- It is important to note that the Guidelines are
neither laws, regulations, administrative rulings, legislative or court
authority, nor do they have the force of law. The Guidelines are just
that, i.e., guidelines that represent the FTC’s administrative
interpretation that asserts the FTC’s position with respect to
advertiser compliance with the FTC Act. The FTC recognizes that it will
have the burden of proving deceptive activity in any law enforcement
action.
The FTC makes this point clear in its own words and
news release of October 5, 2009 regarding the updated Guides:
The Guides are administrative interpretations of the law intended to
help advertisers comply with the Federal Trade Commission Act; they are
not binding law themselves. In any law enforcement action challenging
the allegedly deceptive use of testimonials or endorsements, the
Commission would have the burden of proving that the challenged conduct
violates the FTC Act.
- Although the
Guides may seem more appropriate in the conventional advertising context
of television, radio, print or internet media that is organized and
sponsored by a central company advertiser, the Guide rules, if and when
applied to individual direct selling distributor testimonials, in the
course of individual distributor promotion, are potentially quite
troubling and over burdensome to direct selling companies. Disclosure of
connection or relationship with the direct selling company is not an
issue. However, the requirement of posting companion "typical results
surveys" in many or most instances is overkill that cannot possibly
monitor product testimonials by millions of independent distributors.
- The assumption that the average reasonable
consumer will be unduly swayed to buy product by an individual distributor,
providing an honest testimonial that he or she "lost 10 pounds in a month"
on company products or "saved $10 on their home heating bill or telephone
bill," does not accord sufficient respect to the intelligence and market
decision making of the average reasonable consumer. The potential influence
of one distributor’s experience, posted on a social networking site, such as Facebook, is likely overrated. It has long been recognized that the
reference to a pastry as a Danish is not understood by the average
reasonable consumer as a product imported from Denmark. The stronger case
can be made for the influence of a famous celebrity. As the administrative
enforcement case law develops, hopefully some distinction can be made
between the product testimonial of a distributor and the testimonial or
endorsement of a celebrity. In addition, perhaps distinctions may develop as
to the extent of such testimonials, i.e. "I lost 10 pounds in a month" vs.
"I lost 10 pounds in a day."
- The Guide would seemingly impose liability on the
direct selling company for the promotional testimonials of its independent
contractor distributors. In an industry where direct selling companies
utilize a network of millions of "amateur" home-based independent contractor
distributors, the task of monitoring all media, including social networking
and blogs, becomes a virtually impossible task and burden. Although it is
understandable that the company should play a responsible role in enforcing
the ultimate adjudicated rules and standards, imposing liability in this
context, at least prior to an adjudication that renders a clear defining
standard, seems quite unfair.
- Direct selling, network marketing, MLM and party plan
companies, faced with the new Guides, which have not yet been interpreted
and ruled upon in court or administrative adjudication proceedings, will
need to explore their own compliance responsive action ranging from "wait
and see" to aggressive adoption of rules, training, monitoring and
enforcement. On a spectrum of action, the following may be under
consideration by companies, which must make their own policy risk decisions:
- Since the Guides are just that,
i.e., guides, a company may wish to monitor the regulatory dialogue,
enforcement action and litigation in this area to understand the specific
impact on instances involving direct selling distributor testimonials.
Presumably, evolving case decisions will be based on "case by case" facts,
and expected standards will develop for fact sensitive scenarios. For
instance, and hopefully, the burden of disclosure in a corporate sponsor
advertisement featuring a well-known celebrity may be deemed to be much
more stringent than an isolated testimonial of performance use by an
independent home-based business direct selling distributor at a blog site
or social networking site. At the very least, the company would advise
distributors, when making testimonials about product experience, to
disclose their company affiliation, to be honest in their statements and
to speak about product performance experience in a more general
satisfaction manner than specifics that imply claims. An additional
paragraph to policies might provide:
A distributor that provides a product experience
testimonial, in any medium should use care to disclose affiliation with the
company, be honest in their testimonial personal experience, assert that
they are not claiming that their experience is the typical results
experience of potential consumers.
