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FTC issues new endorsement guides in advertising
2023 PRINDBRF 0521
• Practitioner Insights Commentaries
• October 10, 2023
(October 10, 2023) - Peter Brody, Kellie Combs, Cassandra Roth and Meredith Foor of Ropes & Gray discuss the Federal Trade Commission's revised Guides Concerning the Use of Endorsements and Testimonials in Advertising, which had not been updated since 2009.
On July 26, 2023, the Federal Trade Commission's (FTC) revised Guides Concerning the Use of Endorsements and Testimonials in Advertising (Endorsement Guides) went into effect. The revised Endorsement Guides come after the FTC's May 2022 announcement that it was seeking public comments on proposed updates to the Endorsement Guides, which had not been updated since 2009.
Major changes in the revised Endorsement Guides include new and revised definitions, such as for the term "endorsements," clarification of the potential liabilities advertisers and endorsers may face for deceptive practices and expectations for facilitating compliance, and a new principle regarding the alteration of or use of consumer reviews in a manner that distorts customers' actual opinions on products. The updates, including the numerous examples added by the FTC, highlight the FTC's continued enforcement focus on reviews and online advertising. Some examples added include:
A prominent and well-recognized golfer is hired to post a video to their social media account for a brand of golf balls. This social media post is an endorsement "if viewers can readily identify the golf ball brand, either because it is apparent from the video or because it is tagged or otherwise mentioned in the post."
In the situation where an influencer is paid to endorse a vitamin product in a post on their social media page, if the influencer does not disclose their connection to the product's manufacturer on the paid post, that disclosure is not "clear and conspicuous" as required by the guidelines. It is not enough for the social media influencer to disclose the relationship with the brand on their profile page.
If a business owner, such as an exterminator, purchases fake reviews of competing exterminators, those fake negative reviews of a competitor do not fall within the "endorsement" definition within the Endorsement Guidelines. However, these statements can still be considered a deceptive practice. Further, fake positive reviews that are used to promote a product are "endorsements."
In the instance where a motivational speaker buys fake social media followers to "impress potential clients," that alone is not an endorsement issue. However, "it is a deceptive practice for users of social media platforms to purchase or create indicators of social media influence and then use them to misrepresent such influence to potential clients[.]"
Updated definitions
The revised Endorsement Guides expand the definition of "endorsements" and add a strong definition of the term "clear and conspicuous." The FTC clarified that the term "endorsements" means "any advertising, marketing, or promotional message for a product that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser." Endorsements can include "[v]erbal statements, tags in social media posts, demonstrations, depictions of … identifying personal characteristics of an individual, and the name or seal of an organization."
The FTC notably extended the term "endorsements" to fake positive reviews as well as social media tags.
The FTC has historically required that any necessary disclosures accompanying an advertising claim be clear and conspicuous to the consumer. The inevitability (or "unavoidability," in FTC's terminology) of a consumer's noticing a disclaimer has long been one of several factors the FTC considers in evaluating whether a particular disclosure is "clear and conspicuous," and the FTC has sometimes called it "ideal[]."
Now, for the first time, the Endorsement Guides provide a definition of "clear and conspicuous" disclaimers to mean "a disclosure [that] is difficult to miss (i.e., easily noticeable) and easily understandable by ordinary consumers."
In its comments, the FTC simply noted "[f]or online disclosures to be effective, they must be unavoidable," and it is likely the FTC will apply this heightened standard in other online contexts outside of endorsements and testimonials. The other aspects of the new "clear and conspicuous" definition are consistent with longstanding FTC practice requiring disclaimers be understandable to the specific audience.
The FTC added multiple social media examples to provide further guidance to the industry. Importantly, the FTC also noted in an example that social media's built-in disclosure tools may not be sufficient to meet the clear and conspicuous standard, and that the sufficiency of disclosures should be evaluated based on how they will be viewed by a consumer (e.g., on a smartphone).
Explanation of potential liability for advertisers and endorsers
The revised Endorsement Guides articulate clearer guidance on the scope of liability for advertisers, endorsers, and intermediaries such as advertising agencies and public relations firms. For example, the Endorsement Guides now explain that an advertiser may be liable for a deceptive endorsement in instances even where the endorser is not liable and vice versa, even in the absence of a contractual relationship.
The Endorsement Guides present the scenario of a skin care products advertiser hiring an influencer to try a new body lotion and then post a video review of it on the influencer's social media accounts. Without the advertiser providing the influencer any materials stating that the lotion cures skin conditions, the influencer states in their video review that "This lotion cures eczema. All of my followers suffering from eczema should use it."
Because the influencer "did not limit their statements to their personal experience using the product and did not have a reasonable basis for their claim," the influencer is liable for the misleading representation in the endorsement. However, the advertiser may also be liable, regardless of the liability of the endorser, if the advertiser "lacked adequate substantiation for the implied claims that the lotions cures eczema."
Advertising agencies and public relations firms may also face liability for creating or disseminating endorsements if they knew or should have known the endorsements were deceptive.
Through the Endorsement Guides, the FTC articulates proactive steps it wants advertisers to take to manage liability, including:
(1) providing guidance to their endorsers on the need to ensure that their statements are not misleading and to disclose unexpected material connections between the advertiser and the endorser;
(2) monitoring their endorsers' compliance; and
(3) taking action sufficient to remedy noncompliance and prevent future noncompliance.
