The Federal Trade Commission’s Endorsement Guides were first enacted in 1980 and amended in 2009. The Guides provide guidance to businesses and others to ensure that advertising using endorsements or testimonials is truthful. Advertisers that deceive consumers via endorsements or testimonials may violate the FTC Act. The Guides, among other things, state that advertisers need to be upfront with consumers and clearly disclose unexpected material connections between endorsers and a seller of an advertised product or service.
FTC Proposed Changes to the Endorsement Guides in 2022
In May 2022, the FTC proposed changes to strengthen advertising guidelines against fake and manipulated reviews, including by suppressing bad ones. In doing so, the FTC also warned social media platforms about inadequate disclosure tools. The FTC sought public comment on the proposed updates to the Guides and the new ways that advertisers reach consumers to promote products and services, including through social media.
“We’re updating the guides to crack down on fake reviews and other forms of misleading marketing, and we’re warning marketers on stealth advertising that targets kids.” said FTC lawyer Samuel Levine in 2022, Director of the FTC’s Bureau of Consumer Protection. “Whether it’s fake reviews or influencers who hide that they were paid to post, this kind of deception results in people paying more money for bad products and services, and it hurts honest competitors.”
In a notice, along with the proposed revisions to the Guides, the FTC:
- Warned social media platforms that some of their tools for endorsers are inadequate and may open them up to liability.
- Clarified that fake reviews are covered under the Guides and added a new principle that in procuring, suppressing, boosting, organizing, or editing consumer reviews, advertisers should not distort or misrepresent what consumers think of their products and services. This would cover review suppression like in the FTC’s Fashion Nova case.
- Clarified that tags in social media posts are covered under the Guides and modified the definition of “endorsers” to bring virtual influencers - that is, computer-generated fictional characters - under the Guides, and
- Added an example addressing the microtargeting of a discrete group of consumers.
In addition to the foregoing and clarifying that all parties involved in marketing campaigns are potentially liable for failing to comply with applicable legal regulations, the FTC also proposed adding a new section highlighting that child-directed advertising is of special concern and that children may react differently than adults to endorsements in advertising or related disclosures.
In May 2022, the FTC also announced it was seeking public comments on the proposed updates to the Guides.
FTC Announces Updated Endorsement Guides
On June 29, 2023, the Federal Trade Commission announced that it has finalized an updated version of its Endorsement Guides to combat deceptive reviews and endorsements, and to strengthen and clarify guidance for advertisers using reviews or endorsements, while addressing emerging market trends.
The final revised Guides take the public comments received into consideration and recent law enforcement experience. There are a handful of final changes that merit special attention, including:
- Articulating a new principle regarding procuring, suppressing, boosting, organizing, publishing, upvoting, downvoting, or editing consumer ratings and reviews so as to distort consumers’ opinions or what consumers think of a product or service. For example, deleting negative reviews, encouraging positive reviews and discouraging negative reviews, and falsely reporting negative consumer reviews as bogus on third-party platforms. Editing may be permitted on a limited basis and under particular circumstances, as long as it is performed with respect to positive and negative reviews.
- Addressing incentivized reviews, reviews by employees, and fake negative reviews of a competitor. Incentivizing consumers to provide ratings and including them in average ratings could, in the absence of an appropriate disclosure, potentially be considered deceptive in the event that they meaningfully increase average ratings.
- Adding a definition of “clear and conspicuous” and saying that a platform’s built-in disclosure tool might not be an adequate disclosure and should not be blindly relied upon if they are not unavoidable and prominent. Disclosures must be “unavoidable.” In fact, examples in the Guides illustrate that disclosures located at the bottom of a social media post - where consumers have to click “more” in order to view them - are not unavoidable. Additionally, disclosures must appear via the same means as the triggering claim. In other words, if the triggering claim is made both visually and audibly, then the disclosure must be similarly presented.
