Effective December 1, 2009, the Federal Trade Commission has revised its guides concerning the use of endorsements and testimonials in advertising for the first time since 1980. The FTC began this review in 2007. Following two rounds of public comments and an interim Federal Register notice published in November 2008, the FTC published its final revisions to the guides in the Federal Register on October 15, 2009. These guides do not have the force of law; rather, they provide guidance on how the FTC might apply the FTC Act’s prohibitions on unfair or deceptive acts or practices in various situations.
The revision that has garnered the most attention in the national media has been the FTC’s decision to expressly bring new consumer-generated media endorsements within the ambit of the guides. A second important revision eliminates a long-standing safe harbor for testimonials reflecting non-typical consumer experiences. The third major revision more clearly establishes that celebrity endorsers, and not just advertisers, could be liable under the FTC Act for misleading statements made in an endorsement.
With respect to new consumer-generated media endorsements, the FTC’s revision provides guidance on when a blogger’s positive review of a product or service could become an “endorsement” subject to the guides. The guides define an “endorsement” as “any advertising message … that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser.” Endorsements must reflect the honest opinions of the endorser, and endorsements cannot be deceptive.
The FTC was concerned that a consumer-generated blog touting a product or service could be misleading if the blogger received a free sample from the advertiser in exchange for his review and that connection was not disclosed by the blogger to the public. However, the FTC had to balance that concern against the gray area of when a blogger stops being a mere speaker and starts being an endorser based on a relationship with an advertiser.
The standard crafted by the FTC in the revised guides directs advertisers and speakers to consider if their relationship “is such that the speaker’s statement can be considered ‘sponsored’ by the advertiser and therefore an ‘advertising message’.” In other words, the FTC cautions advertisers and speakers to ask themselves whether the speaker is acting independently or acting on behalf of the advertiser.
Factors that inform this analysis include whether the speaker is compensated by the advertiser or its agent, whether the product or service in question was provided for free by the advertiser, the terms of any agreement, the length of the relationship, the previous receipt of products or services from the same or similar advertisers, the likelihood of future receipt of such products or services, and the value of the items or services received.
In expressly bringing new consumer-generated speech within the guides, the FTC responded to industry comments expressing fears that doing so would create intolerable uncertainty and would chill speech. The FTC explained that its guides do not expand application of the FTC Act’s prohibition on unfair or deceptive acts or practices; rather, they clarify how those prohibitions may be applied by the Commission. On the other hand, the FTC also explained that blogs can mislead the public if the speaker has received a meaningful incentive from an advertiser in connection with a review and that exchange is not disclosed.
The FTC indicated that the advertiser rather than the blogger would typically be the first target of the Commission’s interest. Although in the context of consumer-generated speech, advertisers cannot always know whether endorsers are providing necessary disclosures about sponsorship, the FTC expects advertisers to advise bloggers about applicable legal standards, monitor bloggers for compliance, and take action in the event of non-compliance. In addition, the FTC referred repeatedly to the Commission’s “prosecutorial discretion,” likely to assuage the blogging community that the FTC does not intend to barge in to people’s basements and seize computers used in consumer-generated reviews.
With respect to testimonials reflecting non-typical consumer experiences, the FTC reversed its long-held position that an advertisement could properly contextualize a non-typical statement with a disclosure that the result was not typical. This most often arises with respect to weight-loss advertising, but could apply equally in any case where a consumer’s extreme result is promoted, such as money saved with respect to a particular financial transaction.
Under the 1980 guides, an advertiser could present an atypical consumer experience and modify it with a disclosure that consumers should not expect a similar experience. Under the revisions taking effect on December 1, this “results not typical” disclosure will no longer be sufficient. The FTC explained that it had found that consumers did not absorb the disclosure; rather, consumers expected their experience to track the atypical testimonial, notwithstanding the disclosure. As a result, advertisements containing testimonials based on non-typical consumer experiences should now supplement the non-typical testimonial with a disclosure providing the generally expected performance of the product or service in the depicted circumstances.
As with respect to the new-media revision, the FTC explained that this revision did not affect advertisers’ underlying obligations under the FTC Act. Advertisers will continue to bear the burden of not misleading consumers; just as an advertiser cannot present unusual experiences as typical in a straightforward marketing claim, the advertiser cannot use a consumer testimonial to make a similar misrepresentation.
Finally, the FTC revised the guides to explain issues of liability in the context of celebrity endorsements. Advertisers noted that they could not always ensure that a celebrity would provide all material disclosures in all settings, such as a talk-show interview for which a celebrity has been paid to tout a product or service. Representatives of celebrity endorsers noted that they could not always know what information was material to the endorsement and therefore should be disclosed. In response, the FTC explained that both advertisers and celebrity endorsers should take reasonable steps to avoid misleading the public. Advertisers should routinely advise endorsers about important information that should be provided, and celebrity endorsers should do some homework about their endorsement before making it. Again, the FTC noted that its prosecutorial discretion would come into play to mitigate chilling of speech in this context.
For any advertiser contemplating the use of endorsements or testimonials, the FTC’s revised guides should be required reading. This is especially true for those considering new consumer-generated media endorsements, testimonials of non-typical results, and celebrity endorsements. Even those who do not engage in these forms of advertising may be interested in the revised guides. The standards and examples presented in the guides provide a helpful look at how the Commission applies its authority to target unfairness and deception under the FTC Act.
Michael Goodman is a partner in the Washington, D.C., office of Hudson Cook, LLP. Basis Points readers can reach Michael at 202-327-9704 or by email at mgoodman@hudco.com.