False advertising
Encyclopedia
False advertising or deceptive advertising is the use of false or misleading statements in advertising
. As advertising has the potential to persuade people into commercial transactions that they might otherwise avoid, many governments around the world use regulations to control false, deceptive or misleading advertising. Truth refers to essentially the same concept, that customers have the right to know
what they are buying, and that all necessary information should be on the label
.
False advertising, in the most blatant of contexts, is illegal in most countries. However, advertisers still find ways to deceive consumers in ways that are not illegal.
s and surcharges that are not disclose
d to the customer in the advertised price. One of the most common is for activation
of services such as mobile phone
s, but is also common in broadband
, telephony
, gym memberships, and air travel. In most cases, the fees are hidden in fine print
, though in a few cases they are so confused and obfuscated by ambiguous terminology that they are essentially undisclosed. Hidden fees are frequently used in airline and air travel advertising. In the case of motor vehicles, hidden charges may include taxes, registation fees, licences, insurance or other costs associated with getting a vehicle on the road. Airlines and car hire firms that disadvange customers through:
s which are hired to sell merchandise from a closing store will actually raise the prices on items that were already marked-down on clearance. For items already marked-down to 100% off, this means the liquidator is doubling the price (quadrupling it for a 100%-off price), and then "discounting" it from there. Also common is for the sale prices at a retail chain's other stores to be lower than the liquidator's prices at the closing stores. Both of these were proven to be the case in November 2008, with the same liquidator (Hilco) committing both offenses: the markups at Linens 'n Things
, and the higher prices on around one-third of the items compared to other Circuit City stores remaining open. Additionally, liquidators refuse to accept returns, so if a customer does find he or she has been overcharged, there is no apparent recourse.
This is used by most advertisers trying to prove the acceptability of their products.
standards to mean something different than their widely understood meaning. One example is with personal computer
hard drives. While a megabyte
has always meant 220 (1,048,576) bytes in computer science
, disk manufacturers began using the metric system
(SI) prefix
meaning of 106 (1,000,000). By stating the sizes of hard drives in 'megabytes' of 1,000,000 bytes instead of 1,048,576, they overstate capacity by nearly 5%. With gigabyte
s, the error increases to over 7% (1,073,741,824 instead of 1,000,000,000), and nearly 10% for the newer terabyte
. Seagate Technology
and Western Digital
, were sued in a class-action suit for this. Both companies agreed to settle the suit and reimburse customers in kind, yet they still continue to advertise this way. To help combat this problem, a number of standards and trade organizations approved standards and recommendations in 2000 for a new set of binary prefixes, proposed earlier by the International Electrotechnical Commission
(IEC), that would refer unambiguously to powers of 1024. These new units are numerically identical to the established computer science convention, easing transition. Apple Inc's OS X operating system does not use the new units and instead measures disk memory in metric, covering up the disk manufacturer's statements regarding capacity. Other operating systems either continue to use the older computer science convention (Microsoft Windows
), or have switched to the new units (GNU/Linux), which are numerically identical to the older convention. Thus disk hardware on these systems still reports the actual capacity, which is lower than advertised.
s, which increase the legal weight of the product with something that costs the producer very little compared to what the consumer thinks that he or she is buying. Food
is an example of this, where meat is injected with broth
or even brine
(up to 15%), or TV dinner
s are filled with gravy
or other sauce
instead of meat
. Malt
and Cocoa Butter
have been used as a color filler in peanut butter
.
" food. "Light" food also is an even more common manipulation. The term has been variously used to mean low in calorie
s, sugar
s, carb
s, salt, texture, thickness (viscosity
), or even light in color. Tobacco companies, for many years, used terms like "low tar", "light", "ultra-light", "mild" or "natural" in order to imply that products with such labels had less detrimental effects on health., but in recent years it was proved that those terms were considered misleading.
Another example is the United Egg Producers
' "Animal Care Certified" logo on egg carton
s which misled consumers by conveying a higher level of animal care
than was actually the case. Both the Better Business Bureau
and the Federal Trade Commission
found the logo to be deceptive and the original logo can no longer be used.
, a United States administrative agency, to prohibit "unfair and deceptive acts or practices in commerce." While it makes laymen's sense to assume that being deceptive is being unfair, deceptiveness in practice has been treated separately by the FTC, leaving unfairness to refer only to other types. All commercial acts may be deceptive, not just advertising, but noncommercial activity such as advertising for political candidates is not subject to prosecution under the FTC Act. The 50 states have similar statutes, which generally are very similar to that of the FTC and in many cases copied so closely that they are known as "Little FTC Acts." While the terms "false" and "deceptive" are essentially the same for most, being deceptive is not the same as producing deception. What is illegal is the potential to deceive, which is interpreted to occur when consumers see the advertising to be stating to them, explicitly or implicitly, a claim that they may not realize is false and material. The latter means that the claim, if relied on for making a purchasing decision, is likely to be harmful by adversely affecting that decision. If an ad is implicitly false, evidence must be obtained for what consumers saw the ad saying, and for the materiality of that, and for the true facts about the advertised item, but no evidence is required that actual deception occurred, or that reliance occurred, or that the advertiser intended to deceive or knew that the claim was false.
