The Federal Trade Commission (FTC) is poised to issue updated Guides Concerning the Use of Endorsements and Testimonials in Advertising (the Guides) following a comment period on the proposed changes. This Holland & Knight alert provides an overview of the FTC’s proposed updates and the potential impact on companies advertising through social media and similar channels.
Introduction: Social Media Advertising Is Regulated
Through the FTC Guides
Through publication of the Guides, the FTC seeks to advise businesses on the proper disclosures and methodology of endorsement and testimonial advertising, as enforced through Section 5 of the FTC Act. The Guides are advisory only – they are guidelines – but the FTC publishes them to put those in the marketplace on notice of what is expected to avoid an enforcement action under the FTC Act’s deception sections.
Generally, the Guides define endorsements and testimonials as an advertising message that leads consumers to believe it depicts the opinions, beliefs or experience of someone other than the advertising business. These types of advertisements, as other advertisements, must be honest, truthful and non-misleading, and must reflect the actual opinions or experience of the endorser. This is especially true because the advertiser must be able to substantiate any claims of its endorsers, and endorser claims will be interpreted as representing a typical experience that consumers can also expect to have. (If this is not the case, a brand must clearly and conspicuously disclose what a typical experience would be.)
Moreover, the Guides require an “expert endorser” – one with the experience, training or knowledge superior to regular consumers – to have the qualifications so represented and that would give the expert endorser expertise in the area of endorsement.
Importantly, the Guides require an endorser to fully disclose any material connection between themselves and the brand, if that connection might materially affect the weight or the credibility of the endorsement. The endorser must actually use the product when giving the endorsement (and “actual consumers” must be actual consumers, or otherwise clearly and conspicuously disclosed as not actual consumers), and brands may be liable for false or unsubstantiated endorser statements or for failing to disclose any material connection. Unsurprisingly, the endorser may also be liable for statements that he or she makes.
Brands should be aware that the FTC expects its decision-making process on endorsements to be formed by the collective judgment of the business, not by a siloed department or personnel.
Through FTC Enforcement Actions
The FTC has engaged in a number of enforcement actions involving social media, including a recent settlement against Fashion Nova. There, the FTC alleged that the fashion retailer misrepresented product reviews on its website – specifically, that the posted reviews represented the ratings of all customers who submitted a review, when the posted reviews really only represented the portion of reviews submitted with 4 stars or higher out of 5 stars. All other reviews posted to the website were suppressed. Through the settlement, the retailer is prohibited from suppressing customer reviews and agreed to pay the FTC $4.2 million.
Social media is also subject to review by state attorneys general through their “deception” jurisdiction.
Impact of Updated and Revised Guides
The FTC seeks comments on the revisions to the Guides online or in paper form and will publish the comments on Regulations.gov.
The proposed revisions to the Guides impact all businesses who engage in any form of social media advertising. The FTC continues to catch up to technological and societal advancements, especially in the advertising realm, and is not shy in bringing enforcement actions against bad actors in this space. In these actions, the FTC uses the same rules and regulations it has used for decades to enforce unfair and deceptive practices, this time expanding the scope to social media endorsers and the brands they advertise for.
As Commissioner Rebecca Kelly Slaughter stated last month, the FTC is attempting to bring more clarity, guidance and deterrence to this space. The goal of the Guides is to provide honest businesses with clear guardrails and not ambiguous hypotheticals.
The burden falls on all businesses to be aware of these developments and to comply with the rules and regulations enforced by the FTC. Thus, it is critical that all companies engaging in any form of social media advertising comply with the guardrails set forth in the Guides.
Businesses should especially be aware that:
- The proposed revisions represent the FTC’s focus and interest on the deceptive practices of endorsers and their brands.
- Targeting specific audiences, including the elderly and children, requires audience-specific disclosures.
- Material connections must be clearly and conspicuously disclosed. Brands should determine whether they have “material” connections, then disclose them.
- Online reviews must be honest, real and not gated (i.e., a brand must not suppress negative reviews).
Proposed Revisions, Explained
Among the various proposed revisions to the Guides, there are many that brands should be aware of and comply with, as stated in the FTC’s notice of proposed changes.
a. Definition of “endorsement”: The proposed revisions would clarify the definition of “endorsement” to clarify that “marketing” and “promotional” messages may be endorsements. The revised definition would also indicate that tags in social media posts can be endorsements.
b. Fabricated endorsers: Because an endorser could be an individual, group or institution, the revised Guides would apply to endorsements by fabricated endorsers.
c. Bots, fake accounts: It remains illegal to sell, purchase or use bots or other fake social media accounts to market goods and services.
d. Purchasing or creating indicators: It is a deceptive practice for users of social media to purchase or create indicators of social media influence.
e. Definition of “product”: The Commission proposes modifying the definition to clarify that a “product” includes a “brand.”
f. Definition of “clear and conspicuous”: The proposed revisions add a new definition of “clear and conspicuous,” meaning a disclosure that “is difficult to miss (i.e., easily noticeable) and easily understandable by ordinary consumers.” The definition:
– gives specific guidance to visual and audible disclosures
– stresses the importance of “unavoidability” when the communication involves social media or the internet
– states that the disclosure should not be contradicted or mitigated by, or inconsistent with, anything in the communication
Generally, the format of the disclosure should be consistent with the format of the representation (i.e., when the triggering claim is visual, the disclosure should be at least visual).
g. Targeting of an audience: The definition of “clear and conspicuous” notes that when an endorsement targets a specific audience, such as older adults, its effectiveness will be evaluated from the perspective of members of that group.
