Defining False Advertising

September 16, 2014
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False advertising continues to be a problem in our society despite a myriad of laws against it. The primary reason for the difficulty rests with the inventive methods advertisers use to skirt the law. A number of methods produce the same results as false advertising, but either avoid violating the letter of the law or do so in a way that is largely unenforceable.

Defining False Advertising

A variety of federal and state laws seek to prevent false advertising. Section 43(a) of the Lanham Act gives perhaps the most thorough guidance in a federal context. In order to prove a case of false advertising, the plaintiff must prove the following five elements:
  1. The defendant made false or misleading statements as to products;
  2. Either actual deception or a tendency to deceive a substantial portion of the intended audience occurred;
  3. The deception was material, meaning that it was likely to influence purchasing decisions;
  4. The goods that were advertised traveled in interstate commerce; and
  5. Likelihood of injury to the plaintiff.

Pricing-based Deceptions

One of the many methods advertisers employ that can result in accusations of false advertising is pricing-based deceptions, of which there are several distinct species.
  • “Liquidation” – There are a number of cases in which products sold at so called “liquidation sales” have turned out to be as expensive or more expensive than the same products would have otherwise been. By marking up the price “before” the sale and then “discounting”, advertisers are able to suggest serious savings. An added difficulty in liquidation sale cases rests on the improbability of collecting judgments where the guilty retailer is often out of business by the time a judgment is obtained.
  • Hidden fees – Service providers who attach fees that are not disclosed to the customer can also face false advertising charges. Adding charges on a bill in a way that might not be noticed or disputed is nevertheless an extremely common practice.
  • Misusing “free” – Any American reader will be familiar with a “buy one, get one free” sale, of BOGO.       Many consider this to be an example of false advertising because the second item isn’t actually “free,” it is included in the cost of the first.

Neiman Marcus

An interesting false advertising claim based on allegedly deceptive pricing was recently brought against high-end retailer Neiman Marcus Group in a class action lawsuit. The case presents a prime example of the difficulties encountered in precisely defining actionable false advertising under the law. Even if Neiman Marcus is ultimately vindicated under the letter of the law, such advertising methods, which clearly have the ability to deceive, raise moral issues worthy of King Solomon.  The Neiman Marcus Group owns a chain of stores called Last Call, which boast in advertising the sale of off-season or excess clothing for discounts. The recent class action suit alleges that Last Call sold clothing that never appeared in a normal Neiman Marcus store, but still used a “compared to” strategy on the tag to contrast the discounted price with the putative full retail price. There is evidence that clothing sales at the outlet rose faster than the industry average, which lends some credence to the case, but it is possible that the case will fail because the customers who bought the clothing did so freely, assuming the piece of clothing acquired was worth the bottom line price on the tag, negating any real injury to the class. How the court comes down will set a precedent that will clarify this area of law going forward.