In this article, we'll discuss the fine line between claims substantiation that is FTC-legal and will work for you... and illegal, deceptive ad claims that can get you sued by the FTC
You can get into serious legal trouble with claims substantiation that does not comply with FTC laws, even for personal liability for executives.
This article will provide a general formula for writing claims substantiation that is legal, to help you avoid a costly lawsuit from the FTC and state regulators.
We'll cover basic guidelines for claims substantiation to help you develop a working knowledge of how to navigate FTC laws, with specific examples of claims substantiation.
Chip Cooper, Esq. ecommerceattorney.io
What we'll cover:
- FTC, State Advertising Laws, and NAD's roles with claims substantiation;
- What are advertising claims;
- What are deceptive advertising claims;
- What is required for claims substantiation;
- 2 examples of claims substation tactics you can use now; and
- Top 10 FTC compliance guidelines for advertising claims substantiation.
FTC & State Advertising Laws, and NAD's Complementary Role
The Federal Trade Commission (FTC) and state regulators protect consumers by targeting deceptive and unfair advertising in digital advertising.
The FTC enforces its consumer protection laws against advertisers for deceptive ad claims under Section 5(a) of the FTC Act.
Consumer protection laws determine what advertisers can say in ads about their products and services.
In general terms, the FTC Act specifies that all advertising, including internet advertising and digital advertising:
- must be truthful and not misleading,
- claims substantiation is required before publication, and
- advertising cannot be unfair.
The FTC provides rules and regulations (often referred to as “guides”) to illustrate how the FTC interprets and enforces the FTC Act.
The National Advertising Division of the Council of Better Business Bureaus (NAD) also plays a vital role with advertisers in digital advertising.
NAD provides a valuable, non-judicial service for digital marketers.
NAD is a part of the independent, non-profit Better Business Bureau, and it provides a dispute resolution process for advertisers involved in false advertising claims under Section 43(a) of the Lanham Act.
NAD also independently monitors online advertising and evaluates the truth and accuracy of advertising claims.
NAD closely follows FTC precedent and policy for claims substantiation.
What are Advertising Claims?
Ad claims are specific claims an advertiser makes regarding the advertiser's product or service which can be either express or implied, and provable true or false as illustrated in the infographic below.
Ad claims may be either express or implied.
Express ad claims make an unequivocal representation about a product or service, for example: “our laptop weighs 2 lbs. 8 ounces”.
Implied ad claims are not stated in terms of an unequivocal representation.
Implied ad claims may be determined from the context of the claim, and the nature of the claim and related transaction, including related images as illustrated in the infographic below.
A rule of thumb for implied claims is that a claim in advertising is implied if 20% or more reasonable consumers would derive a particular message or meaning from the claim.
What is Net Impression?
The term “net impression” in this article doesn't relate to detailed metrics on how digital advertising campaigns are performing.
Instead, we're concerned with the term “net impression” regarding advertising law.
In terms of advertising law, an ad claim's “net impression” means the message (claim) that consumers, as part of the advertiser's intended audience, would infer from the ad regarding the expectations and understandings of a reasonable buyer.
There is an essential distinction between “infer” and “imply.”
Net impression is not what the advertiser intended to imply (convey); rather it's the meaning that a reasonable buyer might infer (interpret) from the ad claim.
So, why is Net impression important?
It's because the FTC requires claims substantiation for net impression before publishing the advertisement.
Are Testimonials Regulated as Ad Claims?
Opinion testimonials are not regulated as advertising claims, provided they do not include objectively provable claims or contain elements or attributes that are measurable.
- “I feel so good about myself now that I'm at a healthy weight.”
- “What makes their chicken sandwich perfect for me is the crispy chicken with the pickle on top”.
“Success Story” testimonials, on the other hand, contain specific, provable claims by a testimonialist based on experience.
- “I lost 15 pounds in my the first month.”
- “I saved 43% on my heating bills last winter.”
“Success Story” testimonials are regulated by the FTC as ad claims, and require claims substantiation as shown in the infographic below.
