Effective Dec. 1, 2009, the Federal Trade Commission (FTC) Guides concerning the Use of Endorsements and Testimonials in Advertising became codified in the Code of Federal Regulations (16 C.F.R. 255 (http://www.access.gpo.gov/nara/cfr/waisidx_03/16cfr255_03.html)). The Guides were first adopted in 1975, revised in 1980 and now amended in order to cover consumer-generated content, such as product reviews and blog entries applicable to companies' products in cases where a speaker's statement is considered to be an advertising message.
The Guides represent administrative interpretations concerning the application of Section 5 of the FTC Act (15 U.S.C. 45 (http://www.law.cornell.edu/uscode/15/usc_sec_15_00000045----000-.html)) governing false and deceptive advertising to the use of endorsements and testimonials in advertising. The regulations recite that the Guides are "advisory in nature, and intended to give guidance to the public in conducting its affairs in conformity with Section 5." Thus, violations of the Guides will not necessarily lead to private causes of action by third parties but could subject an advertiser or a blogger to administrative enforcement actions brought by the FTC or state Attorneys General.
Endorsement Defined
For purposes of the Guides, endorsements and testimonials are considered to be synonymous and refer to "any advertising message...that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser." The Guides added the following phrase to this definition: "even if the views expressed by that party are identical to those of the sponsoring advertiser."
The FTC acknowledged that the development of consumer-generated media, such as blogs used in viral, word-of-mouth ad campaigns, raises new questions about how to distinguish between communi-cations that can be considered endorsements and those that should not. The FTC's stated rationale is to provide greater transparency as to the source of statements made regarding advertisers' products.
The FTC states that the fundamental question is "whether, viewed objectively, the relationship between the advertiser and the speaker is such that the speaker's statement can be considered 'sponsored' by the advertiser and therefore an 'advertising message.'" The facts and circumstances used to answer this question are varied but include: (1) whether the speaker is compensated by the advertiser or its agent, (2) whether the product or service in question is provided for free by the advertiser, (3) the terms of any agreement, (4) the length of the relationship, (5) the previous receipt of products or services from the same or similar advertisers or the likelihood of future receipt of such products or services, and (6) the value of the items or services received. The FTC notes that an advertiser's lack of control over the specific statement made via consumer-generated media does not automatically disqualify that statement from being an endorsement.
The Guides contain three distinct hypotheticals concerning a consumer who writes a positive blog about a new dog food product. In the first hypothetical, a consumer purchases the dog food and writes a blog entry. Her statement is not an endorsement within the meaning of the Guides because of the lack of relationship whatsoever between the speaker and the advertiser. In the second hypothetical, the consumer is given a coupon at her grocery checkout for a free trial of the new dog food that was generated based upon her prior purchases. Again, given the absence of a relationship between the speaker and the advertiser or other factors supporting the conclusion that she was acting on behalf of the advertiser, her review is not an endorsement. Third, where the consumer is part of a network marketing program and receives free products, including the dog food, for review, the ongoing relationship between the consumer and the network marketing program and her economic gain based upon the stream of products, makes her blog posting an endorsement within the meaning of the Guides.
Disclosure of Material Connections
In order to achieve transparency, the FTC requires that whenever there exists a connection between the endorser and the advertiser that might materially affect the weight or credibility of the endorsement, the connection must be fully disclosed. While the public has come to assume that celebrities are paid for endorsements in television ads, that perception does not exist with regard to television talk shows or social media posts. Thus, if a celebrity has a contractual relationship with an advertiser and her contract pays her to speak publicly about her endorsement on talk shows, consumers might not realize that a celebrity discussing a product has been paid for doing so, and knowledge of such payments would likely affect the weight or credibility that consumers give to the celebrity's endorsement. There-fore, before celebrities pitch products on television talk shows or a social net-working site, the relationship with the advertiser is required to be disclosed.
While the FTC states that providing product to a blogger should be clearly and conspicuously disclosed by the blogger or an individual who is part of a routine program that awards points each time a team member talks to his friends about a particular advertiser's products, the FTC has not specifically stated what constitutes "clear and conspicuous" disclosure in these contexts. Even more troubling is the requirement that employees clearly and conspicuously disclose their relationship to the manufacturer or advertiser prior to posting positive messages on a discussion board promoting its employer's products. It is therefore advisable for all employers to have an employee policy regarding social media that either requires that its employees affirmatively identify themselves on such postings or message boards or to prohibit postings altogether.
The Guides also require that if an advertiser publicizes research findings of an identified organization that the advertiser sponsored, that sponsorship must also be disclosed within the advertisement.
