Legal Aspects of Marketing

The success of any given business relies heavily on how effectively that business can bring its products or services to market. This marketing objective is both regulated and assisted by the law. The government has an interest in protecting its citizens from unfair dealing on the part of dishonest or overzealous marketers. However, the government also has an interest in promoting innovation and invention for the benefit of society. To achieve these goals, the law seeks to regulate the acceptable methods of marketing and allow inventors to profit from the fruits of their labor. Two ways the federal government accomplishes those goals are with the Federal Trade Commission and the intellectual property law. These two bodies of law join together with other areas of law, like contracts and torts, to form the fabric that governs the marketplace.

Keywords Copyrights; Federal Trade Commission; Intellectual Property; Marketing; Patents; Trademarks; Truth in Advertising

Law > Legal Aspects of Marketing

Overview

Marketing is an essential function of most all businesses; as the saying goes, nothing happens until something is sold. As with any other profession, knowledge of legal rights and responsibilities that affect a given area is fundamental to success, and the lack of that that understanding can be dangerous. Marketing a product or service typically involves exposure of a message to a large number of people in an attempt to persuade their behavior in a particular manner. That wide and public exposure increases the chances that injury may occur to a member of the target audience. Aside from deliberate wrongful acts, a marketer may inadvertently violate the law with potentially severe consequences. A marketer may embroil their company in an expensive lawsuit, do significant damage to their professional reputation, and damage their company's profits and market position. There is also the possibility that such problems end in a prison sentence. Accordingly, marketers would be wise to keep informed of the legal implications of marketing activities. In the current digital age, it is especially important for marketers to be aware of legal developments because the field of marketing changes quickly in response to consumer needs and new technology. While ignorance of the law may cause many difficulties, knowledge and use of certain laws can provide a significant advantage to the marketer of products in the form of intellectual property rights.

The law that can affect any given attempt to market any given product would be a large undertaking. In truth, comprehensive coverage of any area of law is generally reserved for the writers of multi-volume legal treatises. Those treatises are not read cover to cover but are used as research materials to resolve a particular legal problem as they arise. Moreover, many legal problems include issues from several categories of law. Such is the case with marketing. Marketing a product may raise potential issues in the law of contracts, torts (e.g. defamation, products liability), intellectual property rights, advertising and labeling, broadcasting, licensing and merchandising, promotions and incentives, lobbying and online marketing rules. Understanding that the law often imposes many requirements from several areas and issued by different governmental organizations is critical. Here we will take a closer look at two areas of the law that are generally applicable to nearly all marketers; federal regulation through the Federal Trade Commission (FTC) and federal intellectual property law.

Marketing & the FTC

Deceptive Practices

When designing and implementing a marketing campaign, marketers and advertising agencies must take into account federal law. The United States government through the FTC, a federal agency formed to administer the Federal Trade Commission Act, seeks to protect all consumers from deceptive and unfair trade practices. Generally, the FTC requires marketers to tell the truth, not mislead consumers, and substantiate the claims made about their products. As interpreted by the FTC, a practice is deceptive if it is likely to mislead consumers and affect a consumer's decision about the product or service. That is, the consumer would have chosen differently in the absence of the deception. Deceptions that affect consumer decisions are called material; the FTC is concerned with material acts.

In addition to a material representation or act, the FTC imposes marketer liability based on the behavior of a reasonable consumer. The word "reasonable" is a critically adjective in the law and imposes an important qualification of the noun it modifies. There is a vast different between "consumers" and "reasonable consumers." "Consumers" means all consumers and would impose liability on marketers for potential deceptions that arise from the understandings or misunderstandings of any consumer. "Reasonable consumers" means that a marketer is only liable for potential deceptions interpreted by a specific subset of consumers. That subset of reasonable is defined by certain specific factors relevant to a chosen marketing practice. Examples of factors that may define the reasonable consumer in a target audience are age, education, profession and experience. For example, if a company seeks to sell a sophisticated MRI machine to doctors, the marketing practices would be judged by how a typical doctor in that field of practice would interpret the information. An advertisement does not become false or misleading simply because it could unreasonably misunderstood by a member of the general public; an advertiser is not liable for all possible interpretations by all consumers.

