) committing both offenses: the markups at Linens 'n Things, and the higher prices on around one-third of the items compared to other Circuit City stores remaining open. Additionally, liquidators refuse to accept returns, so if a customer does find he or she has been overcharged, there is no apparent recourse.[4] This is used by most advertisers trying to prove the acceptability of their products.

Other deceptive methods

Manipulation of standards

Sellers may manipulate standards to mean something different than their widely understood meaning. One example is with personal computer hard drives. While a megabyte 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). By stating the sizes of hard drives in 'megabytes' of 1,000,000 bytes instead of 1,048,576, they overstate capacity by nearly 5%. With gigabytes, the error increases to over 7% (1,073,741,824 instead of 1,000,000,000), and nearly 10% for the newer terabyte. 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.[5][6] 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. Apple Inc's OS X operating system does not use the new units and instead measures disk memory in metric, covering up the disk manufacturer's statements regarding capacity. 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.

Adulterants and oversized packaging

Some products are sold with adulterants, 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 a color filler in peanut butter.[7]

Undefined terms

Listerine advertisement, 1932

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, carbs, salt, texture, thickness (viscosity), or even light in color. 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.[citation needed]

Another example is the United Egg Producers' "Animal Care Certified"[8] logo on egg cartons which misled consumers by conveying a higher level of animal care than was actually the case. Both the Better Business Bureau and the Federal Trade Commission found the logo to be deceptive and the original logo can no longer be used.

Regulation and enforcement

United States advertising regulations

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."[9] 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.[10] 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,[11][12] 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.[13]

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." [14]

State advertising regulation

In addition to federal laws, each state has its own unfair competition law to prohibit false and misleading advertising.[15] 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.[16]

California advertising regulation

History of the UCL

California Civil Code § 3369, enacted in 1872, was California’s early unfair competition statute. It “addressed only the availability of civil remedies for business violations in cases of penalty, forfeiture, and criminal violation.”[17] A 1933 amendment expanded the law to prohibit “any person [from] performing an act of unfair competition.”[18] This amendment did not, however, extend UCL protection to consumers. This limitation was in response to the U.S. Supreme Court’s 1931 decision in FTC v. Raladam.[19] In Raladam, the Court held that a FTC Act Section 5 violation must show actual injury to competition.[20] This ruling prevented individual consumers from suing under the FTC Act.[21] Following this rationale, California applied the UCL to unfair business practices that affected business competitors, not consumers.[22]

In 1935, consumers, not just business competitors, were given the opportunity to sue under the UCL.[23] The Supreme Court of California clarified the statute in American Philatelic Soc. v. Claibourne, stating that “the rules of unfair competition” should protect the public from “fraud and deceit.” [24] In 1962, a California appellate court reiterated this rule by stating that the UCL extended “equitable relief to situations beyond the scope of purely business competition.” [25] In 1977, the legislature moved the UCL to the California Business and Professions Code § 17200.[26] In 2004, California voters enacted Proposition 64, which limited UCL standing to individuals who suffered financial/property loss because of an unfair business practice.[27]

Section 17200 standing to sue

The UCL confers standing on both private parties and public prosecutors.[28] Section 17204 authorizes the Attorney General, district attorneys, county counsels and city attorneys to file lawsuits on behalf of injured citizens.[29] Prior to Proposition 64, any consumer, regardless of whether they were adversely affected by unfair business acts, could bring a UCL action.[30] In addition, any consumer could act as a representative and file a class action lawsuit against a business committing unfair competition.[31] Proposition 64 allows only private plaintiffs who have “suffered injury in fact and lost money or property as a result of such unfair competition” may file suit,[32] while “unaffected” plaintiffs now lack standing.[33] Furthermore, the California Supreme Court expanded this amendment to class actions in Arias v. Superior Court by holding that “unaffected” plaintiffs no longer may bring a class action lawsuit unless they satisfy the regular requirements laid out in Cal. Civ. Code § 382.[34] The requirement does not apply to all class members, however; only class representatives must meet these requirements.[35]

Overview of the UCL

California’s UCL is broadly written.[36] Section 17200 includes five definitions of unfair competition: (1) an unlawful business act or practice; (2) an unfair business act or practice; (3) a fraudulent business act or practice; (4) unfair, deceptive, untrue or misleading advertising; or (5) any act prohibited by Sections 17500-17577.5.[37] Section 17203 allows the court to order injunctions and other equitable defenses to prevent the unfair competition.[38]

