The FTC Issues and Then Explains New Guidance on the Use of Endorsements and “New Media” in Advertising

By Ricardo Carvajal &  Susan J. Matthees –

When the Federal Trade Commission (FTC) sought comments in 2008 on proposed revisions to its Guides Concerning the Use of Endorsements and Testimonials in Advertising, we noted that endorsers (including expert endorsers and celebrities) and bloggers should beware.  FTC has now announced its adoption of the revised Guides.  That same day, senior FTC officials spoke about these changes at a National Advertising Division (NAD) of the Better Business Bureaus conference.  David Vladeck, Director of the FTC's Bureau of Consumer Protection and Mary Engle, Associate Director for Advertising Practices at the FTC, commented on the new guidelines.

The FTC last updated these Guidelines in 1980.  According to the FTC, under the revised Guidelines, advertisements that feature a consumer and convey his or her experience with a product or service as being "typical" when that is not the case, will be required to clearly disclose the results that consumers can generally expect.  In addition, the FTC has now made it clear that advertisers must clearly disclose "material connections" between the advertiser and the person endorsing a product or service.  This disclosure would apply to typical marketers of products, but also to "bloggers" who receive an inducement to review a product or service.  The Guidelines also address "celebrity endorsers" by stating that such endorsers can themselves be liable for false or unsubstantiated claims in advertisements.  In fact, the Guidelines state that when a celebrity makes statements about a product or service on talk shows or in social media, the celebrity is required to identify his or her connection to an advertiser.

Anyone with even a casual interest in the use of endorsements and of advertising through “new media” (e.g., blogs and other forms of consumer-generated content) should give the revised Guides a close read.  Below we paraphrase parts of some of the examples that FTC modified since FTC published the proposed Guides last November, and provide citations to those examples and the views of the FTC as to the legality of those practices:

• A consumer joins a network marketing program through which she receives free products for which she can choose to write reviews.  If she receives a free product and writes a positive review, that review is an endorsement.  Section 255.0, Example 8.
• A blogger who participates in a blog advertising service and agrees to promote an advertiser’s product is liable for any misleading or unsubstantiated representations the blogger makes (as is the advertiser), and is liable if the blogger fails to disclose that she has been paid for her services.  Section 255.1, Example 5.  
• A celebrity endorser touts a medical service provider to fans in real time via her social networking site (think Twitter).  She should disclose her relationship with that medical service provider because the nature of that medium is such that consumers may not realize that she is a paid endorser.  Section 255.5, Example 3.
• An influential blogger writes a positive review of a valuable product given to him by a manufacturer that has given him similar products in the past.  The blogger should disclose that he received the product for free; moreover, the manufacturer should advise him of the need for disclosure and should monitor his postings to ensure he complies.  Section 255.5, Example 7.

Also of interest:

• If an advertisement is likely to convey that a consumer’s experience with a product is representative of what consumers generally achieve, but consumers cannot generally expect to achieve that result, the advertisement should disclose the result that consumers can expect to achieve in whatever circumstances are depicted.  Section 255.2, Example 4.

A drug company provides substantial payments to an outside entity to design and conduct research on one of its products.  In its advertising, the company represents the research results as the findings of the outside entity. The company should disclose the fact that it funded the research.  Section 255.5, Example 1. 

The FTC received a number of comments urging it to steer away from new media in its revisions to the Guides.  However, as noted by FTC, whether or not the Guides address new media “does not affect the potential liability of those who use these media to market their products and services.”  That liability purportedly arises not under the Guides, but under section 5 of the Federal Trade Commission Act (FTC Act), which prohibits unfair or deceptive practices.

At the NAD conference, someone asked what an advertiser should do if one of its paid bloggers doesn't disclose the relationship.  Ms. Engle responded that the company should have a policy in place that all bloggers must disclose their relationship and if a blogger doesn't follow this policy, the company should "fire" the blogger.  Ms. Engle said that the FTC wouldn't sue "right away" for a violation of the failure of a blogger to disclose a connection (the audience laughed quite a bit at this comment).  Nevertheless, the revised Guides are already raising a ruckus in the blogosphere.  Finally, Ms. Engle commented that if employees of a company contribute to a work board that is public or post comments about the company on Facebook or Twitter, they need to disclose their relationship to the company.  

There are two enforcement points that people, including but not limited to bloggers and other users of new media, may want to keep in mind.  First, the Guides are guidance, not law.  In any given case, FTC must still show a violation of section 5 of the FTC Act.  Indeed, Ms. Engle reminded the NAD audience that the FTC guidance is merely that- a guidance, not rules, and the FTC still needs to show a violation of the law even if conduct appears to violate the Guides.

Second, the FTC can be expected to direct its limited enforcement resources toward big fish.  In fact, Ms. Engle also reminded the NAD audience that the FTC has limited resources and is only going to go after the "big fish" bloggers- a mom who gets free Pampers a few times and then writes a report on them is not going to surface on the FTC's radar.  That’s little comfort to big fish, but given that the evolution of new media has been propelled mostly by small fry, we expect that they may not be immune from FTC scrutiny.

At the NAD conference, Director David Vladeck spoke more generally about the FTC's priorities, and stated that the FTC is particularly concerned about food advertisements directed to children, internet advertising, testimonials, and green claims.  He indicated that the FTC is also trying to work more closely with FDA, EPA, and other relevant agencies in order to focus on these areas. There was also discussion about disclaimers.  Ms. Engle made it clear that a footnote comment on the results is not sufficient to act as an adequate disclaimer.  Instead, the FTC will consider the net impression of the entire ad.