There’s nothing more frustrating than purchasing a product or service that doesn’t live up to the hype. Whether it’s a supplement that fails to deliver results or shapewear that still leaves visible bulges, consumers are routinely disappointed by products that fall short of the claims made in advertisements. When this happens repeatedly with a single product, it can tarnish its reputation and brand trust. This raises a critical question: What are the legal implications when a brand intentionally markets a product in a way that it knows will never meet advertised expectations? Is it illegal to withhold negative information about a product? Moreover, what should brands understand about crafting their marketing claims to safeguard themselves against costly lawsuits and regulatory fines that can deplete resources and potentially lead to business closure?
Is Omission Always Illegal in Product Marketing
Determining whether it’s illegal for a brand to withhold information isn’t always straightforward—it often depends on the context. Take KFC’s closely guarded recipe, rumored to contain 11 herbs and spices. By keeping this recipe a secret, KFC differentiates itself from competitors without misleading consumers. The brand accurately promotes its flavorful fried chicken, regardless of whether consumers know the specific ingredients. This omission is not harmful to the public and does not violate Federal Trade Commission (FTC) regulations, which aim to protect consumers from deceptive practices. However, omission becomes illegal when it can be proven that consumers were misled by the marketing or product materials they encountered. Here are some examples.
Predatory Marketing to Boost App Usage
Imagine an online gaming app promises users that downloading and playing the game can earn them “free money,” specifically thousands of dollars within minutes. Enthusiastic consumers download and play the game, only to later discover that earning money requires depositing real money into a holding account and playing two hours of daily games for three months. This crucial information isn’t disclosed in any advertisements, app descriptions, or within the app itself.
This scenario is misleading because the advertisements imply that users can win significant money with minimal effort. In reality, substantial time and financial investments are necessary to potentially recoup losses and earn profits. Had consumers known these requirements upfront, many would likely have opted not to download the app. Consequently, the app developer is in violation of FTC regulations due to deceptive marketing practices that effectively defraud consumers by hiding essential information.
Misleading Information to Boost Product Sales
Another common example involves health or beauty brands making unsubstantiated claims about their products. For instance, skincare or supplement companies might assert that “studies show” or “in trials” to highlight their products’ efficacy. According to FTC regulations, if a brand claims to have proof that a product works or is effective, there must be verifiable evidence to support that claim. Failure to provide such evidence can render the business liable for misleading advertising.
Who Is Held Liable When Relevant Information Is Omitted?
Most people assume that only the brand is held responsible for releasing misleading information about their goods or services. However, liability extends to anyone involved in disseminating such information, including third parties like ad agencies, web designers, and publicists. Ensuring that all collaborators adhere to truthful and transparent marketing practices is essential to mitigate legal risks.
How To Avoid Violations
The easiest way for a brand to avoid attracting FTC scrutiny is to maintain transparency in all consumer communications. Here are effective strategies to achieve this:
Disclaimers
Disclaimers inform consumers of caveats or exceptions to the product or service being marketed. For example, in the app developer scenario, a disclaimer would include a notice in advertisements and within the app itself, disclosing that consumers need to deposit money, play a minimum amount of time daily, and maintain activity over a specified period before being eligible to earn money. However, disclaimers alone won’t prevent legal action if they aren’t easily visible to consumers. Burying disclaimers in legalese within terms and conditions is insufficient. Disclaimers need to be prominently included in marketing materials, such as advertisements.
Demonstrations
For brands making product claims, demonstrations are essential to validate the efficacy of the goods or services being promoted. These can include references to independent testing, clinical studies, and reputable reviews, providing verifiable evidence to support marketing claims.
Refunds
If a brand offers a money-back guarantee or encourages returns under specific guidelines, it must uphold these promises without placing an undue burden on the consumer. For example, requiring consumers not only to return merchandise but also to navigate a complicated process to be eligible for a refund is considered predatory and an attempt to dissuade refunds.
Top Industries Monitored for False Advertising Practices
All commercial enterprises must comply with regulations set forth by the Federal Trade Commission (FTC). However, some industries face stricter oversight. For example, the pharmaceutical industry is heavily regulated in how it markets to both consumers and healthcare professionals. Similarly, financial institutions adhere to rigorous standards, including The Truth in Lending Act.
Multi-level marketing (MLM) firms, while not classified as pyramid schemes, are closely monitored by the FTC due to their focus on recruiting new members over selling products. Although commissions are based on actual sales, building a profitable “downline” means recruiters earn from the sales generated by their recruits. This model typically benefits early adopters or highly motivated individuals, as market saturation can limit sales opportunities in many regions. Consequently, most MLM participants struggle to recoup their initial investments. Other commonly watched industries or schemes include:
- Buy one get one free claims
- Jewelry sales
- Mail order products
- Negative option subscription models (a good example is the former Columbia House CD subscriptions)
- 900 numbers
- Telemarketers
- Testimonials and endorsements from celebrity or influential members marketed toward the public
Be a Responsible Brand
It’s easy for brands to fall foul of federal regulations by refusing to be transparent and withholding critical information out of fear that it might discourage consumers from using a product or service. However, if regulators uncover such deception, the consequences are far worse than any lost revenue. Alongside expensive fines and legal actions, brands risk losing consumer trust—a loss that can ultimately lead to business closure. To avoid these pitfalls, brands should be smart and responsible by maintaining honesty in their marketing and product materials, ensuring that consumer acquisition is conducted ethically and legally.