Last week, the Federal Trade Commission (“FTC” or the “Commission”) announced that it had adopted its revised Guides Concerning the Use of Endorsements and Testimonials in Advertising (“the Guides”). The primary purpose of the Guides is to ensure that businesses comply with the FTC Act by entering into endorsement agreements centered around truthful advertising. In the age of digital advertising and social media, the FTC faces an impossible task of addressing every possible media channel. However, it does its best by publishing commentary with substantive guidelines and comprehensive examples within the Guides. Companies engaged in online and offline marketing must employ the framework set forth in the Guides when drafting their endorsement agreements.
The Guides were first enacted in 1980 and amended in 2009. In February 2020, the Commission sought public comment on the overall breadth and impact of the Guides. After several rounds of commentary and review, the Commission is now adopting the revised Guides. The result is a thorough primer on truth in advertising for businesses, including the need for strict endorsement agreement terms.
The Legality of the Guides
The FTC investigates and initiates cases involving Section 5 of the FTC Act, which generally prohibits deceptive advertising. The Guides provide insight into how the FTC views various marketing activities involving endorsements and how Section 5 might apply to those activities. Although the Guides themselves do not carry the force of law, practices inconsistent with the Guides may result in Section 5-related law enforcement actions. Penalties include businesses being ordered to pay money back to harmed consumers and substantial civil judgments.
What do the Guides Say About Endorsement Agreements?
Before discussing clauses that should be included in endorsement agreements, the Guides first update some integral definitions. The revised Guides address virtual personalities/avatars by updating the definition of “endorser” to include what “appear[s] to be an individual, group, or institution.” The Guides also revise the definition of “endorsement” to include tags in social media posts. These updated definitions are meant to address the rise of digital advertising through social media and make clear that the FTC holds influencers and bloggers to the same standard that applies to traditional media outlets. The difference between traditional media outlets and social media, however, is often the audience/viewer’s appreciation of the relationship that exists between the advertiser and the company whose products are being endorsed. Clear disclosure of the relationship between company and advertiser influences how much weight a consumer gives to a particular product recommendation. Accordingly, the Guides mandate that endorsement agreements provide for such disclosures and how they should be communicated.
The Guides apply to all forms of endorsements, including those originating from third party marketing websites, influencers’ social media pages and posts, and reviews on a product’s actual webpage. The Commission’s primary concern is that endorsements must represent the accurate experience and opinion of the endorser:
- Endorsers cannot agree to discuss a product experience if they have not tried it.
- If a reviewer has only tried a product once, he/she cannot suggest what the benefits associated with regular use would be.
- If an influencer has a mediocre experience with a product, he/she cannot post a glowing review.
To ensure compliance, the Commission outlines strict requirements for the actual endorsement agreements themselves:
- Material connections between the advertiser and endorser must be disclosed.
- Directories, review/rating sites, emails, blogs, and other websites that purport to provide an endorsement or assessment of a product must prominently display the financial or in-kind compensation provided by the advertiser.
- An influencer who enters into an agreement to post fake negative reviews of a business must disclose that the review was commissioned by a competitor.
Because of the prevalence of dishonest endorsements, from a consumer being incentivized to post a single positive review, to an influencer with a massive social media following, the Guides make clear that the advertisers that hire these endorsers do not have immunity. The Commission “expects advertisers to be responsible for and monitor the actions of their endorsers.” In fact, the advertiser may be liable for a deceptive endorsement even when the endorser is not. Advertisers should:
- Utilize carefully drafted endorsement agreements that fully comply with the Guides;
- Actively monitor their endorsers’ compliance with said endorsement agreements; and
- Take action sufficient to remedy non-compliance and prevent future non-compliance. While not a safe harbor, good faith and effective guidance, monitoring, and remedial action should reduce the incidence of deceptive claims and reduce an advertiser’s odds of facing a Commission enforcement action.
Why the Guides are Relevant to your Business
Whether you engage companies to advertise on your behalf, or produce the advertising yourself, the Guides apply to your business. As stated above, while the Guides do not have the force of law, the guidance is provided with Section 5 of the FTC Act in mind. The Commission has made clear that combating deceitful advertising is one of its primary undertakings and will not hesitate to go after companies who knowingly engage in such behavior. Civil penalties can be quite significant. In April 20202, for example, Fashion Nova agreed to pay $4.2 million to settle charges brought by the FTC for actively engaging in the suppression of negative reviews.
The Guides are comprehensive, but can be confusing to navigate. As such, businesses would be well-apprised to retain counsel that stays up to date on evolving state and federal regulations.
If you require assistance with complying with the FTC Guides, please email us at info@kleinmoynihan.com or call us at (212) 246-0900.
The material contained herein is provided for information purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.
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Photo by Austin Distel on Unsplash
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