Uptick in Activity: Changes to Come for FTC Endorsement Guides and COPPA EnforcementJune 3, 2022
Following the Biden administration’s call for increased activity from the Federal Trade Commission (“FTC”) and the FTC establishing a new partisan majority, on May 19, 2022, the FTC announced that it is seeking public comment on proposed revisions to its Guides Concerning the Use of Endorsements and Testimonials in Advertising (the “Endorsement Guides”) and released a new policy statement on the Children’s Online Privacy Protection Act (“COPPA”) and education technology (“EdTech”) companies.
Proposed Updates to Endorsement Guides
The Endorsement Guides provide guidance to companies and others to ensure that advertising using endorsements or testimonials is truthful. While the Endorsement Guides do not carry the force of law, and are thus advisory in nature, they set the tone for FTC interpretations and potential enforcement actions. The newly proposed updates aim to modernize the Endorsement Guides, which have not been updated since 2009, to reflect advertisers’ growing reliance on social media to market products. The proposed updated Endorsement Guides include clarifications and additional examples, as well as principles established in FTC enforcement actions that were previously absent from the Endorsement Guides. The revisions would also add an entirely new section addressing concerns about advertising to children. Below is a summary of the most notable proposed updates to the Endorsement Guides.
- Advertiser Liability: The updates provide that advertisers could be liable for an endorser’s deceptive statements, even when the endorser would not be liable. For example, if a pharmaceutical company covered up the flaws of a study before presenting it to an expert, and that expert endorsed the studied product, the endorser’s claims could be deceptive, but only the company (and not the endorser) would be liable. The proposed updates also encourage advertisers to (1) provide guidance to their endorsers to ensure their endorsers’ statements are not misleading and appropriately disclose unexpected material connections, (2) monitor their endorsers’ compliance, and (3) take action to remedy noncompliance and prevent future non-compliance.
- Endorser Liability: The updates clarify that endorsers may be liable for their statements when they make representations that they know or should know are deceptive. A nonexpert endorser may also be liable if such endorser makes misleading or unsubstantiated statements about performance or effectiveness that are inconsistent with the endorser’s personal experience or that were not made or approved by the advertiser and go beyond the scope of the endorser’s personal experience. Endorsers who rely on insufficient built-in platform disclosures could be liable for the disclosures’ shortcomings according to the proposed updates. Further, while an endorser cannot endorse products they no longer use, the updates clarify that the FTC does not require endorsers to modify or delete prior posts, so long as those posts are clearly dated and not reposted.
- Intermediary Liability: Proposed new section 255.1(f) explains that intermediaries (such as advertising agencies and public relations firms) may be liable for their roles in disseminating what they knew or should have known were deceptive endorsements and in disseminating advertisements with insufficient disclosures. It is not clear from the proposed updates how exactly liability would divide among potentially liable parties. This may be a topic addressed in the public comment period.
Third Party Image and Likeness
- Pictures Accompanying Endorsements: Proposed new section 255.1(g) states that the use of an endorsement with the image or likeness of a person other than the actual endorser is deceptive if it misrepresents a material attribute of the endorser. For example, if an acne treatment company features testimonials on its website of users who say the product improved their acne quickly and, instead of using images of the actual endorsers, accompany the testimonials with pictures of other individuals with near perfect skin, the images would misrepresent the product’s effectiveness.
Definitions and Disclosure Standards
- Expanded Definitions: The updates modify the definition of “endorser” to include a party who appears to be an individual, group or institution (thus, the Endorsement Guides would clearly apply to endorsements by fabricated endorsers). The updates clarify that the definition of “endorsement” includes “marketing” and “promotional” messages (including tags in a social media post), not merely advertising messages.
- Clarified Disclosure Standard: The proposed updates clarify the existing (and somewhat vague) “clear and conspicuous” standard as a disclosure that is “difficult to miss (i.e., easily noticeable) and easily understandable by ordinary consumers.” This updated standard requires disclosures to generally match the medium of the communication necessitating a disclosure (e.g., audible representations should have, at a minimum, audible disclosures and visual representations should have, at a minimum, visible disclosures).
Notably, the updates tailor the benchmark of an “ordinary consumer” to the advertisement’s target audience, meaning disclosures could look different depending on audience characteristics. For example, an advertiser might have to feature a disclosure more prominently in a TV ad targeting older adults so as to aid those with diminished hearing, sight or cognitive abilities. The conspicuousness of a disclosure could also vary based on the device on which it is viewed. For example, a disclosure that is clear and conspicuous when viewed on a desktop browser could need modifications to remain obvious on a smartphone screen.
