The Federal Trade Commission (FTC) unveiled its proposed updates to the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising (the Endorsement Guides or Guides) at its recent open meeting on May 19, 2022, followed by publication of a notice requesting public comments (Notice).
More than two years after first seeking public comments on the Endorsement Guides, the FTC is seeking to make significant updates to the Endorsement Guides, including the following:
- Updated definitions of “endorsement” and “endorsers”
- A new definition of “clear and conspicuous”
- Clarification of the liability of endorsers and intermediaries
- A new section on consumer reviews
- Clarification on expert endorsements and endorsement by organizations
- Clarification on material connections
- A new section on endorsements directed to children
These changes largely address the increased and evolving use and importance of social media and consumer and product reviews in marketing, and they reflect the FTC’s efforts to combat advertising and marketing abuses through various enforcement actions in the past few years.
Definitions of Endorsement and Endorser
Current Section 255.0(b) defines an “endorsement” as any advertising message that consumers are likely to believe reflects the opinions, beliefs, findings or experience of a party other than the sponsoring advertiser. The FTC proposed revising that definition to clarify that “marketing” and “promotional” messages are endorsements, and it specifically called out tags in social media posts to be a form of an endorsement. Interestingly, the FTC indicated a paid or incentivized negative statement about a competitor product is not an “endorsement” for purposes of the Guides but can be deceptive in violation of Section 5 of the FTC Act.
In addition, the FTC expanded the definition of “endorser” to effectively include virtual influencers, such as computer-generated avatars and fictional characters, by indicating that an endorser can simply “appear to be an individual, group, or institution.”
Finally, it’s worth noting that the FTC added a new example (Example 7) that clarifies the FTC’s position on whether a consumer’s review of a product after receiving a free product would constitute an endorsement. Based on this new example, if the consumer received a coupon for a free trial product simply based on her purchase history and the manufacturer did not ask for a review, then the consumer’s unsolicited review would not be an endorsement. However, if the consumer received the free product as part of a marketing program that periodically provides free products and writing a review is only optional, then the consumer’s review would still be an endorsement because of the consumer’s connection to the manufacturer’s marketing program.
Definition of Clear and Conspicuous
The FTC proposed adding a definition of “clear and conspicuous” in a new Section 255.0(f), which would define a “clear and conspicuous” disclosure as one that “is difficult to miss (i.e., easily noticeable) and easily understandable by ordinary consumers.” This new section further provides that (i) if the triggering claim is visual, then the disclosure should be at least visual, if the triggering claim is audible, then the disclosure should also be audible, and if the triggering claim is both visual and audible, then the disclosure should be both visual and audible, and (ii) when an endorsement targets a specific audience, such as older adults, its effectiveness will be evaluated from the perspective of members of that group.
To illustrate its position on what constitutes a clear and conspicuous disclosure, the FTC stated in a new example added to the proposed Guides that if an ad has a disclosure that is clear and conspicuous when viewed on a computer browser but is not clear and conspicuous when the ad is rendered on a smartphone, the disclosure is inadequate.
Liability of Endorsers and Intermediaries
In response to a number of comments received by the FTC requesting clarification on the liability of endorsers and intermediaries, the FTC added two new subsections to Section 255.1—subsections (e) and (f)—to address the potential liability of each of these groups, as follows:
- Endorsers may be liable for making statements that “they know or should know to be deceptive.”
- The level of due diligence required depends on the endorsers’ “level of expertise and knowledge, among other factors.”
- Endorsers are liable for making misleading or unsubstantiated representations about performance or efficacy that are inconsistent with their personal experience or that were not made or approved by the advertiser.
- 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, including with respect to endorsements that do not disclose unexpected material connections, “whether by disseminating advertisements without necessary disclosures of material connection or by hiring and directing the endorsers who fail to make necessary disclosures.”
In a nod to the permanence of social posts, the FTC also proposed modifying the current Example 1 to Section 255.1 to clarify that an endorser does not need to go back and modify or delete past social posts as long as (i) the posts were not misleading at the time they were made, (ii) the dates of the posts are clear and conspicuous to viewers, and (iii) the posts are not later reposted or shared by the endorser or publisher.
One of the most significant proposed changes to the Endorsement Guides is a new section on consumer reviews, Section 255.2(d), which the FTC described in the Notice as an articulation of a “fundamental principle” that is not expressed in the existing Guides. This new section would state that “[i]n procuring, suppressing, boosting, organizing, or editing consumer reviews of their products, advertisers should not take actions that have the effect of distorting or otherwise misrepresenting what consumers think of their products, regardless of whether the reviews are considered endorsements under the Guides.”
The FTC included several examples of consumer-review practices that may be misleading or unfair, such as deleting or not publishing reviews, buying fake reviews, threatening customers who make negative reviews, and “review gating” (i.e., obtaining customer feedback and then sending satisfied and dissatisfied customers down different paths in order to encourage positive reviews and avoid negative reviews). The FTC warned advertisers not to use star ratings that include incentivized reviews, such as offering to pay consumers to write positive reviews of their products on third-party review websites. This is consistent with a recent case of the National Advertising Division (NAD) of BBB National Programs, which found that product rankings based on incentivized reviews can be misleading. See NAD Straightens Disclosures for Incentivized Consumer Reviews of Aligner Products.
