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Gutting Competitors’ False Ad Claims and Defending Yours

This week’s podcast touched on the importance of Small Business Saturday and the problem of deceptive advertising claims.  Actually, there are a number of interesting places where those two issues intersect. The owners of small and medium-sized businesses have some neglected tools for leveling the playing field when it comes to false and misleading advertising practices on the part of larger rivals.  They also have some special concerns relating to the use of social media and environmental claims.  It’s time to have both an offensive and a defensive plan.

Let’s imagine that New Online Book, Co. (“NOB”) has become aware, through diligent market research, that Big Books, Inc., with which it competes and through which it buys inventory, has engaged in deceptive advertising.

marketing

Loyal fans flock to the Twittersphere, advocating hobNOBbing and declaring that they are not sNOBs.  NOB responds by asking for permission to re-tweet some of the more glowing reviews. By way of thanks, NOB sends coupons for a free trial size of its new All Natural Holiday coffee beans…. so much to talk about.

The Lanham Act Protects Businesses from False Advertising, Even in B2B Sales

The Lanham Act permits companies to sue rivals when they have suffered competitive injuries arising from false or misleading promotional statements.  A plaintiff must show two things:

  • the statement was a false representation of fact, and
  • it was commercial advertising or promotion, intended to induce a sale.

The latter can be particularly difficult in an environment characterized by informal communication.  Courts have long found liability where the harm to the plaintiff was a diversion of customers.  Significantly, more recent decisions have also found liability where the injury was to a business purchaser, such as a downstream retailer.  If successful, an injured party can ask for a preliminary injunction seeking an immediate halt to the offending ad. The speed of the remedy can be especially important to a smaller retailer.

Using Social Media in Advertising Carries Some Particular Risks

Many startups use social media as an important element in an overall marketing strategy.  The classic advice would be to have all marketing materials thoroughly reviewed by legal counsel prior to dissemination.  That’s not practical in a lean economy focused on speed, and it’s probably not a smart way to spend money.  A better investment might be the development of customized social media guidelines and training in the application of those policies for marketing staff (especially if that’s only you in a different hat).

Social Media

The touchstone is the Federal Trade Commission’s Guides Concerning the Use of Endorsements and Testimonials in Advertising.  The most recent revision makes it clear that customer-generated content may be commercial speech, potentially subject to regulation.  Your company’s guidelines should address not only false advertising issues, but also the basics of copyright and privacy law.

The Green Guides

Many small businesses operate in markets that are environmentally aware.  Last year the FTC revised its Guides for the Use of Environmental Marketing Claims, or “Green Guides,” designed to help businesses avoid deceptive claims about the environmental attributes of products.  The Green Guides include significant restrictions on the use of key terms such as “recyclable,” “recycled content,” “degradable,” “green” and “eco-friendly.” The FTC has declined to address more general words such as “organic” or “natural,” but does seem to cross-reference guidance offered by the Department of Agriculture and the Food and Drug Administration. It’s a tall order to truthfully market environmentally sound products in ways that minimize the risk of litigation.  Some legal guidance on the front end of this project can save expensive legal rescue efforts on the backside.

This week’s post is surely not an exhaustive examination of the deceptive advertising issues bootstrap and small businesses face.  It’s more a collection of interesting holiday appetizers.  Care for a stuffed mushroom cap?  Smaller businesses with smaller budgets must clearly be proactive in protecting market share from larger competitors.  At the same time, a smaller budget also suggests great care in assessing legal risk.  An ounce of prevention, as they say, well, let’s not be predictable.

Episode 7 from Legally Sound | Smart Business

Nasir Pasha, Esq.

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Managing attorney and co-host of podcast Legally Sound | Smart Business

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