FTC Provides Guidance on Online Advertising

Following closely on the heels of enforcement actions against Web-based auto dealers who hid the true costs of their lease offers and day-trading outfits that made unsubstantiated “get-rich-quick” claims, the Federal Trade Commission last month gave some welcome guidance to online advertisers and retailers about how the agency intends to enforce its rules and guidelines online.

On May 3, the FTC released a staff working paper entitled “Dot Com Disclosures: Information About Online Advertising,” intending to set the record straight that ads and other commercial messages in cyberspace are governed by the same consumer protection laws that apply to more traditional media. More importantly for Internet marketers, “Dot Com Disclosures” sets forth specific guidance, in the context of the Internet, about how, when and where certain disclosures that are required by law must appear in order to prevent advertising claims from being misleading or deceptive.

The paper is the culmination of more than one year of staff review, including a workshop that brought together various consumer groups, industry members and trade associations. Many in the industry expected the FTC to emerge with new rules for online activities; it should come as a relief then to online advertisers and e-commerce sites that the paper instead focuses on explaining how terms like “clear” and “conspicuous” are to be interpreted with respect to advertising disclosures made in the new medium.

The FTC stressed that it will continue to review online advertising and marketing messages for deception and misleading claims under Section 5 of the FTC Act, which generally prohibits unfair or deceptive practices in commerce. For example, weight loss, potential earnings and other claims made on the Internet will receive the same level of review and scrutiny as they would if the claims were made on television or in a magazine.

The bulk of this colorful and interactive paper discusses specific ways in which the FTC will treat disclosure requirements on the Internet. In reviewing online ads, the paper recommends that advertisers adopt the perspective of a reasonable consumer, who may or may not scroll through an entire Web site or read every word on a page. Thus, a disclosure is more likely to be effective if consumers can view the claim and disclosure together on the same screen, and in cases in which scrolling is necessary, advertisers should take steps to encourage consumers to actually do so.

For example, an explicit textual clue such as “see below for important information on diamond weights” may be more useful than a vague instruction to “see below for details.” The visual design of a Web page may also help to alert consumers to scroll down for more information; if there is blank space at the bottom of a page, a consumer may not realize that more information can be obtained by scrolling down further.

When disclosures are an integral part of a claim or inseparable from it — e.g., “hidden” fees or safety information, then advertisers should make sure the disclosure goes on the same Web page as the “triggering” claim. In other cases, as when a disclosure is particularly lengthy or if it needs to be repeated because of multiple triggering terms or claims, hyperlinks may be effective.

Specific considerations for hyperlinking are discussed in the paper and illustrated through “clickable” examples. For example, while the label on a hyperlink need not recite the full disclosure, hyperlinks with vague labels like “details” or “more information” may not be sufficient to alert the consumer to the nature, relevance and importance of the disclosure. The paper also points out that advertisers can monitor and improve the efficacy of a link by assessing click-through rates.

The paper includes other specific guidance for advertising strategies unique to the Internet. Banner ads, frames, pop-up screens and multimedia messages are addressed in separate subsections. Overall, advertisers are advised to stay aware of the effectiveness, technological limitations and particular characteristics of various online advertising techniques and to adjust the functionality accordingly when considering the disclosures that may be necessary to prevent misleading or deceptive ads.

As for sites that allow on-site buying, the paper stresses that disclosures must be effectively communicated to consumers before they make their purchases. Disclosures made on a product description page or order page may not be considered effective if the actual checkout function is several pages later or if consumers will surf through a company's site and decide to purchase the product from the company's bricks-and-mortar store.

Finally, the paper makes clear that most FTC rules and guides that use the words “written,” “writing” and “printed” will apply online. In some cases, the FTC has already made this explicit. For example, the FTC amended the Textile Rules in 1998 to clarify that textile origin disclosures required for “print” catalogs must be made in online catalogs as well. In the more common case, however, FTC consumer protection rules do not refer specifically to the Internet, and the paper provides several examples of rules that translate with equal force to the online environment.

Although “Dot Com Disclosures” had been in the works for more than a year, the timing of its release could not be better for progressive Web advertisers and marketers seeking to explore the outer contours of their new media because several enforcement actions undertaken by the FTC and other agencies have recently put up red flags in the industry.

On April 27, the FTC announced its settlement of charges against several auto dealers located in Colorado, New York and Pennsylvania which ran deceptive lease advertisements on the Internet that either failed to reveal true lease costs or buried key lease terms in the fine print. The proposed consent orders require that the dealers provide “clear and accurate cost information in lease ads to avoid misleading offers and to assist consumers shopping and making informed vehicle decisions.”

Several days later, the FTC, along with several other federal regulatory agencies, announced a settlement with 14 online trading firms, each of which promised the earning of easy money without disclosing the substantial risks of day trading. Among other things, the firms would be required under the consent orders to include the following disclosure in any future advertisements: “Day trading involves high risks, and you can lose a lot of money.”

These actions and others underscore the need for online advertisers to understand that they, too, operate in regulated terrain. “Dot commerce is the new Main Street,” said Jodie Bernstein, director of the FTC's Bureau of Consumer Protection in the press release announcing the issuance of “Dot Com Disclosures.” With the release of the paper, the FTC has given Internet marketers their very own map of the town.

“Dot Com Disclosures” is available at ww.ftc.gov/bcp/conline/pubs/buspubs/dotcom/index.html.

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