- Building upon disclosure requirements for atypical results by stating that such qualifying disclosures must not misrepresent what consumers can generally expect to achieve. Additionally, to be effective, such disclosures must alter the net impression of an advertisement so it is not misleading. The FTC has consistently made it clear that “Results not typical” types of disclaimers are unlikely to be effective in conveying what consumers may generally expect to receive. General disclaimers that do not properly disclose to reasonable consumers the results that they can generally expect to receive are potential areas of corporate and personal liability. Illustrative examples are provided on the issue of atypical results and qualifying disclosures that should be carefully reviewed by advertisers and marketers. For example, consider a testimonial in which a consumer represents to have lost 50 pounds in six months. A disclosure stating: “most women who use Weight Away lose between 10 and 50 pounds” is inadequate because the range specified is so broad it does not sufficiently communicate what users can generally expect. The FTC believes that, even if some appreciable number of consumers lost 50 pounds, the range would still not adequately communicate what users can generally expect. A marketer could instead disclose the generally expected result and also state what percentage of customers lose 50 pounds or more. Another example provided is that a disclosure stating: “the typical weight loss of users that stick with the program for 6 months is 35 pounds.” Importantly, if merely one-fifth of consumers that start the program stick with it for six months, the disclosure would be considered inadequate because it does not disclose what the typical outcome is for users that start the program. There is also an interesting example that discusses whether a disclosure of mean weight loss could be deceptive if the mean is substantially affected by outliers.
- Changing the definition of “endorsements” to clarify the extent to which it includes fake positive reviews, virtual influencers, and tags in social media.
- Commenting that disclosure of “material connections” include, but are not limited to, the provision of free or discounted products or the possibility of winning a prize, of being paid, or earning money through affiliate links. The lack of monetary value is not determinative. Consider, without limitation, lose familial relationships, employment relationships, and the opportunity to appear on television or other media.
- Addressing so-called “independent review sites” with material connections to brands, or that rank products or services based upon payment. It is unlawful to describe a website with material connections to a company as “independent.” Additionally, website that rank products or services based on purported objective criteria cannot permit payment to influence results. Those that pay and/or accept payment for higher rankings face potential corporate and personal liability if consumers are expressly or impliedly told of “objective” rankings.
- Better explaining the potential liability of advertisers, endorsers, and intermediaries (e.g., ad agencies, PR firms and reputation management companies) for actually or constructively creating, disseminating or facilitating deceptive endorsement practices, and
- Highlighting that child-directed endorsements and advertising is of special concern. According to the FTC, “[p]arctics that would not ordinarily be questioned in advertisements addressed to adults might be questioned in such cases.” While the Guides do not provide further clarification regarding how such endorsements might be evaluated by the agency, the FTC states that it is “exploring next steps.”
It is also worth noting that, as a general rule, advertisers are not strictly liable for endorsements or reviews authored by consumers where there does not exist a material connection. However, an advertiser disseminating, featuring, highlighting, re-posting, re-tweeting, sharing or integrating such consumer endorsements or reviews into its promotional activities changes the characteristic thereof and advertisers will be required to ensure, without limitation, that all express and implied representations are not misleading, capable of being appropriately substantiated prior to dissemination, and include appropriate and unavoidable disclosures.
FTC Updates FAQ Guidance Document
The FTC has also issued an updated version of a guidance document that answers frequently asked questions about the Endorsement Guides. Primarily addressing when and how to disclose material connections, the document is entitled, FTC’s Endorsement Guides: What People are Asking.
Last revised in 2017, the new version includes 40 additional questions and updates dozens of other answers. It adds specific guidance for influencers on when and how to disclose material connections across different kinds of platforms, and it provides FTC attorneys’ views about brand monitoring of influencers and platform disclosure tools. The updates, to some extent, reflect recent enforcement actions, CID investigations, warning letters and agency business guidance.
The new version also includes more guidance relating to online reviews, addressing issues such as incentives and treatment of negative feedback.
FTC Announces Proposed Rule on Use of Consumer Reviews and Testimonials
On June 30, 2023, the Federal Trade Commission also announced a proposed a new Rule to stop marketers from using illicit review and endorsement practices such as using fake reviews, suppressing honest negative reviews, and paying for positive reviews, which deceive consumers looking for real feedback on a product or service and undercut honest businesses.