The goal is prevention rather than punishment, reflecting the purpose of civil law in setting things right rather than that of criminal law. The typical sanction is to order the advertiser to stop its illegal acts, or to include disclosure of additional information that serves to avoid the chance of deception. Corrective advertising may be mandated, But there are no fines or prison time except for the infrequent instances when an advertiser refuses to stop despite being ordered to do so.
The actual statute defines false advertising as a "means of advertisement other than labeling, which is misleading in a material respect; and in determining whether an advertisement is misleading, there shall be taken into account (among other things) not only representations made or suggested by statement, word, design, device, sound, or any combination thereof, but also the extent to which the advertisement fails to reveal facts material in the light of such representations or material with respect to consequences which may result from the use of the commodity to which the advertisement relates under the conditions prescribed in said advertisement, or under such conditions as are customary or usual."
California Civil Code
§ 3369, enacted in 1872, was California’s early unfair competition statute. It “addressed only the availability of civil remedies for business violations in cases of penalty, forfeiture, and criminal violation.” A 1933 amendment expanded the law to prohibit “any person [from] performing an act of unfair competition.” This amendment did not, however, extend UCL protection to consumers. This limitation was in response to the U.S. Supreme Court’s 1931 decision in FTC v. Raladam. In Raladam, the Court held that a FTC Act Section 5 violation must show actual injury to competition. This ruling prevented individual consumers from suing under the FTC Act. Following this rationale, California applied the UCL to unfair business practices that affected business competitors, not consumers.
In 1935, consumers, not just business competitors, were given the opportunity to sue under the UCL. The Supreme Court of California
clarified the statute in American Philatelic Soc. v. Claibourne, stating that “the rules of unfair competition” should protect the public from “fraud and deceit.” In 1962, a California appellate court reiterated this rule by stating that the UCL extended “equitable relief to situations beyond the scope of purely business competition.” In 1977, the legislature moved the UCL to the California Business and Professions Code § 17200. In 2004, California voters enacted Proposition 64
, which limited UCL standing
to individuals who suffered financial/property loss because of an unfair business practice.
Section 17200 standing to sue
The UCL confers standing on both private parties and public prosecutors. Section 17204 authorizes the Attorney General, district attorneys, county counsels and city attorneys to file lawsuits on behalf of injured citizens. Prior to Proposition 64, any consumer, regardless of whether they were adversely affected by unfair business acts, could bring a UCL action. In addition, any consumer could act as a representative and file a class action lawsuit against a business committing unfair competition. Proposition 64 allows only private plaintiffs who have “suffered injury in fact and lost money or property as a result of such unfair competition” may file suit, while “unaffected” plaintiffs now lack standing. Furthermore, the California Supreme Court expanded this amendment to class actions in Arias v. Superior Court by holding that “unaffected” plaintiffs no longer may bring a class action lawsuit unless they satisfy the regular requirements laid out in Cal. Civ. Code § 382. The requirement does not apply to all class members, however; only class representatives must meet these requirements.
Overview of the UCL
California’s UCL is broadly written. Section 17200 includes five definitions of unfair competition: (1) an unlawful business act or practice; (2) an unfair business act or practice; (3) a fraudulent business act or practice; (4) unfair, deceptive, untrue or misleading advertising; or (5) any act prohibited by Sections 17500-17577.5. Section 17203 allows the court to order injunctions and other equitable defenses to prevent the unfair competition.
Elements of a false advertising claim
Most false advertising litigation involves definitions four and five listed above because they both specifically prohibit false advertising. To prove a violation under the fourth definition of unfair competition, the plaintiff must show that (1) the defendant engaged in unfair, deceptive, untrue or misleading advertising and (2) the plaintiff suffered injury in fact and lost money or property. California courts have interpreted “advertising” to include almost any statement made in connection with the sale of goods or services. For example, Chern v. Bank of America held that a loan officer’s statement over the phone about interest rates was “advertising.” Conversely, Bank of the West v. Superior Court implied that advertising might require “widespread promotional activities directed to the public-at-large” and that mere “personal solicitations are not advertising.”
To determine whether advertising is misleading, California’s courts evaluate the advertisement’s entire impression, including words, images, format and product packaging. Courts have held that advertising is misleading if “members of the public are likely to be deceived.” However, because of Proposition 64, the plaintiff now has to show that they were actually misled by the advertising and suffered an injury as a result. To further complicate matters, the courts are split on whether “omissions of material facts” that mislead or confuse the public violate the UCL. To prove a violation under the fifth definition, the plaintiff must show that section 17500 was violated. This “sweep up” provision ensures that any acts mentioned in section 17500 also violate section 17200 and that the plaintiff receives remedies under both statutes.
In many cases, liquidator
s which are hired to sell merchandise from a closing store will actually raise the prices on items that were already marked-down on clearance. For items already marked-down to 100% off, this means the liquidator is doubling the price (quadrupling it for a 100%-off price), and then "discounting" it from there. Also common is for the sale prices at a retail chain's other stores to be lower than the liquidator's prices at the closing stores. Both of these were proven to be the case in November 2008, with the same liquidator (Hilco) committing both offenses: the markups at Linens 'n Things
, and the higher prices on around one-third of the items compared to other Circuit City stores remaining open. Additionally, liquidators refuse to accept returns, so if a customer does find he or she has been overcharged, there is no apparent recourse.
