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Growth Strategies

The Jig Is Up

Be sure you're not hoodwinking your customers--or you might risk a nasty run-in with the FTC.
Magazine Contributor
3 min read

This story appears in the May 2004 issue of Entrepreneur. Subscribe »

On January 22, 2004, the FTC announced a settlement with Chicago-area entrepreneur Robert Barefoot and two of his companies, Deonna Enterprises Inc. and Karbo Enterprises Inc. The defendants were ordered to stop touting the health benefits of Coral Calcium Supreme, a dietary supplement Barefoot developed and advertised through TV infomercials. The companies may no longer claim that coral calcium can cure cancer, multiple sclerosis, heart disease and high blood pressure. They also can't say the supplement is absorbed by the body better than other calcium supplements, or that a serving of Coral Calcium Supreme has as much calcium as two gallons of milk.

Why not? Because there isn't enough scientific evidence for any of these claims. Under federal law, you can't make medical claims in your ads without solid medical evidence to back them. The Lanham Act and the laws of all 50 states prohibit advertisements that might mislead people into buying products or services they wouldn't buy if they knew the truth. It's the job of the FTC and its counterpart in each state to enforce these laws by following up on complaints from consumers or competitors, or by monitoring particular industries for violations.

Amendments to the Lanham Act prohibit misleading statements as well. For example, a food company got into trouble for saying its soups were low in fat and cholesterol but neglecting to mention they were loaded with sodium.

The law has expanded in recent years to include brochures, letters, videos, trade show presentations and telemarketing. You can even get in trouble for what your distributors claim about a product, whether or not company ads make the same claims. Avon Products Inc. had to order its distributors to stop telling customers that its Skin-So-Soft bath oil worked as an insect repellent unless there were studies to support the claim.

What do you need to support your claim? The law recognizes "puffery," which is generalized praise. If you declare that your shop sells the world's best cookies, don't worry that the FTC will demand proof. But if you say something that sounds verifiable, such as 4 out of 5 customers say your cookies taste fresher than your competitor's, you'd better have a statistically significant stack of customer surveys to back up that claim. Be especially careful with claims about health, safety and environmental impact, because that's where consumer protection agencies are most vigilant.

The bottom line: Don't lie, and don't mislead. If you're advertising a sale price, make sure the item was offered at the former price for more than a day or two. If you compare your price to others, make sure it's for similar merchandise. If you advertise two for the price of one, be sure people normally do pay this price for one.

What if your competitor is luring customers with misleading claims? Notify your state's attorney general. If that doesn't stop it, have your lawyer threaten to sue. These laws protect businesses as well as consumers.

Jane Easter Bahls is a writer in Rock Island, Illinois, specializing in business and legal topics.

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