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Understanding The Law

FTC CONSUMER PROTECTION—UNDERSTANDING THE LAW


  • Although the basic FTC remedy is a “Cease and Desist” Order to  prohibit illegal conduct, FTC may also seek consumer refunds, and today FTC is seeking consumer refunds more than ever—often in the millions of dollars.

  • FTC holds companies AND individuals liable for their roles in making or disseminating deceptive claims—whether they are the principals of a company, its distributors, expert endorsers, celebrity endorsers, advertising agencies, catalog marketers, retailers, infomercial producers, and/or home shopping companies. 

  • Even though an individual may not be directing alleged illegal acts or practices (i.e., was not in control or not the “guiding hand”), that individual may still be held individually liable by FTC if he was aware of the illegal conduct and was in a position to do something to prevent it from occurring.











































The Law—

  • Section 5 of the FTC Act broadly prohibits “unfair or deceptive acts or practices.” 

  • Sections 12-15 specifically prohibit the dissemination of misleading claims for “food, drugs, devices, services, or cosmetics.” 

  • Section 13(b) authorizes FTC to file suit in U.S. District Court to prohibit an act or practice that is in violation of any provision of law enforced by FTC.

Understanding the Law—

  • Deception:  An advertisement is deceptive if it contains a material misrepresentation or omission that is likely to mislead consumers acting reasonably under the circumstances to their detriment. The Commission need not prove actual injury to consumers.

  • Unfairness:  An advertisement or business practice is unfair if it causes or is likely to cause substantial consumer injury which is not reasonably avoidable by consumers themselves and which is not outweighed by countervailing benefits to consumers or competition.

  • Remedies for Violations of the Law:  The basic remedy is an FTC Cease and Desist Order to prohibit the alleged illegal conduct and prevent future violations. If merely prohibiting future misrepresentations will not dispel misperceptions conveyed through prior misrepresentations, FTC may order corrective advertising. In addition, FTC may require advertisers to make accurate information available through disclosures, direct notification of consumers, or consumer education. FTC may also seek consumer redress or return of profits to the US Treasury.

  • Advertising Substantiation:   FTC case law requires that advertisers must have a reasonable basis for making objective claims before the claims are disseminated. An advertiser must possess at least the level of substantiation expressly or impliedly claimed in the ad.  For health or safety claims, FTC has typically required a high level of substantiation, usually “competent and reliable scientific evidence,” defined as “tests, analyses, research, studies, or other evidence based upon the expertise of professionals in the relevant area, that has been conducted and evaluated in an objective manner by persons qualified to do so, using procedures generally accepted in the profession to yield accurate and reliable results.”

  • Liability for False or Unsubstantiated Claims:  Advertisers are responsible for all claims, express and implied, that are reasonably conveyed by the ad. The advertiser is strictly liable for violations of the FTC Act. Neither proof of intent to convey a deceptive claim nor evidence that consumers have actually been misled is required for a finding of liability.  

CORPORATE AND INDIVIDUAL LIABILITY

Once the FTC establishes corporate liability for unfair or deceptive acts or practices, individual defendants may also be held liable if: 

  • They had some knowledge of the corporation’s unfair or deceptive acts or practices, and 

  • They either participated directly in the acts or practices OR had the authority to control them.  (FTC v. Amy Travel Service, Inc., 875 F.2d 564,573 (7th Cir. 1989) 

  • Denying specific knowledge of alleged illegal conduct may not be enough to avoid liability.  

  • If a defendant had information at his disposal which would have given him knowledge of an event, it may be inferred or presumed that the defendant had knowledge of the event.  

  • An officer and financial manager of a company may be held  individually liable by virtue of his position and level of  involvement in firm management.  (FTC vs. Innovative  Marketing, D. of Maryland, Case No. 1:08-CV-03233,  Memorandum Opinion, Sept.16, 2009)

  • Advertising agencies may also be held liable for a deceptive ad if the agency was an active participant in the preparation of the ad and if it knew or should have known that the ad was deceptive.