Advertising Fraud

ADVERTISING FRAUD is generally defined as advertising that is misleading in any material respect, either explicitly or indirectly through representations made in a statement or combination of statements, and any failure to reveal material facts. A statement or representation in an advertisement may also be false or fraudulent when it constitutes a half-truth.

The legal definition is much stricter than common sense, which requires the element of “deception” in advertising to establish the illegality. According to Section 15 of the Federal Trade Commission Act of the United States, deceptive advertisements are those that are “misleading in material respect,” and this has been interpreted by the courts to mean that the deceptive advertisement must affect the purchasing decisions of the customer.

Any form of commercial information or communication, which is contrary in whole or in part to actual conditions or to the acquisition conditions of the goods and services offered, or using texts, dialogues, sounds, images, or descriptions that directly or indirectly, or even by omission of essential product information, can mislead, deceive, or confuse the consumer. All forms of fraudulent advertising or abusive advertising are prohibited, as are those leading to error in the choice of the goods or services that could affect the interests and rights of the consumer.

Many economists complain that the extensive and fraudulent use of advertising involves undue costs and is a bar to free competition, with a resultant [Page 10]adverse effect on the operation of the free price system. Experts in home economics charge it with being a poor guide to consumption. Criminologists and legal scholars have noted its far more serious consequences, including death and bodily harm caused by fraudulent advertising.

On the other hand, according to the “high standard of living” hypothesis, advertising represents an economical means of exchange. It could help to lower costs because it makes possible large-scale operations in industries operating under decreasing costs. It is an essential source of product information in an advanced economy. It could actually encourage product development and technological improvement by inducing consumers to want the new and improved products offered.

Therefore, it is implied that advertising fraud could be forgiven in order to promote a high standard of living for the society as a whole. However, the argument that advertising fraud could be tolerated has lacked resources for obtaining the needed evidence based on a large-scale analysis of such a problem. Some scholars argue that advertising expenditures are wasteful by creating a demand to use up natural resources and increases the cost of products.

The history of corporations using blatantly fraudulent claims, as well as exaggerated claims, or puffery, is a long one. The roots of the tremendous growth in American advertising that took place after the Civil War were laid down over centuries of evolution in Western market places.

Ethical issues regarding advertising were seldom raised because advertising was considered merely a matter of announcing the availability of products. Even then, however, manufacturers devised and implemented skillful and boastful advertising to sell harmful drugs and other bad products. By the end of the 19th century, abuses in advertising flourished along with consumers' suspicions about advertised food. Pure food regulation, not advertising regulation. was introduced to deal with such a problem in the second half of the 19th century.

...