Legally, misleading and deceptive advertising is based on a ‘reasonable person’ test. I consider on whether that is sensible on the Conversation.

In brief, including ‘fine print’ in advertising is a choice that a business makes. No-one forces a business to hide the true terms and conditions in fine print. Rather a business chooses to do so – presumably because this makes its advertising campaign more effective.

Maybe this is driven by consumer attention being ‘caught’ by a misleading headline.

Perhaps it is because the misleading advertisement misleads a group of people who then buy the product. These buyers may not satisfy the legal test of a “hypothetical ordinary or reasonable member of the class to whom the advertisements were directed”. But they are still misled.

It is difficult to imagine a situation where a business ‘mistakenly’ misleads customers by fine print and this:

  1. Could not have been predicted in advance; and
  2. The risk could not have been avoided by the business redesigning the advertisement.

Moving to a stronger legal test for liability for misleading and deceptive advertising might make advertisements more boring. But it can also make markets work better.

3 Responses to Should we have a ‘bright line test’ for misleading advertising?

  1. Yusuf says:

    In my opinion, it is a question between a “mechanical” versus an “artistic” sense of the world.

    Following a mechanical paradigm, it will make it boring but it potrays (hopefully) a better “true” and “fair” representation of the products / services.

    One way of seeing this is that it will equate to a slower turnover of the products / services in the economy because now the population that ought to be “misled” would be less likely to enter the market (because they are not captured by the “gimmick”). This is a hypothesis that needs to be tested itself. Assumming this is supported, the markets work better because this prevents “deadweight loss”.

    So if you proceed to support this paradigm by implementing it to all sectors of the economy, you would also want to consider changing the interpretation of GDP growth because now the growth would be less in comparison to before the enactment, ceteris paribus. Fast growth (with deadweight loss) versus slow growth (with allocation efficiency)

    Following an artistic paradigm, it means that the consumers have to look after themselves, for example by further education, checking the fine-print etc. No such thing as free lunch, right?

    I would argue that If one is misled in this paradigm than it is to the false of the economic agent. The market does not need to bear the cost of economic agents lack of forethought. No one is forcing anyone to buy anything (with whatever “gimmick” that is). Tough line ….

    However, in a case where the true terms and conditions are NOT even in the fine print, then it is a FALSE advertising that could serve as a misrepresentation / negligence conduct. Be caveat emptor.

    What do you think?

  2. Eric says:

    I would think the people likely to buy the product would constitute “the class to whom the advertisements were directed”.

    Though if that class does not include that many “reasonable” people, one has to choose how to interpret the hypothetical.

  3. minimalstate says:

    One scenario to consider:: If you bring in a stricter test for misleading and deceptive advertising, will we see a greater shift to ‘brand’ advertising and a shift away from ‘product’ advertising in mediums where it is difficult to include all relevant disclaimers (mainly TV and radio)?

    If this happens, is the market working better? Less people might be legally mislead, but there might also be fewer people actually informed about products.

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