Today, companies often use endorsements and testimonials to advertise and market their products and services on both traditional and social media. Using celebrities or other popular figures – often called "influencers" – as part of this effort is a growing trend, with industry insiders predicting that influencer marketing may be a $10 billion dollar industry in 5 years. You've undoubtedly noticed (or used) the pop sensation to model a trendy brand on Instagram or the superstar athlete driving the latest model sportscar on TikTok. Well, the Federal Trade Commission ("FTC") has certainly noticed.
The FTC recently sent a letter to over 700 companies and advertising agencies enclosing the FTC's Notice of Penalty Offenses concerning deceptive or unfair conduct around endorsements and testimonials ("Notice of Penalty Offenses") and warning that "some companies use these advertising tools in a manner that deceives consumers" and recommends that companies "take any steps necessary to ensure that your company's practices do not violate the law." In an accompanying press release, the FTC notes that "[t]he rise of social media has blurred the line between authentic content and advertising, leading to an explosion in deceptive endorsements across the marketplace."
The Notice of Penalty Offenses consists of FTC determinations in prior cases that certain practices are deceptive or unfair and are unlawful, including, among other things, falsely claiming an endorsement by a third party, misrepresenting that an endorser is an actual user, and failing to disclose an unexpected material connection with an endorser.
Here are the key takeaways from the latest FTC action:
- The FTC is hyper-focused on influencer transparency
- The sheer number of Notice of Penalty Offenses letters suggests the FTC is trying to send a message to the entire market
- Companies could be subject to civil penalties of up to $43,792 per violation, so the penalties could mount quickly
Finally, companies using influencers and other types of endorsements and testimonials are not only at risk of federal regulatory action, influencer-marketing is also ripe for consumer class actions. For example, attendees of the now-infamous Fyre Festival brought a class action against the Festival and over 100 influencers alleging that the Festival and influencers failed to disclose that the influencers were profiting from publicizing the festival.
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