The Federal Trade Commission (FTC) is proposing to update its Guides Concerning the Use of Endorsements and Testimonials in Advertising to address new marketing methods introduced since the Guides were last updated in 2009. Comments on the proposed changes should be filed within 60 days of Federal Register Publication.
The revisions describe the types of material connections between endorsers and advertisers that must be disclosed, define a “clear and conspicuous” disclosure, disallow certain practices currently used by advertisers such as posting fake positive reviews and suppressing negative reviews, and explaining when influencers and intermediaries are liable for inaccurate statements made in endorsements.
The revisions clarify that marketing and promotional messages can be endorsements, and virtual influencers and computer-generated characters can be endorsers. Tags in social media posts are also considered endorsements.
The revisions provide specific examples of material connections and how these connections should be disclosed. Examples include a business, family, or personal relationship; providing payment, discounted, and/or free products or services; early access to products; or the chance to appear on television or win a prize. Required disclosures must clearly communicate the nature of the connections to allow consumers to evaluate their significance.
To illustrate how the Guides Apply to affiliate marketing, the revisions provide an example in which a blogger independently writes a review of a product with embedded links to the website(s) where consumers can buy it. If the blogger receives a benefit or compensation, such as a percentage of the sale when a consumer clicks on the link and buys the product, the review must clearly and conspicuously disclose the compensation.
The revisions also propose to clarify that a connection does not have to be disclosed when it is understood or expected by all but an insignificant portion of the audience. For example, the FTC stated that if the host of a podcast reads a commercial for a product, listeners would likely expect that the host was compensated, so the payment does not have to be disclosed. The FTC noted, however, that depending on what is said, the audience may think the host is expressing his or her own views, in which case the host would actually need to hold those views.
The proposed revisions add a definition of “clear and conspicuous” and explain that disclosure tools now used by many social media platforms do not comply with the definition. A “clear and conspicuous” disclosure is defined as “difficult to miss (ie, easily noticeable) and easily understandable by ordinary consumers.” When the endorsement is visible, the disclosure must also be visual; when the endorsement is audible, such as in a podcast or radio ad, the endorsement must also be audible and delivered in a volume, speed and cadence so that consumers can easily hear and understand it; And when the endorsement is both visual and audible, such as in a television or internet ad, the disclosure must also be both visual and audible.
A disclosure that is “clear and conspicuous” when viewed on a computer browser but not on a smartphone does not comply with the new definition. A social media post that superimposes a disclosure over a poorly contrasting picture does not comply.
The revised Guides make clear that using certain practices with respect to consumer reviews is considered misleading and unfair. These practices include deleting or not publishing negative reviews, threatening customers that leave negative reviews, “review gating” (that is, sending satisfied and dissatisfied customers down different paths to encourage positive reviews while avoiding negative reviews), and buying fake reviews.
Liability for Advertisers, Endorsers, and Intermediaries. The revised Guides state that an advertiser may be liable for an endorser’s deceptive statement even when the endorser is not liable. The revisions illustrate the advertiser’s liability for procuring fake reviews for its product that appear on its own website and on third-party review websites. The advertiser is liable for procuring reviews from non-bona fide users and for any unsubstantiated claims made in fake reviews.
The revisions include new sections addressing the potential liability of endorsers and intermediaries. An endorser may be liable for failing to disclose unexpected material connections with an advertiser. Paid endorsers and companies paying the endorser are both potentially liable for an endorser’s social media posts that fail to disclose the endorser’s relationship to the company. Endorsers themselves may be subject to liability for their statements when making representations they know or should know to be deceptive.
Intermediaries such as marketing and public relations firms are liable for disseminating what they know or should know are deceptive endorsements including, for example, agencies that ignore the obvious shortcomings of claims they disseminate, disseminate advertisements that do not disclose unexpected material connections, or that hire and direct endorsers who fail to make necessary disclosures.