Advertising is a key aspect of any strategy or marketing plan of a company. Therefore, companies always rely on professionals or expert firms in the field, who bring their creativity to highlight the benefits of a product or service, or to distinguish it from the competition. However, have you asked this question: Is the advertising complying with the Law?
This question nowadays is extremely important under the current legal framework governed by the Organic Law for the Regulation and Control of Market Power (issued in October 2011).
What is unfair competition?
The Organic Law for the Regulation and Control of Market Power (“Competition Law”) defines as unfair “any event, act or practice that is contrary to the honest uses or customs in the development of economic activities, including those made in or through the advertising activity.”
In this context, advertising has to be evaluated as a very important instrument of competition, because it is aimed to gain consumer preference on products, services or activities that are offered in the market, and it must be in accordance with the honest uses or customs and, evidently, with the Competition Law.
What kind of advertising is considered unfair?
False or misleading advertising.
False advertising is one in which there is literally false information. Given the recent experience on the subject in Ecuador, to understand this type of advertising it is worth to mention certain foreign cases: i) The Danone company agreed to pay millions in a settlement after failing to proof certain “scientifically proven ” nutritional benefits in a yogurt brand[1]; ii) The Tropicana juice company was sanctioned in respect of a television commercial, which showed that the content of the product was the result of squeezing oranges directly into the container, which was not true[2].
But not only false advertising is illegal. The law also prohibits a commercial in which although true information is included, it fails to mention certain facts or information that leads the public to believe something that is false (misleading advertising)[3]. Let consider an example: An add states that a fruit has only 85 calories, emphasizing this feature so that the consumer would chose this fruit from others (that may have a greater number of calories). While this information is correct, it only applies to certain small varieties of the fruit[4]. The omission of this caveat leads the public to believe that this feature is applicable to all cases, which is not true.
The Competition Law considers an “act of deception” the “diffusion through advertising of statements regarding products or services that are not true and accurate.”[5] An act of deception is considered as unfair competition when its “objective or effect, actual or potential, is to induce the public to error, including omission, about the nature, method of manufacture or distribution, characteristics, suitability for use, quality and quantity, price, terms of sale, geographical origin and in general, the advantages, attributes, benefits or conditions that correspond to the products, services, facilities or transactions […]”[6]
Comparative Advertising:
Comparative advertising is unlawful only when it refers to “extremes that are not similar, relevant and verifiable”[7]. However, since comparative advertising can cross the line that separates it from disparagement, it is worth quoting the guidelines established in the European Union for this type of advertising to be permitted[8]:
a) it is not misleading;
b) it compares goods or services meeting the same needs or intended for the same purpose;
c) it objectively compares one or more material, relevant, verifiable and representative features of those goods and services, which may include price;
d) it does not discredit or denigrate the trade marks, trade names, other distinguishing marks, goods, services, activities or circumstances of a competitor;
e) for products with designation of origin, it relates in each case to products with the same designation;
f) it does not take unfair advantage of the reputation of a trade mark, trade name or other distinguishing marks of a competitor or of the designation of origin of competing products;
g) it does not present goods or services as imitations or replicas of goods or services bearing a protected trade mark or trade name;
h) it does not create confusion among traders, between the advertiser and a competitor or between the advertiser’s trade marks, trade names, other distinguishing marks, goods or services and those of a competitor.
Disparagement in Advertising:
The Competition Law forbids disparaging or discrediting advertising, used for disseminating “claims, statements or statements regarding an activity, facility, product or service from a third party, which would impair his credit in the market, unless they are accurate, true and relevant.”[9]
Violation of intellectual property rights:
Obviously, the Competition Law considers illegal any advertising that infringes intellectual property rights of a third party, such as acts of imitation or when trade marks, trade names or third party works are exploited without proper authorization[10].
What about opinion or puffery in advertising?
