FTC Signals Continued Heightened Scrutiny of Endorsements With Final Rule Adopting Revised Endorsement Guides
On June 29, 2023, the Federal Trade Commission (FTC or the Commission) announced it had finalized its revisions to the Guides Concerning the Use of Endorsements and Testimonials in Advertising (the Endorsement Guides or Guides), codified at 16 C.F.R. Part 255. As detailed in our prior Advisory, the Commission’s revisions proposed amendments to all six sections of the Endorsement Guides, focusing particularly on five key priorities: (1) expanding the scope of the Guides to cover promotion other than specific product promotion; (2) clarifying the inadequacy of certain disclosures; (3) ensuring the accuracy of endorser advertisements; (4) outlining potential endorser, advertiser, and intermediary liability; and (5) protecting the integrity of consumer reviews. The final revised Endorsement Guides largely adopt these revisions and reflect the same priorities, with a few changes intended to further clarify the FTC’s position with respect to the scope and intent of the Guides.
Though the Endorsement Guides are not binding law, they establish the general principles that the FTC will use in evaluating endorsements and testimonials. Moreover, practices inconsistent with the Guides may result in enforcement action by the Commission under Section 5 of the FTC Act. Thus, it is increasingly important for companies to reassess, and if necessary, revise, current endorsement practices to ensure alignment with the FTC’s latest requirements.
With this in mind, this Advisory outlines the key principles of the final Endorsement Guides and addresses important considerations for companies that utilize endorsers.
Key Principles of the Updated Endorsement Guides
The Endorsement Guides are quite in depth, and should be read by anyone involved in the development or implementation of marketing strategies that utilize endorsers. There are, however, eight key principles emphasized in the updated Guides:
- Account for the broad meaning of “endorsement” and “endorser.” The final Guides make it clear that “endorsement” means “any advertising, marketing, or promotional message for a product that consumers are likely to believe reflects the opinions, beliefs, findings or experience of a party other than the sponsoring advertiser,” noting that tagging and similar actions on social media can be endorsements. The Guides also note that an “endorser” “could be or appear to be an individual, group, or institution” and that the definition of “endorser” encompasses virtual endorsers and bots. Fake positive reviews used in promotions are also endorsements.
Paying for negative reviews about a competitor’s service and using fake indicators of social media influence are not considered endorsements, but may be deceptive practices. As discussed in our related Advisory, the FTC has just proposed a new rule, “The Trade Regulation Rule on the Use of Consumer Reviews and Testimonials” (the Consumer Review Rule), to address this and related consumer review issues in greater detail.
- Disclose material connections, with consideration of the “significant minority” who may not know the connection exists. In a slight departure from the proposed revisions to the Guides, the final Guides state that a material connection must be disclosed when a “significant minority” of the audience for an endorsement would not understand or expect the connection. While the Guides do not formally define what constitutes a “significant minority,” in a footnote, the FTC suggested that 10% (or even less) of an audience could be “significant.”
Then, consistent with the proposed revisions to the Guides, the FTC’s final Guides reiterate the broad range of material connections that must be disclosed, including:
- Business, family, or personal relationships
- Monetary payment
- The provision of free or discounted products
- Early access to a product or service
- The possibility of winning a prize or appearing on television
- Paying for or providing incentives for a review
- Commissioning a test or analysis of a product or competing product
The Guides also memorialize the FTC’s expanded definition for “clear and conspicuous” disclosure, which provides disclosures must not be difficult to miss and should be communicated using the same medium as the endorsement (e.g., both on screen and audibly if the endorsement is a video with sound).
- Remember, endorsers and intermediaries can be held liable too. In the final Guides, the FTC emphasizes that advertisers are responsible for, and must monitor, the actions of their endorsers, while also clarifying that advertisers may be liable for statements made by third parties with whom they do not have a connection if they repost or republish such statements. More notably, however, the final Guides reiterate that endorsers and intermediaries can be held liable too. Endorsers may be liable for representations that they know or should know are deceptive, including falsely representing that they personally used a product when they did not or for failing to disclose material connections clearly and conspicuously. Entities, such as advertising agencies, public relations firms, review brokers, reputation management companies, and other similar intermediaries may also be held liable for their roles in creating ads that they know or should know are deceptive.