Endorser's Liability
The Guides make clear that liability for endorsements disseminated through new media applies equally to endorsers and advertisers. Even though the advertiser does not disseminate the endorsement made using consumer-generated media and it does not have control over the content of the statements, it initiated the process that led to the endorsements being made. Thus, it potentially is liable for misleading statements made by the bloggers.
The FTC notes that in the exercise of its prosecutorial discretion, it will consider the advertiser's efforts to advise endorsers of their responsibilities to not exaggerate the benefits of a free product or failure to disclose a material relationship and to monitor their online behavior in determining what, if any, action is warranted against the advertiser. Elsewhere in the Guides, the FTC urges advertisers to monitor endorsers' statements about their products and to take appropriate steps if appropriate disclosures are not being made, which the FTC includes ceasing to provide free product to the endorser.
The Guides contain an express statement that endorsers may be held liable under the FTC Act for statements they make in an endorsement. Although the prior Guides did not go so far, existing case law had held endorsers liable in such circumstances. In new examples stated in the Guides, a celebrity can be held liable if his endorsement affirms as facts claims that are contrary to what he has observed with his own eyes. For example, if a well known celebrity appears in an infomercial for an oven roasting bag that purportedly cooks every chicken perfectly in 30 minutes, and during the shooting of the infomercial, the celebrity watches five attempts to cook chickens using the bag and in each attempt the chicken is undercooked after 30 minutes and requires 60 minutes of cooking time, the celebrity could be liable for the misstatement.
Similarly, in another example, an advertiser and an endorser could both be liable for a blogger who, without any substantiation, makes a blanket claim that a product cures eczema. The advertiser is subject to liability for misleading or unsubstantiated representations, and the blogger is also liable for misleading or unsubstantiated representations made in the course of her endorsement. The Guides note that in order to limit potential liability, advertisers should ensure they provide guidance and training to endorsers concerning the need to ensure their statements are truthful and substantiated. Advertisers should also monitor endorsers who are being compensated in cash or in kind and take reasonable steps necessary to halt continued publication of deceptive representations once they are discovered.
In addition to the foregoing provisions, all of which are specifically applicable to bloggers or other consumer-generated media, the Guides also contain new provisions applicable to the following:
- Use of Testimonials Reflecting Non-Typical Consumer Experiences. Previously, under the safe harbor, advertisers could use testimonials that relay the unusual results of using any product, such as hair replacement or weight loss drugs, as long as the advertiser included a disclaimer such as "results not typical" or "results may vary." Under the revised Guides, advertisers using consumer testimonials must convey that the testimonials are experiences that are representative of what consumers can generally expect from the product or service in actual circumstances. If the advertiser does not have substantiation that the endorser's experience is representative of what consumers will generally achieve, the ad must clearly and conspicuously state the generally expected performance, and the advertiser must possess and rely upon adequate substantiation for that representation. By adding the substantiation requirement to consumer testimonials, the FTC is requiring the same substantiation of ads generally.
- Expert Endorsements. Experts are those individuals, groups or institutions who, as a result of experience, study or training, possess knowledge of a particular subject which is superior to what ordinary individuals may acquire. The Guides were revised to provide that experts must review materials that are what others with the same degree of expertise would consider adequate to support the conclusion about the product's safety and efficacy. In a new example, if a medical doctor states in an advertisement for a drug that the product will safely allow consumers to lower their cholesterol by 50 points, and if the only materials the doctor reviewed were letters from satisfied customers or the results of a non-human study, the endorsement would likely be deceptive. Those materials are not what others with the same degree of medical expertise would consider adequate to support the doctor's conclusion about the product's efficacy.
- Endorsements by Organizations. The Guides now require that an endorsement fairly reflect the "collective judgment of the organization" and that the organization have a process in place to ensure that its endorsements reflect that collective judgment. The Guides suggest that the organization's management could adopt specific procedures and standards to be applied in the review process including, for example, clear statements concerning the qualifications of the individuals conducting the review, the criteria against which products are to be judged and any other requirements or prohibitions management deems appropriate, for example, prohibitions against staff reviewing products in which they have a financial interest.
Conclusion
While the Guides have received considerable critical commentary due to their expansion to cover bloggers, all companies would be well served to review the changes regarding testimonial advertising and disclosure requirements. As noted above, all companies should adopt social media policies applicable to their employees who may participate in social media as well as those bloggers a company may seek to have review its products. Such policies and practices, together with monitoring, training and compliance review, will help advertisers reduce potential liability and steer clear of FTC endorsement actions.
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