Elements of a false advertising claim

Most false advertising litigation involves definitions four and five listed above because they both specifically prohibit false advertising.[39] To prove a violation under the fourth definition of unfair competition, the plaintiff must show that (1) the defendant engaged in unfair, deceptive, untrue or misleading advertising and (2) the plaintiff suffered injury in fact and lost money or property.[40] California courts have interpreted “advertising” to include almost any statement made in connection with the sale of goods or services.[41] For example, Chern v. Bank of America held that a loan officer’s statement over the phone about interest rates was “advertising.”[42] Conversely, Bank of the West v. Superior Court implied that advertising might require “widespread promotional activities directed to the public-at-large” and that mere “personal solicitations are not advertising.”[43]

To determine whether advertising is misleading, California’s courts evaluate the advertisement’s entire impression, including words, images, format and product packaging.[44] Courts have held that advertising is misleading if “members of the public are likely to be deceived.”[45] However, because of Proposition 64, the plaintiff now has to show that they were actually misled by the advertising and suffered an injury as a result. To further complicate matters, the courts are split on whether “omissions of material facts” that mislead or confuse the public violate the UCL.[46] To prove a violation under the fifth definition, the plaintiff must show that section 17500 was violated.[47] This “sweep up” provision ensures that any acts mentioned in section 17500 also violate section 17200 and that the plaintiff receives remedies under both statutes.[48] In many cases, liquidators which are 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 to 100% off, this means the liquidator is doubling the price (quadrupling it for a 100%-off price), and then "discounting" it from there. 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. Both of these were proven to be the case in November 2008, with the same liquidator (Hilco) committing both offenses: the markups at Linens 'n Things, and the higher prices on around one-third of the items compared to other Circuit City stores remaining open. Additionally, liquidators refuse to accept returns, so if a customer does find he or she has been overcharged, there is no apparent recourse.[49] This is used by most advertisers trying to prove the acceptability of their products.

Relationship between section 17200 and other California consumer protection statutes

Most plaintiffs allege violations of section 17200 and 17500 concurrently. In fact, courts often do not distinguish between these definitions of unfair competition, despite important differences between these two sections. A violation of section 17200 may not always trigger a violation of 17500. Section 17500 prohibits any untrue or misleading statements made in connection with the sale of goods or services, which is narrower standard than section 17200.[50] For example, section 17500 only concerns advertising of property or services while section 17200 has no such limitation. Section 17500 only prohibits advertising, but section 17200 also forbids “fraudulent business acts or practices” unconnected with advertising.[51] Another major distinction is that section 17500 requires that the advertiser knew or should have known that the advertising was false or misleading. Section 17200 is a strict liability statute that has no such requirement.[52] In addition, section 17500 carries criminal penalties, whereas only civil remedies are available for section 17200 violations.

Plaintiffs suing under Sections 17200 or 17500 often also assert violations of the California Consumers Legal Remedies Act (“CLRA”), set forth in Cal. Civ. Code § 1750 et seq.[53] The CLRA protects consumers against 23 specific activities that it defines as unfair and deceptive business practices.[54] Many of those activities are also prohibited by section 17500.[55] For example, it is unlawful under both statutes to advertise goods with the intent not to sell them as advertised or to misrepresent a product’s price or source.[56] Plaintiffs typically simultaneously plead violations of each statute because the remedies are cumulative. For example, the CLRA provides for attorney’s fees, punitive damages, and statutory damages.[57]

Exemptions and defenses

The UCL requires that lawsuits be brought within four years after the cause of action accrued.[58] The UCL postpones accrual of the cause of action until the plaintiff “discovers” the problem.[59] Section 17500 does not have an express statute of limitations.[60] Thus, California Code of Civil Procedure section 338(h), which specifies a three-year limitation, ordinarily should apply to section 17500. However, as section 17500 is cross referenced in section 17200, and as virtually all false advertising claims are litigated simultaneously with UCL claims, the limitations period for “false advertising claims is effectively four-years.” [61]