Moving along the spectrum from "do nothing" to "be
honest" would be a policy decision to an aggressive compliance policy
paragraph, that must be, at the very least, considered among the choices of
policy risk decision making, even if viewed as an unattractive alternative:
A distributor shall not provide a specific product
experience testimonial, in any medium, unless the distributor discloses
affiliation with the company, is honest and sincere in the specific product
experience testimonial and unless the distributor discloses "typical product
results expectations data and information for consumers" as researched and
published by the company.
The FTC News Release
dated October 5, 2009 is a succinct summary of new FTC rule and its
intended effect:
FTC News Release
http://www.ftc.gov/opa/2009/10/endortest.shtm
For Release:
10/05/2009
FTC
Publishes Final Guides Governing Endorsements, Testimonials
Changes Affect
Testimonial Advertisements, Bloggers, Celebrity Endorsements
The
Federal Trade Commission today announced that it has approved final
revisions to the guidance it gives to advertisers on how to keep their
endorsement and testimonial ads in line with the FTC Act.
The
notice incorporates several changes to the FTC’s Guides Concerning the Use
of Endorsements and Testimonials in Advertising, which address
endorsements by consumers, experts, organizations, and celebrities, as
well as the disclosure of important connections between advertisers and
endorsers. The Guides were last updated in 1980.
Under the
revised Guides, advertisements that feature a consumer and convey 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. In contrast to the 1980 version of the Guides – which
allowed advertisers to describe unusual results in a testimonial as long
as they included a disclaimer such as “results not typical” – the revised
Guides no longer contain this safe harbor.
The
revised Guides also add new examples to illustrate the long standing
principle that “material connections” (sometimes payments or free
products) between advertisers and endorsers – connections that consumers
would not expect – must be disclosed. These examples address what
constitutes an endorsement when the message is conveyed by bloggers or
other “word-of-mouth” marketers. The revised Guides 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.
Likewise, if a company refers in an advertisement to the findings of a
research organization that conducted research sponsored by the company,
the advertisement must disclose the connection between the advertiser and
the research organization. And a paid endorsement – like any other
advertisement – is deceptive if it makes false or misleading claims.
Celebrity
endorsers also are addressed in the revised Guides. While the 1980 Guides
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
revised Guides reflect Commission case law and clearly state that both
advertisers 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. The revised Guides also
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.
The
Guides are administrative interpretations of the law intended to help
advertisers comply with the Federal Trade Commission Act; they are not
binding law themselves. In any law enforcement action challenging the
allegedly deceptive use of testimonials or endorsements, the Commission
would have the burden of proving that the challenged conduct violates the
FTC Act.
The
Commission vote approving issuance of the Federal Register notice
detailing the changes was 4-0. The notice will be published in the Federal
Register shortly, and is available now on the FTC’s Web site as a link to
this press release.
I. FTC REGULATION OF ENDORSEMENTS.
Under § 5 of the Federal Trade Commission Act, the
Commission has broad authority to prohibit "unfair or deceptive acts or
practices" in interstate commerce. 15 U.S.C. § 45. This is the statute that
gives the FTC authority to regulate deceptive advertisements. An
advertisement is considered deceptive if it contains a misrepresentation or
an omission that is likely to mislead consumers who are acting reasonable
under the circumstances, and the consumers are injured through the
deception. Deceptive claims must be material to the consumer's decision to
buy, but the FTC does not need to prove actual injuries. Deception Policy
Statement, appended to Cliffdale Associates, Inc. 103 F.T.C. 110, 174 (1984).
We have attached a general Memorandum regarding the FTC’s regulation of
marketing claims to this Memorandum for more detail on still relevant
general requirements.