Understand that expert endorsers are subject to higher standards and must have the expertise they are represented as having in an ad. Advertisers that seek to feature “expert” endorsers, such as doctors, should note that the FTC expects expert endorsers to have utilized their expertise in evaluating the product features or characteristics mentioned in the endorsement. Under the updated Guides, an expert endorser may be held liable for false statements if the endorser makes an endorsement without examining or testing the product as extensively as someone with the same degree of expertise normally would do in order to support the conclusions presented in an endorsement. Ads should also be carefully tailored to align with the level of expertise of the endorser in the ad (e.g., not portraying a doctor with a Ph.D. in audiology in a white coat).
Use caution when pairing consumer endorsements with images that are not of the consumer. The Guides highlight concern regarding use of consumer testimonials with images that are not representative or consistent with the characteristics of the consumer that provided the review (such as showing scar reduction using an image that reflects a different skin complexion than that of the consumer who provided the testimonial or using a weight loss testimonial with images of a person who does not reflect the body weight of the person who gave the testimonial).
Always disclose typical results. The Guides make it clear that advertisers are expected to have substantiation for all claims made in their advertising, including those made through consumer testimonials or endorsements. Ads that feature consumer testimonials that may not be representative of what consumers will generally achieve with the product must clearly and conspicuously disclose the generally depicted results. Advertisers must possess adequate substantiation for those typical results.
Avoid consumer review practices that the FTC has identified as misleading. In the final Endorsement Guides, the FTC identifies several practices related to consumer reviews that it asserts are misleading (many of which are also addressed in the Consumer Review Rule):
- Procuring, suppressing, boosting, organizing, publishing, upvoting, downvoting, reporting, or editing consumer reviews in a way that distorts or misrepresents what consumers think of a business’ products
- Forwarding only favorable reviews or omitting unfavorable reviews to a third-party review website
- Abusing a third-party review platform’s mechanism for reporting suspected fake reviews by routinely flagging negative reviews as fake without a reasonable basis
Simply put, second guess any practice that can affect the ratio of positive to negative reviews that display on platforms.
- Take into account the target audience. Per the Guides, for an endorsement that targets a specific audience, such as older adults or speakers of a different language, any disclosures should be tailored to that specific audience. Endorsements in advertisements directed to children may be of special concern, and practices that would not ordinarily be questioned in advertisements addressed to adults may be questioned when addressed to children.
The FTC’s issuance of the final revised Endorsement Guides is just one of the numerous actions the agency has taken to address the use of what the agency considers to be misleading endorsements and reviews. In the past five years alone, the FTC has filed over 25 cases involving allegedly deceptive endorsement or consumer review practices and, in 2021, put over 700 companies on notice of potential civil penalties now up to approximately $50,000 per violation for engaging in certain deceptive practices related to endorsements. The agency has also published a number of guidance documents, including most recently its updated FAQ document, The FTC’s Endorsement Guides: What People Are Asking, which includes 40 additional questions and numerous revisions to reflect the new Endorsement Guides, as well as guidance for platforms and marketers related to featuring and procuring online consumer reviews. As noted above, the day after issuing its final revised Guides, as discussed in our related Advisory, the Commission announced it was also proposing the Consumer Review Rule, which prohibits several consumer review practices the FTC considers deceptive. All of these actions are indications that companies across industries should expect the FTC’s close scrutiny of endorsements (and, in particular, endorsements via consumer reviews) in social media and other online platforms to continue, and likely increase.
Given this context, it is increasingly important that companies revisit their policies and marketing strategies related to endorsements, especially on social media, to ensure compliance with the revised Endorsement Guides. To that end, companies should consider the following steps to ensure compliance with the FTC’s requirements and help mitigate the risk of enforcement:
- Train and carefully monitor social media influencers to ensure compliance with the new Endorsement Guides
- Revise influencer and other endorsement contracts to incorporate new requirements under the updated Endorsement Guides
- Revisit internal social media policies to ensure employee compliance with disclosure requirements
We routinely advise clients on these issues and would be happy to discuss how we may be of assistance to you in your compliance efforts.
© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.