FTC: No Loopholes for False Net Ads

With concern over deceptive online advertising threatening to erode consumer confidence in e-commerce, the U.S. Federal Trade Commission (FTC) issued a report Wednesday saying that existing trade regulations and laws apply to Internet advertising just as they apply to ads in traditional media.

The report, titled “Dot Com Disclosures: Information about Online Advertising,” reiterates the basic principles of existing false advertising law: that ads must be truthful and not misleading; that advertisers must have evidence to back up their assertions; and that ads cannot be unfair.

While asking Net businesses to realize that existing advertising laws apply to the Internet, the agency said it will continue “to evaluate online advertising, using traditional criteria, while recognizing the uniqueness of the new medium.”

Disclosure, Disclosure, Disclosure

The topic most discussed in the FTC paper is the issue of material disclosure. In many cases, material disclosure is required to prevent an advertisement from being misleading. The FTC warned that Net advertisers must ensure that the material terms of transactions are adequately disclosed to online consumers.

The FTC stated that disclosures must be “clear and conspicuous,” advising advertisers to pay attention to the placement of material disclosures and the proximity of the disclosures to the relevant claims of their ads.

The FTC also said that businesses must consider the prominence of disclosures, and whether other parts of their ads “deliberately or inadvertently distract attention” from disclosures.

According to the agency, in some cases — for example, if an advertisement is inordinately lengthy — disclosures may need to be repeated.

The FTC also said that disclosures in audio messages must be in an “adequate volume and cadence,” while visual disclosures must be “understandable to the intended audience” and appear for a “sufficient duration.”

If a company uses e-mail to comply with advertising regulations, the company must clearly explain to consumers that they will be receiving the information via e-mail, according to the report.

FTC Initiative

The FTC report is not intended to institute new laws or guidelines for dot-com companies. Instead, the agency is attempting to avoid future conflicts and confusion regarding the application of existing trade regulations and laws to advertising on the Net.

The FTC made its position clear that the existing rules for printed materials and advertisements apply to text displayed on the Internet. With that statement, the FTC disarmed those online advertisers who may claim they do not fall under existing law since they are not in a print medium.

In recent months, the FTC has launched investigations against several online companies accused of deceiving or failing to adequately inform their customers in Net advertisements.

Closing the first Internet advertising investigation initiated by the FTC, car dealers in Colorado, New York and Pennsylvania recently settled with the FTC on charges that they ran deceptive lease advertisements on the Internet.

In another case, the FTC reached settlements with three Internet companies that were falsely advertising cures for diseases ranging from AIDS to cancer.

The agency has also investigated the consumer information practices of Internet powerhouses Yahoo! and Amazon.com.

Consumer Guardians

While e-commerce continues to grow, e-tailers fear a consumer backlash due to increasing worries over the Internet’s potential for taking advantage of the unwary. The FTC is seeking to assuage some of those concerns with its report.

“Dot commerce is the new Main Street,” said Jodie Bernstein, director of the FTC’s Bureau of Consumer Protection. Referring to Wednesday’s report, Bernstein added, “This guidance represents the cooperative efforts of government, communications experts in industry and consumer groups to achieve fair and informative online advertising for consumers.”

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