– New Section 255.6: The Commission proposes adding a section stating: “Endorsements in advertisements addressed to children may be of special concern because of the character of the audience. Practices which would not ordinarily be questioned in advertisements addressed to adults might be questioned in such cases.”
h. Endorser liability: Endorsers themselves may be subject to liability for their statements, including when they make representations that they know or should know to be deceptive. The level of due diligence required by the endorsers will depend on their level of expertise and knowledge, among other factors.
i. Liability for intermediaries: 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. In an example from the proposed revisions, advertising agencies may be liable when they intentionally engage in deception or that ignore obvious shortcomings of claims; they may also be liable if they fail to disclose unexpected material connections (by disseminating advertisements without necessary disclosures of material connection or by hiring and directing the endorsers who fail to make necessary disclosures).
j. Images and likeness of people: The use of an endorsement with the image or likeness of a person other than the actual endorser is deceptive if it misrepresents a material attribute of the endorser.
k. Modification of past posts: An endorser does not need to go back and modify or delete past social media posts as long as the posts were not misleading when they were made and the dates of the posts are clear and conspicuous to viewers. However, if the endorser or publisher reposts the post, it would suggest to reasonable consumers that the endorser continued to hold the views expressed in the prior post.
l. Liability for paid endorser: A paid endorser and the company paying the endorser are both potentially liable for the endorser’s social media post that fails to disclose the endorser’s relationship to the company.
m. Seller agreements to display reviews: In 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. This is true regardless of whether the reviews are considered “endorsements” under the Guides.
n. When sellers are not required to display reviews: Sellers are not required to display 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. Sellers are not required to display reviews that are unrelated to their products or services (such “services” include customer service, delivery, returns and exchanges).
o. Paying for positive reviews: Such reviews are deceptive, regardless of any disclosure of the payment, because the manufacturer has required that the reviews be positive.
p. Solicitation of feedback from customers: “Review gating” means practices that involve obtaining customer feedback and then sending satisfied and dissatisfied customers down different paths in order to encourage positive reviews and avoid negative reviews. Such disparate treatment may be an unfair or deceptive practice if it results in the posted reviews being substantially more positive than if the marketer had not engaged in the practice.
q. Ranking by third-party review site and paid ranking boosts: A site that provides rankings of various manufacturers’ products and accepts payments in exchange for higher rankings is deceptive regardless of whether the website makes an express claim of independence or objectivity. There is also potential liability of a manufacturer that pays for a higher ranking. If a manufacturer makes payments to the review site but not for higher rankings, there should be a clear and conspicuous disclosure regarding the payments, with a cross-reference to an example involving payments for affiliate links.
r. Requirement of disclosure of material connections: Advertisers must disclose connections between themselves and their endorsers that might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience). The disclosures must:
– Be clear and conspicuous. The proposed revisions add a definition of that phrase (as discussed above), and delete the more ambiguous statement that such disclosures must be “fully” disclosed.
– Disclose any “material connection.” 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 free or discounted products.
– Although the nature of disclosure does not require the complete details of the connection, it must clearly communicate the nature of the connection sufficiently for consumers to evaluate its significance.
s. Celebrity endorsement interviews and disclosures during interviews: A disclosure should be made during a celebrity interview because a disclosure during the show’s closing credits is not clear and conspicuous. If the celebrity makes the 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.
t. Reuse of a celebrity’s social media post: When reusing a celebrity’s social media posts in its own social media, an advertiser should clearly and conspicuously disclose its relationship to the celebrity (assuming the initial post necessitated a disclosure).
u. Blogger who monetizes content: A blogger who writes independent content reviewing products and who monetizes that content with affiliate links should clearly and conspicuously disclose the compensation.
Social Media Policies Are Required, and Compliance is Mandatory
The FTC has made it clear: Social media policies are a must. As the authors have found out in defending several companies in FTC investigations, there are no exceptions for the size of the business, the product or service being sold, or the industry. Every business that engages in social media advertising must have a formal social media policy. Those policies should be implemented with management oversight and must be effective. The policies should be communicated to third-party vendors as well as employees.
The FTC expects marketers to train employees on proper social media use. This obligation may extend beyond employees to third-party agents depending on the underlying relationship between a third-party agent and the marketer. Finally, some form of monitoring is expected to ensure compliance with the marketer’s social media policy and the FTC’s regulations and guidance.
How We Can Help
Holland & Knight’s Consumer Protection Defense and Compliance Team includes a robust social media practice, with experienced attorneys that are recognized thought leaders in the field. From representing dozens of companies and individuals in federal and state investigations concerning advertising and marketing to compliance counseling and transactional contract matters involving celebrities, the firm’s practice includes regulatory, compliance, litigation, investigation and transactional work in the social media space.
For more information or questions about the specific impact that social media advertising and marketing regulations can have on you or your company, contact the authors.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.