What Advertisers, Ad Agencies and Review Sites Need to Know About the FTC’s Proposed Endorsement Guide Rule
The FTC’s Endorsement Guides are a roadmap about how the agency perceives marketing practices that involve endorsements and testimonials under Section 5 of the FTC Act. To date, practices that do not comply with Guides often draw the attention of regulators, including the issuance of civil investigative demands and enforcement actions based upon alleged deceptive acts or practices.
Endorsements and testimonials are defined by the FTC as “any advertising message … that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser.” Endorsements and testimonials must reflect the honest opinions, beliefs, or experience of the endorser. They must always be presented in context, must not distort the endorser’s experience, and advertisers have to be able to adequately substantiate all express and implied representation – including those of their endorsers. Ads claiming to depict consumers should utilize actual consumers.
Also … the Guides require endorsers to disclose any material connections between themselves and a brand “that might materially affect the weight or credibility of the endorsement.”
In May 2022 the FTC sought public input on a number of proposed changes to the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising. The comment period on the FTC’s proposed rule regarding the use of endorsements and testimonials in advertising ended September 26, 2022.
The Request for Comment approved by the Federal Trade Commission sought public input on a number of proposed changes to the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising. It was published in the Federal Register on July 26, 2022.
The proposed updates are focused on increasing the agency’s regulatory and remedial monetary authority over digital advertisers and social media. There are a number of proposed revisions to the Guides that should be of great interest to digital marketers, including, but not limited to:
- A requirement that material connections be clearly and conspicuously disclosed (for example and without limitation, familial, personal, business, employment, monetary payments, early product/service access, potential to win a prize and/or free/discounted product/services) prior to the endorsement so that consumer are able to assess how much weight to attach to the endorsement
- A new definition of clear and conspicuous (for example, difficult to miss, unavoidable and easily noticeable/understandable by reasonable and ordinary consumers)
- Clarification that an advertiser may be liable for a deceptive statement made by an endorser, even when the endorser is not itself liable
- Clarification that paying purchasing consumers to write positive reviews is a deceptive practice “because the manufacturer has required that the reviews be positive”
- Deleting or selectively not publishing negative reviews will be considered a deceptive act or practice under Section 5 of the FTC Act
- A prohibition on “review gating” (“obtaining customer feedback and then sending satisfied and dissatisfied customers down different paths in order to encourage positive reviews and avoid negative reviews”) which would be considered an unfair or deceptive practice if it results in posted reviews being substantially more positive than otherwise
- Clarification that “paid ranking boosts” (i.e., when a third-party review website provides rankings of products/services and accepts payments in exchange for higher rankings) is a deceptive act or practice, “regardless of whether the website makes an express claim of independence or objectivity” (potential liability of an advertiser paying for a boosted ranking and clarifies that if an advertiser pays a review website but not for higher rankings, there should be a clear and conspicuous disclosure of such payments)
- A more expansive definition of “endorser” that includes virtual influencers and bogus endorsements or reviews (not just individuals, groups and institutions)
- A more expansive definition of “product” to include a “brand”
- Clarification that advertisers, endorsers, intermediaries (e.g., ad agencies and PR firms that “knew of should have known” about the distribution of deceptive endorsements) and platforms hosting advertisements and endorsements are potentially liable under the FTC Act for deceptive acts or practices
- Clarification that both a paid endorser, intermediaries and the company paying the endorser are all potentially liable for an endorser’s failure to disclose a material connection (i.e., the endorser’s relationship to the advertising company) and/or hiring and managing endorsers that fail to make such disclosures
- Clarification that promotional messaging and marketing are covered under the Guides as endorsements
- Clarification that when procuring, suppressing, boosting, organizing or editing consumer product reviews, advertisers should not distort or otherwise misrepresent how consumers view the products/services, regardless of whether the reviews are considered “endorsements” (sellers would not be obligated to display consumer reviews that are unrelated to their products/services, and/or that contain “unlawful, harassing, abusive, obscene, vulgar, or sexually explicit content, or content that is inappropriate with respect to race, gender, sexuality, or ethnicity, or reviews that the seller reasonably believes are fake,” if the criteria for removing or withholding reviews are similarly applied uniformly to all reviews)
- A new section that the use of an endorsement with the image or likeness of an individual other than the real endorser is considered a misrepresentation of a material attribute of the endorser
- A new section governing endorsements and testimonials directed toward children with heightened requirements and prohibitions
Importantly, the Federal Trade Commission possesses civil penalty authority when it alleges rule violations, one reason why this proposed rule is being afforded such attention by industry participants. And, the FTC can seek in excess of $40,000 per violation, which in many cases can amount to billions of dollars. Civil penalties are often much higher that the revenues that defendants realized via the alleged unlawful conduct.