- Distorting Consumer Reviews: Proposed new section 255.2(d) articulates the FTC’s existing guidance prohibiting the distortion of consumer reviews using methods such as deleting negative reviews or purchasing positive reviews.
- “Generally Expected Performance” Disclosures: When an advertiser does not have substantiation that an endorser’s experience is representative of what consumers will generally achieve, the Endorsement Guides currently require an advertiser to disclose the generally expected performance in the depicted circumstances. The proposed updates state that an advertiser must present such disclosure in a manner that does not itself misrepresent what consumers can expect.
Disclosing Material Connections
- “Material Connection” Clarification: The updated Endorsement Guides include new examples of material connections between advertisers and endorsers that trigger disclosure obligations. Where a material connection is almost universally expected, the endorser would not have to disclose it. For example, if a podcaster reads what is obviously a commercial at the start of an episode, listeners would likely expect the podcaster was paid for the commercial, so a disclosure of payment would not be necessary. However, in the FTC’s summary of the proposed updates, it notes that the FTC neither rejects nor accepts the proposition that influencers can be well known enough that their audiences expect their social media sponsorships, therefore waiving the need for disclosures.
Endorsements Directed to Children
- Vulnerability of Children: A new section 255.6 acknowledges that endorsements directed to children may be of special concern because of the character of the audience. The FTC may question certain practices in the context of children that it would not ordinarily question in advertisements addressed to adults. In order to provide further guidance, the FTC plans to hold a public event this Fall, focusing specifically on children’s capacity at different ages and developmental stages to recognize and understand advertising content and distinguish it from other content and the need for and effectiveness of disclosures to children.
Though the proposed updates have the potential to increase liability for various parties involved in marketing and advertising, at this time the changes are only proposed.
Once published in the Federal Register, the proposed updates to the Endorsement Guides will enter a 60-day public comment period. Given that the 2009 revisions took a year from comment period to adoption, it could be another year before the FTC adopts these changes officially.
COPPA Enforcement Effort Against EdTech Companies
The FTC also recently released a new policy statement regarding EdTech companies and COPPA. COPPA took effect over 20 years ago and is enforced by the FTC. In the new policy statement, the FTC announced its renewed effort to enforce the provisions of COPPA, particularly against EdTech companies attempting to illegally collect, retain, or monetize children’s data.
In recent decades, and particularly in the wake of COVID-19, schools and parents have increasingly relied upon technology to educate their children. In this same period, companies have become more technologically advanced and aggressive in the collection and monetization of consumer data. These overlapping trends have led the FTC to address parents’ concerns regarding the security of their children’s personal information. In particular, the FTC denounced using children who rely on EdTech as a “captive audience” for data surveillance and collection.
The FTC’s new policy statement clearly provides that the security of children’s personal information rests on COPPA-covered tech companies’ COPPA compliance rather than parent or school vigilance. It also emphasizes that COPPA imposes greater requirements on covered companies than just notice and consent. The FTC announced the following focuses for immediate enforcement:
- Prohibitions Against Mandatory Collection: Covered companies cannot condition a child’s participation in an activity on disclosing more information than needed for that activity.
- Use Prohibitions: Covered companies are strictly limited in how they may use children’s personal information. In particular, EdTech companies that collect information with a school’s authorization cannot use that information for any commercial purpose, including advertising and marketing.
- Retention Limitations: Covered companies cannot retain children’s personal information for longer than necessary to fulfill the purpose for which it was collected. Specifically, EdTech companies cannot retain children’s information in the hopes to use it in the future for other purposes.
- Security Requirements: Covered companies must have procedures to guard the confidentiality, security, and integrity of children’s personal information.
The FTC’s recent activity in adapting its advertising guidelines and COPPA enforcement for the age of the internet could foreshadow similar changes in other areas of FTC regulation. For now, advertising companies, endorsers, platforms, and other stakeholders should be aware of the potential strengthening of the Endorsement Guides, including the liability shifts and expansions contained therein. Additionally, COPPA-covered companies, particularly EdTech companies, can expect to see the FTC more stringently enforce COPPA.
If you have any questions regarding the impact of the FTC’s proposed updates to the Endorsement Guides, the new policy statement on COPPA, or other applicable advertising laws, please contact one of our Advertising, Promotions & Social Media attorneys.
Special thanks to Hilary S. Henning for her contributions to this article.