The basic idea: the FTC won't allow an advertiser to make a specific, provable claim indirectly via a testimonialist without claims substantiation that the advertiser couldn't make directly via an advertising claim.
What are Deceptive Ad Claims That Require Claims Substantiation?
FTC Policy Statement on Deception
In the FTC Policy Statement on Deception, the FTC provided a definitive statement of a deceptive advertising claim, as summarized in the infographic below.
“The Commission will find an act or practice deceptive if there is a misrepresentation, omission, or other practice, that misleads the consumer acting reasonably in the circumstances, to the consumer's detriment.”
There is a single “standard” known as the “materially misleading standard” which determines whether an advertising claim is deceptive, as summarized in in the infographic below.
A recent example of a deceptive ad claim that resulted in personal liability for an advertiser-executive is described below
Personal Liability for Advertiser Executives for Deceptive Ad Claims
In order to protect U.S. consumers, the FTC has been given broad jurisdiction, even extending jurisdiction with extraterritorial effect, meaning that the FTC can seek the FTC Act's remedies against deceptive advertisers that are located outside the U.S.
In addition, the FTC has broad enforcement authority under the FTC ACT to litigate claims against deceptive advertisers via its Division of Advertising Practices.
It's noteworthy that the FTC may impose injunctive relief and civil penalties (fines) on deceptive marketers, including their personal liability for their executives.
In my experience with clients, one common misconception is that deceptive marketer executives can avoid personal liability from FTC civil penalties. Not true.
Contrary to popular belief, clever disclaimers and conducting business in an entity form (corporation or LLC) won't work to avoid personal liability for executives.
Check out the UrthBox example below:
FTC Targets UrthBox and Executive for $100,000 Settlement for Deceptive Ads
Urthbox, Inc., markets snack food online.
The FTC alleged that Urthbox violated the FTC Act by misrepresenting customer reviews on the Better Business Bureau's website and other websites.
Specifically, the FTC alleged that neither Urthbox nor any of its reviewers disclosed that the reviewers were given free snacks as an inducement for positive reviews.
The FTC also claimed that Urthbox executive Behnam Behrouzi was jointly and severally liable as a co-defendant stating:
“Respondent Behnam Behrouzi, as an officer of the Proposed Corporate Respondent, UrthBox, Inc. Individually or in concert with others, he formulates, directs, or controls the policies, acts, or practices of UrthBox, Inc.”
The case was settled by agreement with Urthbox and Behrouzi, formalized by an Order of the FTC's Bureau of Consumer Protection dated May 14, 2019.
What is Required for Claims Substantiation by the FTC?
The FTC in its FTC Advertising Substantiation Principles, provided its definitive statement regarding claims substantiation, as summarized in the infographic below.
“Before disseminating an advertisement, the advertiser must substantiate all claims – express and implied – that the ad conveys to reasonable consumers.”
(H4) What is “Reasonable Basis”?
In the FTC Policy Statement Regarding Advertising Substantiation, the FTC reaffirmed its commitment that the underlying legal requirement of advertising claims substantiation is “that advertisers and ad agencies have a reasonable basis for advertising claims before they are disseminated.”
The end result of an advertiser's process of developing and demonstrating reasonable basis is substantiation.
Reasonable basis is required for claims substantiation before advertisers may publish advertising claims.
Reasonable basis is a relatively flexible standard that requires weighing a number of factors that include (but are not limited to) the following 6 factors:
- the type of claim,
- the product,
- the consequences of a false claim,
- the benefits of a truthful claim,
- the cost of developing substantiation for the claim, and
- the amount of substantiation experts in the field believe is reasonable.
The analysis of the 6 factors is different for each ad claim.
Some advertising claims are more straightforward to substantiate than others.
If the evidence on hand in is insufficient for claims substantiation, then one option is to revise or qualify the claim so its claims can be adequately substantiated.
To feel confident that you've conducted the foregoing analysis in the spirit of FTC guidelines, an advertiser should carefully parse the claim on a granular level.