While the reasonable consumer qualification limits the potential liability of consumers, the FTC interpretation of deception broadens the range of impermissible acts. When the FTC considers whether a marketing practice is deceptive, the critical issue is whether a practice or act is likely to mislead, rather than whether it actually causes deception. The FTC presumes that certain types of claims are material or likely to influence consumer behavior. Express claims and omitted information are presumed material. Express claims are material because the willingness of business to promote its products with those claims reflects a belief that the public is interested in that advertising. Omitted information is material if the advertiser knew or should have known that a reasonable consumer would need the omitted information to evaluate their product or service.

To determine whether a practice is fair, the FTC generally looks to whether the practice injures consumers, whether the practice violates public policy and whether the practice is unethical or unscrupulous. The most important factor is the issue of injury. The FTC is concerned with substantial injury not outweighed by benefits, caused by benefits of the practice. A substantial injury typically involves monetary harm, as when a seller coerces consumers into buying unwanted goods or services or when consumers are sold defective goods and are unable assert the defect as a defense against payment.

The FTC does not protect consumers against injuries they could have reasonably avoided themselves. Again, notice the use of the word reasonable. In this context, the word means that consumers need not take all possible steps to avoid the injury. It means that a consumer must take the similar precaution that the average consumer would take when presented with the same claim or marketing practice.

FTC Regulations

The FTC's Division of Marketing Practices implements these general prohibitions against unfairness and deception in marketing practices by enforcing specific rules that address a wide variety of initiatives. For example, initiatives seek to: shut down internet and telephone scams; end deceptive and misleading telemarketing and direct mail marketing; stop fraudulent business opportunity scams; govern labels on merchandise; prohibit deceptive sales pitches; protect consumers from abusive, unwanted and late night calls; require warning labels on commercial email containing sexually oriented material; requiring franchise sellers to disclose certain information to enable a buyer to make an informed decision; require sellers of 900 number pay per call services to clearly disclose the price of their services; prohibit sellers from targeting children; and, require merchants to disclose warranty information prior to purchase, just to mention a few.

Two FTC initiatives address two topics that are consistently on the forefront of business concerns in the twenty first century and deserve a closer look: online marketing and environmental marketing concerns. The internet has been an extraordinary and transformative force in marketing that can reach consumers all over the globe and seems destined to have a huge effect on marketing. While the FTC regulates sellers and makes them responsible for claims they make about their products. The responsibly to avoid deception and unfairness extends to third parties, such as advertising agencies and website designers. These third parties are integral to internet advertising and may also be liable for inappropriate claims made on behalf of their clients. Due to this potential source of liability, advertising agencies and web designers must take measures to ensure that they have received sufficient information from their clients to substantiate advertising claims. It is not enough for an agency or designer to rely on their client's assurance that such claims are substantiated.

To determine third party liability, the FTC looks at the extent of an agency or designer's involvement in the preparation of the advertisement and whether the agency knew or should have known that the marketing practice contained deceptive or false information. The third party can protect itself by asking the manufacturer to back up its claims about its products. Substantiation is especially important for claims regarding performance, health or weight loss benefits or earnings guarantees. While disclaimers are usually insufficient to remedy a false or misleading claim, marketers should make sure that disclaimers are clear and conspicuous. Disclaimers should be presented so that consumers notice and understand the information. Product demonstrations, when used, must show product performance under normal use. And refunds, if promised, must be made. Moreover, special care must be taken when advertisers target children. The FTC implemented the Children's Online Privacy Protection Act (COPPA) to restrict websites from collecting personal information from children under thirteen years old. COPPA requires parental consent for online marketers to collect information on websites targeted to children or where the marketer actually knows that children are part of the website's general audience.

FTC regulations also cover product and service testimonials, endorsements, warranties and guarantees; both generally and online. Testimonials and endorsements must reflect the typical consumer experience unless the advertisement clearly and conspicuously states otherwise. Typically, a statement that not all consumers will get the same results is not enough to qualify the claim and the advertiser must be able to substantiate all claims. The connection between an endorser and the company — paid endorser, or ownership interest etc. — must also be made clear and expert endorsement can be made only by a person who has mastered the subject matter. To enforce the online marketing rules, the FTC periodically joins with other law enforcement agencies to monitor the internet for potentially false or deceptive advertising claims. Advertisers in violation of FTC rules face cease and desist orders combined with fines up to $11,000, injunctions and civil or criminal contempt proceedings if orders are disobeyed.

