Walking the Line Between Commerce and Regulatory Compliance

by Richard Newman
August 2, 2012

It is simply not possible in the current environment for an advertiser or marketer to anticipate all of the potential scenarios that might garner the attention of a regulator. Today’s advertising landscape is pro-consumer and pro-enforcement. Federal and state regulatory enforcement actions alleging unfair or deceptive trade practices are escalating at an unprecedented level and the performance marketing industry is currently a shooting gallery for consumer protection agencies.

In this kind of environment the name of the game must be to implement deliberate liability mitigation strategies in order to avoid the regulatory microscope altogether, while maximizing revenues.

Perhaps the most dramatic lesson learned this year is that everyone in the marketing chain is now invited to the party and may potentially be liable for deceptive trade practices including, without limitation, unsubstantiated representations, fabricated or non-compliant testimonials and inconspicuous disclosures.


It is no secret that regulators seek to objectively assess the overall net impression of landing pages. The words, content, claims, reports, studies, photographs, testimonials, user-generated content, copyright or trademark infringement issues, the terms of use and the privacy policy are all considered together, as a whole.

Placement and use of disclosures are critical to this evaluation and are required to prevent an advertisement from being misleading, to ensure that consumers receive material information about the terms of a transaction and/ or to further public policy goals. They must be clear and conspicuous, which means that advertisers must consider the placement of the disclosure and its proximity to the relevant claim. Additional considerations include the prominence of the disclosure and whether items in other parts of the advertisement distract attention therefrom.

While landing pages should be designed to enhance conversions and achieve business objectives, one must not lose sight of the management and minimization of legal risks. This is particularly true with respect to verticals that have been historically subject to heightened regulatory scrutiny. These include health, safety, weight loss, insurance, debt consolidation, credit repair, mortgage modification and foreclosure rescue verticals. All these sectors are traditionally considered a siren’s call for regulators.

Avoiding regulatory entanglements by navigating often vague and unstable policy is serious business. For example, the FTC recently released a study regarding use of the words “up to” in performance claims. The results indicated that almost half of consumers expected to achieve a result that matched what was only claimed to be the maximum result possible.

The agency’s position seems to be a departure from the standard set forth by many states and in the Better Business Bureau’s Code of Advertising, which is that advertisers must support “up to” representations with evidence that the maximum comprises “a significant percentage, typically 10%.” The FTC’s guidance appears to be more stringent than the commonly used “significant percentage standard” and advertisers should be able to substantiate that “consumers are likely to achieve the maximum results.”

The depth of this developing regulatory trend and the severity of what appears to be a warning remains to be seen. While the particular product or service being advertised, the specific claim being modified and the overall net impression are all almost certainly relevant, if it happens that only a minority of consumers achieve what was advertised as the “up to” maximum result, then there is potentially significant risk.

The unsavory result of what has been a blatant disregard of compliance considerations is best illustrated by an assessment of recent judgments, orders, consent decrees and assurances of voluntary compliance issued in conjunction with FTC and state attorneys general enforcement actions. In addition to individual liability, asset freezes, receiver appointments, court-ordered restitution and relinquishment of “ill-gotten gains,” settlements often include permanent bans, punitive monetary penalties, equitable injunctions, onerous compliance reporting requirements and lengthy record-keeping obligations.

Instances involving perceived egregious and flagrant marketing violations this year have also resulted in the mandatory implementation of proactive affiliate monitoring programs that permit regulators well-defined rights of inspection.

It is a cliche but still I must say it – an ounce of prevention with regard to best practices, including the dissemination of advertising creative, is truly worth a pound of cure. Eliminating problems before they occur through continuous compliance monitoring, while not negatively impacting conversions, provides the best defense.

 

Information conveyed in this article is provided for information purposes only and does not constitute, nor should it be relied upon as legal advice. No person should act or rely on any information in this article without seeking the advice of an attorney.

 

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About Richard Newman

Richard Newman is an Internet Law Attorney at Hinch Newman LLP specializing in marketing and advertising law, regulatory compliance and defense, complex commercial litigation and new media-related legal matters.

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