Risks of Online Advertising

Smartphone with colorful balloons, shopping bags and percentage signs, illustration
Image courtesy of [Westend61] / Getty Images.

For small business owners, Internet advertising offers a number of advantages. For one thing, it's fast and cheap. Web-based advertising is also flexible. Internet ads can be used to reach a small group or a mass audience. Yet, online advertising also has pitfalls. A company's Internet ad could infringe on someone else's rights, generating a lawsuit against the firm.

Laws Still Apply

Compared to traditional methods of advertising, the Internet can seem very informal.

Given this seemingly relaxed atmosphere, you might think that the rules that apply to traditional advertising aren't relevant. You don't need to worry about things like defamation and copyright infringement when advertising on the web, do you? The answer is yes, you do! The perils of advertising are essentially the same whether you advertise online or through conventional media. Errors in advertising may result in claims or suits based on defamation, invasion of privacy, improper use of someone's advertising idea, or violations of intellectual property rights.

Defamation

An ad that contains untrue and disparaging statements about another person, a company or a company's products can generate a lawsuit against your firm. For example, suppose that you operate a vegetarian restaurant. Your specialty is gourmet veggie burgers. You publish an online ad stating that your veggie burgers are made of fresh ingredients.

They are not full of sawdust like those sold by the Delectable Diner down the street. In reality, the Delectable Diner's burgers are devoid of sawdust. The diner's owner sues your company for libel (a type of defamation).

Invasion of Privacy

Information you use about someone else in an ad could result in a suit for invasion of privacy.

You could be liable for invading someone's privacy if you do any of the following:

  • You intrude into someone's private affairs.
  • You use someone's name or likeness without his or her permission.
  • You publicly reveal private information about a person.
  • You publicly reveal information about a person that is misleading and that presents him or her in a false light.

Here is an example of an advertising campaign that could lead to a suit for invasion of privacy. Susan, a customer of yours, tells you that your restaurant has the best veggie burgers in town. Because Susan considers you a friend, she confides that her husband has threatened to divorce her unless she loses weight. Susan has undergone a stomach stapling procedure in an effort to slim down. She says that your veggie burgers are her only indulgence.

You create an online ad for your restaurant that includes Susan's name, photo and statements about her husband and surgical procedure. You have not obtained Susan's permission to use her personal information in your ad. Susan may sue your company for invasion of privacy.

Using Someone Else's Advertising Idea

You could also be subject to a lawsuit if someone has created a unique method of advertising, and you use it without permission.

For example, suppose you are looking for a creative way to advertise your restaurant. The Delectable Diner across town has a new ad campaign involving catchy phrases used on colorful banners placed on the restaurant's website. You publish an ad for your business on the Internet in which you reproduce the banners and phrases used by the Delectable Diner. The diner sues you for misappropriating its advertising idea.

Personal and Advertising Injury Coverage

The claims described above could be covered under Personal and Advertising Injury Liability. This coverage is automatically included in a general liability policy. While your acts would probably meet the definition of Personal and Advertising Injury, they might be subject to certain policy exclusions. For example, no coverage would be provided if you committed the acts with the intent to cause harm.

Intellectual Property Violations

Intellectual property includes copyrights, patents, trademarks, service marks, trade dress and trade secrets. Federal law bars the use of this property without the permission of the creator. If you violate someone's intellectual property rights and are sued as a result, the suit is unlikely to be covered under your general liability policy.

Suits based on violations of intellectual property rights are excluded under Personal and Advertising Injury Coverage. The only exception is an infringement of someone else's copyright, triade dress or slogan that you commit via an advertisement. All other intellectual property violations are excluded.

While intellectual property violations aren't specifically excluded under Bodily Injury or Property Damage Liability (Coverage A), they aren't likely to be covered there either. To be insured under Coverage A, a claim or suit must involve bodily injury or property damage. Lawsuits based on intellectual property violations rarely involve allegations of bodily injury or property damage (as those terms are defined in the liability policy).

Intellectual property suits can be expensive. Thus, you need to be careful about using content that belongs to someone else. You may be subject to a lawsuit if you reproduce or use written content, symbols, pictures etc. without the owner's consent. For example, suppose that you find a photograph you like on the Internet. You incorporate the photo into the menus you use at your restaurant. Unfortunately, the photograph is copyrighted, and you didn't get permission to use it from the copyright holder. The copyright holder may sue your company for copyright infringement.