The best example of granular parsing is former President Bill Clinton's famous statement: “It depends on what the meaning of the word 'is' is.”
If you think about and parse net impression on Clinton's level, you're on the right track.
The infographic below summarizes the FTC's basic requirements for reasonable basis and substantiation.
FTC Example: FTC Claims Substantiation of Net Impression
This FTC claims substantiation example is taken from a NAD decision that closely follows FTC precedent and analysis.
The NAD case involves Accredited Debt Relief (ADR) (decided October 2022).
The advertiser, Accredited Debt Relief, provides a debt settlement service to consumers who are heavily indebted.
ADR's debt settlement service requires customers to allow ADR to negotiate with their creditors directly.
The ad claims at issue were challenged by NAD as part of its routine, independent monitoring of truth in advertising and related ad claims by U.S. based advertisers.
These are 2 of ADR's ad claims at issue:
- “Debt Relief Can Cut Your Monthly Payments in Half”, and
- “Be debt free in as little as 12 months
NAD found that the ad claims conveyed a typicality message to consumers, essentially the net impression that “consumers would experience results to the level or degree claimed in the advertising”.
NAD noted that the claims were not qualified.
Instead, NAD noted that the claims were quantified performance claims.
After reviewing ADR's evidence of substantiation, NAD recommended that ADR discontinue the ad claims at issue based on its finding that ADR's actual data of customer results did not support the ad claims regarding typical results.
Regarding typicality, NAD noted that its decision would not prevent ADR from providing a typical results disclosure based on actual customer results in close proximity to the ad claim.
NAD's analysis and findings in the ADR case conforms to the FTC's precedent and policy regarding net impression and substantiation discussed above.
2 Examples of Claims Substantiation Tactics You Can Use Now
Ad Claims Example 1: Ad Claims on Cheerios Cereal Box
In 2009, the Cheerios cereal box appeared as shown.
- An implied claim in the form of a cereal bowl filled with Cheerios. Net impression: Cheerios are “heart healthy”.
- An unqualified, quantified performance claim: “Lower your cholesterol 4% in 6 weeks.” Net impression: consumers would experience results to the level or degree claimed in the advertising.
Today, General Mills' updated cereal box demonstrates tactics for how the claims substantiation burden for ad claims may be reduced, as shown in the infographic below.
- The implied ad claim is larger and more prominent.
- Regarding the express ad claim, the time frame for the promised result (“6 weeks”) has been eliminated, thereby reducing the claims substantiation burden.
- The express ad claim is now qualified: can “help” and “as part of a heart healthy diet”, reducing the claims substantiation burden.
Ad Claims Example 2: Nutrisystem Success Story Testimonial Ad Claim
Nutrisystem's success story testimonial demonstrates tactics for how the substantiation burden for ad claims may be reduced.
- The ad claim does not indicate a time frame for Ashley's result, thereby reducing the claims substantiation burden.
- The opinion testimonial provides important context, and it avoids elements that would cause it to be subject to claims substantiation.
- The generally expected results disclosure at the bottom reads: “results vary based on starting weight in program adherence. Expect to lose avg of 1-2 pounds per week.” The compliance result: a reduction in the claims substantiation burden.
Top 10 FTC Compliance Guidelines for Advertising Claims Substantiation
1. Begin Analysis Based on FTC fundamentals
While in your planning stage, a recommended way to start your ad claim analysis is with the FTC's fundamental advertising principles.
Ask these three questions.
- What is the Net Impression from the perspective of reasonable consumers?
- Is there a material representation or omission that is likely to mislead reasonable consumers?
- How do you plan to develop reasonable basis to substantiate your ad claim(s)?
Review the following FTC documents cited above for FTC fundamentals.
- FTC Policy Statement on Deception
- FTC Advertising Substantiation Principles
- FTC Policy Statement Regarding Advertising Substantiation
2. If You Can't Substantiate Your Ad Claim, Qualify Your Claim for a Result That You Can Substantiate
The FTC's .com Disclosures issued in 2013 set out the FTC's principles for advertising disclosures.
