On Notice: FTC Threatens Significant Fines Against Advertisers Who Violate Endorsement and Testimonial Guidance

Arent Fox
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Arent Fox

The U.S. Federal Trade Commission (FTC) on October 13, 2021, warned 700 major consumer products companies and national advertisers that any future violations of the FTC’s endorsement and testimonial guidance could result in civil fines of up to $43,792 per incident. While the notices do not allege any wrongdoing by the companies, they are a shot across the bow that the FTC is prepared to respond to future wrongdoing with significant fines. 

Who Is Impacted?

The notices are especially relevant for any companies engaging in influencer marketing, using consumer reviews for marketing purposes, or working with celebrity endorsers. While the FTC has not changed its longstanding guidance on what it considers misleading or deceptive in the context of endorsements and testimonials (see the FTC’s Endorsement Guides), it is signaling that companies that violate its guidance will start paying a steeper price for doing so.

Why Is This Significant?

The warnings represent a potentially significant shift in the FTC’s enforcement strategy in the endorsement and testimonial space. To date, the FTC has resolved most allegations of false or misleading endorsements without monetary penalties. In a few relatively rare cases, it has sought equitable financial remedies, such as disgorgement of profits or restitution. For most others, it has closed the matters with warnings or with consent decrees that impose non-monetary equitable relief, such as monitoring or corrective advertising.

The recent notices allow the FTC to take advantage of its so-called Penalty Offense Authority, codified in 15 USC 5(m)(1)(B). This provision authorizes the FTC to seek punitive civil fines rather than equitable relief. This is significant for several reasons: first, the FTC does not need to prove financial harm to consumers to levy civil fines. Instead, it can impose statutory-based fines of up to $43,792 per incident as a punitive measure and to deter future wrongdoing. Second, the FTC can levy fines under its Penalty Offense Authority for first-time offenses, something that it has rarely done in recent decades. Importantly, it can only levy these fines against companies that have actual notice of the illegal conduct, hence the notices to 700 of the country’s largest and prominent consumer brands. 

Since the 1980s, the FTC has rarely used its Penalty Offense Authority to penalize or discourage unfair or deceptive conduct. Resurrecting the Authority and making it a central element of its law enforcement strategy would represent a break with nearly 40 years of practice and likely reflects an ideological shift under new FTC Chair Lina Khan. Khan’s previous boss, former FTC Commissioner Rohit Chopra, has been a strong advocate for resurrecting the FTC’s Penalty Offense Authority.

Takeaway and Next Steps

Companies that receive notices should make sure to communicate the information to all teams and personnel who work on endorsement or testimonial issues, including influencer marketing, use of consumer reviews, and celebrity endorsements. Companies should also consider auditing existing endorsements and testimonials, particularly those on social media, to ensure marketing materials comply with FTC guidance.

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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.

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