Importantly, the revised Endorsement Guides note that adopting such a compliance program is "not a safe harbor." Instead, the FTC encourages advertisers to take these steps to "reduce the incidence of deceptive claims and reduce an advertiser's odds of facing a Commission enforcement action." Many advertisers have already adopted such compliance programs to manage potential legal risks, and this is an opportunity to consider updating existing programs or implementing a compliance program if none exists.
Advertisers and endorsers, however, are not obligated to delete or modify a historical post containing an endorsement that may no longer be representative of an endorser's point of view "as long as the date of that post is clear and conspicuous to viewers."
The FTC also updated its associated FAQs in parallel with its revisions to the guides. These FAQs cover a variety of topics, including product placements, endorsements by ordinary consumers on social media, disclosure requirements for an endorsement, and social media contests, among other things.
Interacting with consumer reviews
The revised Endorsement Guides add an important new principle on consumer reviews: the Enforcement Guides discourage advertisers from "actions that have the effect of distorting or otherwise misrepresenting what consumers think of their products, regardless of whether the reviews are considered endorsements under the [Endorsement] Guides."
Through numerous new examples, the revised Endorsement Guides highlight how advertiser's actions could result in deceptive advertising or deceptive practices, such as:
(1) requiring a consumer to provide a positive review;
(2) creating an undisclosed material connection with a reviewer that a significant minority or the audience would not expect, such as, for example, where a professional tennis player mentions in an interview that they are seeing the ball better since having laser vision correction surgery at a specific identified clinic without disclosing that the tennis player has a contractual relationship with that clinic;
(3) mischaracterizing a consumer review as the "most helpful" when it was selected by the advertiser rather than upvoted by consumers;
(4) improperly influencing the aggregate consumer review rating such as by suppressing negative reviews, procuring fake positive reviews of the advertiser's product or fake negative reviews of a competitor's product, or soliciting incentivized reviews that materially increase the average consumer review rating without a disclosure; or
(5) improperly creating the impression that a review site is independent when it has some unexpected material connection with an advertiser.
This significant expansion of the Guides reflects the FTC's particular interest in online reviews, consistent with the FTC's recent enforcement activity in FTC v. Roomster Corp. and In re The Bountiful Co.
Relationship to proposed rules
The FTC developed the revised Endorsement Guides in parallel with a proposed rule on the use of consumer reviews and testimonials. The proposed rule was published in the Federal Register on July 31, giving parties until the end of September to comment.
Among other things, the proposed rule makes it a deceptive practice to write, create, sell, purchase, or disseminate a customer or celebrity testimonial that is:
(1) "by a reviewer or testimonialist who does not exist;
(2) by a reviewer or testimonialist who did not use or otherwise have experience with the product, service, or business that is the subject of the review or testimonial; or
(3) that materially misrepresents, expressly or by implication, the reviewer's or testimonialist's experience with the product, service, or business that is the subject of the review or testimonial."
Notably, however, the Enforcement Guides and the proposed rule serve two different purposes. The Endorsement Guides are just that — guidance. The Endorsement Guides reflect the FTC's application of Section 5 of the FTC Act to the use of endorsements and testimonials in advertising to facilitate voluntary compliance by the public. Parties with practices contrary to the revised Endorsement Guides may find themselves the target of an FTC enforcement action, including as the subject of injunctions.
Under current law, however, the Endorsement Guides alone are not sufficient to subject violators to immediate civil penalties absent some other form of notice that the challenged practices violate Section 5. In contrast the proposed rules are proscriptive, and would subject violators to immediate civil penalties once they go into effect. The FTC continues to accept public comment on its proposed rules, and even after the rules become final, the rules may be subject to challenge in court. Together, the proposed rules and revised Endorsement Guides reflect the agency's current enforcement agenda.
Key takeaway
The FTC's revised Endorsement Guides reflect the FTC's enforcement interest in the endorsement and online review space, and advertisers, endorsers, and intermediaries would be well-served by considering updating their practices to reflect the latest FTC guidance.
Peter Brody is a partner in Ropes & Gray's intellectual property litigation practice in Washington, D.C. He has litigated every type of IP case — patent, copyright, trade secret, trademark and false advertising — as well as a wide range of constitutional, administrative and contract disputes. Brody also has experience in alcoholic beverage laws and regulations. In addition to his trial and appellate practice, he has served as lead counsel in domestic and international arbitrations, as well as hearings and proceedings before federal and state administrative agencies. He can be reached at [email protected]. Kellie Combs is a partner in the firm's life sciences regulatory and compliance practice. She provides legal and strategic advice to pharmaceutical, biotechnology, medical device, food and cosmetic manufacturers, as well as health care providers and academic institutions, on a broad range of issues. Combs also has experience with matters implicating FDA promotional rules and the First Amendment, and advises clients on FDA regulatory submissions, digital health tools regulation, approval programs and post-approval compliance. Based in Washington, D.C., she can be reached at [email protected]. Cassandra Roth is counsel in the firm's intellectual property litigation practice in New York. She is an experienced trial lawyer who focuses on matters involving IP assets (patents, trade secrets, trademarks, and copyrights), false advertising, unfair and deceptive practices, and business torts. She represents clients in the federal district and appellate courts, as well as before the International Trade Commission and the Patent Trial and Appeal Board. She can be reached at [email protected]. Meredith Foor is an associate in the firm's intellectual property litigation practice. She focuses on patent, trademark and copyright infringement; trade secret misappropriation; false advertising; and contract disputes. Based in New York, she can be reached at [email protected].
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