5 pitfalls of online advertising

(Editor’s note: Curtis Smolar is a partner at Ropers Majeski Kohn & Bentley. He submitted this column to VentureBeat.)

Online advertising and marketing are effective ways of getting people interested in your company and/or products.  However, some online marketing strategies may be in conflict with the laws regarding advertising.  Generally, in the United States online advertising is regulated by the individual states and the Federal Trade Commission (“FTC”).

Although there are specific rules for different types of online advertising, there are five general rules you must follow:

Tell the truth – This one is probably pretty self-explanatory. An enormous number of FTC regulation and enforcement involves simply getting companies to be truthful in their advertising.  You cannot, for example, advertise something as “free” or “no charge” if in fact there is a fee or charge.

Recently, the FTC shut down a number of websites that promised “Free Government Grants.”  In actuality, the consumers were getting hit with a $20 up front fee with a recurring $72 monthly fee.  The FTC not only shut down these sites but also received a $9 million dollar settlement.   Another example is the old pop-up, “Your computer might be infected, click here to scan.”  One of these companies disguised a pop-up ad as computer virus scan.  When you clicked on the ad you were agreeing to install the software.  The FTC found this to be deceptive advertising and shut the company down.

Disclose important information in an understandable way – and make disclosures clear and conspicuous to the reader – Make sure that your terms of use are coherent and prominently displayed.  If the consumer is agreeing to pay for something, make sure that the type is legible and understandable.  If you make the language incomprehensible, the FTC might find that you are purposefully “hiding the ball.”

For example, if a phone card advertises that there are no connection fees, but there are “maintenance fees,” “destination surcharges” and/or other fees that may wipe out the entire value of the phone card after one use, the FTC may take action.

Make your disclosures clear and conspicuous to the reader.  This means that material information should be in large enough type and placed conspicuously so that consumers can read it.  The FTC makes numerous references to material facts that were hidden in small type on the bottom of phone cards.  Another example would be a payment requirement that is not part of the ad, but there is separate language included in the terms of use that are on the company’s website.

Disclose the key terms of the offer before the consumer pays – Getting a consumer to open his/her wallet is the goal of all advertising.  The FTC requires that if a consumer is going to be parting with money, he or she knows the full financial risk before entering into the transaction.

For example, if a free trial requires debit card information to be entered, but the terms-of-use for the trial (which disclose multiple charges) are connected by a hyperlink, which is not readily accessible from the “free” part of the advertisement, the FTC would likely frown on such a practice.

Get a consumer’s affirmative consent – The opt-out solution – one in which a consumer has to affirmatively say they are not interested in proceeding – might be a better solution from a sales point of view, but most regulators frown on it. Instead, they prefer to see the consumer opt-in – in other words, affirmatively consent to the transaction.  While not as attractive to the seller, it is a prudent path to take to avoid scrutiny by regulators.

Make sure your cancellation procedures work efficiently and as promised – If you represent that a consumer can cancel at any time, that not only has to be true, but you have to make the cancellation procedure work as promised.  This model has been around for a while…  A consumer signs up for an initial free or greatly reduced fee and they get to cancel at any time before 30 days expires, but when the time comes to cancel, the consumer is unable to do so and is charged the monthly fee in perpetuity.  The FTC, not surprisingly, has been not very forgiving of this kind of practice.

Startup owners: Got a legal question about your business? Submit it in the comments below or email Curtis directly. It could end up in an upcoming “Ask the Attorney” column.

Disclaimer: This “Ask the Attorney” post discusses general legal issues, but it does not constitute legal advice in any respect.  No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction.  VentureBeat, the author and the author’s firm expressly disclaim all liability in respect of any actions taken or not taken based on any contents of this post.