The FTC & Environmental Marketing

The FTC has the authority to take action against false and misleading marketing claims that involve environmental or "green" marketing claims. The FTC environmental compliance guides apply to all forms of marketing for goods and services including: advertisements, labels, package inserts, promotional materials, words, symbols, logos, product brand names, and marketing through digital or electronic media like email or the internet. The FTC evaluates green claims from the consumer's perspective and ascribe meaning as a consumer would and not necessarily the technical or scientific meaning. As a general matter, all claims made by marketers must be substantiated; that is, a marketer must have a reasonable basis for the claim. In the context of environmental claims, the requirement of substantiation often requires competent and reliable scientific evidence such as tests, analysis, research and other evidence collected by experts according to generally accepted procedures in the field.

Specific claims, such as claims regarding recycled content should be specific and not exaggerate or overstate the benefits. For example, a marketer may make a claim that a package contains 50 percent more recycled content than a previous package. But when the content has increased from 2 percent to 3 percent, the claim is likely to convey a false impression of improvement, even though technically correct. General claims about products such as phrases like "eco-friendly" are more difficult to substantiate and more susceptible to liability for being deceptive that specific environmental claims. Thus such general claims should contain limited language that the marketer can substantiate. In the above example, "eco-friendly" may be qualified by such language as "this cloth bag is reusable and made from 100 percent recycled fibers."

The FTC & Intellectual Property Rights

The FTC is concerned with protecting the public from marketer misconduct. On the other hand, intellectual property rights protect the marketer and can give rise to significant advantages in business. For most small and medium-size businesses, marketing products or services is a major challenge. Successful marketing strategies should establish a clear link between products or services and the producer or provider of those products or services. Ideally, customers should be able to easily distinguish between products or services offered in the marketplace and associate those with desired qualities as intended by the marketer. Intellectual property is an important tool to accomplish that goal. Intellectual property rights generally refer to the category of intangible rights that protect commercially valuable products of human intellect, including, patents, trademarks and copyrights. A trademark is a distinctive design, picture, emblem, logo or wording (or combination) affixed to goods for sale to identify the manufacturer as the source of the product. Words that give a generic name for a product or merely name the maker, without particular lettering, are not trademarks. Trademarks are valuable to differentiate a product or service in the marketplace; a distinctive mark that provides an assurance to consumers that they are buying authentic goods. Trademarks may be registered with the U.S. Patent Office to prove use and ownership. Use of another's trademark, or one that is confusingly similar, is infringement and the basis for a lawsuit for damages for unfair competition and/or a petition for an injunction against the use of the infringing trademark (www.dictionary.law.com).

A patent is an exclusive right by the federal government to the inventor to make, use or sell an invention for a specified period, usually 17 years. Inventions may qualify for a patent if the device or process is novel, useful, and non-obvious. Applications for patents involve technical information and patent attorneys, typically with an engineering or other technical background, often assist individuals and companies through the application process. This type of protection encourages innovation by assuring a party can benefit from their efforts. A patent may be thought of as a government granted private monopoly.

A copyright is the exclusive right of the author or creator of a literary or artistic property such as a book, movie or musical composition, to print, copy, sell, license, distribute, transform to another medium, translate, record or perform or otherwise use — or not use — and to give it to another by will. As soon as a work is created and is in a tangible form, such as writing or taping, the work automatically has federal copyright protection. On any distributed and/or published work a notice should be affixed stating the word copyright, copy or (c), with the name of the creator and the date of copyright, which is the year of first publication. The notice should be on the title page or the page immediately following and for graphic arts on a clearly visible or accessible place.

A work should also be registered with the U.S. Copyright Office by submitting a registration form and two copies of the work together with a fee. The filing establishes proof of the earliest creation and publication, is required to file a lawsuit for infringement of copyright, and if filed within three months of publication, establishes a right to attorneys' fees in an infringement suit. Copyrights cover literary, musical and dramatic works, periodicals, maps, works of art (including models), art reproductions, sculptural works, technical drawings, photographs, prints (including labels), movies and other audiovisual works, computer programs, compilations of works and derivative works, and architectural drawings. Short phrases, titles, extemporaneous speeches or live unrecorded performances, common information, government publications, mere ideas, and seditious, obscene, libelous and fraudulent work are not entitled to copyright protection. For any work created from 1978 to date, a copyright is good for the author's life, plus 50 years, with a few exceptions such as work "for hire" which is owned by the one commissioning the work for a period of 75 years from publication. After that it falls into the public domain. Many, but not all, countries recognize international copyrights under the "Universal Copyright Convention," to which the United States is a party (www.dictionary.law.com).