The .com Disclosures provide a fundamental principle regarding an advertiser's duty to qualify ad claims.
Duty to Qualify: “If an ad makes express or implied claims that are likely to be misleading without certain qualifying information, the information must be disclosed.”
Disclosures must be clear and conspicuous.
Whether disclosures are clear and conspicuous depends on several factors:
- whether the disclosure is prominent under the circumstances;
- the disclosure's proximity to claim it qualifies so that consumers can't miss it; and
- the overall presentation of the disclosure so that it's clearly understandable by the intended audience.
For an example of Duty to Qualify, refer back to the NAD case with Accredited Debt Relief (ADR) discussed above.
With ADR, there were specific performance claims a issue: “Debt Relief Can Cut Your Monthly Payments in Half” and “Be debt free in as little as 12 months”.
NAD determined that ADR had failed to provide material information regarding the performance claims, including program length and related fees, clearly and conspicuously.
Bottom line, disclosure of material information to prevent misleading information to consumers is not an option; it's an FTC requirement for compliance in marketing.
3. Avoid Disclaimers That Contradict Ad Claims
Example: Old School Earnings Disclaimer. “We cannot and do not make any guarantee regarding your ability to realize any income, money, or any benefit from our strategies and tools. Nothing on this website page or any of our content is a promise or guarantee that of any future earnings, and we do not offer any financial advice.”
This typical old school earnings disclaimer would usually be placed on the same page as advertising claims, such as:
- “your financial freedom is here”;
- “quit your old 9 to 5 job and enjoy the Internet lifestyle”; and
- “realize your dream of traveling the world while your website works on auto-pilot”;
Believe it or not, the above approach was prevalent back in the day. Not so today.
There are no special rules regarding “disclaimers” according to the FTC. The FTC views a disclaimer as a form of “disclosure”.
The FTC's dot.Com Disclosures provide an additional fundamental principle regarding disclosure limitations.
- “A disclosure can only qualify or limit a claim to avoid a misleading impression. It cannot cure a false claim.”
- “If a disclosure provides information that contradicts a material claim, the disclosure will not be sufficient to prevent the ad from being deceptive. In that situation, the claim itself must be modified.”
Bottom line, avoid disclaimers that contradict advertising claims.
4. Choose Images Wisely
In the FTC Policy Statement on Deception discussed above, the FTC stated:
“Before disseminating an advertisement, the advertiser must substantiate all claims – express and implied – that the ad conveys to reasonable consumers.”
The above image was included in an Exhibit to one of the several lawsuits that the FTC filed against an online business coaching and investment opportunity called “My Online Business Education”, or MOBE in 2020.
There were numerous earnings claims that were misleading completely unsubstituted, but the centerpiece in terms of the express claims is indicated on the above image for one of MOBE's ads:
- “Make a Six-Figure Monthly Income on the Internet”, and
- “Live the Dot Com Lifestyle”.
Even more prominent that the express claims, was the over-the-top implied claim that you can make a massive sums of money represented by the image of a pile of cash.
Marketers know that images are powerful; however, the net impression of images associated with advertising requires substantiation.
As discussed above, the net impression of each image associate with an ad claim should be substantiated.
And certain over-the-top images such as the pile of cash should be avoided altogether because they serve as lightning rods for FTC inquiry.
5. “Context Matters”
The FTC's .com Disclosures provide a fundamental principle regarding an advertiser's duty to consider the context ad claims.
When identifying these claims, advertisers should not focus only on individual phrases or statements, but should consider the ad as a whole, including the text, product name, and depictions.
A few years ago, I was privileged to be invited to a limited presentation and panel discussion in Washington, DC headed up by The Honorable Ms. Lois Greisman, then the Associate Director of the FTC's Bureau of Consumer Protection.
The topic was earnings claims.