Judges can use their equitable powers to dismiss a UCL claim or deny injunctive relief.[62] For example, in competitor-vs.-competitor lawsuits, the defendant may assert unclean hands if it believes the plaintiff has engaged in serious misconduct that relates to the subject of relief being sought. In other words, a “plaintiff must not behave inequitably with respect to the rights being asserted in the case.” [63] Because the UCL is a strict liability statute, other equitable defenses such as “good faith, mistake of law and lack of wrongful intent are generally inapplicable [to] a UCL action.” [64]

Remedies available under the UCL

The UCL allows the court to prevent the use of unfair competition and to restore money or property to victims of unfair competition.[65] Essentially, this provision allows for both monetary damages and injunctive relief where necessary.[66] When an injunction is issued pursuant to section 17200, penalties of up to $6,000 per day for intentional violations are authorized.[67] Restitution and disgorgement of profits are used primarily to deter future violations.[68] Courts use various factors to determine the amount of the penalty, including “the nature and seriousness of the misconduct, the number of violations, the persistence of the misconduct, the length of time over which the misconduct occurred, the willfulness of the defendant's misconduct, and the defendant's assets, liabilities, and net worth.” [69] Civil penalties, up to $2,500 for each violation, are allowed when a lawsuit is brought by an authorized government agency. However, the UCL does not permit punitive damages awards.[70]