“Our proposed rule on fake reviews shows that we’re using all available means to attack deceptive advertising in the digital age,” said FTC attorney Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “The rule would trigger civil penalties for violators and should help level the playing field for honest companies.”
In its notice of proposed rulemaking, the FTC cited examples of what it considers to be clearly deceptive practices involving consumer reviews and testimonials from its past cases, and noted the widespread emergence of generative AI, which is likely to make it easier for bad actors to write fake reviews. All those potentially impacted should read the Federal Register Notice for details.
The FTC is seeking comments on proposed measures that would fight such practices. For example, the proposed Rule would prohibit:
- Selling or Obtaining Fake Consumer Reviews and Testimonials: The proposed Rule would prohibit businesses from writing or selling consumer reviews or testimonials by someone that does not exist, that did not have experience with the product or service, or that misrepresented their experiences. The proposed Rule would prohibit businesses from procuring such reviews or disseminating such testimonials if the businesses knew or should have known that they were fake or false.
- Review Hijacking: Businesses would be prohibited from using or repurposing a consumer review written for one product so that it appears to have been written for a substantially different product. The FTC recently brought its first review hijacking enforcement action.
- Buying Positive or Negative Reviews: Businesses would be prohibited from providing compensation or other incentives conditioned on the writing of consumer reviews expressing a particular sentiment, either positive or negative.
- Insider Reviews and Consumer Testimonials: The proposed Rule would prohibit a company’s officers and managers from writing reviews or testimonials of its products or services, without clearly disclosing their relationships. It also would prohibit businesses from disseminating testimonials by insiders without clear disclosures of their relationships, and it would prohibit certain solicitations by officers or managers of reviews from company employees or their relatives, depending on whether the businesses knew or should have known of these relationships.
- Company Controlled Review Websites: Businesses would be prohibited from creating or controlling a website that claims to provide independent opinions about a category of products or services that includes its own products or services.
- Illegal Review Suppression: Businesses would be prohibited from using unjustified legal threats, other intimidation, or false accusations to prevent or remove a negative consumer review. The proposed Rule also would bar a business from misrepresenting that the reviews on its website represent all reviews submitted when negative reviews have been suppressed.
- Selling Fake Social Media Indicators: Businesses would be prohibited from selling false indicators of social media influence, like fake followers or views. The proposed Rule also would bar anyone from buying such indicators to misrepresent their importance for a commercial purpose.
The proposed Rule follows an advance notice of proposed rulemaking the FTC announced last November. The FTC received comments from individual consumers, trade associations, review platform operators, small businesses, consumer advocacy organizations, entities dedicated to fighting fake reviews, and academic researchers.
Although the FTC has taken strong enforcement action in this area recently, case-by-case enforcement without civil penalty authority might not be enough to deter clearly deceptive review and testimonial practices, according to the FTC. The Supreme Court’s decision in AMG Capital Management LLC v. FTC has hindered the FTC’s ability to seek monetary relief for consumers under the FTC Act.
A rule clearly spelling out prohibited practices and allowing for the judicial imposition of civil penalties could strengthen deterrence and FTC enforcement actions.
The notice includes questions for public comment to inform the FTC’s decision-making on the proposal. These questions focus on provisions in the proposed Rule and whether other provisions should or should not be included in the Rule. After the FTC reviews the comments received, it will decide whether to take the necessary next steps toward issuing a final Rule.
The NPRM will be published in the Federal Register shortly. Instructions for filing comments appear in the notice. Comments must be received within 60 days of the publication of the notice.
Takeaway: There are three important developments just announced by the FTC: (a) final revisions to the Endorsement Guides; (ii) updates to a key staff guidance publication for businesses, endorsers, influencers, and members of the advertising industry; and (iii) a proposed new Rule on the Use of Consumer Reviews and Testimonials. Consult with an experienced FTC defense attorney when mapping out marketing strategies. Visit the FTC’s Endorsements, Influencers, and Reviews page for more compliance resources written with businesses, platforms, and influencers in mind.