For the first time in nearly thirty years, the Federal Trade Commission (“FTC”) recently revised its guidelines for companies using endorsements and testimonials in advertising. The new guidelines set standards for Internet advertising and marketing for the first time, so they may significantly affect the way companies use blogs, social networking websites, and consumer-generated content in marketing campaigns. Under the new guidelines, advertisers—and their endorsers—can now face liability for failing to disclose material connections underlying the endorsements.
The FTC is empowered to investigate advertising practices and, to the extent they are found to be inconsistent with its guidelines, consider “corrective action” against anything considered to be unlawful. Since the FTC can order an advertiser to cease making claims, impose fines of more than $10,000 per day per ad for violating those orders, and require corrective advertising, disgorgement, and civil penalties, the new guidelines are best taken seriously.
Under the new guidelines, an “endorsement means 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.” While this definition doesn’t seem surprising, the last in a series of explanatory examples given by the FTC makes clear that a blog posting can be an endorsement:
A consumer who regularly purchases a particular brand of dog food decides one day to purchase a new, more expensive brand made by the same manufacturer. She writes in her personal blog that the change in diet has made her dog’s fur noticeably softer and shinier, and that in her opinion, the new food definitely is worth the extra money. This posting would not be deemed an endorsement under the Guides.
Assume now that the consumer joins a network marketing program under which she periodically receives various products about which she can write reviews if she wants to do so. If she receives a free bag of the new dog food through this program, her positive review would be considered an endorsement under the Guides.
Note that the advertiser doesn’t have to pay the blogger itself, the consideration for the posting doesn’t have to be monetary, and there doesn’t even need to be an agreement or a requirement that a positive posting take place. Under the new guidelines, if something is offered to the blogger to encourage a posting, then the posting becomes an endorsement and the rest of the guidelines governing endorsements come into play.
And that’s where the real fun begins. Under the new guidelines:
Advertisers are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between themselves and their endorsers . . . . Endorsers also may be liable for statements made in the course of their endorsements.
Advertisers have always been liable for false or unsubstantiated claims made in their advertising, whether they make them or have endorsers do so. But what is new is that liability now attaches to true and substantiated endorsements if the advertiser fails to disclose any material connection between itself and the endorser. In other words, if you don’t reveal that the endorser was paid in some way, then it doesn’t matter if the statements are true, the opinions real, or the facts substantiated – your advertising may be considered misleading and false. And that liability extends to your endorser as well!
In an effort to make it clear that it means business, the FTC provides another blogging example as well:
A skin care products advertiser participates in a blog advertising service. The service matches up advertisers with bloggers who will promote the advertiser’s products on their personal blogs. The advertiser requests that a blogger try a new body lotion and write a review of the product on her blog. Although the advertiser does not make any specific claims about the lotion’s ability to cure skin conditions and the blogger does not ask the advertiser whether there is substantiation for the claim, in her review the blogger writes that the lotion cures eczema and recommends the product to her blog readers who suffer from this condition. The advertiser is subject to liability for misleading or unsubstantiated representations made through the blogger’s endorsement. The blogger also is subject to liability for misleading or unsubstantiated representations made in the course of her endorsement. The blogger is also liable if she fails to disclose clearly and conspicuously that she is being paid for her services.
Did you notice that the advertiser never made the false claim, never asked the blogger to make it, and was never even asked by the blogger whether it was true or whether she could say it? The real guidance to advertisers follows this example when the FTC suggests:
In order to limit its potential liability, the advertiser should ensure that the advertising service provides guidance and training to its bloggers concerning the need to ensure that statements they make are truthful and substantiated. The advertiser should also monitor bloggers who are being paid to promote its products and take steps necessary to halt the continued publication of deceptive representations when they are discovered.
There are other details to be considered here, but the long and the short of it is that advertisers should recognize that when they actively encourage others to tout their products or services through blogs, tweets,Facebook postings, or other uses of any media, new or old, they may be creating endorsements for which they are responsible, ones which must be disclosed as such, as well as being monitored to make sure that they are truthful and substantiated.
This Client Alert has been prepared by Lewis and Roca LLP for informational purposes only and is not legal advice. Readers should seek professional legal advice on matters involving these issues.
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