In some cases advertisements include statements that based on their generality or vagueness do not constitute more than a mere exaggeration (puffery) or opinion, and in which no specific or verifiable fact is expressed or used. Examples of this are slogans such as “best of the market” or “Your Best Choice”
In these cases, comparative law considers that there is no violation of the law, since they are “an exaggerated, blustering, and boasting statement upon which no reasonable buyer would be justified in relying ” or they are “a general claim of superiority over comparable products that is so vague it can be understood as nothing more than a mere opinion”[11]
However, there is a very fine line that separates puffery from misleading advertising. An example of this is the slogan “Better ingredients, better pizza” that Papa John’s uses, which was regarded as a mere opinion by a court in the United States. However, when considered in conjunction with other adds relating to the ingredients themselves (ex. the Use of “fresh” tomatoes), the slogan became a verifiable expression, which was finally declared as misleading. Therefore, at present, the pizza chain only uses the slogan without specific reference to the ingredients per se[12].
Conclusion:
In view of the above, companies need to observe these principles in their different advertising campaigns in order to avoid incurring on infractions that are subject to fines of up to 10% of the total turnover of the company[13]. It is important to note that it is up to the advertiser to prove the “accuracy of the claims in its advertising.”[14]
[1] Karlee Weinmann, Kim Bhasin, “14 False Advertising Scandals That Cost Brands Millions”, Business Insider, 2011, en http://www.businessinsider.com/false-advertising-scandals-2011-9?op=1#ixzz3IQgFM2fb.
[2] Courtland l. Reichman and Melissa Cannady, “False Advertising Under the Lanham Act”, Franchise Law Journal, Volume 21, Number 4, pp. 188, en http://www.kslaw.com/library/pdf/reichmancannady-rp.pdf. Ver tambien Coca-Cola Company v. Tropicana Products Inc., 690 F. 2d 312, en http://openjurist.org/690/f2d/312
[3] Thomas W. Edman, “Lies, Damn Lies, and Misleading Advertising: The Role of Consumer Surveys in the Wake of Mead Johnson v. Abbott Labs”, William & Mary Law Review, Volume 43, Issue 1, pp. 437.
[4] J. Edward Russo, Barbara L. Metcalf, Debra Stephens, “Identifying Misleading Advertising”, 1981, Business Administration, Faculty Publication and Presentation, Paper 4, pp. 123, http://pilotscholars.up.edu/bus_facpubs/4/. The autores make reference to a Dole bananas add.
[5] Organic Law on the Control and Regulation of Market Power, Article 27.
[6] Id.
[7] Id.
[8] DIRECTIVE 2006/114/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 12 December 2006
concerning misleading and comparative advertising (codified version), at http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2006.376.01.0021.01.ENG
[9] Organic Law on the Control and Regulation of Market Power, Article 27
[10] Id.
[11] Pizza Hut Inc v. Papa John’s International Inc, 227 F.3d 489 (5th Cir. 2000), en https://law.resource.org/pub/us/case/reporter/F3/227/227.F3d.489.00-10071.html. The Court quotes Thomas McCarthy, McCarthy on Trademark and Unfair Competition § 27.38 (4th ed. 1996). See also
Abhishek K. Gurnani and Ashish R. Talati, ““The World’s Most Trusted Article on Puffery”:
Non-Actionable Puffery or Misleading?, 2008, American Bar Association, pag. 42, at http://www.americanbar.org/content/dam/aba/administrative/litigation/materials/2012_food_supplements_2nd_annual_cle_wrkshp/2012_aba_panel3_the_worlds_most_trusted.authcheckdam.pdf.
[12] Courtland l. Reichman and Melissa Cannady, “False Advertising Under the Lanham Act”, Franchise Law Journal, Volume 21, Number 4, pp. 189, at http://www.kslaw.com/library/pdf/reichmancannady-rp.pdf
[13] Organic Law on the Control and Regulation of Market Power, Article 78, c); Article 79, b).
[14] Organic Law on the Control and Regulation of Market Power, Article 27
