How to Guarantee the FTC Will Bust YouWritten by Richard Newman
January 4, 2012 # 1:22 pm # Legal Challenges, Specials # 19 Comments
It has been approximately two years since the Federal Trade Commission published its “Final Guides Governing Endorsements, Testimonials – Changes Affecting Testimonial Advertisements, Bloggers, and Celebrity Endorsements.” As set forth in my recent article entitled “The One FTC Article You Must Read,” the Federal Trade Commission considers everyone in the advertising stream, including non-sellers, liable for claims they knew or should have known to be false and unsubstantiated.
Given many of the offers still to this day being run by advertisers and CPA networks, it is safe to say that it is time for a refresher. If you don’t follow these rules, you are making it more likely that the FTC will take notice of you.
The Final Guidelines address endorsements by consumers, experts, organizations, and celebrities, as well as the disclosure of important connections between advertisers and endorsers. Make no mistake about it – the Final Guidelines are not for show. Regulatory enforcement actions for deceptive advertising often include allegations that someone in the stream of commerce failed to comply with these provisions.
The Final Guidelines state, in no uncertain terms, that advertisements featuring a consumer and conveying his or her experience with a product or service as typical when that is not the case will be required to clearly disclose the results that consumers can generally expect. This requirement stands in stark contrast to the previous version of the relevant guidelines which permitted advertisers to describe unusual results in a testimonial so long as they included a disclaimer such as “results not typical. Again, the Final Guidelines do not contain this safe harbor.
The Guidelines also illustrate the long standing principle that “material connections” (sometimes payments or free products) between advertisers and endorsers – connections that consumers would not expect and that might materially affect the weight or credibility of the endorsement – must be disclosed. For example, when an endorser who appears in a television commercial is neither represented in the advertisement as an expert nor is known to a significant portion of the viewing public, then all those in the marketing stream should ensure the clear and conspicuous disclosure of either the payment or promise of compensation prior to and in exchange for the endorsement, or the fact that the endorser knew or had reason to know or to believe that if the endorsement favored the advertised product some benefit, such as an appearance on television, would be extended to the endorser.
What constitutes an endorsement when the message is conveyed by bloggers or other “word-of-mouth” marketers
A consumer who regularly purchases a particular brand of dog food decides one day to purchase a new, more expensive brand made by the same manufacturer. She writes in her personal blog that the change in diet has made her dog’s fur noticeably softer and shinier, and that in her opinion, the new food definitely is worth the extra money. This posting would not be deemed an endorsement under the Final Guidelines. Assume that rather than purchasing the dog food with her own money, the consumer gets it for free because the store routinely tracks her purchases and its computer has generated a coupon for a free trial bag of this new brand. Again, her posting would not be deemed an endorsement under the Final Guidelines.
Assume now that the consumer joins a network marketing program under which she periodically receives various products about which she can write reviews if she wants to do so. If she receives a free bag of the new dog food through this program, her positive review would be considered an endorsement under the Final Guidelines and would have to be disclosed. The Final Guidelines specify that while decisions will be reached on a case-by-case basis, the post of a blogger who receives cash or in-kind payment to review a product is considered an endorsement. Thus, bloggers who make an endorsement must disclose the material connections they share with the seller of the product or service.
It is worth noting that bloggers are also potentially subject to liability for misleading or unsubstantiated representations made in the course of endorsement. A blogger is also liable if he/she fails to disclose clearly and conspicuously that he/she is being paid for his/her services. In order to limit potential liability, all those in the marketing stream should ensure that bloggers are provided with guidance and training concerning the need to ensure that statements they make are truthful and substantiated. Advertisers and networks should also monitor bloggers who are being paid to promote its products and take steps necessary to halt the continued publication of deceptive representations when they are discovered.
During a recent interview with Inside Edition, I discussed FTC regulatory compliance and legal issues concerning celebrity endorsements. The Final Guidelines make it clear that celebrities have a duty to disclose their relationships with advertisers when making endorsements outside the context of traditional ads, such as on talk shows or in social media. For example, an infomercial for a home fitness system is hosted by a well-known entertainer. During the infomercial, the entertainer demonstrates the machine and states that it is the most effective and easy-to-use home exercise machine that she has ever tried. Even if she is reading from a script, this statement would be an endorsement, because consumers are likely to believe it reflects the entertainer’s views.
While the previous version of the relevant guidelines did not explicitly state that endorsers as well as advertisers could be liable under the FTC Act for statements they make in an endorsement, the Final Guidelines and recent regulatory enforcement actions reflect Federal Trade Commission case law and clearly state that both all those in the marketing stream, including networks and endorsers may be liable for false or unsubstantiated claims made in an endorsement – or for failure to disclose material connections between the advertiser and endorsers.
If you are using a consumer’s to describe what a product will do for an average consumer, everyone in the marketing stream must be prepared to substantiate that the individual making the statement is, indeed, an average consumer. If it was an extraordinary result, the public must be informed what the typical result is.
Be vigilant about the use of consumer endorsements. An advertisement employing endorsements by one or more consumers about the performance of an advertised product or service will be interpreted as representing that the product or service is effective for the purpose depicted in the advertisement. Therefore, the those in the marketing stream must possess and rely upon adequate substantiation, including, when appropriate, competent and reliable scientific evidence, to support such claims made through endorsements in the same manner as others in the marketing stream would be required to do if they had made the representation directly, i.e., without using endorsements.
Consumer endorsements themselves are not competent and reliable scientific evidence. An advertisement containing an endorsement relating the experience of one or more consumers on a central or key attribute of the product or service also will likely be interpreted as representing that the endorser’s experience is representative of what consumers will generally achieve with the advertised product or service in actual, albeit variable, conditions of use. Therefore, as set forth above, all those in the marketing stream should possess and rely upon adequate substantiation for this representation. If those in the marketing stream do not have substantiation that the endorser’s experience is representative of what consumers will generally achieve, the advertisement should clearly and conspicuously disclose the generally expected performance in the depicted circumstances, and all those in the stream the stream must possess and rely on adequate substantiation for that representation.
Please note that the information conveyed in this article is provided for informational purposes only and does not constitute, nor should it be relied upon, as legal advice. This is only a brief overview of some of the legal and regulatory issues surrounding the use of testimonials and endorsements.
Remember to obtain guidance from a licensed and experienced affiliate marketing attorney to ensure that your matter is handled properly from the beginning.