ADVERTISING & PROMOTION: Regulating on-line advertisers

Advertising on the Internet takes many forms, in addition to e-mail.

Many Web sites sell advertising sites in the form of banner ads, which appear on a Web page. A user clicks on the banner and is forwarded to the advertiser’s Web site. A banner ad may appear to all users, or may depend upon the domain of the user (e.g., .gov., .com., .org.), the browser type, the operating system, or by on-line behavior.

Search engine sites can sell advertisers the right to a “keyword” so that a person searching on “cars” will see banners relating to a particular automotive company or dealer. Another form of advertising is sponsorship of Web sites. These sponsorships are tied to the content.

For example, a site giving general information regarding financial planning may be sponsored by a bank or a credit card company. The sponsorship would be prominently displayed on the page and the sponsor would be given prime positions in the Web site for its banner ads.

Whatever the form of advertising used on the Net, laws applicable to traditional advertising apply equally to advertising on the Internet.

The Federal Trade Commission (FTC) is charged with enforcing the regulations found in the FTC Act. Under the Act, claims in advertising must be truthful, substantiated, and not deceptive. Every time an advertiser makes an objective claim, the advertiser also implies that there is a reasonable basis–or substantiation–for the claim. It is considered deceptive to make a claim without prior substantiation.

What constitutes a reasonable basis for a particular claim can vary, depending upon the nature of the claim, the product, the consequences of a false claim, the benefits of a truthful claim, the cost of developing substantiation of a claim, and the amount of substantiation that the experts in the field believe is reasonable. Health and safety claims generally require competent and reliable scientific evidence. And if a marketer makes a representation that a claim has a particular level of support–for example, “clinical studies prove”–the law requires at least that level of substantiation.

The FTC does not pursue subjective claims or puffery, such as “this is the best shampoo on the planet.” But if there is an objective component to the claim, such as “more consumers prefer our shampoo to any other,” than you need to be sure you have adequate substantiation before you make the claim.

In addition to the company advertising its product or service, advertising agencies and Web site designers are responsible for reviewing information to substantiate claims and they cannot simply rely on the assurance of the advertisers. The FTC examines whether the agency knew or should have known of false or deceptive claims in determining if the agency is liable.

Advertisers who do not comply with the law face fines up to $11,000 per violation, injunctions by federal district courts, and civil damages, including refunds to customers.

The FTC considers its jurisdiction to extend to the Internet. It has already been active in policing advertising on the Internet and has prosecuted over 100 cases, including false advertising. In 1997, the FTC challenged America OnLine, CompuServe and Prodigy for using misleading promotions to recruit customers to their on-line services, such as the use of “free trial.”

New guidelines for Internet advertising

Over the years, the FTC has issued numerous rules and guides governing advertising and the protection of consumers. After seeking public comment for a year, on May 3, 2000, the FTC issued guidelines on Internet advertising in a document titled “Dot Com Disclosures.”

The complete text of the paper can be found on the FTC’s Web site at www.ftc.gov/bcp/conline/pubs/buspubs/ dotcom/index.html.

The majority of the new guidelines are devoted to when and how disclosures of relevant information relating to advertising claims must be displayed on the Internet. Under FTC law, failure to disclose material facts about a product is deceptive, even in the absence of explicit claims, when the lack of disclosure will leave consumers with erroneous expectations about the product.

When qualifying information is necessary to make the claim not deceptive or misleading, the information must be presented “clearly and conspicuously.” On the Internet, the placement of such disclosures raises a whole host of issues, since Web sites do not always present a “linear” view of the claims the way a print or TV ad does.

The Dot Com Disclosures guidelines provide the following advice on whether a disclosure is “clear and conspicuous” for the following type of on-line situations:

Scrolling

Disclosures should generally be on the same screen as the claims to which they relate. If this is not possible and some “scrolling” is necessary, advertisers must consider whether consumers are likely to do it. If not, text prompts can indicate that more information is available below. Such prompts should be specific and highlight the importance of the material referenced.

Hyperlinks

Hyperlinks are words or icons that, when clicked, open new Web pages. The use of hyperlinks containing disclosures or additional information is discouraged where disclosures are an integral part of a claim, for example, where cost information on health and safety disclosures are involved. Such disclosures should generally be placed on the same page and immediately next to the claim. Hyperlinked disclosures may be appropriate for lengthy disclosures. But the page the hyperlink leads to (the “click-through” page) must contain complete and prominent disclosures.

Banner ads

In certain instances, a “banner ad” may contain a claim that requires qualification. Because of space limitations, disclosures may be too detailed to be disclosed effectively in the banner. In some instances, these disclosures may be adequate if they are made clearly and conspicuously on the Web site the banner links to and while consumers are deciding whether to buy a product or service.

In determining whether the disclosures should be placed in the banner itself or on the Web site the banner links to, advertisers should consider how important the information is to prevent deception, how much information needs to be disclosed, the burden or disclosing it in the banner ad, how much information the consumer may absorb, and how effective the disclosure would be if it was made on the site.

Beware of other on-line advertising issues

In addition to federal regulations, advertising on line raises numerous issues that cannot be addressed in detail in this article. Due to the rapid growth of the Internet, new laws are emerging to deal with this new medium.

As an advertiser, you should be aware of the possible new legal risks inherent in the use of the Internet. These may include exposure to foreign laws, rights of privacy and publicity, special rules of marketing online to children, and infringing on intellectual property rights.

For example, the Internet reaches a world wide audience and your Web site may be subject to international laws. Although it may be impossible to check the legality of any advertising campaign on a world-wide basis, you may wish to take some practical steps to reduce risks. These may include (1) avoiding regulated industries or products, such as alcohol or tobacco, and (2) obtaining opinions of foreign counsel in key marketing jurisdictions.

Michael Conlon is a partner at the Traverse City law firm of Running, Wise, Ford & Phillips, PLC, where he practices in the areas of commercial transactions, litigation, e-commerce, bankruptcy and municipal law; mic@rwwfp.com. BN

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