Celebrity Endorsements: A Measured Return on Investment

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A universally accepted objective of brand marketing is to become aligned with a well-respected, credible and complementary brand with sufficient notoriety to positively influence consumer spending. In recent times, well-funded brands have realized this goal by contracting with celebrities who tout the brand and its promises, usually in exchange for money. In recent times, the scope of the rights and obligations attendant to endorsement deals has become a source for conflict between unsatisfied consumers who purchased because of the celebrity endorser.

 

Sir Isaac Newton taught us that every action has an equal and opposite reaction. Applying this equitable “law of motion,” it follows, does it not, that a well-paid celebrity endorser who helped a brand realize significant sales must then take ownership of some of the liability associated with consumer dissatisfaction? According to the Federal Trade Commission (FTC), if the actions of the celebrity were deceptive or misleading, “participant liability” may follow.

 

Agency-Sponsored Guidance, Defined

 

The FTC is an independent agency of the U.S. government, established by the Federal Trade Commission Act. Its principal mission is the promotion of consumer protection and the elimination and prevention of anti-competitive business practices.

 

In 2009, the FTC finalized its revisions to the guidance it gives advertisers on how to keep their endorsements and testimonials in line with the FTC Act. The FTC’s "Guides Concerning the Use of Endorsements and Testimonials in Advertising" (the guides), addresses endorsements by consumers, experts, organizations and celebrities, as well as the disclosure of important connections between advertisers and endorsers. We note that the guides are not binding law. FTC v. Garvey, 383 F.3d 891 (9th Cir. 2004).

According to the FTC, an endorsement is:

 

any advertising message (including verbal statements, demonstrations, or depictions of the name, signature, likeness or other identifying personal characteristics of an individual or the name or seal of an organization) that consumers are likely to believe reflects the opinions, beliefs, findings or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser.

 

To fall in line, an advertising message must convey transparency – to the extent the advertising message features a purported consumer conveying his or her experience, the message must explicitly convey whether the experience is typical and must express what result(s) consumers can reasonably expect. Other transparency requirements include alerting blog-readers when the author actually received cash or in-kind payment in exchange for an endorsement. The FTC further dictates that where an advertising message refers to the findings of a research organization, the message must clearly disclose that the findings are the result of a brand-sponsored study.

FTC Finds Celebrity Endorsement Challenging

 

In 2000, the FTC instituted proceedings against baseball player turned celebrity spokesperson Steve Garvey for false and misleading advertising in connection with an infomercial for dietary supplements. The U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s judgment finding no liability. FTC v. Garvey, 383 F.3d 891 (9th Cir. 2004).

 

During the infomercial, Garvey told the audience, among other things, that Enforma System enables users “to enjoy all those delicious foods that you crave without the guilt while losing weight,” that “it’s all natural, it’s safe and it works,” and that “with Enforma you trap the fat from food before it can go to your waistline.” Both Garvey and his wife used the Enforma System, losing eight and 27 pounds, respectively.

 

The FTC sued Garvey and Enforma for allegedly deceptive acts or practices relating to the dissemination of false and misleading advertising, in violation of Sections 5(a) and 12 of the FTC Act. The appellate court affirmed, explaining that Garvey theoretically could be held liable either: (i) as a “direct participant” in the making of false advertising claims, or (ii) under the principles of “endorser” liability. But, to hold Garvey liable as a direct participant, the FTC had to prove that Garvey had actual knowledge of the material misrepresentations, was recklessly indifferent to the truth or falsity of a representation, or had an awareness of a high probability of fraud along with an intentional avoidance of the truth. The Ninth Circuit found that the FTC failed to meet its burden. In addition, the court found that the substantiation Garvey possessed (firsthand experience and information purporting to present scientific bases for Enforma’s claims) “was sufficient – at least for someone in Garvey’s position – to avoid participant liability.”

 

The FTC premised its “endorser” theory of liability on the published FTC's "Guides Concerning Use of Endorsements and Testimonials in Advertising." The Ninth Circuit observed that the guides were not binding law. But even if the guides had the full force of law, Garvey would not be liable because the FTC failed to prove that Garvey provided a true “endorsement” as defined in the guides. In addition, the FTC failed to prove that Garvey’s statements lacked substantiation. The Ninth Circuit found that Garvey’s claims “that he and his wife lost a certain number of pounds clearly pass any substantiation requirement for celebrity endorsers.”

Although the celebrity prevailed in this instance, others should not be encouraged; the FTC has revamped its position and bases for finding violation of the FTC Act.

 

The 2009 revised guides place celebrities on heightened notice of the potential for “participant liability” for statements made in endorsements. Based on these recently revised standards, celebrities and their advisors should take heed: where the celebrity has decided to earn money by providing an endorsement, with that opportunity comes the responsibility for the celebrity to ensure in advance that the celebrity does not say something that does not “reflect [his or her] honest opinions, findings, beliefs, or experience.” See 16 C.F.R. 255.1(a).