When Ms. Greisman concluded her remarks, she opened the floor for Q&A. All the attorneys in the relatively small room (including me) tried to pin her down with examples of earnings claims disclaimers that were permissible.
What if the disclaimer says this, what if that?
Her answer was always the same: “context matters”. She said nothing else.
This means that if you have a disclaimer or even a Generally Expected Result Disclosure (which is now favored), it won't do much good if the other messaging on your advertising campaign and website contains unqualified ad claims, both express and implied, that provide consumers the conflicting “net impression”.
Never forget Ms. Greisman's simple reply: “context matters”.
6. Avoid Using “Bookend” Ad Claims
“Bookend ad claims” is not a term the FTC uses.
It's a coined term I use a lot with clients because it's easy to remember.
It refers to an ad claim with 2 key components.
* A specific promise or benefit that is...
* coupled with a promise to realize the benefit in a specific time period.
A classic example is the 2009 ad claim by General Mills on the Cheerios cereal box as presented in the infographic presented above: “Lower Your Cholesterol 4% in 6 weeks”.
You've seen a lot of others. They were in vogue a few years ago, but now not so much.
Check out the recent Nutrisystem ad presented above, and note the absence of a time frame for a 40-pound weight loss result (note also that the time frame has been wisely removed from today's version of the Cheerios claim).
Also, note how Nutrisystem cleverly added an unregulated opinion testimonial (no provable claims or measurable attributes) to supplement and add context to its ad claim.
Bookend ad claims are old school, require little imagination to create, and are a lazy way to advertise, and they can get you into serious hot water with the FTC.
Today, advertisers don't have to go over-the-top with a promised result in a specified time frame to be effective in advertising, provided they develop a working knowledge of how digital advertising compliance can work for them.
There are numerous reasons to avoid “bookend ad claims”.
The key reason is that they are very difficult, if not impossible, to substantiate... that customers typically reach the same result in the same time period.
In addition, they are lightning rods for attracting FTC scrutiny.
7. Avoid Ambiguous Ad Claims
We've already discussed above the importance of carefully parsing ad claims on a granular level for purposes of determining net impression.
In addition, we've already discussed the FTC's fundamental requirement that all claims, express and implied, must be substantiated with reasonable basis.
What may not yet be obvious is that unintended claims based on ambiguity, also require substantiation.
The recent challenge by NAD to RGF Environmental Group's REME-brand and Guardian QR+ air purification devices provides a classic example of the difficulty with ambiguous ad claims (claims that convey more that one net impression).
The ad claim at issue: “Kills up to 99% of bacteria, mold and viruses”.
NAD found that there were 2 net impressions:
- that the device “Kills up to 99% of bacteria, mold and viruses” in a given space (such as a home); and
- that “99%” of the entire range of types of “bacteria, mold and viruses” that exist, possibly anywhere.
Admittedly, this is also an example of extreme parsing on a granular level.
Nevertheless, NAD found that neither of the 2 claims was unsubstantiated.
Bottom line, while carefully parsing ad claims on a granular level ensure that you're not making unintended claims based on ambiguity, each of which also require substantiation.
8. Be Careful with Comparative Ads
In it's Statement of Policy Regarding Comparative Advertising, the FTC made it clear that the FTC supports comparative advertising, which is “the naming of, or reference to competitors.”
“Commission policy in the area of comparative advertising... requires clarity, and, if necessary, disclosure to avoid deception of the consumer.”
“Comparative advertising, when truthful and non-deceptive, is a source of important information to consumers and assists them in making rational purchase decisions. Comparative advertising encourages product improvement and innovation, and can lead to lower prices in the marketplace.”
Despite the fact that the FTC has declared open season on comparative advertising, advertisers should venture into comparative advertising only with significant care and preparation.
Count on the fact that your competitor will closely scrutinize all ad claims in consideration of a claim for false advertising under Section 43(a) of the Lanham Act.
Substantiation should be A-grade including:
- all required and appropriate tests, studies and virtually all additional evidence to support claims; and
- all such substantiation should be tested against the competitor's similar products and services.
