Advertisers must clear all the common legal issues in advertising before launching an ad. Otherwise, regulation over false advertising claims and litigation over misuse of intellectual property can quickly consume the profits generated by the advertised product or service.
In the United States, the Federal Trade Commission (FTC) regulates advertising. If the FTC penalizes a company for false advertising, a trifecta of woe ensues. First, the company suffers reputational damage from having misled the public. Second, the company suffers financial damage in the form of internal and external costs associated with an FTC investigation and enforcement action. Third, the company suffers operational damage, because it must include the FTC in its business planning processes for up to twenty years following the FTC action.
FTC enforcement against Nestle Health Care Nutrition (HCN)
In a television advertisement for Boost Kid Essentials, Nestle HCN falsely claimed that the bacteria was clinically shown to reduce illness in children, to protect from colds and flu by strengthening the immune system, to reduce absences from daycare and school,”and to help children up to age 13 recover more quickly from diarrhea.
Under scrutiny from the FTC, Nestle HCN agreed to the following settlement terms:
•not to make similar claims for any product without approval from the Food and Drug Administration;
•to turn over all of its advertising material and scientific research and analysis supporting all claims in the material to the FTC for five years;
•to report to the FTC how Nestle HCN will ensure compliance with the FTC order;
•to have everyone involved in advertising for Nestle HCN sign a statement that they understand the requirements of the FTC order, and,
•for the next twenty years, to pay up to $16,000 for each and every violation of the FTC order.
Nestle HCN probably could have have avoided the FTC scrutiny by not exaggerating the benefits of its product. Advertisements should not not contain claims that are not supported by science.
Another common legal issue in advertising is copyright and trademark infringement litigation. In a recent example, German sporting goods distributor Adidas was sued in the Untied States by the owner of the registered copyright and trademark, WE NOT ME. The lawsuit alleges that Adidas misappropriated the phrase WE NOT ME in an advertising campaign and in doing so committed copyright and trademark infringement.
If Adidas is found liable for infringement, the punishment under the Lanham Act could be an injunction against using the mark again, and an award of damages in the amount of the trademark owner’s lost profits because of Adidas’s use of the mark or a portion of profits attributable to use of the mark.
A host of other advertising issues involve small, local businesses that are subject to municipal or other regulations. An example of one of these issues would be a local regulation that establishes a minimum font size for the so-called “fine print” in an ad – the details that must be disclosed by law, such as loan finance rates or side effects of medication. For interpretation of these local laws, businesses should consult an advertising attorney in their local area.
The Lanham Act at 15 U.S.C. § 1114(1)(b)