This is used by most advertisers trying to prove the acceptability of their products.
Relationship between section 17200 and other California consumer protection statutes
Most plaintiffs allege violations of section 17200 and 17500 concurrently. In fact, courts often do not distinguish between these definitions of unfair competition, despite important differences between these two sections. A violation of section 17200 may not always trigger a violation of 17500. Section 17500 prohibits any untrue or misleading statements made in connection with the sale of goods or services, which is narrower standard than section 17200. For example, section 17500 only concerns advertising of property or services while section 17200 has no such limitation. Section 17500 only prohibits advertising, but section 17200 also forbids “fraudulent business acts or practices” unconnected with advertising. Another major distinction is that section 17500 requires that the advertiser knew or should have known that the advertising was false or misleading. Section 17200 is a strict liability statute that has no such requirement. In addition, section 17500 carries criminal penalties, whereas only civil remedies are available for section 17200 violations.
Plaintiffs suing under Sections 17200 or 17500 often also assert violations of the California Consumers Legal Remedies Act (“CLRA”), set forth in Cal. Civ. Code § 1750 et seq. The CLRA protects consumers against 23 specific activities that it defines as unfair and deceptive business practices. Many of those activities are also prohibited by section 17500. For example, it is unlawful under both statutes to advertise goods with the intent not to sell them as advertised or to misrepresent a product’s price or source. Plaintiffs typically simultaneously plead violations of each statute because the remedies are cumulative. For example, the CLRA provides for attorney’s fees, punitive damages, and statutory damages.
Exemptions and defenses
The UCL requires that lawsuits be brought within four years after the cause of action accrued. The UCL postpones accrual of the cause of action until the plaintiff “discovers” the problem. Section 17500 does not have an express statute of limitations
. Thus, California Code of Civil Procedure section 338(h), which specifies a three-year limitation, ordinarily should apply to section 17500. However, as section 17500 is cross referenced in section 17200, and as virtually all false advertising claims are litigated simultaneously with UCL claims, the limitations period for “false advertising claims is effectively four-years.”
Judges can use their equitable powers to dismiss a UCL claim or deny injunctive relief
. For example, in competitor-vs.-competitor lawsuits, the defendant may assert unclean hands
if it believes the plaintiff has engaged in serious misconduct that relates to the subject of relief being sought. In other words, a “plaintiff must not behave inequitably with respect to the rights being asserted in the case.” Because the UCL is a strict liability statute, other equitable defenses such as “good faith, mistake of law and lack of wrongful intent are generally inapplicable [to] a UCL action.”
Remedies available under the UCL
The UCL allows the court to prevent the use of unfair competition and to restore money or property to victims of unfair competition. Essentially, this provision allows for both monetary damages and injunctive relief where necessary. When an injunction is issued pursuant to section 17200, penalties of up to $6,000 per day for intentional violations are authorized. Restitution
and disgorgement
of profits are used primarily to deter future violations. Courts use various factors to determine the amount of the penalty, including “the nature and seriousness of the misconduct, the number of violations, the persistence of the misconduct, the length of time over which the misconduct occurred, the willfulness of the defendant's misconduct, and the defendant's assets, liabilities, and net worth.” Civil penalties, up to $2,500 for each violation, are allowed when a lawsuit is brought by an authorized government agency. However, the UCL does not permit punitive damages
awards.
Advertising
Advertising is a form of communication used to persuade an audience to take some action with respect to products, ideas, or services. Most commonly, the desired result is to drive consumer behavior with respect to a commercial offering, although political and ideological advertising is also common...
. As advertising has the potential to persuade people into commercial transactions that they might otherwise avoid, many governments around the world use regulations to control false, deceptive or misleading advertising. Truth refers to essentially the same concept, that customers have the right to know
Right to know
"Right to know", in the context of United States workplace and community environmental law, is the legal principle that the individual has the right to know the chemicals to which they may be exposed in their daily living. It is embodied in federal law in the United States as well as in local laws...
what they are buying, and that all necessary information should be on the label
Label
A label is a piece of paper, polymer, cloth, metal, or other material affixed to a container or article, on which is printed a legend, information concerning the product, addresses, etc. A label may also be printed directly on the container or article....
.
False advertising, in the most blatant of contexts, is illegal in most countries. However, advertisers still find ways to deceive consumers in ways that are not illegal.
