As supply chain issues continue to impact the availability of
products, there are serious concerns that this problem is only
going to get worse as we head into the busy holiday shopping
season. As you are planning your holiday advertising campaigns,
there are some important legal issues to take into account if
you’re going to be promoting products that may not actually be
available when consumers head to the stores or try to buy them
online.
Sufficient Supply
As a general rule, you shouldn’t advertise a product unless
you have a sufficient supply of that product available to meet
reasonably anticipated demand. If there are limitations on
availability, such as that the product is only available for a
certain period of time or in certain locations, or that there are
only limited quantities available, those limitations should be
clearly and conspicuously disclosed.
The FTC’s Guides Against Bait Advertising advise that
it’s improper to promote a product if you do not have
“available at all outlets listed in the advertisement a
sufficient quantity of the advertised product to meet reasonably
anticipated demands, unless the advertisement clearly and
adequately discloses that supply is limited and/or the merchandise
is available only at designated outlets.”
Many states and municipalities have similar requirements. For
example, California law says that it’s unlawful to
advertise products “with intent not to supply reasonably
expectable demand, unless the advertisement discloses a limitation
of quantity.” And, New York City’s rules are nearly
identical.
This means that, if you’re going to advertise a product,
you’ve got to be sure that the product will be available in the
places where consumers will expect to find it — unless the
advertising clearly explains what those limitations are. Remember,
it’s important to consider the advertising from the perspective
of the audience to whom it’s directed. If you’re running
national advertising, you’re going to want to make sure your
product is available nationally.
If you start to have unexpected supply issues, or if the product
becomes unavailable, chances are you’ll need to immediately
pull the advertising. This means that you need to be paying
attention to the supply issues far enough in advance so that
you’re not in a position where you’ve got advertising
running for weeks, that you can’t stop, that is promoting
products that aren’t in stores.
Don’t assume that disclaimers are going to solve this
problem. While a disclaimer like “while supplies last” or
“limited quantities” is nice to be able to point to when
you have a sudden, unexpected problem, don’t plan to rely on
language like that if the advertising that continues to run is
promoting a product that you know is not reasonably available.
Rain Checks
Some states and localities also require retailers to issue rain
checks if an advertised product or offer isn’t available,
particularly when the retailer hasn’t specifically disclosed
the limited availability of the item in the advertising.
In Massachusetts, for example, retailers are
required to provide to provide a rain check to prospective buyers
at the time of the attempted purchase, when applicable. In
Massachusetts, the rain check must disclose to the consumer when
the rain check will be honored (which generally must be within two
months) and how the consumer will know when the product becomes
available. Retailers are also required to provide a reasonable
period of time for consumers to redeem the rain check.
Often, in order to avoid state rain check requirements,
retailers must follow specific requirements. For example in Ohio, rain checks are required unless the
retailer can demonstrate that its predictions about availability
were reasonable based on a number of specific factors, the minimum
quantity available was disclosed in the advertising, the
advertising clearly discloses that it’s a special purchase
(such as by promoting it as “special purchase” or
“clearance”) and that no rain checks will be given, or a
comparable product (with comparable savings) is available.
Mail Order Rule
If you’re selling products online (or by phone or mail as
well), you must also comply with the FTC’s Mail, Internet, or Telephone Order Merchandise
Rule. The Mail Order Rule has several key requirements.
First, if you tell consumers when you are going to ship
merchandise to them that is covered by the Rule, you must have a
“reasonable basis” for your shipping representation. If
you don’t tell consumers when you’re going to ship their
purchase, then you generally have to ship within 30 days.
Second, if you are unable to ship within the required time
period, you must notify the customer and give the customer the
option to cancel. Depending on how long the delay is going to be,
you have different options about whether the right to cancel can be
treated as opt-in or opt-out. Importantly, you must notify
customers a reasonable time after you learn about the delay and no
later than the time that you said you would deliver.
Third, when an offer is cancelled, you must give the customer a
prompt refund. And this means actually giving consumers their money
back — not a coupon or a gift card.
The Rule is actually quite complicated, so it’s definitely
worth reviewing the Rule itself. The FTC also has a very helpful business guide that explains how to comply.
And, you really do want to comply — since, if you violate the
rule, you can be held liable for civil penalties of more than
$43,000 per violation. With ever-increasing importance of
e-commerce, the FTC has taken an increased interest in enforcing
the Mail Order Rule over the last several years. (Recent
enforcement examples include actions against Inmate Magazine Service,Trend Deploy, and SuperGoodDeals.Com.)
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.