FTC Puts Advertisers and Agencies on Notice for Fake Online Reviews and Other Deceptive Endorsements

Advertising Law

The Notice was sent within a week of another notice to 70 for-profit higher education institutions, which focused on “false promises they make about graduates’ job and earnings prospects and other outcomes.”

In its press release about the most recent Notice, the FTC expressed concern over the “rise of social media,” which “has blurred the line between authentic content and advertising, leading to an explosion in deceptive endorsements across the marketplace.” In particular, Samuel Levine, director of the FTC’s Bureau of Consumer Protection, stated that “[f]ake online reviews and other forms of deceptive endorsements cheat consumers and undercut honest businesses,” and warned that “[a]dvertisers will pay a price if they engage in these deceptive practices.”

The Notice (a copy of which is available on the FTC’s website) lists seven offenses that the FTC has determined to be “deceptive or unfair and unlawful under Section 5 of the Federal Trade Commission Act” in prior litigated cases:

  1. Falsely claiming an endorsement by a third party
  2. Misrepresenting that an endorsement represents the experience, views or opinions of users or purported users
  3. Misrepresenting an endorser as an actual user, a current user or a recent user
  4. Continuing to use an endorsement without good reason to believe that the endorser continues to subscribe to the views presented in the endorsement
  5. Using testimonials to make unsubstantiated or otherwise deceptive performance claims even if such testimonials are genuine
  6. Failing to disclose an unexpected material connection with an endorser
  7. Misrepresenting that the experience of endorsers represents consumers’ typical or ordinary experience

The above list should not come as a surprise to anyone who is familiar with the FTC’s Endorsement Guides or with The FTC’s Endorsement Guides: What People Are Asking, which provides practical guidance on the principles expressed in the Endorsement Guides. The list is also consistent with recent consent orders relating to fake reviews and influencer endorsements without proper disclosure. (See Keeping It Real: FTC Settles Cases Over Fake Social Media Indicators, Reviews.)

However, what is different about this latest action is that it marks the FTC’s first step toward seeking civil penalties for violation of any conduct cited in the Notice under its “Penalty Offense Authority” pursuant to Section 5(m)(l)(B) of the FTC Act. Under this authority, the FTC may seek civil penalties with respect to any act or practice that it has determined to be “unfair or deceptive” in a final cease and desist order (other than a consent order) against any nonparty to such cease and desist order “which engages in such act or practice … with actual knowledge that such act or practice is unfair or deceptive and is unlawful.” If the FTC establishes such violation, the court may award up to $43,792 per violation.

By sending the Notice to a broad group of businesses (not just the recipients—who were specifically chosen because of their size, status and reach—but also their subsidiaries), the FTC is laying the groundwork for seeking significant remedies against any companies that use endorsements and testimonials in a manner that violates any of the seven identified offenses by claiming that these companies had “actual knowledge” that their conduct was unfair or deceptive. For an in-depth discussion of the FTC’s “Penalty Offense Authority” and the limitations and challenges of using such authority to seek penalties against companies, see What FTC's 'Penalty Offense Notices' Mean For Cos.

Why It Matters

The recipients of the Notice are not currently targets of an FTC investigation on deceptive endorsements. In fact, the FTC expressly states in the Notice that it is not “suggesting” recipients have “engaged in deceptive or unfair conduct.” Rather, in the wake of the Supreme Court decision in AMG Capital Management v. FTC, 141 S. Ct. 1341 (2021), which held that Section 13(b) of the FTC Act does not allow the FTC to obtain monetary relief such as restitution or disgorgement, the FTC is sending a clear warning to the advertising industry, as stated in its press release, that it “will be ready to hold them responsible with every tool at its disposal,” including seeking civil penalties using its decades-old but little used “Penalty Offense Authority.” Knowing the FTC’s willingness to use this penalty authority to seek redress, all companies, whether or not they received the Notice this time, should review their marketing practices to ensure that they do not engage in any conduct listed in the Notice, and should make any appropriate adjustments to bolster their internal controls.

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