Hidden fees and surcharges
Service providers often tack on the feeFee
A fee is the price one pays as remuneration for services. Fees usually allow for overhead, wages, costs, and markup.Traditionally, professionals in Great Britain received a fee in contradistinction to a payment, salary, or wage, and would often use guineas rather than pounds as units of account...
s and surcharges that are not disclose
Disclose
Disclose were a Japanese D-beat band from Kōchi City, heavily influenced by Discharge. Their sound heavily replicates Discharge's style, with an increased use of fuzz and distortion guitar effects. The subject matter is also similar to Discharge, in that the songs' themes are primarily about...
d to the customer in the advertised price. One of the most common is for activation
Activation
Activation in chemical sciences generally refers to the process whereby something is prepared or excited for a subsequent reaction.- Chemistry :...
of services such as mobile phone
Mobile phone
A mobile phone is a device which can make and receive telephone calls over a radio link whilst moving around a wide geographic area. It does so by connecting to a cellular network provided by a mobile network operator...
s, but is also common in broadband
Broadband
The term broadband refers to a telecommunications signal or device of greater bandwidth, in some sense, than another standard or usual signal or device . Different criteria for "broad" have been applied in different contexts and at different times...
, telephony
Telephony
In telecommunications, telephony encompasses the general use of equipment to provide communication over distances, specifically by connecting telephones to each other....
, gym memberships, and air travel. In most cases, the fees are hidden in fine print
Fine print
Fine print, small print, or "mouseprint" is less noticeable print smaller than the more obvious larger print it accompanies that advertises or otherwise describes or partially describes a commercial product or service...
, though in a few cases they are so confused and obfuscated by ambiguous terminology that they are essentially undisclosed. Hidden fees are frequently used in airline and air travel advertising. In the case of motor vehicles, hidden charges may include taxes, registation fees, licences, insurance or other costs associated with getting a vehicle on the road. Airlines and car hire firms that disadvange customers through:
- Unfair contract terms, notably with respect to consumer compensation.
- Use customer data for purposes other than they were obtained for.
- Apply unfair fees, charges and penalties on transactions.
- Place artificial restrictions on the time period during which customers can submit claims.
"Going out of business" sales
In many cases, liquidatorLiquidator (law)
In law, a liquidator is the officer appointed when a company goes into winding-up or liquidation who has responsibility for collecting in all of the assets of the company and settling all claims against the company before putting the company into dissolution....
s which are hired to sell merchandise from a closing store will actually raise the prices on items that were already marked-down on clearance. For items already marked-down to 100% off, this means the liquidator is doubling the price (quadrupling it for a 100%-off price), and then "discounting" it from there. Also common is for the sale prices at a retail chain's other stores to be lower than the liquidator's prices at the closing stores. Both of these were proven to be the case in November 2008, with the same liquidator (Hilco) committing both offenses: the markups at Linens 'n Things
Linens 'n Things
Linens 'n Things is an online retailer of home textiles, housewares and decorative home accessories. Until 2008, the company also did business as a big box retailer under the name Linens 'n Things, Inc., headquartered in Clifton, New Jersey, United States, and did business across the United States...
, and the higher prices on around one-third of the items compared to other Circuit City stores remaining open. Additionally, liquidators refuse to accept returns, so if a customer does find he or she has been overcharged, there is no apparent recourse.
This is used by most advertisers trying to prove the acceptability of their products.
Manipulation of standards
Sellers may manipulatePsychological manipulation
Psychological manipulation is a type of social influence that aims to change the perception or behavior of others through underhanded, deceptive, or even abusive tactics. By advancing the interests of the manipulator, often at the other's expense, such methods could be considered exploitative,...
standards to mean something different than their widely understood meaning. One example is with personal computer
Personal computer
A personal computer is any general-purpose computer whose size, capabilities, and original sales price make it useful for individuals, and which is intended to be operated directly by an end-user with no intervening computer operator...
hard drives. While a megabyte
Megabyte
The megabyte is a multiple of the unit byte for digital information storage or transmission with two different values depending on context: bytes generally for computer memory; and one million bytes generally for computer storage. The IEEE Standards Board has decided that "Mega will mean 1 000...
has always meant 220 (1,048,576) bytes in computer science
Computer science
Computer science or computing science is the study of the theoretical foundations of information and computation and of practical techniques for their implementation and application in computer systems...
, disk manufacturers began using the metric system
Metric system
The metric system is an international decimalised system of measurement. France was first to adopt a metric system, in 1799, and a metric system is now the official system of measurement, used in almost every country in the world...
(SI) prefix
SI prefix
The International System of Units specifies a set of unit prefixes known as SI prefixes or metric prefixes. An SI prefix is a name that precedes a basic unit of measure to indicate a decadic multiple or fraction of the unit. Each prefix has a unique symbol that is prepended to the unit symbol...
meaning of 106 (1,000,000). By stating the sizes of hard drives in 'megabytes' of 1,000,000 bytes instead of 1,048,576, they overstate capacity by nearly 5%. With gigabyte
Gigabyte
The gigabyte is a multiple of the unit byte for digital information storage. The prefix giga means 109 in the International System of Units , therefore 1 gigabyte is...
s, the error increases to over 7% (1,073,741,824 instead of 1,000,000,000), and nearly 10% for the newer terabyte
Terabyte
The terabyte is a multiple of the unit byte for digital information. The prefix tera means 1012 in the International System of Units , and therefore 1 terabyte is , or 1 trillion bytes, or 1000 gigabytes. 1 terabyte in binary prefixes is 0.9095 tebibytes, or 931.32 gibibytes...