II. GENERAL PRINCIPLES
It has long been held by the FTC and courts that an
advertisement is deceptive and violates § 5 where the advertisement contains
false or deceptive endorsements or testimonials. See In the Matter of Numex
Corp., 116 F.T.C. 1078 (1993). In 1980, the FTC issued the Guides Concerning
Use of Endorsements and Testimonials in Advertising, 16 C.F.R. § 255. The
FTC believed that consumers would often give added weight to the opinions of
"expert" or celebrity endorsers in making product decisions, and, therefore,
product endorsements must be nondeceptive. Generally, the FTC
interpretations stated that endorsements could not contain representations
made by third parties which would be deceptive, or claims that the
advertiser does not have a reasonable basis for making, if the advertiser
made the claim directly.
Pursuant to the Guides, advertisers must possess
reliable evidence to support any underlying claims conveyed to consumers by
the endorsements, as the endorsements are not themselves substantiation for
advertising claims. If an endorser claims to be a user of the product, the
endorser must in fact be a bona fide user of the product. Endorsements may
not be presented out of context or reworded so as to distort in any way the
endorser’s opinion or experience with the product. An advertiser may use an
expert’s or celebrity’s endorsement only so long as it has reason to believe
that the endorser continues to subscribe to the views presented. In
addition, any "material connection" between the endorser and the advertiser
that might materially affect the credibility of the endorsement must be
disclosed where it isn’t obvious the endorser was paid. 16 C.F.R. § 255.1.
All of these general principles that formed the
earlier Guide are still in effect. What has changed is basically the
recognition that disclosure of relationships is important to a consumer’s
decision-making process, and that disclosure is required in new internet
media, as well as communication through traditional media outlets.
Expert Endorsers.
An expert must be truly qualified as such, and an
expert endorsement must be supported by examination or testing of the
product at least as extensive as reasonable experts in the field generally
agree would be needed to support the conclusions presented in the
endorsement. 16 C.F.R. § 255.3(b). Basically, the expert must be real, an
expert in the relevant field, and any claims made must be based on the
expert’s factually substantiated opinion.
Consumer Endorsers.
Advertising using testimonials by consumers will
generally be interpreted to convey that the endorser's experience is
representative of what consumers will typically achieve with the product in
actual use. 16 C.F.R. § 255.2(a). If this is not the case, the advertiser
must (1) clearly disclose the limited applicability of the endorser's
experience to what consumers may expect to achieve or (2) must disclose what
the generally expected performance would be in the circumstances shown.
Consumer endorsements may not contain claims that the advertiser cannot
substantiate if the advertiser were to make them directly.
Celebrity Endorsers.
Celebrity endorsers who claim to use the product
endorsed must actually be a user of the product, and the endorsement must
reflect the "honest opinions, findings, beliefs, or experience" of the
celebrity. This is a requirement of all endorsements. Advertisers must
substantiate not only the accuracy of the celebrity’s claims, but also any
underlying claims of product efficacy conveyed to consumers through the
endorsement. 16 C.F.R. § 255.1(a).
Organizational Endorsers.
Organizational endorsements must be representative of
the opinion of the members of the organization. If an organization is made
up of professionals or experts, then they must have conducted the kind of
tests or have the kind of experience that experts would recognize as a valid
basis for giving an opinion.
III. NEW RULES
General Principals.
Under the revised Guides, advertisements that feature
a consumer, 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. In the earlier version,
advertisers were allowed to use unusual results in a testimonial as long as
they included a disclaimer such as "results not typical." In the revised
Guides, there is no longer a safe harbor for the statement "Not all
consumers will get this result." This type of statement is no longer
effective as a disclaimer that the endorser's claimed experience is
representative of what a consumer will typically achieve. 16 C.F.R. § 255.2.
If the advertisement suggests an endorser is an actual consumer, he or she
must not be a paid actor, unless that fact is disclosed.
The earlier Guides did not contain a statement that
endorsers could be liable under the FTC Act for statements they make in an
endorsement, as well as advertisers, though FTC cases held this to be the
state of the law. Synchronal Corp., 116 F.T.C. 1189 (1993); The revised
Guides reflect Commission case law and clearly state that both advertisers
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. The revised Guides also 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.
