Last week, the Federal Trade Commission (FTC) won a large battle in its extended war with Intuit, the makers of TurboTax tax-preparation software. An administrative law judge (ALJ) issued a lengthy initial decision, ruling that Intuit’s advertisement of a TurboTax offering as “free” was deceptive, ordering Intuit to cease and desist future advertising related to “free” claims. Specifically, Intuit is prohibited from representing that any good or service is “free,” unless it is free for all consumers and the advertisement clearly and conspicuously discloses any terms that would limit the offer. The ALJ’s ruling is subject to appeal to the full commission.

Here are some key takeaways for advertisers from the more than 200-page opinion:

Robust Disclosures Are Needed for Any “Free” Claims

Advertisers that want to make “free” claims, while minimizing their risk of FTC attention, need to include clear and conspicuous disclosures highlighting any applicable conditions that impact the availability of the “free” offer.

In the Intuit proceeding, the FTC argued that Intuit’s “free” claims were deceptive because most consumers did not qualify for the “free” program, and Intuit failed to clearly and conspicuously disclose that to consumers. According to the FTC, the “free” tax return program was free to consumers only if their tax return qualified as “simple”—a standard only one-third of taxpayers satisfied. Intuit responded that any “free” claims were sufficiently disclosed. Ultimately, the ALJ agreed with the FTC, finding that any disclosures Intuit included were “virtually lost” in the surrounding information and were therefore inadequate.

Avoid Relying on Boilerplate Language to Alter a Message Taken from an Advertisement

Advertisers should be wary of relying on boilerplate disclosures linked to disclaimers such as “see details” and “find out more.” The FTC rejects such schemes as failing to meet the clear and conspicuous disclosure requirement in most instances.

Intuit had contended that its repeated use of links to “find out more” in its advertising campaigns sufficiently communicated that the “free” product offering was conditional. The ALJ held these statements were not enough to counter the broader “free” messaging and reasoned that boilerplate language in general is unlikely to ever be sufficient to alter the broader message of an advertisement.

Avoid Treating Your Website Like a Safety Net

Advertisers should be wary of relying on disclaimers contained on one advertisement medium to cure arguable deception on another medium. In other words, if a television advertisement is considered deceptive, a website that provides all necessary and accurate information will not cure that deception.

Throughout the proceeding, Intuit relied heavily on the robust disclaimers on the TurboTax website to clarify any ambiguity regarding the “free” claims shown in television advertisements, highlighting the website’s color-contrasted hyperlinks, pop-up screens with various disclaimers, and other clarifying information. The ALJ rejected this cure argument for several reasons.  

One key reason was that customer survey evidence demonstrated that actual customers believed TurboTax was unconditionally free even after viewing the website, so the alleged deception was not actually cured.

The ALJ also ruled that Intuit’s television ads constituted a deceptive “door opener,” which cannot be cured by giving truthful information afterward. Intuit attempted to avoid the deceptive door opener argument by arguing that the complexity of online tax returns meant reasonable consumers did not expect to see an “information overload” of all qualifying details in every ad. The ALJ rejected this position, stating instead that companies concerned about information overload should simply avoid advertising claims that trigger the need for clarifying disclosures.

The ALJ also reasoned that the public is under no responsibility to investigate the truth of advertising claims, holding that correct information in some advertisements cannot be used to counter a deceptive claim contained in other advertisements.

Intuit has already stated that it intends to appeal the decision, which could include an appeal to the full commission and then to a Federal Court of Appeals. We’ll continue to monitor this matter as it moves through the appeals process.

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* The authors thank Micah Wallen, an associate in Venable’s Washington, DC office, for his assistance in writing this article.