. Seagate Technology
Seagate Technology
Seagate Technology is one of the world's largest manufacturers of hard disk drives. Incorporated in 1978 as Shugart Technology, Seagate is currently incorporated in Dublin, Ireland and has its principal executive offices in Scotts Valley, California, United States.-1970s:On November 1, 1979...
and Western Digital
Western Digital
Western Digital Corporation is one of the largest computer hard disk drive manufacturers in the world. It has a long history in the electronics industry as an integrated circuit maker and a storage products company. Western Digital was founded on April 23, 1970 by Alvin B...
, were sued in a class-action suit for this. Both companies agreed to settle the suit and reimburse customers in kind, yet they still continue to advertise this way. To help combat this problem, a number of standards and trade organizations approved standards and recommendations in 2000 for a new set of binary prefixes, proposed earlier by the International Electrotechnical Commission
International Electrotechnical Commission
The International Electrotechnical Commission is a non-profit, non-governmental international standards organization that prepares and publishes International Standards for all electrical, electronic and related technologies – collectively known as "electrotechnology"...
(IEC), that would refer unambiguously to powers of 1024. These new units are numerically identical to the established computer science convention, easing transition. Apple Inc's OS X operating system does not use the new units and instead measures disk memory in metric, covering up the disk manufacturer's statements regarding capacity. Other operating systems either continue to use the older computer science convention (Microsoft Windows
Microsoft Windows
Microsoft Windows is a series of operating systems produced by Microsoft.Microsoft introduced an operating environment named Windows on November 20, 1985 as an add-on to MS-DOS in response to the growing interest in graphical user interfaces . Microsoft Windows came to dominate the world's personal...
), or have switched to the new units (GNU/Linux), which are numerically identical to the older convention. Thus disk hardware on these systems still reports the actual capacity, which is lower than advertised.
Adulterants and oversized packaging
Some products are sold with adulterantAdulterant
An adulterant is a chemical substance which should not be contained within other substances for legal or other reasons. Adulterants may be intentionally added to more expensive substances to increase visible quantities and reduce manufacturing costs or for some other deceptive or malicious purpose...
s, which increase the legal weight of the product with something that costs the producer very little compared to what the consumer thinks that he or she is buying. Food
Food
Food is any substance consumed to provide nutritional support for the body. It is usually of plant or animal origin, and contains essential nutrients, such as carbohydrates, fats, proteins, vitamins, or minerals...
is an example of this, where meat is injected with broth
Broth
Broth is a liquid food preparation, typically consisting of either water or an already flavored stock, in which bones, meat, fish, cereal grains, or vegetables have been simmered. Broth is used as a basis for other edible liquids such as soup, gravy, or sauce. It can be eaten alone or with garnish...
or even brine
Brine
Brine is water, saturated or nearly saturated with salt .Brine is used to preserve vegetables, fruit, fish, and meat, in a process known as brining . Brine is also commonly used to age Halloumi and Feta cheeses, or for pickling foodstuffs, as a means of preserving them...
(up to 15%), or TV dinner
TV dinner
A TV dinner is a prepackaged frozen or chilled meal that usually comes as an individual portion...
s are filled with gravy
Gravy
Gravy is a sauce made often from the juices that run naturally from meat or vegetables during cooking. In North America the term can refer to a wider variety of sauces and gravy is often thicker than in Britain...
or other sauce
Sauce
In cooking, a sauce is liquid, creaming or semi-solid food served on or used in preparing other foods. Sauces are not normally consumed by themselves; they add flavor, moisture, and visual appeal to another dish. Sauce is a French word taken from the Latin salsus, meaning salted...
instead of meat
Meat
Meat is animal flesh that is used as food. Most often, this means the skeletal muscle and associated fat and other tissues, but it may also describe other edible tissues such as organs and offal...
. Malt
Malt
Malt is germinated cereal grains that have been dried in a process known as "malting". The grains are made to germinate by soaking in water, and are then halted from germinating further by drying with hot air...
and Cocoa Butter
Cocoa butter
Cocoa butter, also called theobroma oil, is a pale-yellow, pure edible vegetable fat extracted from the cocoa bean. It is used to make chocolate, biscuits, and baked goods, as well as some pharmaceuticals, ointments, and toiletries...
have been used as a color filler in peanut butter
Peanut butter
Peanut butter is a food paste made primarily from ground dry roasted peanuts, popular in North America, Netherlands, United Kingdom, and parts of Asia, particularly the Philippines and Indonesia. It is mainly used as a sandwich spread, sometimes in combination as in the peanut butter and jelly...
.
Undefined terms
Many terms do have some meaning, but the specific extent is not legally defined, leading to their abuse. A frequent example (until the term gained a legal definition) was "organicOrganic food
Organic foods are foods that are produced using methods that do not involve modern synthetic inputs such as synthetic pesticides and chemical fertilizers, do not contain genetically modified organisms, and are not processed using irradiation, industrial solvents, or chemical food additives.For the...
