FTC Compliance Attorney
Many businesses and website operators violate the FTC Act with their everyday business practices unwittingly. Any practice, claim or activity that is materially misleading and deceptive violates Section 5 of the FTC Act.
The FTC has enormous and broad powers to go after your business and can issue a complaint when it has reason to believe that a violation of the law has occurred. No evidence is required that actual deception occurred, or that reliance on any deception by any of your visitors or customers has occurred. All that matters is whether a claim or business practice has the capacity to deceive. In other words, they pretty much have a blank check from Congress to make life miserable for website operators that run afoul of the FTC Act!
Understanding FTC Laws
This is undoubtedly the biggest area of liability for most businesses doing e-commerce. Businesses conducting interstate commerce MUST know the nature of the FTC Act and what is considered to be materially misleading and deceptive.The FTC is behind all the “horror stories” you hear or read about concerning Internet businesses and big Internet marketers landing in trouble.
To make matters worse, the FTC revised its guidelines in 2009 relating to website advertisements and endorsements. Website owners and online entrepreneurs now face an entirely different world when it comes to online regulation! There is a lot of misinformation out there, including the notion you are now limited to ‘average results’ type testimonials only from your customers. I have read a lot of articles and posts by non-lawyers and other supposed Internet gurus who quite frankly don’t know what they are talking about. It is extremely important you know how to use any necessary disclosures from the FTC’s point of view.
FTC Customer Testimonials & Endorsements
The FTC Act does not allow website owners to make any claims through customer endorsements/testimonials that you cannot make directly. This means you must disclose “generally expected results” with any customer testimonials. There is a lot of misinformation out there, including the notion you are now limited to ‘average results’ type testimonials only from your customers. I have read a lot of articles by non-lawyers, lawyers that are not an FTC attorney and other supposed Internet gurus who quite frankly don’t know what they are talking about! It is extremely important you know how to use any necessary disclosures from the FTC’s point of view.
You now must also disclose any “material connection” with your affiliates and any other “sponsored endorsers” under the Revised Guidelines.
You need to also maintain FTC compliance by avoiding liability for deceptive claims made by your bloggers and affiliates. If you’re an affiliate, blogger, paid poster, etc., FTC rules on endorsements apply to you too and you need to understand the changes made by the FTC in their 2009 revised guidelines concerning endorsements and testimonials. Most Internet businesses, marketers and affiliates don’t understand the new rules and fail to use the required disclosures effectively.
Understanding the Process: How the FTC Takes Action
The FTC will go after website operators who advertise on a national level if any advertisement(s) represents a pattern of deception rather than an individual dispute with a consumer or another business. The FTC focuses most of its attention upon potential health related claims, claims that could lead to safety injuries or “widespread economic injury.”
The FTC has enormous and broad powers to go after your business. It can issue a complaint when it has reason to believe that a violation of the law has occurred. Also, no evidence is required that actual deception occurred, or that reliance on the ad by any customers occurred. They don’t have to prove that you intended to deceive or knew that the claim was false. A claim that has the capacity to deceive is sufficient. The FTC may rely on its own interpretation and experience to assess whether the overall impression made by the advertisement in question is unfair, deceptive, or misleading. This results in very wide latitude and is extremely problematic to website operators.
What this all boils down to is that the FTC can shut your website down in some cases and freeze your assets without warning or the benefit of an administrative or court proceeding beforehand. You need to respect the FTC!
Consequences handed down by the FTC for committing an unfair or deceptive act or practice basically fall into one of the following basic categories:
Injunctions. The FTC can also take direct action and skip the administrative remedies and seek immediate relief from a federal district court in the form of a temporary restraining order. Other actions include seeking a preliminary and a permanent injunction, an asset freeze. The FTC Act allows a federal district court to use its full equitable powers to grant relief and prevent all persons involved from retaining the benefits of their violations of the FTC Act.
Consent Orders are orders issued when your business voluntarily agrees to stop running a deceptive ad or engage in a deceptive practice. Your business can also be ordered to have substantiation for claims in future ads, or even be required to report periodically to FTC staff about substantiation you have for any new claims. You agree to remedy the situation and enter into these voluntarily. They have the force of law if violated in the future when they are made final.
Cease and Desist Orders. If no settlement is reached, or if the FTC believes the harm to the consumer is great, the FTC can file a complaint with the FTC Commission and have an administrative hearing. Until the case is decided, or dismissed, the FTC may also seek a temporary restraining order or preliminary injunction to prevent you from engaging in the deceptive act or practice. If a violation is found during this hearing, a cease and desist order would be issued. This is an order to refrain from running the ad or continuing the deceptive practice.
Civil Penalties. Your business can get hit with civil penalties by the courts if you violate an existing order, up to $16,000 per violation per day. In determining the amount of the civil penalty, the courts will take into account the degree of guilt, any history of prior conduct, your ability to pay, effect on ability to continue to do business and a few other items.
Consumer Remedies. The FTC Act allows the FTC to go after advertisers in civil court and businesses have been ordered to give full or partial refunds to all consumers who bought a product the subject of a deceptive ad. The FTC may ask for the rescission or reformation of contracts, a return of property to consumers or even the payment of damages. Depending upon the nature of the violation, the penalties can vary.
Corrective Advertising. Advertisers have been required to take out new ads to correct the misinformation conveyed in the original ad, notify purchasers about deceptive claims in ads, include specific disclosures in future ads, or provide other information to consumers.
If the FTC believes that a website is engaging in an unfair or deceptive practice, it usually will first attempt to reach a settlement with your business. A successful settlement results in a consent decree, where your business voluntarily agrees to refrain from the deceptive practice and/or to take steps to remedy the situation or prevent future violations. However, in many cases violators must agree to pay a monetary amount in settlement and amounts necessary for consumer redress. This can means your business could be forced at shelling out a lot of money without warning.
In situations where fraud does not seem intentional or significant, the FTC will likely send your business and advisory letter first. If you cooperate and incorporate their requested changes, you will be fine. However, nothing legally requires them to send a letter first-It really depends on the level of the violation.
As an FTC compliance attorney, I advise numerous businesses, marketers, affiliates, etc. how to avoid FTC liability.