See Also

External links


  1. ^ McArthur, D (April 30, 2008). "How does a $224 flight end up costing $826? [Internet"]. Toronto: Globe and Mail. http://www.theglobeandmail.com/servlet/story/RTGAM.20080430.wfees30/BNStory/specialTravel/home/?pageRequested=all. 
  2. ^ http://allbusiness.sfgate.com/personal-finance/automobiles/2498-1.html
  3. ^ http://www.smh.com.au/travel/travel-news/airlines-hire-cars-targeted-over-hidden-fees-20101022-16wy4.html
  4. ^ "MercedSun-Star.com Forums". Sunspot.mercedsunstar.com. http://sunspot.mercedsunstar.com/?q=node/5621. Retrieved 2009-11-03. [dead link]
  5. ^ "Seagate settles suit over disk capacity". Neowin.net. 2007-11-03. http://www.neowin.net/news/main/07/11/03/seagate-settles-suit-over-disk-capacity. Retrieved 2009-11-03. 
  6. ^ "Western Digital pays up in class action lawsuit". Neowin.net. 2006-07-18. http://www.neowin.net/news/main/06/07/18/western-digital-pays-up-in-class-action-lawsuit. Retrieved 2009-11-03. 
  7. ^ Wallechinsky, David (1975). The People's Almanac. Garden City: Doubleday. p. 1010. ISBN 0385040601. 
  8. ^ Barrionuevo, Alexei (2005-10-04). "Egg Producers Relent on Industry Seal". The New York Times. http://www.nytimes.com/2005/10/04/business/media/04adco.html?_r=1&adxnnl=1&adxnnlx=1242150761-9z8f6PubObZckQVDztsWUQ. Retrieved 2010-03-27. 
  9. ^ 15 U.S.C. § 45.
  10. ^ Richards, Jef I., Deceptive Advertising, Erlbaum (1990), at p. 20.
  11. ^ 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.
  12. ^ 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.
  13. ^ 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 (Oct. 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.
  14. ^ Wilson, Lee. "The Advertising Law Guide: A Friendly Desktop Reference for Advertising Professionals." Allworth Press, NY, NY. 2000. 25.
  15. ^ See e.g. N.Y. ISC. Law §§ 2401-2409.
  16. ^ California Antitrust & Unfair Competition Law (Third), Volume 2: Unfair Competition (State Bar of California, 2003 Daniel Mogin & Danielle S. Fitzpatrick, eds.) at pg. 9.
  17. ^ California Antitrust & Unfair Competition Law, supra note 2, at 4.
  18. ^ Cal. Stat. 1933 ch. 953, § 1, p. 2482.
  19. ^ FTC v. Raladam, 283 U.S. 643 (1931).
  20. ^ Id. at 647-49.
  21. ^ See id.
  22. ^ Cal. Stat. 1933 ch. 953, § 1, p. 2482.
  23. ^ California Antitrust & Unfair Competition Law, supra note 2, at 5.
  24. ^ American Philatelic Soc. v. Claibourne, 3 Cal.2d 689, 698 (1935).
  25. ^ People ex rel. Mosk v. National Research Co., 201 Cal. App. 2d 765, 770 (1962).
  26. ^ Stop Youth Addiction, Inc. v. Lucky Stores, Inc., 17 Cal. 4th 553, 570 (1998).
  27. ^ Cal. Bus. & Prof. Code § 17203 (2010).
  28. ^ Id.
  29. ^ Id.
  30. ^ Cal. Bus. & Prof. Code § 17204 (2003).
  31. ^ Id. § 17203 (2003).
  32. ^ Cal. Bus. & Prof. Code § 17204 (2010).
  33. ^ Id.
  34. ^ Arias v. Superior Court, 46 Cal. 4th 969, 980 (2009).
  35. ^ In re Tobacco II Cases, 46 Cal.4th 298, 315-17 (2009).
  36. ^ Flamingo Industries (USA) Ltd. v. United States Postal Service, (9th Cir. 2002) 302 F.3d 985 (9th Cir. 2002), rev'd on other grounds in, United States Postal Service v. Flamingo Industries (USA) Ltd., 540 U.S. 736 (2004).
  37. ^ Cal. Bus. & Prof. Code § 17200 (2010).
  38. ^ Id. § 17203.
  39. ^ California Antitrust & Unfair Competition Law, supra note 2, at 27.
  40. ^ Buckland v. Threshold Enterprises, Ltd., 155 Cal. App. 4th 798, 819, (2007).
  41. ^ See Chern v. Bank of America, 15 Cal.3d 866, 875-76 (1976).
  42. ^ Id.
  43. ^ Bank of the West v. Superior Court, 2 Cal.4th 1254, 1276-1277 fn.9 (1992).
  44. ^ Committee on Children's Television, Inc. v. General Foods Corp., 35 Cal. 3d 197, 210 (1983).
  45. ^ Id. at 211.
  46. ^ Kasky v. Nike, Inc., 27 Cal.4th 939, 951 (2002).
  47. ^ Cal. Bus. & Prof. Code § 17200.
  48. ^ See California Antitrust & Unfair Competition Law, supra note 2, at 60-62.
  49. ^ "MercedSun-Star.com Forums". Sunspot.mercedsunstar.com. http://sunspot.mercedsunstar.com/?q=node/5621. Retrieved 2009-11-03. [dead link]
  50. ^ Cal. Bus. & Prof. Code § 17500.
  51. ^ See id § 17200.
  52. ^ South Bay Chevrolet v. General Motors Acceptance Corp., 72 Cal. App. 861, 877 (1999).
  53. ^ Cal. Civ. Code § 1750 et seq.
  54. ^ Hogya v. Superior Court, 75 Cal. App. 3d 122, 135 (1977); Wang v. Massey Chevrolet, 97 Cal. App. 4th 856 (2002).
  55. ^ Cal. Civ. Code § 1770.
  56. ^ Id. § 1780(2),(9), & (20); Cal. Bus. & Prof. Code § 17500.
  57. ^ Cal. Civ. Code § 1780.
  58. ^ Cal. Bus. & Prof. Code § 17208.
  59. ^ Glue-Fold, Inc. v. Slautterback Corp., 82 Cal. App. 4th. 1018, 1029 (2000).
  60. ^ See Bus. & Prof. Code §§ 17500-17577.5
  61. ^ See California Antitrust & Unfair Competition Law, supra note 2, at 72.
  62. ^ Cortez v. Purolator Air Filtration Product Co., 23 Cal.4th 163, 179 (2000).
  63. ^ WILLIAM M. TABB & ELAINE W. SHOBEN, REMEDIES 52 (Thomson West 2005).
  64. ^ Id. at 50.
  65. ^ Cal. Bus. & Prof. Code § 17203.
  66. ^ See id.
  67. ^ Id. § 17207.
  68. ^ California Antitrust & Unfair Competition Law, supra note 2, at 32-33; Bank of the West, 2 Cal.4th at 1266-67.
  69. ^ Cal. Bus. & Prof. Code § 17206(b).
  70. ^ California Antitrust & Unfair Competition Law, supra note 2, at 32-33; Bank of the West, 2 Cal.4th at 1266-67.

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