By: Samantha N. Hong
On May 20, 2022, FTC issued its long-anticipated draft proposed revisions to the Guides Concerning the Use of Endorsements and Testimonials in Advertising (“Guides”), over two years after seeking comments on the Guides as part of the agency’s regulatory review process. See 16 CFR Part 255. An updated version of these proposed revisions were published in the Federal Register on July 26, 2022, and comments are due by September 26, 2022.
History and Current Proposed Revisions
The Guides were first issued in 1972 to address compliance with Section 5 of the FTC Act (15 U.S.C. § 45) regarding unlawful, unfair, or deceptive acts related to the use of endorsements and testimonials in advertising. The current proposed revisions to the Guides, which were most recently updated in 2009, reflect the changing landscape in marketing and advertising practices, including increasing industry reliance on social media platforms for product promotion. Many of the proposed changes to the Guides draw from recent FTC enforcement actions, warning letters, and guidance documents, all of which have served to fill the information gap where the Guides have failed to keep up with evolving social media and other advertising practices.
We broadly summarize some of the more significant proposed changes to the Guides below:
- Endorsement – Expands definition of “endorsement” and “endorser” to include marketing and promotional messages, tags in social media posts, and endorsements by virtual or fake influencers. Includes a new example clarifying that purchasing, creating, selling, or distributing fake indicators of social media influence can be a deceptive practice.
- Clear and Conspicuous Disclosure – Adds definition of “clear and conspicuous” disclosure to mean one that is “difficult to miss” and “easily understandable by ordinary consumers.” In the case of social media, a clear and conspicuous disclosure is one that is “unavoidable.” A clear and conspicuous disclosure should at least be presented in the same format and prominence as the communication (e.g., visual or audible).
- Advertiser and Endorser Liability – Expands advertiser liability provisions to state that advertisers may be liable for an endorser’s deceptive statements even where the endorser is not itself liable, including steps advertisers should take to ensure endorser compliance. Expands endorser liability provisions to state that endorsers may themselves be liable for making representations that they “know or should know to be deceptive” or failing to disclose material connections with advertisers.
- Intermediary Liability – Added intermediary liability provision stating that advertising agencies and other intermediaries may be liable for disseminating “what they knew or should have known where deceptive endorsements,” including failure to disclose unexpected material connections.
- Consumer Reviews – Added provisions on consumer reviews (e.g., reviews on product page websites) prohibiting advertisers from taking actions that would distort or misrepresent such reviews, including, for example, suppressing negative reviews or paying purchasers to write only positive ones. These provisions apply regardless of whether the reviews fall within the “endorsement” definition in the Guides.
- Disclosure of Material Connections – Clarifies requirement regarding disclosure of material connections to incorporate “clear and conspicuous” disclosure definition and to provide guidance on what types of relationships constitute material connections. For instance, business, family, or personal relationships; monetary payments or free/discounted products or services; or other benefits such as early product access, possibility of payment, winning a prize, television appearance or other media promotions.
- Endorsements Directed at Children – Acknowledges that endorsements directed at children may be of special concern. FTC further noted its intent to hold a public event to gather more information on the efficacy of advertising disclosures directed at children.
Importantly, while not expressly codified in the proposed revisions, FTC expressed its concern that built-in disclosure tools available on social media platforms may be too fleeting, inconspicuous, or otherwise inadequate for capturing the attention of users scrolling through social media feeds. As such, FTC notes that exclusive reliance on such built-in tools may expose both platforms and endorsers to liability and encourages platforms to review and modify their tools to minimize and avoid liability exposure.
As noted above, many of the proposed revisions to the Guides are consistent with past FTC enforcement actions related to the use of endorsements in advertising. By way of example, we describe a few of the more recent actions below.
- In 2019, FTC entered into a consent decree with Devumi, LLC, a company that sold fake indicators of social medial influence (e.g., fake followers, subscribers, views, likes, etc.) to users of social media platforms, banning the company from continuing to sell social medial influence and imposing a $2.5 million monetary judgment against the CEO.
- In October 2021, FTC issued over 700 Notices of Penalty Offenses regarding violative endorsement-related acts including falsely claiming third party product endorsements; misrepresenting endorsements as reflecting the opinions of users; misrepresenting endorsers as actual product users; using testimonials to make deceptive claims; failing to disclose material connections; and misrepresenting endorser experiences as the typical user experience.
- In March 2022, FTC entered into a Consent Agreement with Fashion Nova, LLC, prohibiting the online fashion retailer from suppressing customer reviews of its products and requiring the company to pay $4.2 million to settle FTC’s allegations.
As these examples demonstrate, the proposed revisions to the Guides are intended to codify FTC’s existing understanding of acts that violate Section 5 of the FTC Act and do not necessarily represent a significant shift in how FTC intends to approach enforcement actions in the future. That said, these comprehensive revisions to the Guides reflect FTC’s ongoing commitment to curb deceptive advertising practices that have cropped up in the face of newer promotional platforms.
The proposed revisions were passed unanimously (5-0) by the FTC Commissioners and we anticipate that they are likely to remain largely intact when finalized. Accordingly, it would be prudent for companies to evaluate and update their advertising and marketing practices, especially in the social media context, to ensure ongoing compliance and to avoid becoming targets for FTC enforcement. Some actions to consider may include:
- Developing robust internal policies for endorsers regarding misleading statements and disclosure of material connections.
- Establishing systems to monitor endorser activities and to take swift actions to remedy endorser non-compliance.
- Developing standard disclosure policies across all social media platforms to ensure any necessary disclosures are “unavoidable” and easily understood.
- Training sales and marketing personnel in FTC rules and company policies for endorsements.
In addition, FTC is accepting comments on the new Guides until September 26, 2022. We are available to assist and advise on these issues and will continue to monitor FTC’s actions and enforcement activities in the advertising space.