" food. "Light" food also is an even more common manipulation. The term has been variously used to mean low in calorie
Calorie
The calorie is a pre-SI metric unit of energy. It was first defined by Nicolas Clément in 1824 as a unit of heat, entering French and English dictionaries between 1841 and 1867. In most fields its use is archaic, having been replaced by the SI unit of energy, the joule...
s, sugar
Sugar
Sugar is a class of edible crystalline carbohydrates, mainly sucrose, lactose, and fructose, characterized by a sweet flavor.Sucrose in its refined form primarily comes from sugar cane and sugar beet...
s, carb
Carbohydrate
A carbohydrate is an organic compound with the empirical formula ; that is, consists only of carbon, hydrogen, and oxygen, with a hydrogen:oxygen atom ratio of 2:1 . However, there are exceptions to this. One common example would be deoxyribose, a component of DNA, which has the empirical...
s, salt, texture, thickness (viscosity
Viscosity
Viscosity is a measure of the resistance of a fluid which is being deformed by either shear or tensile stress. In everyday terms , viscosity is "thickness" or "internal friction". Thus, water is "thin", having a lower viscosity, while honey is "thick", having a higher viscosity...
), or even light in color. Tobacco companies, for many years, used terms like "low tar", "light", "ultra-light", "mild" or "natural" in order to imply that products with such labels had less detrimental effects on health., but in recent years it was proved that those terms were considered misleading.
Another example is the United Egg Producers
United Egg Producers
United Egg Producers is an agricultural cooperative in the Midwestern United States which represents the interests of regional egg producers.-History:The group was formed in 1968 as an umbrella organization encompassing five regional egg cooperatives...
' "Animal Care Certified" logo on egg carton
Egg carton
An egg carton is a carton designed for carrying and transporting whole eggs. These cartons have a dimpled form in which each dimple accommodates an individual egg and isolates that egg from eggs in adjacent dimples...
s which misled consumers by conveying a higher level of animal care
Animal husbandry
Animal husbandry is the agricultural practice of breeding and raising livestock.- History :Animal husbandry has been practiced for thousands of years, since the first domestication of animals....
than was actually the case. Both the Better Business Bureau
Better Business Bureau
The Better Business Bureau , founded in 1912, is a corporation consisting of several private business franchises of local BBB organizations based in the United States and Canada, which work through their parent corporation, the Council of Better Business Bureaus .The Better Business Bureau, through...
and the Federal Trade Commission
Federal Trade Commission
The Federal Trade Commission is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act...
found the logo to be deceptive and the original logo can no longer be used.
United States advertising regulations
Advertising is regulated by the authority of the Federal Trade CommissionFederal Trade Commission
The Federal Trade Commission is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act...
, a United States administrative agency, to prohibit "unfair and deceptive acts or practices in commerce." While it makes laymen's sense to assume that being deceptive is being unfair, deceptiveness in practice has been treated separately by the FTC, leaving unfairness to refer only to other types. All commercial acts may be deceptive, not just advertising, but noncommercial activity such as advertising for political candidates is not subject to prosecution under the FTC Act. The 50 states have similar statutes, which generally are very similar to that of the FTC and in many cases copied so closely that they are known as "Little FTC Acts." While the terms "false" and "deceptive" are essentially the same for most, being deceptive is not the same as producing deception. What is illegal is the potential to deceive, which is interpreted to occur when consumers see the advertising to be stating to them, explicitly or implicitly, a claim that they may not realize is false and material. The latter means that the claim, if relied on for making a purchasing decision, is likely to be harmful by adversely affecting that decision. If an ad is implicitly false, evidence must be obtained for what consumers saw the ad saying, and for the materiality of that, and for the true facts about the advertised item, but no evidence is required that actual deception occurred, or that reliance occurred, or that the advertiser intended to deceive or knew that the claim was false.
The goal is prevention rather than punishment, reflecting the purpose of civil law in setting things right rather than that of criminal law. The typical sanction is to order the advertiser to stop its illegal acts, or to include disclosure of additional information that serves to avoid the chance of deception. Corrective advertising may be mandated, But there are no fines or prison time except for the infrequent instances when an advertiser refuses to stop despite being ordered to do so.
The actual statute defines false advertising as a "means of advertisement other than labeling, which is misleading in a material respect; and in determining whether an advertisement is misleading, there shall be taken into account (among other things) not only representations made or suggested by statement, word, design, device, sound, or any combination thereof, but also the extent to which the advertisement fails to reveal facts material in the light of such representations or material with respect to consequences which may result from the use of the commodity to which the advertisement relates under the conditions prescribed in said advertisement, or under such conditions as are customary or usual."
State advertising regulation
In addition to federal laws, each state has its own unfair competition law to prohibit false and misleading advertising. In California, one such statute is the Unfair Competition Law [hereinafter “UCL”], Business and Professions Code §§ 17200 et seq. The UCL “borrows heavily from section 5 of the Federal Trade Commission Act” but has developed its own body of case law.California advertising regulation
History of the UCLCalifornia Civil Code
California Civil Code
The Civil Code of California is a collection of statutes for the State of California. The code is made up of statutes which govern the general obligations and rights of persons within the jurisdiction of California...