An experienced FTC lawyer may be able to assist with a suspension of judgment, as well as mitigating potential penalties for rule violations by developing effective arguments and analytically advocating on issues such as the degree of culpability, whether the defendant knew or should have known that the alleged conduct was deceptive, history of prior such conduct, ability to pay, revenue attributable to the alleged violative conduct, effect on ability to continue to do business, how long the alleged conduct took place, remediation measures, whether prior similar violations have been addressed by the FTC, and such other matters as justice may require.
Approximately seventy-five comments were submitted by individual consumers, most of whom were apparently university students fulfilling class assignments. The remaining commenters were: American Influencer Council, Inc. (“AIC”); American Financial Services Association (“AFSA”); Amazon.com, Inc. (“Amazon”); Association of National Advertisers (“ANA”); BBB National Programs (“BBB”); Shirley Boyd, Esq. (“Boyd”); Campaign for a Commercial Free-Childhood and Center for Digital Democracy (“CCFC”); Competition and Markets Authority (“CMA”); Consumer Reports; Council for Responsible Nutrition (“CRN”); Common Sense Media (“CSM”); Consumer World (“CW”); Digital Content Next (“DCN”); Esports Bar Association (“Esports Bar”); Entertainment Software Association (“ESA”); Prof. Chris Jay Hoofnagle (“Hoofnagle”); Interactive Advertising Bureau (“IAB”); Jim Dundovic, Esq. (“Dudukovich”); IZEA Worldwide, Inc. (“IZEA”); Kleinfeld, Kaplan and Becker LLP (“KK&B”); LEGO Group (“LEGO”); Maastricht University (“Maastricht”); Association of Magazine Media (“MPA”); North American Insulation Manufacturers Association (“NAIMA”); internet and Television Association (“NCTA”); NetChoice; News Media Alliance (“NMA”); National Retail Federation (“NRF”); Performance-Driven Marketing Institute (“PDMI”); Pharmavite LLC (“Pharmavite”); Performance Marketing Association (“PMA”); Princeton University Center for Information Technology Policy and University of Chicago Department of Computer Science researchers (“Princeton”); SuperAwesome; and Truth in Advertising, Inc. (“TINA”). A number of comments are available fore review, here.
This update should be of interest to advertisers, ad agencies and networks and affiliate publishers the place or facilitate the placement of endorsements and testimonials, including, but not limited to product/service reviews, placements and rankings. Advertisers, endorsers, intermediaries and platforms hosting advertisements and endorsements should contact a FTC attorney to stay abreast of legal regulatory compliance and enforcement developments, including those best practices relating to the proposed rule.
Takeaway: While the focus of the proposed rule is on fake reviews, the manipulation of negative reviews and inadequate disclosures, the threat of enormous civil penalties if and when the proposed rule take effect is quite serious. The FTC’s Endorsement Guides are intended to help advertisers and digital marketers ensure that their endorsements and testimonials are not deceptive or misleading, and that material connections are clearly and conspicuously disclosed. The FTC continues to warn and police all participants in the digital marketing chain, including, but not limited to, brands that communicate with consumers through third-party influencers on social media.
Richard B. Newman of Hinch Newman LLP is an FTC defense attorney at Hinch Newman LLP.
Informational purposes only. Not legal advice. May be considered attorney advertising.