In May 2000, the Federal Trade Commission (“FTC”) issued a staff working paper, providing guidance to businesses and advertisers that conduct advertising and sell products on the internet. The working paper, Dot Com Disclosures: Information about Online Advertising , provides instruction to businesses and advertisers about how Section 5 of the Federal Trade Commission Act (the “FTC Act”) applies to online activities, with a particular focus on the clarity and conspicuousness of disclosures in internet ads to help those businesses and advertisers stay in compliance as advertisements moved online.
Much has changed over the last ten years, and things like the rise of social media and mobile internet have created concerns not thought of years ago. The FTC has recently announced that it “seeks input for revising its guidance to businesses about disclosures in online advertising” and that the “needed revisions will reflect dramatic changes in the online world since guidance was issued 11 years ago.” May 26, 2011 FTC Press Release.
This guidance should be closely followed by businesses and advertisers. Section 5 of the FTC Act prohibits “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce.” 15 U.S.C. § 45(a)(1). “Unfair” practices are those that “cause or [are] likely to cause substantial injury to consumers which [are] not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.” 15 U.S.C. § 45(n). The FTC has authority under the FTC Act to both propound regulations and to initiate investigations or enforcement actions. 15 U.S.C. § 45.
Under its Section 5 authority, the FTC also issues guidelines or administrative interpretations (like the Dot Com Disclosures) that are intended to provide guidance about compliance with the law. These guidelines or administrative interpretations do not have the force of law and are not formal regulations issued by the FTC. There are no direct fines issued for violations of the guidelines. However, violations of the guidelines or administrative interpretations will likely be viewed as violations of Section 5 of the FTC Act and could result in an enforcement action from the FTC. See e.g., Guides Concerning Use of Endorsements and Testimonials in Advertising, 16 C.F.R. § 255.0(a) (2011) (“The Guides in this part represent administrative interpretations of laws enforced by the Federal Trade Commission for the guidance of the public in conducting its affairs in conformity with legal requirements. . . . . Practices inconsistent with these Guides may result in corrective action by the Commission under Section 5 if, after investigation, the Commission has reason to believe that the practices fall within the scope of conduct declared unlawful by the statute.”).
Significant changes in how businesses advertise using the internet (and how the internet itself is used) over the past 11 years make the FTC’s announcement long overdue. The fact that the FTC is choosing to look at its guidance in this area may signal that it will be increasing the use of its enforcement authority to look at this area more closely in the near future. Given the potential for a corrective action under Section 5, businesses advertising and selling products using the internet should pay close attention as the FTC updates its guidance in this area.