The #AD Vantage Point: Navigating the FTC Endorsement Guides, Part III

As a reminder, the FTC Endorsement Guides describe how the FTC evaluates whether certain advertisements are false and misleading under Section 5 of the FTC Act. 

Businesses should care about the FTC Endorsement Guides for at least the following reasons: (a) legal and regulatory compliance, (b) trademark rights protection; (c) consumer trust; (d) competitor management, and (e) marketing strategy effectiveness. 

Most businesses are either actively present in the ever-evolving world of social media marketing and consumer reviews or are interested in engagement. Rather than face a warning letter from the FTC or other issues such as reputational harm, the FTC has provided businesses with guidance to avoid negative action. 

Part I in this series explained the requirements under the Guides – i.e., "clear and conspicuous" disclosures. Part II presented various scenarios exploring disclosure requirements and detailing important considerations for businesses as they approach endorsement deal negotiation and enforcement.  

This third article addresses the July 26, 2023 Changes to the FTC Endorsement Guides.

The seven key regulatory changes discussed below reflect the FTC's intensified efforts to enforce regulations on social media influencers, testimonials, and consumer reviews (and to protect consumers in the process).

1. Expanded definition of "endorsement" to include account tags and other types of social media engagement, which may qualify as endorsements if other conditions of endorsement are met (e.g., material connection). (Not all tags are endorsements, but tags "can be endorsements").

2. Expanded definition of "endorsement" to include virtual endorsers and fabricated endorsers. The revised definition addresses fake individuals, groups, or institutions that advertise a product or service. These endorsers may not be real people, but are instead fabricated by the advertiser (and thus, potentially deceptive). It makes sense for the FTC to address this, as deep fakes, virtual realities, and the metaverse challenge traditional definitions in advertising regulations.

3. Express examples of "material connections" (§ 5) to include "business, family, or personal relationships," monetary payment, free or discounted products, early access to a product, winning a prize, or public appearances. Further, "a disclosure of a material connection does not require the complete details of the connection, but it must clearly communicate the nature of the connection sufficiently for consumers to evaluate its significance."

4. Expanded definition of "clear and conspicuous" to include "difficult to miss," "unavoidable," and "easily understandable by ordinary consumers."

   Businesses cannot rely on links from social media posts that contain disclosures. Moreover, consumers may overlook disclosures if not placed near the exact image or text that draws their attention to the endorsed product. A "clear and conspicuous" disclosure is more likely to be seen if it is very close to, or even a part of, the endorsement.  For videos (such as TikTok videos), the disclosure should be at the beginning, rather than the end, where it could be "missed."

5. Threefold approach to liability:
   • New subsection 225.1(f), solidifying a threefold approach to liability. Companies, influencers, and intermediaries can be held liable under the FTC Act and Endorsement Guides. "Intermediaries" means, advertising agencies, public relations firms, review brokers, reputation management companies, and "other similar intermediaries."
   • New subsection 255.1(e), establishes liability for endorsers "when an endorser makes a representation that the endorser knows or should know to be deceptive, including when an endorser falsely represents that they personally used a product." In this case, an influencer (the endorser) can be held liable if they are not careful or honest about their online product promotions.

6. New subsection 255.2(d) to address consumer reviews, "regardless of whether the reviews are considered endorsements." The revised Guides mandate that advertisers abstain from engaging in actions such as "procuring, suppressing, boosting, organizing, publishing, upvoting, downvoting, reporting, or editing consumer reviews of their products," because such actions could "distort" or "otherwise misrepresent what consumers think of their products."

   In most circumstances, a business should not:

   • delete or hide negative reviews;
   • designate only positive reviews as "most helpful;"
   • otherwise inaccurately distort consumer reviews to manipulate consumer thoughts about their products;
   • pay for only positive reviews on third-party websites (can be deceptive if there is misrepresentation about experience with products);
   • buy fake negative reviews from someone who has misrepresented his/her experience with a competitor's products; or
   • issue threats to individuals who post genuine negative reviews on third-party websites.

7. New subsection 255.6, which states that endorsements directed towards children "may be of special concern." This means, the FTC has authority to question ads and scrutinize disclosures that are directed towards children. For a younger consumer, additional disclosures may be required; (such as superimposed words over images or videos).

All of these changes reflect the FTC's commitment to transparency in advertising.  However, in turn, the changes heighten the considerations businesses must make before engaging in social media marketing and consumer reviews.

Some businesses lean on advertising agencies or platforms to "comply" with the FTC Act. While certain intermediaries can certainly be a helpful tool for compliance, these tools may not be enough.

For example, very recently, the FTC issued warning letters to two trade associations regarding influencer marketing and the advertised safety of aspartame.  Even though some influencers used Instagrams "Paid partnership" tool, according to the FTC, those tools were not enough to support the requirement of a "clear and conspicuous" disclosure about the identity of the influencers and material connection between them and the trade associations. (The use of #sponsored and #ad were similarly determined to be insufficient).  Finally, the trade associations were not the only recipients of the letters – 12 online "health influencers" received warning letters regarding the noncompliant social media advertising, as well. 

To review the FTC Endorsement Guidelines, see the July 26, 2023 Changes. 

For additional guidance on soliciting and paying for online reviews, see " Soliciting and Paying for Online Reviews: A Guide for Marketers | Federal Trade Commission (ftc.gov)."  

For legal assistance in engaging with influencer marketing and/or online consumer reviews, please contact our NIL Practice Group.

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© 2024 Ward and Smith, P.A. For further information regarding the issues described above, please contact Lilian L. Faulconer or Erica B. E. Rogers.

This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.

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