FTC Casts Wide Net of Notices to Clear Up the “Blurred Line” between Authentic Content and AdvertisingOctober 26, 2021
The Federal Trade Commission (FTC) recently sent a “Notice of Penalty Offenses Concerning Deceptive or Unfair Conduct around Endorsements and Testimonials” to over 700 companies, representing an array of leading retailers, consumer product companies, and ad agencies. While the FTC explicitly notes that receipt of such notice does not indicate a company has violated the law, the FTC also notes that “receipt of the notice puts [a] company on notice that engaging in conduct described therein could subject the company to civil penalties of up to $43,792 per violation.” Companies using endorsements and testimonials to advertise and market their products, whether they received a notice or not, should carefully review the notice and their advertising and marketing practices to ensure that such practices do not violate the law.
Deceptive Practices Based on Precedent
The notice includes a list of FTC determinations from prior litigated cases that certain practices are deceptive or unfair and are unlawful under Section 5 of the FTC Act. The FTC rendered most of these determinations in the 1940s through the 1980s and they largely concerned TV and print endorsements. However, these practices may also be used in more modern endorsements, including through social media and online reviews.
Practices outlined in the FTC notices include:
- falsely claiming an endorsement by a third party;
- misrepresenting whether an endorser is an actual, current, or recent user;
- using an endorsement to make deceptive performance claims;
- failing to disclose an unexpected material connection with an endorser;
- misrepresenting that the experience of endorsers represents consumers’ typical or ordinary experience;
- and continuing to advertise without good reason to believe an endorser still subscribes to the same view as before.
FTC Guidance for Endorsements and Testimonials
While the FTC’s notice warns companies of deceptive practices in using endorsements and testimonials, the FTC has separately provided guidance to companies on avoiding practices that the FTC could find constitute deception. For years, the FTC has provided guidance for companies to ensure compliance with laws. For example, the FTC’s Endorsement Guides detail the FTC’s administrative interpretations of the application of the FTC Act to the use of endorsements and testimonials in advertising. The FTC website also provides responses to Frequently Asked Questions about the Endorsement Guides.
More recently, the FTC has expanded its guidance to try to encompass the present reality of advertising and marketing online, including through social media. Today’s use of social media and other online platforms is multifaceted, ranging from personal use to commercial and promotional use. Through the use of endorsements and testimonials, especially by social media influencers, the line between the two can often become blurred, creating opportunities ripe for consumer deception. In 2019, the FTC released its guide “Disclosures 101 for Social Media Influencers” as a supplement to its Endorsement Guides (discussed more in our prior alert here). The Endorsement Guides, as supplemented by the Disclosures 101 for Social Media Influencers, provide guidance to help companies avoid engaging in deceptive or unfair conduct when employing modern advertising and marketing strategies.
FTC Strategy for Seeking Penalties
In warning of the potentially hefty civil penalties for violations for engaging in deceptive or unfair conduct with respect to endorsements and testimonials, the FTC indicates that it is willing to utilize its authority to pursue civil penalties under Section 5(m)(1)(B) of the FTC Act. Since the Supreme Court limited the FTC’s ability to use Section 13(b) of the FTC Act to seek for monetary relief (as detailed in our prior alert here), the notice may be intended to illustrate the FTC’s plan to use Section 5(m)(1)(B) going forward to obtain money from the companies and individuals it prosecutes.
Section 5(m)(1)(B) authorizes the FTC to seek civil penalties against other parties where (1) a final cease and desist order has been entered against a party in an administrative proceeding under Section 5(b) of the FTC Act, (2) there is a FTC determination that a specific practice is unfair or deceptive, as part of that order, and (3) a party with actual knowledge that the practice is unfair or deceptive has engaged in that practice after the order became final.
The notice the FTC sent could signal forthcoming investigations. With respect to the notice, the Director of the FTC’s Bureau of Consumer Protection noted that “fake reviews and other forms of deceptive endorsements cheat consumers and undercut honest businesses… [and] advertisers will pay a price if they engage in these deceptive practices.”
With significant penalties looming, companies should be wary of their advertising and endorsement practices. If you have any questions regarding compliance with the FTC’s endorsement guidelines or other applicable advertising law, please contact one of our Advertising, Promotions & Social Media attorneys.