Advertising “free” products or services in order to sell other products or services requires careful attention to ensure the advertisement is not deceptive or in violation of special regulatory requirements. The Federal Trade Commission and a number of states have created specific rules for such offers. More generally, these offers are often challenged under statutes prohibiting unfair or deceptive practices.

 

FTC Guidance

The FTC published guidance in 1971 on the use of the word “free” or similar expressions (e.g., “gift,” “bonus”). FTC Guide Concerning Use of the Word “Free” and Similar Representations, 36 Fed. Reg. 21517 (1971). In summary, the FTC requires:

• Full disclosure. All terms, conditions and obligations on which the offer is based must be “clearly and conspicuously” disclosed at the outset of the offer. A footnote is not sufficient.

• Participating resellers. If a supplier is making an offer which involves resellers, the offer must be made available to all “competing resellers.” If the offer is not available through certain resellers, that must be disclosed.

• Stop Resellers’ Deceptive Practices. Suppliers who know that a reseller is not passing along the supplier’s free offer to consumers or is otherwise deceiving consumers must take action to stop the deception, even if it means terminating the offer.

The FTC Guidance also prohibits certain specific misleading practices:

• Charging more than regular price. If the consumer is required to purchase another product or service to qualify for the free offer, the consumer may not be charged more than the regular price for that product or service. If it is a newly-introduced product or service, the seller must have a good faith intention to offer it later at the same price used with the free offer.

• Use where sales terms usually negotiated. Free offers may not be made in situations where the terms of a sale are normally negotiated (e.g., most auto sales).

• Excessive use. Products of the same size or services of the same kind may not be promoted with free offers in the same “trade area” –

  • More than 6 months in any 12-month period

  • Multiple times without an interim period of 30 days or more

  • More than three times in any 12-month period

  • So that the volume sold though the offer is more than 50% of the total sales volume in that trade area.