Because competitor blowback should be expected, comparative advertising is recommended only for limited circumstances where substantiation supports it and you have a war chest to fund possible litigation.
9. Beware of the FTC's “Dandelion” Theory
Ever heard of the FTC's “Dandelion Theory” as it relates to digital marketing compliance?
Over 30 years ago, Barry Cutler who was then the Director of the FTC's Bureau of Consumer at the time introduced the “Dandelion Theory” regarding marketing compliance to the FTC.
Cutler applied his strategy of keeping his yard looking good to FTC marketing compliance enforcement.
Cutler theorized “the notion that if we just pick the dandelions, they will sprout right back; we have to attack the roots.” You get the idea – accountability.
As applied by the FTC to marketing compliance enforcement back in Cutler's Day, the dandelion theory meant “going after the people who are the spokes of the wheel supplying post cards, product, sales scripts, and collecting the money, in effect laundering the credit card payments, for the [scammers].”
Fast-forward to today's hyper-related digital marketplace: the FTC is now going after the parties that either caused or participated in the downstream deceptive practice, or were in a position to control it.
A classic example of the dandelion theory is the FTC's 2020 lawsuit seeking to hold Teami and its owners responsible for the failure of their influencers to provide the required disclosure notices to their social media posts.
Teami did in fact provide a disclosure policy to its influencers requiring “material connection” disclosures on the influencers' posts.
However, Teami and its owners failed to enforce the policy.
The result: joint and several liability for Teami and its owners in the reduced amount of $1 million.
The dandelion theory even has been used against digital marketing agencies.
“Advertising agencies … are responsible for reviewing the information used to substantiate ad claims.”
“In determining whether an ad agency should be held liable, the FTC looks at the extent of the agency's participation in the preparation of the challenged ad, and whether the agency knew or should have known that the ad included false or deceptive claims.”
Bottom line, if you play any role in a chain of advertising, from a digital agency at the top to the downstream party at the bottom that messages directly with consumers, you could be held liable by the FTC if those messages (claims) are deceptive.
10. Use Puffery to Complement Ad Claims
Puffery can be a productive complement to digital advertising with advertisement claims.
Puffery captures attention, particularly if you add humor.
If your puffery statement really is “puffery”, because it doesn't cross the thin line to become regulated as an actionable ad claim, your advertising can win big.
For more information, see my related blog article: How to Write Puffery in Advertising That's Legal (+ Puffery Examples): Your Complete Puffery Marketing Guide.
Blog Post Update: Dec 07, 2023
Claims Substantiation Example: "More Sustainable" Claim Held Not Misleading
In June 2023, a federal court in Missouri held that a "more sustainable" claim was
H&M manufactures its "conscious choice" collection of clothing that is "created with a little extra consideration for the planet."
Two of H&M's claims made the "more sustainable" claim..
Today, digital marketing and advertising present enormous opportunities, but it's also hyper-regulated more than ever before.
There are numerous pitfalls to avoid.
You can get into serious legal trouble with claims substantiation, even for personal liability for executives.
My experience working with digital advertising clients has given me insight about their most significant challenges for navigating complex advertising claims substantiation compliance requirements.
My experience is reflected in this article.
Clients want to understand in straightforward language that's easy to understand how to navigate complex FTC advertising regulations so they can market and advertise products and services with confidence.
Hopefully, the infographics, examples, guidelines, and avoidance of legal jargon in this article will work for you, to provide clearer insight for your marketing and advertising compliance success.
For informational purposes only. This article is no substitute for, is not intended to be, and shouldn't be relied upon, as legal advice. Always seek the assistance of experienced legal counsel.
Do you have experience writing advertising claims?
About the Author: Chip Cooper, Esq.
Wake Forest University School of Law: Juris Doctor Degree
Adjunct Professor of Law, Wake Forest University School of Law (20 Years)
Awarded Martindale Hubbell's Highest Attorney Peer Rating - AV Preeminent®
Co-founder and CEO, FTCGuardian.com