Advertising is regulated by both federal and state law. Under the law, your ad is unlawful if it tends to mislead or deceive. This means the government doesn’t have to prove at an administrative hearing or in court that the ad actually fooled anyone—only that it had a deceptive quality. Your intentions don’t matter either. If your ad is deceptive, you’ll face legal problems even if you have the best intentions in the world. What counts is the overall impression created by the ad—not the technical truthfulness of the individual parts. Taken as a whole, your ad must fairly inform the ordinary consumer.

In addition, if your ad contains a false statement, you have violated the law. The fact that you didn’t know the information was false is irrelevant.

The Federal Trade Commission (FTC) is the main federal agency that takes action against unlawful advertising. State and local governments also go after businesses that violate advertising laws; usually this is the responsibility of the state attorney general, consumer protection agency and local district attorney. Consumers and competitors may also be able to proceed directly against the advertiser.

Over the years, the FTC has taken action against many businesses accused of engaging in false and deceptive advertising. A significant number of those administrative actions have been tested in court. By and large, courts have upheld even the most stringent FTC policies. For the most part, the FTC relies on consumers and competitors to report unlawful advertising. If FTC investigators are convinced that an ad violates the law, they usually try to bring the violator into voluntary compliance through informal means. If that doesn’t work, the FTC can issue a cease-and-desist order and bring a civil lawsuit on behalf of people who have been harmed. The FTC can also seek a court order (injunction) to stop a questionable ad while an investigation is in progress. In addition, the FTC can require an advertiser to run corrective ads—ads that state the correct facts and admit that an earlier ad was deceptive.

Most states have laws—usually in the form of consumer fraud or deceptive practices statutes—that regulate advertising. Under these laws, state or local officials can seek injunctions against unlawful ads and take legal action to get restitution to consumers. Some laws provide for criminal penalties—fines and jail—but criminal proceedings for false advertising are rare unless fraud is involved.

Consumers often have the right to sue advertisers under state consumer protection laws. For example, someone who purchases a product or services in reliance on a false or deceptive ad might sue in small claims court for a refund or join with others (sometimes ten of thousands of others) to sue for a huge sum in another court.

A competitor harmed by unlawful advertising, or faced with the likelihood of such harm, generally has the right to seek an injunction and possibly an award of money (damages) as well, although damages are often difficult to prove. Such cases usually are based on one of two legal theories: unfair competition or commercial disparagement.

Excerpted from the "Legal Guide for Starting and Running a Small Business" by Fred S. Steingold
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