The truth, the whole truth and nothing but the truth: The new FTC guidance on endorsements

Posted on The Internet Law Advisor Blog November 16, 2009 – By William Galkin, Esq.

Summary: The Federal Trade Commission (FTC) has issued revised Guides Concerning the Use of Endorsements and Testimonials in Advertising(Guides) which will take effect on December 1, 2009. The main purposes of the revisions are (1) to update the application of the Guides to new media and (2) to rescind a safe harbor that previously allowed ads stating positive results experienced by consumers, even though such results could not necessarily be expected by the average consumer, provided the statement “Results not typical” was included in the ad. Now the actual typical results need to be stated in the ad.

While the Guides only represent the FTC’s interpretation of the law and are not binding, the Guides are not difficult to comply with – and I guaranty that you don’t want to be on the receiving end of an FTC action.

Purpose: The primary purpose of the Guides is to require disclosure when an person giving an endorsement for a product or service is in some manner being compensated by the advertiser for the endorsement. In other words, it is deceptive for a paid endorsement to appear as if it is an independent and objective opinion. For example, if a mother-consumer is paid $1,000 for saying that she prefers a certain diaper, the viewing public needs to know this fact.

New Media Changes the Game: Since 1980, when the FTC first issued the Guides, communication broadcasting has, of course, dramatically changed with the advent of the Internet. Now, everyone can broadcast their opinion to the world through personal websites, blogs, discussion forums, social networks, and by means not yet contemplated (until announced in the next month or so). These various Internet communication forms shall be referred to in this article as “New Media Forms.” The Guides have been revised to address New Media Forms, because the there are now many types of communications that are really ads, but don’t necessarily appear to be ads.

Endorsements: Since the Guides deal with endorsements, the first step is to determine whether an opinion or review is an endorsement. According to the Guides, “an endorsement isany advertising message (including verbal statements, demonstrations, or depictions of the name, signature, likeness or other identifying personal characteristics of an individual or the name or seal of an organization) that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser.” Following are some examples in the Guides which will clarify this issue. (I have modified these examples somewhat and added my own commentary for clarification):

Example: A tennis star writes on her Facebook page about laser surgery she received from XYZ clinic. She states that the surgery helped her game, and she is compensated by XYZ clinic for making such statements. This needs to be disclosed, because in the context of a Facebook page, the public will not assume that this is a paid endorsement.

Example: A college student has a popular blog where he reviews video games. A video game manufacturer provides him with a free game system to review. He needs to disclose that the game system was provided to him for free, because this is the type of compensation that could influence his review. On the other hand, David Pogue who reviews technology gadgets for The New York Times would not have to reveal that he receives products for free (if in fact this is the case), because the public would assume that this is the case in the context of being an employee of the newspaper.

Example: A woman who has a personal blog receives a free sample of dog food in the mail because the local store recognizes that she regularly shops there. When she reviews this dog food on her blog she does not have to disclose that she received the food for free, because the store did not send it to her for this purpose and there is no expectation on her part to receive continued free samples.

Example: In a discussion forum on music download technology, one of the participants is an employee of a company that has such products and the employee has been promoting these products in the forum. The employee would need to disclose this fact, otherwise his posts would be deceptive, because they would appear to be independent objective opinions.

Veracity of Endorsements: Believe it or not – the opinion stated in an endorsement has to be true in all respects. Itmust reflect the honest opinions, findings, beliefs, or experience of the endorser. Furthermore, the endorsement of an expert or celebrity may be used only so long as the advertiser has good reason to believe that the endorser continues to maintain the view presented. Therefore, there must be some periodic effort by the advertiser to verify that the endorser’s views have not changed. When you hear on the radio or see an ad where a celebrity claims to use a particular product. Have you ever wondered whether she or he really does? Well, the Guides say that they must actually use the product at the time of the endorsement and the endorsement can continue to run only as long as the advertiser does not have any reason to question whether the product is still being used. In the online environment, when endorsements are being made in multiple venues, and are often being made independent of ongoing advertiser supervision, and may be transmitted and archived on sites for long periods, the advertiser must implement some system to verify that the endorsement is still valid.

Advertiser Responsibility. It’s important to note that advertisers are responsible (read: liable) for false or unsubstantiated statements made through endorsements – even if these statements were not advised or encouraged by the advertiser. For example, a skin care manufacturer, through its marketing agent, distributes free samples to bloggers known to review such products. A blogger makes a claim (e.g., the product cures eczema) that the advertiser does not make about the product. If this claim is not true, then the advertiser, as well as the blogger, would be responsible for this false claim.

Important: According to the Guides, the advertiser must actually ensure that its bloggers and other New Media Form hosts are notified and trained so as to be able to comply with the truthfulness, substantiation and disclosure requirements set forth in the Guides. If the advertiser identifies violations in the endorsements, the advertiser must take action to correct the violations. This is a fairly high standard of responsibility placed on advertisers.

Goodbye to “Typical Results” Safe Harbor: If the advertiser does not have substantiation that the endorser’s experience is representative of what consumers will generally achieve, the ad must now clearly and conspicuously disclose the generally expected performance in the depicted circumstances, and the advertiser must possess and rely on adequate substantiation for that representation. Stating that “Results are not typical” will no longer protect the advertiser from FTC claims of false or deceptive advertising.Nonetheless, the FTC has not ruled out the possibility that a strong disclaimer of typicality could be effective in the context of a particular ad. Although the FTC would have the burden of proof in a law enforcement action, the FTC notes that an advertiser possessing reliable empirical testing demonstrating that the net impression of its ad with such a disclaimer is non-deceptive will avoid the risk of the initiation of such an action in the first instance.

Bottomline:

1. Endorsements appearing in New Media Forms require disclosure of compensation or other benefits received or expected to be received from the advertiser. Compensation does not have to be money, and can be any benefit that would be reasonably expected to influence the opinion or product/service review.
2. Advertisers are required to notify New Media Form endorsers of their obligations regarding disclosures as to compensation and truthfulness in the endorsement content. Advertisers must also monitor the New Media Forms for compliance and take action if there is non-compliance. Therefore, advertisers should have written procedures in place that are followed when utilizing endorsements through New Media Forms. The existence of and compliance with these procedures will be important if ever defending against an FTC action.
3. The FTC claims that it did not issue the revised Guideswith the objective of suing bloggers. However, the FTC did not say that it would not sue bloggers. Therefore, compliance by bloggers with these Guides is the best advice.
4. Consumer claims of results from use of products or services must be those that can be expected by the average consumer of the product or service, otherwise the result that can be commonly expected must be disclosed. Saying “Results are not typical” will no longer protect an advertiser from claims of deceptive advertising.