New Media.
The FTC included Guide provisions regarding new forms
of consumer-generated media, such as the use of blogs, word of mouth
marketing campaigns or "sponsored conversations" through examples intended
as guidance on whether or not such communications are endorsements requiring
substantiation and disclosure. In general, social media posts are considered
sponsored advertising messages and are regulated by the FTC if they meet
certain conditions. The FTC will look at a number of factors in deciding
whether or not there is a "material connection" between an advertiser and a
person discussing its product and, therefore, a post should be considered an
endorsement, including whether the poster: (1) is compensated (in cash or
products) by the marketer or a third party; (2) has an ongoing relationship
with the marketer; (3) participates in a word of mouth marketing program
that provides products to review publicly; and (4) receives similar products
or services regularly, or expects to in the future. 16 C.F.R. § 255.5. An
example from § 255.0 of the revised Guides setting out what is or is not an
endorsement demonstrates this:
Example 8: 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 Guides.
Assume that rather than purchase 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 Guides.
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 Guides.
The FTC states "that in analyzing statements made
via these new media, the fundamental question is whether, 'viewed
objectively, the relationship between the advertiser and the speaker is
such that the speaker’s statement can be considered "sponsored" by the
advertiser and therefore an "advertising message."'" Notice of adoption of
revised Guides. Federal Register: October 15, 2009 (Volume 74, Number
198). The FTC states that the factual situations that could give rise to
an application of the endorsement rules are too varied to delineate.
However, the Guide contains numerous examples intended to give some idea
as to its parameters. The examples are instructive, and are attached at
the end of this memorandum.
Where a person is an endorser covered by the rules,
this fact should be disclosed prominently, as should the payment or
promise of compensation prior to and in exchange for the endorsement.
As for the endorsements themselves, they are subject
to the same rules regarding disclosure, substantiation and liability as
were in place with traditional media endorsements. Endorsements must
reflect the honest opinions, findings, beliefs, or experience of the
endorser. The endorsement may not be presented out of context or reworded
so as to distort the endorser’s opinion. The endorser, if represented as a
user of the product, must have been an actual user at the time of the
endorsement.
Under the new rule, both advertisers and endorsers
may be liable for statements made in the course of their endorsements that
are false or unsubstantiated, or for failing to disclose material
connections between themselves and their endorsers. The following is an
example from § 255.1 of the new rules regarding liability for the
statements of bloggers:
Example 5: A skin care products advertiser
participates in a blog advertising service. The service matches up
advertisers with bloggers who will promote the advertiser’s products on
their personal blogs. The advertiser requests that a blogger try a new
body lotion and write a review of the product on her blog. Although the
advertiser does not make any specific claims about the lotion’s ability
to cure skin conditions and the blogger does not ask the advertiser
whether there is substantiation for the claim, in her review the blogger
writes that the lotion cures eczema and recommends the product to her
blog readers who suffer from this condition. The advertiser is subject
to liability for misleading or unsubstantiated representations made
through the blogger’s endorsement. The blogger also is subject to
liability for misleading or unsubstantiated representations made in the
course of her endorsement. The blogger is also liable if she fails to
disclose clearly and conspicuously that she is being paid for her
services. [See § 255.5.]
In order to limit its potential liability, the
advertiser should ensure that the advertising service provides guidance
and training to its bloggers concerning the need to ensure that
statements they make are truthful and substantiated. The advertiser
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.
As may be seen here, if there is a material
connection between a company and a person posting on a blog or other
social media, the company is liable for the false and deceptive
representations made by that person in the endorsement, even if
unauthorized. A company would be well advised to ensure that its bloggers
receive guidance and training concerning the need to ensure that any and
all statements they make are truthful and substantiated. Further, any time
there is a paid or other material connection between the company and a
blogger or other participant in various forms of new social media, this
should be prominently disclosed, as should the details of the connection.
