Effective July 26, 2023, the Federal Trade Commission (FTC) adopted revisions to its Guides Concerning Use of Endorsements and Testimonials in Advertising (the "Guides") to reflect the changing media landscape. The guides, previously updated in 2009, are designed to help marketers, content creators, and social media influencers navigate the tricky terrain of endorsements while also protecting consumers from dishonest advertising.
With the rising impact of social media on marketing and consumer behavior, these changes have a significant bearing on how influencers and marketing professionals approach endorsements and testimonials.
What Are the FTC Guides Concerning Endorsements and Testimonials?
The FTC Guides are designed to give insight into how the FTC enforces Section 5 of the Federal Trade Commission Act, which generally prohibits deceptive advertising. Specifically, the Guides address the use of endorsements and testimonials in advertising.
The Guides themselves are not a set of laws, but rather guidance on how to comply with the laws enforced by the FTC. They set forth the standards the FTC uses to evaluate endorsements and testimonials and provide examples of the lawful application of those standards.
The Guides define both endorsements and testimonials broadly to mean “any advertising message that consumers are likely to believe reflects the opinions, beliefs, findings, or experience of a party other than the sponsoring advertiser.”
Furthermore, endorsements “must reflect the honest opinions, findings, beliefs, or experience of the endorser” and any connection between the endorser and the seller of the advertised product must be fully disclosed.
Practices inconsistent with these Guides may result in an FTC investigation and possible corrective action, such as civil and monetary penalties.
New Endorsement and Testimonial Guidance from the FTC
While the core principle of transparency remains unchanged, the new guidelines provide more explicit directions for influencers and companies in the context of online endorsements and testimonials. The revisions also materially address the liability of advertisers, endorsers, and third parties such as ad agencies or review brokers.
Following are highlights of the revisions adopted in 2023:
- Are all social media tags considered endorsements? The FTC revised its definition of an endorsement to clarify that tags and certain other types of communications “can be” endorsements, indicating that not all tags are endorsements.
- To encompass fake reviewers and fabricated endorsers, the FTC revised its definition of endorser to include what “appear[s] to be” an individual, group, or institution.
- The definition of “product” was expanded to include a brand. The new definition of “product” includes “any product, service, brand, company, or industry.”
Advertiser and Influencer Liability
- A new standard was added to address the potential liability of advertisers. Advertisers are “subject to liability for misleading or unsubstantiated statements made through endorsements or for failing to disclose unexpected material connections between themselves and their endorsers.”
- An advertiser should provide guidance to their endorsers on FTC compliance, monitor their endorsers' compliance, and take action to remedy endorser’s non-compliance and prevent future non-compliance.
- Endorsers may be held liable for deceptive representations and for failing to disclose material connections between themselves and an advertiser.
- Third parties, such as advertising agencies, public relations firms, review brokers, and reputation management companies, may also be liable for their roles in creating or distributing ads containing endorsements that they know or should know are deceptive.
Consumer Endorsements and Reviews
- A new standard was added to discourage advertisers from manipulating consumer reviews to misrepresent what consumers think of their products. Actions that could distort or misrepresent what consumers think may include “procuring, suppressing, boosting, organizing, publishing, upvoting, downvoting, reporting, or editing consumer reviews of their products”. For example, a manufacturer cannot pay purchasers to write a positive review of their product, even if the payment is disclosed. Neither can a manufacturer threaten consumers who post negative reviews with baseless lawsuits or with lawsuits it does not intend to file.
- FTC clarified that an ad must use an endorser's exact words only when the ad represents that it is presenting the endorser's exact words, such as by using quotation marks.
- Use of an endorsement with the image or likeness of a person other than the actual endorser is deceptive if it misrepresents an attribute of the endorser that would be material to consumers in the context of the endorsement, e.g., an endorser's complexion in the context of an ad for an acne treatment.
- Consumer endorsements must be substantiated by evidence if they include express or implied claims about the effectiveness of a product or service.
- If an endorser’s experience is not representative of what consumers will generally achieve, advertisers should disclose the generally expected performance in the depicted circumstances. The FTC added a sentence that the disclosure of the generally expected performance should be presented in a manner that does not itself misrepresent what consumers can expect.
- The 2023 version of the Guides clarifies that an expert endorsement must come from an expert with the expertise they are represented as having. For example, if an “engineer” endorses a car, it is implied that the engineer has professional experience with cars. If the endorser's field is chemical engineering, the endorsement would be deceptive.
Endorsements Directed to Children
- The FTC recognizes that it is difficult for children – especially younger children – to discern ads from entertainment or other content in the digital environment. A new principle was added saying that endorsements not ordinarily questioned in advertisements targeting adults might be questioned when directed at children. The FTC is exploring next steps to further protect children from misleading advertising practices.
Disclosure of Material Connections
- For online disclosures to be effective, they must be unavoidable. Therefore, the FTC added “clear and conspicuous” to the list of characteristics necessary to make disclosures effective. For example, an influencer who is paid to endorse a product in their social media posts discloses their connection to the product's manufacturer only on the profile pages of their social media accounts. The disclosure is not “clear and conspicuous” because people seeing their paid posts could easily miss the disclosure.
- The Guides address the need to disclose unexpected material connections between the endorser and seller of an advertised product. To be material, a connection must affect the weight or credibility the audience gives to the endorsement. For example, a social media influencer reviewing a product they received for free should disclose that fact. The product manufacturer also has a duty to advise the influencer to disclose their connection and monitor the influencers’ social media for compliance.
- The revised Guides also acknowledge that some material connections are expected by the audience and therefore do not need to be disclosed. For example, a podcaster who reads what is obviously a commercial for a product need not disclose the connection to the advertiser as a sponsor. Listeners expect that the podcaster was compensated.
Are the Revised FTC Endorsement Guides Effective Now?
Yes. The revised FTC Guides became effective on July 26, 2023.
About FTC Enforcement Actions
The FTC is empowered by the Federal Trade Commission Act to investigate and prosecute deceptive or misleading advertising practices.
FTC enforcement actions may include:
- Warning, or cease-and-desist, letters: The letters typically include an explanation of why the company is receiving the letter and examples of problematic advertising or marketing language. Recipients are expected to correct the problem immediately and confirm to the FTC that the required changes have been made.
- Civil Penalties: The FTC can impose civil penalties on businesses and individuals found to be engaged in deceptive advertising. The amount of the penalty can vary depending on the severity and frequency of the violations.
- Corrective Advertising: In cases where the FTC determines that a company's advertising has caused substantial consumer harm, it may require the company to run corrective advertising campaigns to rectify the misinformation or deception.
- Injunctions: The FTC can seek injunctive relief from the courts, which would prevent a company or individual from engaging in specific deceptive advertising practices in the future.
- Monetary Redress: In cases where consumers have suffered financial harm due to deceptive advertising, the FTC can seek monetary redress for affected consumers. This can involve obtaining refunds for consumers or securing settlements to compensate victims.
- Consent Decrees: In some cases, the FTC may enter into consent decrees or settlements with companies or advertisers. These agreements typically involve the company agreeing to certain terms and conditions, such as ceasing deceptive practices and paying restitution to affected consumers.
- Administrative Proceedings: The FTC can initiate administrative proceedings against companies or individuals for deceptive advertising. These proceedings can result in orders requiring compliance with FTC rules and regulations, as well as potential civil penalties.
If you find yourself in receipt of a warning letter from the FTC, or need counsel on compliance with your social media marketing activities, contact the social media lawyers at Hendershot Cowart P.C. We help influencers, businesses, and brand managers achieve their online business objectives with regulatory compliance, intellectual property protection, and marketing agreements.