Conclusion

The success of any given business relies heavily on how effectively that business can bring its products or services to market. That objective is both regulated and assisted by the law. The government has an interest in protecting its citizens from unfair dealing on the part of dishonest or overzealous marketers. However, the government also has an interest in promoting innovation and invention for the benefit of society. To achieve these goals, the law seeks to regulate the acceptable methods of marketing and allow inventors to profit from the fruits of their labor. Two ways the federal government accomplishes those goals are with the Federal trade commission and the intellectual property law. Those two bodies of law join together with other areas of law, like contracts and torts, to form the fabric that governs the marketplace.

Terms & Concepts

Copyright: The exclusive right of the author or creator of a literary or artistic property (such as a book, movie or musical composition) to print, copy, sell, license, distribute, transform to another medium, translate, record or perform or otherwise use (or not use) and to give it to another by will.

Intellectual property rights: Refers to the category of intangible rights that protect commercially valuable products of human intellect including patents, trademarks and copyrights.

Patent: An exclusive right granted by the federal government to the inventor to make, use or sell an invention for a specified period, usually 17 years.

Trademark: A distinctive design, picture, emblem, logo or wording (or combination) affixed to goods for sale to identify the manufacturer as the source of the product. Servicemarks are a related mark used by companies that provided services.

Bibliography

Avery, R., Cawley, J., Eisenberg, M., & Cantor, J. (2013). Raising red flags: The change in deceptive advertising of weight loss products after the federal trade commission's 2003 Red Flag initiative. Journal of Public Policy & Marketing, 32, 129-139. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=87372138&site=ehost-live

Bureau of Consumer Protection. (2000). Advertising and marketing on the internet. Washington, DC: U.S. Federal Trade Commission Publication. http://www.ftc.gov/bcp/conline/pubs/buspubs/ruleroad.pdf

Bureau of Consumer Protection. (2000). Complying with environmental marketing guides. Washington, DC: U.S. Federal Trade Commission Publication. http://www.ftc.gov/bcp/conline/pubs/buspubs/greenguides.pdf

Federal Trade Commission. (1984). FTC policy statement on deception. Washington, DC: U.S. Federal Trade Commission Publication. http://www.ftc.gov/bcp/policystmt/ad-decept.htm

Federal Trade Commission. (1984). FTC policy statement on unfairness. Washington, DC: U.S. Federal Trade Commission Publication. http://www.ftc.gov/bcp/policystmt/ad-unfair.htm

Masters, R.M., Leung, L.Y., Syverson, K., & Fabre, R.D. (2013). Intellectual property outlook: Cases and trends to follow. Intellectual Property & Technology Law Journal, 25, 3-13. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=87117367&site=ehost-live

Miller, A.R. & Davis, M.H. (1990). Intellectual property in a nutshell. St. Paul, MN: West Publishing.

Sater, G.J., & Alexander, B. (2011). Four legal issues stare down social marketing planners. Response, 19, 55. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=58149055&site=ehost-live

Wootton, B.H., & Shultz, M. (2012). Federal Trade Commission continues to put a spotlight on pharmaceutical patent agreements. Intellectual Property & Technology Law Journal, 24, 15-19. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=83466179&site=ehost-live

Suggested Reading

Dames, K. (2007). Trade agreements as the new Copyright Law. Online, 31, 16-20. Retrieved May 22, 2007, from EBSCO Online Database Academic Search Premier. http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=24121559&site=ehost-live

Hesseldahl A. (2007, May 2). 'Brandjacking' on the web. Business Week Online, pp. 13-13. Retrieved May 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=24952521&site=ehost-live

Hailey, G., & Knowles, J. (2007). Finding the limit to 'Brother's Keeper' regulations. Response, 15, 61-61. Retrieved May 29, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=25040242&site=ehost-live

Truth in advertising. (2006). Economist, 381(8505), 13-14. Retrieved May 22, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=23263251&site=ehost-live