Social media posts by distributors would probably be
considered sponsored advertising messages and be regulated by the FTC
under the Guide, in that the distributor is compensated, and/or has an
ongoing relationship with the company. This creates a duty of disclosure
on the part of the poster, and a duty to monitor and correct on the part
of the company. As stated by the FTC, a marketer should ensure that all
social media posters with a material connection have training and guidance
as to proper disclosure, and "the need to ensure that statements they make
are truthful and substantiated." It also appears that going forward,
companies will need to make a good faith attempt to correct any deceptive
statements.
At this time, it may be necessary for companies to
devise a new rule in its Policies and Procedures dealing with endorsements
and testimonials in general, and the use of social media in marketing. In
addition, companies may wish to develop training and best practices
programs as well as a protocol for monitoring and enforcement by the
company compliance or distributor services department.
Below for discussion and illustration purposes,
only, are actual FTC Examples of Material Connection 16 C.F.R. § 255.5.
Example 1: A drug company commissions
research on its product by an outside organization. The drug company
determines the overall subject of the research (e.g., to test the efficacy
of a newly developed product) and pays a substantial share of the expenses
of the research project, but the research organization determines the
protocol for the study and is responsible for conducting it. A subsequent
advertisement by the drug company mentions the research results as the
“findings” of that research organization. Although the design and conduct
of the research project are controlled by the outside research
organization, the weight consumers place on the reported results could be
materially affected by knowing that the advertiser had funded the project.
Therefore, the advertiser’s payment of expenses to the research
organization should be disclosed in this advertisement.
Example 2: A film star endorses a particular
food product. The endorsement regards only points of taste and individual
preference. This endorsement must, of course, comply with § 255.1; but
regardless of whether the star’s compensation for the commercial is a $1
million cash payment or a royalty for each product sold by the advertiser
during the next year, no disclosure is required because such payments
likely are ordinarily expected by viewers.
Example 3: During an appearance by a
well-known professional tennis player on a television talk show, the host
comments that the past few months have been the best of her career and
during this time she has risen to her highest level ever in the rankings.
She responds by attributing the improvement in her game to the fact that
she is seeing the ball better than she used to, ever since having laser
vision correction surgery at a clinic that she identifies by name. She
continues talking about the ease of the procedure, the kindness of the
clinic’s doctors, her speedy recovery, and how she can now engage in a
variety of activities without glasses, including driving at night. The
athlete does not disclose that, even though she does not appear in
commercials for the clinic, she has a contractual relationship with it,
and her contract pays her for speaking publicly about her surgery when she
can do so. Consumers might not realize that a celebrity discussing a
medical procedure in a television interview has been paid for doing so,
and knowledge of such payments would likely affect the weight or
credibility consumers give to the celebrity’s endorsement. Without a clear
and conspicuous disclosure that the athlete has been engaged as a
spokesperson for the clinic, this endorsement is likely to be deceptive.
Furthermore, if consumers are likely to take away from her story that her
experience was typical of those who undergo the same procedure at the
clinic, the advertiser must have substantiation for that claim.
Assume that instead of speaking about the clinic in
a television interview, the tennis player touts the results of her surgery
– mentioning the clinic by name – on a social networking site that allows
her fans to read in real time what is happening in her life. Given the
nature of the medium in which her endorsement is disseminated, consumers
might not realize that she is a paid endorser. Because that information
might affect the weight consumers give to her endorsement, her
relationship with the clinic should be disclosed.
Assume that during that same television interview,
the tennis player is wearing clothes bearing the insignia of an athletic
wear company with whom she also has an endorsement contract. Although this
contract requires that she wear the company’s clothes not only on the
court but also in public appearances, when possible, she does not mention
them or the company during her appearance on the show. No disclosure is
required because no representation is being made about the clothes in this
context.
Example 4: An ad for an anti-snoring product
features a physician who says that he has seen dozens of products come on
the market over the years and, in his opinion, this is the best ever.