§ 3369, enacted in 1872, was California’s early unfair competition statute. It “addressed only the availability of civil remedies for business violations in cases of penalty, forfeiture, and criminal violation.” A 1933 amendment expanded the law to prohibit “any person [from] performing an act of unfair competition.” This amendment did not, however, extend UCL protection to consumers. This limitation was in response to the U.S. Supreme Court’s 1931 decision in FTC v. Raladam. In Raladam, the Court held that a FTC Act Section 5 violation must show actual injury to competition. This ruling prevented individual consumers from suing under the FTC Act. Following this rationale, California applied the UCL to unfair business practices that affected business competitors, not consumers.
In 1935, consumers, not just business competitors, were given the opportunity to sue under the UCL. The Supreme Court of California
Supreme Court of California
The Supreme Court of California is the highest state court in California. It is headquartered in San Francisco and regularly holds sessions in Los Angeles and Sacramento. Its decisions are binding on all other California state courts.-Composition:...
clarified the statute in American Philatelic Soc. v. Claibourne, stating that “the rules of unfair competition” should protect the public from “fraud and deceit.” In 1962, a California appellate court reiterated this rule by stating that the UCL extended “equitable relief to situations beyond the scope of purely business competition.” In 1977, the legislature moved the UCL to the California Business and Professions Code § 17200. In 2004, California voters enacted Proposition 64
California Proposition 64 (2004)
Proposition 64 was a California ballot proposition on the November 2, 2004 ballot. It passed with 6,571,694 votes in favor and 4,578,725 against...
, which limited UCL standing
Standing (law)
In law, standing or locus standi is the term for the ability of a party to demonstrate to the court sufficient connection to and harm from the law or action challenged to support that party's participation in the case...
to individuals who suffered financial/property loss because of an unfair business practice.
Section 17200 standing to sue
The UCL confers standing on both private parties and public prosecutors. Section 17204 authorizes the Attorney General, district attorneys, county counsels and city attorneys to file lawsuits on behalf of injured citizens. Prior to Proposition 64, any consumer, regardless of whether they were adversely affected by unfair business acts, could bring a UCL action. In addition, any consumer could act as a representative and file a class action lawsuit against a business committing unfair competition. Proposition 64 allows only private plaintiffs who have “suffered injury in fact and lost money or property as a result of such unfair competition” may file suit, while “unaffected” plaintiffs now lack standing. Furthermore, the California Supreme Court expanded this amendment to class actions in Arias v. Superior Court by holding that “unaffected” plaintiffs no longer may bring a class action lawsuit unless they satisfy the regular requirements laid out in Cal. Civ. Code § 382. The requirement does not apply to all class members, however; only class representatives must meet these requirements.
Overview of the UCL
California’s UCL is broadly written. Section 17200 includes five definitions of unfair competition: (1) an unlawful business act or practice; (2) an unfair business act or practice; (3) a fraudulent business act or practice; (4) unfair, deceptive, untrue or misleading advertising; or (5) any act prohibited by Sections 17500-17577.5. Section 17203 allows the court to order injunctions and other equitable defenses to prevent the unfair competition.
Elements of a false advertising claim
Most false advertising litigation involves definitions four and five listed above because they both specifically prohibit false advertising. To prove a violation under the fourth definition of unfair competition, the plaintiff must show that (1) the defendant engaged in unfair, deceptive, untrue or misleading advertising and (2) the plaintiff suffered injury in fact and lost money or property. California courts have interpreted “advertising” to include almost any statement made in connection with the sale of goods or services. For example, Chern v. Bank of America held that a loan officer’s statement over the phone about interest rates was “advertising.” Conversely, Bank of the West v. Superior Court implied that advertising might require “widespread promotional activities directed to the public-at-large” and that mere “personal solicitations are not advertising.”
To determine whether advertising is misleading, California’s courts evaluate the advertisement’s entire impression, including words, images, format and product packaging. Courts have held that advertising is misleading if “members of the public are likely to be deceived.” However, because of Proposition 64, the plaintiff now has to show that they were actually misled by the advertising and suffered an injury as a result. To further complicate matters, the courts are split on whether “omissions of material facts” that mislead or confuse the public violate the UCL. To prove a violation under the fifth definition, the plaintiff must show that section 17500 was violated. This “sweep up” provision ensures that any acts mentioned in section 17500 also violate section 17200 and that the plaintiff receives remedies under both statutes.
In many cases, liquidator
Liquidator (law)
In law, a liquidator is the officer appointed when a company goes into winding-up or liquidation who has responsibility for collecting in all of the assets of the company and settling all claims against the company before putting the company into dissolution....
s which are hired to sell merchandise from a closing store will actually raise the prices on items that were already marked-down on clearance. For items already marked-down to 100% off, this means the liquidator is doubling the price (quadrupling it for a 100%-off price), and then "discounting" it from there. Also common is for the sale prices at a retail chain's other stores to be lower than the liquidator's prices at the closing stores. Both of these were proven to be the case in November 2008, with the same liquidator (Hilco) committing both offenses: the markups at Linens 'n Things
Linens 'n Things
Linens 'n Things is an online retailer of home textiles, housewares and decorative home accessories. Until 2008, the company also did business as a big box retailer under the name Linens 'n Things, Inc., headquartered in Clifton, New Jersey, United States, and did business across the United States...