However, the FTC acknowledged that removing certain reviews may be appropriate by proposing to add a footnote to this new section indicating that sellers may remove customer reviews “that contain unlawful, harassing, abusive, obscene, vulgar, or sexually explicit content, or content that is inappropriate with respect to race, gender, sexuality, or ethnicity, or reviews that the seller reasonably believes are fake, so long as the criteria for withholding reviews are applied uniformly to all reviews submitted.” The footnote would also state that sellers do not need to display reviews “that are unrelated to their products or services” but that “customer service, delivery, returns, and exchanges” are related to sellers’ products and services.
The FTC proposed a number of clarifications to the current Section 255.3(a) on expert endorsements, including:
- Clarification that this section applies to representations made “expressly or by implication”
- Clarification that what matters in determining the potential liability of the expert endorser and the advertiser is the expert’s “purported” degree of expertise, not the expert’s actual degree of expertise
Endorsements by Organizations
Continuing with the theme of combating deceptive practices relating to product reviews, the FTC proposed to add a couple of new examples to Section 255.4, which provided guidance specific to the use of endorsements by organizations. These proposed examples illustrate the FTC’s position, as follows:
- If a manufacturer sets up an apparently independent review website that reviews the manufacturer’s own products and competing products, that website is deceptive because it is not in fact independent.
- A paid ranking boost when manufacturers make payments to a website is deceptive regardless of whether the website makes an express claim of independence or objectivity.
- If a manufacturer makes payments to the review site but not for higher rankings, such as for affiliate link referrals, there should be a clear and conspicuous disclosure regarding the payments.
Disclosure of Material Connections
Disclosure of the material connections between advertisers and endorsers has been the subject of heated debates among all parties, from influencers to advertisers and their agencies and employees, as well as numerous other groups of people with some connection to the advertisers or their products. With the proposed updates to Section 255.5, the FTC attempts to provide more specific guidance on this issue, as follows:
- The disclosure of material connections must be “clear and conspicuous,” with a cross reference to the definition of this phrase in the new Section 255.0(f).
- Material connections can include a business, family or personal relationship; monetary payment; the provision of free or discounted products or services to the endorser, including products or services unrelated to the endorsed product; early access to a product; or the possibility of winning a prize, of being paid, or of appearing on television or in other media promotions.
- A material connection can exist regardless of whether the advertiser requires an endorsement for the payment or the free or discounted products.
- A material connection does not need to be disclosed with complete details, but the disclosure “must clearly communicate the nature of the connection sufficiently for consumers to evaluate its significance.”
In addition to updating the text of Section 255.5, the FTC proposed a number of modifications to the examples as well as new examples that illustrate the FTC’s position on the disclosure of material connections. Additional guidance provided by these updated or new examples includes the following:
- If a celebrity has a material connection to an advertiser whose product is being discussed during a talk show, the disclosure should be made during the interview; a disclosure during the show’s closing credits is not sufficient, as it is not clear and conspicuous.
- If a celebrity makes an endorsement in one of her social media posts, her connection to the advertiser should be disclosed regardless of whether she was paid for the particular post.
- Receipt of free or discounted services can constitute a material connection.
- Including incentivized reviews’ star ratings in an average star rating for a product could be deceptive even if adequate disclosures appear in each incentivized review.
- A blogger who writes independent content reviewing products and includes affiliate links to websites where consumers can buy these products should clearly and conspicuously disclose the compensation the blogger receives through such affiliate links.
Endorsements Directed to Children
The FTC proposed adding a new section highlighting that advertising directed to children is of special concern and that children may react differently than adults to endorsements in advertising. The proposed section states, “Practices which would not ordinarily be questioned in advertisements addressed to adults might be questioned in such cases.”
In order to provide further guidance, the FTC plans to hold a public event on October 19, 2022, to examine the techniques being used to advertise to children online, in all the various digital spaces children frequent, and what measures should be implemented to protect children from manipulative advertising.
As described in the FTC’s event description, specific topics that will be discussed at the event include the following:
- Children’s capacity at different ages and developmental stages to recognize and understand advertising content and distinguish it from other content
- The harms to children resulting from their inability to recognize advertising
- What measures should be taken to protect children from blurred content in digital marketing
- The need for and efficacy of disclosures as a solution for children of different ages, including the format, timing, placement, wording and frequency of disclosures
Why It Matters
The changes being considered by the FTC to strengthen and broaden its Endorsement Guides are significant and extensive, and they are consistent with the FTC’s recent enforcement actions and public statements. Samuel Levine, the director of the FTC’s Bureau of Consumer Protection, said in a statement, “We’re updating the guides to crack down on fake reviews and other forms of misleading marketing, and we’re warning marketers on stealth advertising that targets kids. Whether it’s fake reviews or influencers who hide that they were paid to post, this kind of deception results in people paying more money for bad products and services, and it hurts honest competitors.”
The proposed revisions will be published for comment shortly in the Federal Register. Comments must be received by the FTC within 60 days of publication and will be posted on Regulations.gov. The FTC will then review the comments and will issue the final Endorsement Guides.
The fact that all five commissioners voted in favor of issuing the proposed revised Endorsement Guides shows that there is strong support for the Guides from the FTC. Although the FTC may make tweaks in the final version of the Endorsement Guides after the FTC considers the public comments, it would be prudent for advertisers, agencies, platforms and endorsers to reevaluate their current business practices in light of the proposed updates to the Endorsement Guides and make any appropriate adjustments.