Consumers would expect the physician to be reasonably compensated for his
appearance in the ad. Consumers are unlikely, however, to expect that the
physician receives a percentage of gross product sales or that he owns
part of the company, and either of these facts would likely materially
affect the credibility that consumers attach to the endorsement.
Accordingly, the advertisement should clearly and conspicuously disclose
such a connection between the company and the physician.
Example 5: An actual patron of a restaurant,
who is neither known to the public nor presented as an expert, is shown
seated at the counter. He is asked for his “spontaneous” opinion of a new
food product served in the restaurant. Assume, first, that the advertiser
had posted a sign on the door of the restaurant informing all who entered
that day that patrons would be interviewed by the advertiser as part of
its TV promotion of its new soy protein “steak.” This notification would
materially affect the weight or credibility of the patron’s endorsement,
and, therefore, viewers of the advertisement should be clearly and
conspicuously informed of the circumstances under which the endorsement
was obtained. Assume, in the alternative, that the advertiser had not
posted a sign on the door of the restaurant, but had informed all
interviewed customers of the “hidden camera” only after interviews were
completed and the customers had no reason to know or believe that their
response was being recorded for use in an advertisement. Even if patrons
were also told that they would be paid for allowing the use of their
opinions in advertising, these facts need not be disclosed.
Example 6: An infomercial producer wants to
include consumer endorsements for an automotive additive product featured
in her commercial, but because the product has not yet been sold, there
are no consumer users. The producer’s staff reviews the profiles of
individuals interested in working as “extras” in commercials and
identifies several who are interested in automobiles. The extras are asked
to use the product for several weeks and then report back to the producer.
They are told that if they are selected to endorse the product in the
producer’s infomercial, they will receive a small payment. Viewers would
not expect that these “consumer endorsers” are actors who were asked to
use the product so that they could appear in the commercial or that they
were compensated. Because the advertisement fails to disclose these facts,
it is deceptive.
Example 7: A college student who has earned a
reputation as a video game expert maintains a personal weblog or “blog”
where he posts entries about his gaming experiences. Readers of his blog
frequently seek his opinions about video game hardware and software. As it
has done in the past, the manufacturer of a newly released video game
system sends the student a free copy of the system and asks him to write
about it on his blog. He tests the new gaming system and writes a
favorable review. Because his review is disseminated via a form of
consumer-generated media in which his relationship to the advertiser is
not inherently obvious, readers are unlikely to know that he has received
the video game system free of charge in exchange for his review of the
product, and given the value of the video game system, this fact likely
would materially affect the credibility they attach to his endorsement.
Accordingly, the blogger should clearly and conspicuously disclose that he
received the gaming system free of charge. The manufacturer should advise
him at the time it provides the gaming system that this connection should
be Disclosed, and it should have procedures in place to try to monitor his
postings for compliance.
Example 8: An online message board designated
for discussions of new music download technology is frequented by MP3
player enthusiasts. They exchange information about new products,
utilities, and the functionality of numerous playback devices. Unbeknownst
to the message board community, an employee of a leading playback device
manufacturer has been posting messages on the discussion board promoting
the manufacturer’s product. Knowledge of this poster’s employment likely
would affect the weight or credibility of her endorsement. Therefore, the
poster should clearly and conspicuously disclose her relationship to the
manufacturer to members and readers of the message board.
Example 9: A young man signs up to be part of
a “street team” program in which points are awarded each time a team
member talks to his or her friends about a particular advertiser’s
products. Team members can then exchange their points for prizes, such as
concert tickets or electronics. These incentives would materially affect
the weight or credibility of the team member’s endorsements. They should
be clearly and conspicuously disclosed, and the advertiser should take
steps to ensure that these disclosures are being provided.
Links to Resources:
FTC Guidelines Endorsements and Testimonials: Detailed
Analysis
FTC News Release on Endorsements and Testimonials
FTC Complete
Guidelines Release
FTC Short Version Guidelines Release
FTC Examples of
Material Connection
FTC Regulation of Advertising