, and the higher prices on around one-third of the items compared to other Circuit City stores remaining open. Additionally, liquidators refuse to accept returns, so if a customer does find he or she has been overcharged, there is no apparent recourse.
This is used by most advertisers trying to prove the acceptability of their products.
Relationship between section 17200 and other California consumer protection statutes
Most plaintiffs allege violations of section 17200 and 17500 concurrently. In fact, courts often do not distinguish between these definitions of unfair competition, despite important differences between these two sections. A violation of section 17200 may not always trigger a violation of 17500. Section 17500 prohibits any untrue or misleading statements made in connection with the sale of goods or services, which is narrower standard than section 17200. For example, section 17500 only concerns advertising of property or services while section 17200 has no such limitation. Section 17500 only prohibits advertising, but section 17200 also forbids “fraudulent business acts or practices” unconnected with advertising. Another major distinction is that section 17500 requires that the advertiser knew or should have known that the advertising was false or misleading. Section 17200 is a strict liability statute that has no such requirement. In addition, section 17500 carries criminal penalties, whereas only civil remedies are available for section 17200 violations.
Plaintiffs suing under Sections 17200 or 17500 often also assert violations of the California Consumers Legal Remedies Act (“CLRA”), set forth in Cal. Civ. Code § 1750 et seq. The CLRA protects consumers against 23 specific activities that it defines as unfair and deceptive business practices. Many of those activities are also prohibited by section 17500. For example, it is unlawful under both statutes to advertise goods with the intent not to sell them as advertised or to misrepresent a product’s price or source. Plaintiffs typically simultaneously plead violations of each statute because the remedies are cumulative. For example, the CLRA provides for attorney’s fees, punitive damages, and statutory damages.
Exemptions and defenses
The UCL requires that lawsuits be brought within four years after the cause of action accrued. The UCL postpones accrual of the cause of action until the plaintiff “discovers” the problem. Section 17500 does not have an express statute of limitations
Statute of limitations
A statute of limitations is an enactment in a common law legal system that sets the maximum time after an event that legal proceedings based on that event may be initiated...
. Thus, California Code of Civil Procedure section 338(h), which specifies a three-year limitation, ordinarily should apply to section 17500. However, as section 17500 is cross referenced in section 17200, and as virtually all false advertising claims are litigated simultaneously with UCL claims, the limitations period for “false advertising claims is effectively four-years.”
Judges can use their equitable powers to dismiss a UCL claim or deny injunctive relief
Injunction
An injunction is an equitable remedy in the form of a court order that requires a party to do or refrain from doing certain acts. A party that fails to comply with an injunction faces criminal or civil penalties and may have to pay damages or accept sanctions...
. For example, in competitor-vs.-competitor lawsuits, the defendant may assert unclean hands
Unclean hands
Unclean hands, sometimes called the clean hands doctrine or the dirty hands doctrine, is an equitable defense in which the defendant argues that the plaintiff is not entitled to obtain an equitable remedy on account of the fact that the plaintiff is acting unethically or has acted in bad faith with...
if it believes the plaintiff has engaged in serious misconduct that relates to the subject of relief being sought. In other words, a “plaintiff must not behave inequitably with respect to the rights being asserted in the case.” Because the UCL is a strict liability statute, other equitable defenses such as “good faith, mistake of law and lack of wrongful intent are generally inapplicable [to] a UCL action.”
Remedies available under the UCL
The UCL allows the court to prevent the use of unfair competition and to restore money or property to victims of unfair competition. Essentially, this provision allows for both monetary damages and injunctive relief where necessary. When an injunction is issued pursuant to section 17200, penalties of up to $6,000 per day for intentional violations are authorized. Restitution
Restitution
The law of restitution is the law of gains-based recovery. It is to be contrasted with the law of compensation, which is the law of loss-based recovery. Obligations to make restitution and obligations to pay compensation are each a type of legal response to events in the real world. When a court...
and disgorgement
Disgorgement (law)
Disgorgement is the forced giving up of profits obtained by illegal or unethical acts. A court may order wrongdoers to pay back illegal profits, with interest, to prevent unjust enrichment...
of profits are used primarily to deter future violations. Courts use various factors to determine the amount of the penalty, including “the nature and seriousness of the misconduct, the number of violations, the persistence of the misconduct, the length of time over which the misconduct occurred, the willfulness of the defendant's misconduct, and the defendant's assets, liabilities, and net worth.” Civil penalties, up to $2,500 for each violation, are allowed when a lawsuit is brought by an authorized government agency. However, the UCL does not permit punitive damages
Punitive damages
Punitive damages or exemplary damages are damages intended to reform or deter the defendant and others from engaging in conduct similar to that which formed the basis of the lawsuit...
awards.
External links
- ftc.gov - Advertising FAQ for small businesses
- alphaila.com - Fast Food: Ads vs. Reality
- OECD Consumer Policy Toolkit Report
- About Econsumer.gov, a portal for consumers to report complaints concerning online and related transactions with foreign companies
- International Consumer Protection and Enforcement Network (ICPEN)
- Consumers International