 

Gone Are the Days When Celebrities Can Reasonably Divorce Themselves From Scripts

 

The FTC’s guides can be interpreted as imposing an obligation on celebrity endorsers to ensure that claims made by the advertiser and communicated by the celebrities are independently verified and properly substantiated – thereby requiring celebrities to educate themselves not only on the product at issue, but also on the relevant industry and competition. The practical impact is that even if scripted and absent an expression of personal belief proffered by the celebrity in the advertising message, the celebrity potentially bears liability because the celebrity spoke the words. Indeed, unless bargained for, celebrities are generally excluded from the editing process and as a result have no control over the content of the final advertising message; nor do they possess the expertise needed to assess whether a particular claim violates the FTC Act. Notwithstanding, the celebrity should command as much control over the ultimate message as possible, including actively recognizing whether claims made about a product appear to be false or misleading.

 

According to the guides, 16 C.F.R. 255.1 is not intended to demand that celebrities become experts on the product or the industry; however, it does appear to suggest that celebrity endorsers must make reasonable inquiries to determine whether there is an adequate basis for assertions appearing in a script or other advertising talking points. In addition, when the celebrity is giving an endorsement, the celebrity must be or have been an actual user at the time the endorsement was given; anything less is presumptively deceptive and misleading. The FTC may also allege liability where the celebrity endorser fails to make a material representation. According to the FTC, “when there exists a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience), such connection must be fully disclosed.” 16 C.F.R. 255.5.

 

Kardashians Beware

 

Perhaps taking a page from the FTC, in March 2012, the Kardashian sisters (who have almost become synonymous with brand marketing), among other named defendants, were sued for consumer fraud (among others) relating to the part they played in generating revenue for QuickTrim’s weight loss system. Anaya v. Quick Trim, LLC., et. al., Case No. CIV VS 1201177 Superior Court of the State of California, County of San Bernardino (Filed March 7, 2012); and, Cowan, et. al v. Windmill Health Products, LLC, et al., Case No. 12-CIV-1541, United States District Court, Southern District of New York (Filed March 1, 2012). On behalf of purchasers, a class action lawsuit charged that the weight loss system and its component products, which are allegedly marketed as a clinically proven formula that will increase metabolism, curb appetite and promote weight loss, in actuality contained a large dose of caffeine, which the FDA determined is not a safe or effective treatment for weight control. In addition, the class of purchasers alleged that QuickTrim’s products were also mixed with a variety of herbal ingredients that have never been clinically proven as effective treatments for weight loss or appetite suppression. The class charges that the weight loss system line of products have marketed the weight loss system through a multimedia advertising campaign featuring reality TV star Kim Kardashian and her sisters, Khloe Kardashian-Odom and Kourtney Kardashian, whose images adorn the labels and nearly every advertisement for the product.

 

The sisters are alleged to have been carefully name-dropping the products during television and magazine interviews and telling their fans how they use the brand to lose weight and stay thin:

 

“Just did an amazing pilates class with @KimKardashian,” Khloe tweeted to her fans in 2010. “That and a little QuickTrim and my bikini bod will be ready in no time.”

 

In January 2010, Kim reportedly told an internationally distributed magazine that she used several QuickTrim products to quickly shed 15 pounds in just a few weeks. It is said that Kim Kardashian has more than 13 million twitter followers. In response to her representations, it is reported that Kim’s fans who were inspired by her representations published through social platform websites their intent to try the QuickTrim products. It is reported that the Kardashian stamp of approval earned QuickTrim $45 million in sales.

 

The lawsuit alleges that the sisters “personify the product” and are therefore liable for damages related to the charges for deceptive marketing and consumer fraud.

 

In May 2013, a court preliminarily approved settlement of the class action lawsuit between QuickTrim, Kimberly Kardashian, Khloe Kardashian-Odom, Kourtney Kardashian, Kris Jenner, and others, as filed by plaintiff Teresa Anaya, individually and on behalf of a class of consumers. This case is instructive because the well-known and non-scientist Kardashians are essentially held liable for the alleged functional failure of a diet pill. Although the case appears to have resolved before any liability assigned or judgment entered, following the FTC guides, the implication exists that alleging liability against the Kardashians challenging the efficacy of the product coupled with their reported endorsements, there may be FTC Act violations if the Kardashians are unable to substantiate their statements.

 

Celebrities Must Take Ownership of Their Statements

 

To lessen the potentially chilling effect these standards may have on the use of the endorsement deal as a advertising mechanism, celebrities and their representatives must take greater responsibility, control and care in choosing the products they endorse. Best practice dictates that endorsers and their representatives either: monitor and determine in advance what a celebrity client in advance about what he or she should (or should not) say about the product or service, or, ensure the negotiation process includes rights to change the script, decline to make unsubstantiated statements and/or have a place in the editing process. Though these demands may initially yield a deterring effect, ultimately, the costs associated with liability for violating the FTC Act and other dissatisfied consumer challenges, far outweigh the short-lived economic benefits of receiving an endorsement deal.

 

Topics:  Brand, Celebrities, Celebrity Endorsements, FTC, Kardashians, Marketing

Published In: Antitrust & Trade Regulation Updates, Art, Entertainment & Sports Updates, Communications & Media Updates, Intellectual Property Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sedgwick LLP | Attorney Advertising

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