The Federal Trade Commission recently announced long-awaited updates to its Endorsement Guides ("Guides"), along with a new proposed rule banning fake reviews and testimonials. The Guides provide direction to advertisers to ensure that advertising using endorsements or reviews is truthful and provide examples of the types of practices that may be considered unfair or deceptive under the FTC Act. The Guides were last updated in 2009, long before some of today's most popular online advertising platforms even existed. The updated Guides address new and changing issues presented by the contemporary advertising landscape and provide extensive examples of the types of advertising practices that would (or would not) be considered violations of the FTC Act.
The FTC highlighted several important changes in the Guides, including: (1) a new principle regarding consumer reviews; (2) incentivized reviews, employee reviews, and fake negative reviews of a competitor; (3) the addition of a "clear and conspicuous" definition; (4) a changed definition of "endorsements"; (5) a more fulsome explanation of the potential liability of advertisers, endorsers, and intermediaries; and (6) special concerns regarding child-directed advertising. A complete list of the changes is available here. In conjunction with the updated Guides the FTC also updated its FAQ/guidance document regarding the Guides, which is available here. The new guidance document includes many additional examples, adds specific guidance for ainfluencers on when and how to disclose material connections on different platforms, provides the FTC's view about monitoring influencers and platform disclosure tools, and provides more guidance related on online reviews.
"Endorsement" Definition
The Guides changed the definition of "endorsement" to mean "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. Verbal statements, tags in social media posts, demonstrations, depictions of the name, signature, likeness or other identifying personal characteristics of an individual, and the name or seal of an organization can be endorsements." The "can be" language indicates that, for example, not all tags are endorsements, and that the list of potential endorsements is illustrative, not exhaustive. This definition encompasses writers of fake reviews and non-existent entities purporting to give endorsements, and one of the new examples in the Guides expressly addresses fake positive reviews, which are "endorsements" (though fake negative reviews of a competitor product are not).
"Clear and Conspicuous" Definition
As before, the Guides require disclosure of connections between an endorser and the seller of the advertised product when that connection "might materially affect the weight or credibility of the endorsement" and is not "reasonably expected by the audience." The updated Guides now require that these disclosures be made "clearly and conspicuously," and describe the characteristics needed to make these disclosures effective. A clear and conspicuous disclosure means that the disclosure is "difficult to miss (i.e., easily noticeable) and easily understandable by ordinary consumers."
Under this definition, disclosures on social media or the Internet (or any other interactive electronic medium) "should unavoidable." The examples indicate that disclosure only in a profile page of an influencer social media account is not "clear and conspicuous" because people seeing paid posts could easily miss that disclosure. Similarly, a disclosure only accessible by clicking a link in a post labeled "more" is not "clear and conspicuous."
Advertiser Liability
The Guides provide that advertisers may be liable for misleading or unsubstantiated statements made through endorsements or for failing to disclose unexpected material connections with their endorsers and may be liable even when the endorser is not. Advertisers should provide guidance to their endorsers to ensure statements are nor misleading and make proper disclosures, monitor endorsement compliance, and take sufficient action to remedy non-compliance. Good faith and effective guidance, monitoring, and remedial action should reduce an advertiser's odds of facing an FTC enforcement action, though such actions are not a safe harbor.
In its explanation of the revisions, the FTC made clear that it "expects advertisers to be responsible for and monitor the actions of their endorsers," and expressly rejected suggestions that it would be unreasonable to hold an advertiser liable for what an endorser says unless there is a contractual relationship and the advertiser either failed to properly instruct the endorser or instructed the endorser to make a false claim. The FTC also made clear that a connection between advertiser and endorser is not required for an advertiser to be liable. For example, if an advertiser retweets a positive statement from an unrelated third party, that statement becomes an endorsement for which the advertiser is liable, even if there is no connection between advertiser and endorser.
Endorser Liability
The updated Guides provide that endorsers may be liable for statements made in the course of their endorsements. They may be liable for making representations that they know or should know to be deceptive, which includes falsely representing that they personally used a product. Endorsers who are not experts may be liable for misleading or unsubstantiated representations about a product's performance or effectiveness, and endorsers may also be liable for failing to disclose unexpected material connections between themselves and an advertiser.
Intermediary Liability
Under the updated Guides, "[a]dvertising agencies, public relations firms, review brokers, reputation management companies, and other similar intermediaries may be liable for their roles in creating or disseminating endorsements containing representations that they know or should know are deceptive." These intermediaries may also be liable for their roles related to endorsements that fail to disclose unexpected material connections, including by hiring or directing endorsers who do not make the necessary disclosures. In its explanation of the revisions, the FTC explained that it does not believe that entities merely providing production services (and not involved in developing content) are "other similar intermediaries" under this section.
Reviews and Proposed Rulemaking
The updated Guides now include a section regarding "procuring, suppressing, boosting, organizing, publishing, upvoting, downvoting, reporting, or editing consumer reviews" and prohibit advertisers from taking 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 Guides." Forwarding only favorable product reviews to a third-party review website or omitting unfavorable reviews (or reviews lower than a certain number of stars, for example) would be considered misleading under this section, and suppressing negative reviews from a website would result in product pages that are misleading. "Review gating" (i.e., only inviting those who give positive feedback to post reviews) "may be an unfair or deceptive practice if it results in the posted reviews being substantially more positive than if the marketer had not engaged in the practice."
The FTC received comments suggesting that its inclusion of this section was an improper use of the Guides in lieu of rulemaking to regulate use of customer reviews. The FTC takes the position that, because the guides are administrative interpretations of the FTC Act and are not themselves regulations, it need not engage in rulemaking to offer this guidance.
That said, the FTC has also announced a proposed rule that regarding fake reviews and testimonials. The proposed rule would prohibit selling or obtaining fake reviews and testimonials, review hijacking (using or repurposing reviews for one product for a substantially different product), buying positive or negative reviews, insider reviews and testimonials, company controlled review websites, illegal review suppression, and selling fake social media indicators (like fake followers or views). The proposer rule will be published soon, followed by a 60-day comment period.
Other Revisions
The updated Guides also provide additional examples of whether connections are material or unexpected, the level of detail required in disclosures, guidance on expert endorsements, endorsements by organizations, and highlight special concerns for endorsements directed to children.
In the wake of the updates, many have been wondering whether #ad remains an adequate disclosure. The FTC has made clear that it was not its intention for #ad to be categorically insufficient. The sufficiency of a #ad disclosure will depend on the circumstances, and the updated guidance accompanying the Guides provides several examples regarding use of #ad.
Conclusion
The FTC clearly has endorsements and reviews in its sights and we expect an increase in investigations and enforcement. We also expect the National Advertising Division (NAD) to apply these new Guides in its evaluation of advertising claims.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
