On Monday, October 5, 2009, the Federal Trade Commission announced several revisions to its guidelines on the use of endorsements and testimonials in advertising. The guidelines, which were last updated in 1980, do not expand the scope of liability under the federal truth-in-advertising law – they simply provide guidance to advertisers as to how the FTC intends to apply the law to various facts. However, the guidelines also serve as a valuable indicator of the FTC’s future enforcement priorities, and often influence how courts and state attorneys general interpret parallel state consumer protection statutes. To that end, advertisers and endorsers should take note of several important changes to the guides, most of which revolve around celebrities, endorsers who use blogs, social networking sites or other “new media,” and testimonials that publicize the results an endorser has received from using an advertiser’s product.

  • Elimination of “Results Not Typical” Safe Harbor for Testimonials

The FTC has eliminated the “safe harbor” that was afforded by the 1980 guidelines to testimonials that promoted a consumer’s extraordinary results obtained by using a product but were accompanied by a “results not typical” disclaimer. The FTC has indicated that a testimonial relating a consumer’s experience with an advertised product or service will be interpreted as conveying an implied typicality claim – that is, the testimonial will be interpreted as representing that the testimonialist’s experience is representative of what consumers generally will achieve with the advertised product in actual use. Under the old guidelines, advertisers were permitted to use truthful testimonials describing unusual or atypical results if they also included a clear and conspicuous disclaimer that the “results are not typical.” Under the new guidelines, however, a disclaimer alone is not sufficient, and advertisers must instead disclose in such ads what results consumers can generally expect to achieve. For example, if an ad features “before” and “after” pictures of a woman who claims to have lost 50 pounds in 6 months using the advertiser’s diet plan, the ad is likely to convey that her experience is representative of what consumers will generally achieve and, therefore, the ad must clearly and conspicuously disclose what most women can expect to lose in the depicted circumstances – e.g., “most women who follow our plan for 6 months lost at least 15 pounds.”

  • Requirements for Disclosure of “Material Connections” Between Advertisers and Endorsers in Consumer-Generated Media

The FTC has a long-standing principle of requiring disclosure of any “material connections” between an advertiser and an endorser – typically the provision of free products or services or monetary compensation in exchange for a review or discussion of the product – if the connection is one that consumers would not expect. When the FTC adopted its guidelines on the endorsements and testimonials in 1980, endorsements generally were disseminated by advertisers through traditional media such as television commercials and print advertisements. In those contexts, the duty to disclose material connections fell to the advertiser. With the advent of consumer-generated media, however, many endorsements are now disseminated by endorsers themselves (such as bloggers, for example). The FTC’s revised guidelines include an expanded discussion of when the nature of the relationship between an advertiser and an endorser must be disclosed in the context of consumer-generated media, and which party – the endorser or the advertiser – is primarily responsible for making such disclosures.

  • When a “Material Connection” Must Be Disclosed

The FTC’s revised guidelines clarify what constitutes an endorsement when the message is conveyed by bloggers or other “word-of-mouth” marketers (including users of social media platforms such as Facebook and Twitter). If a seller of a product or service pays a consumer to review a product or service, the review will be considered an endorsement, and the consumer will be required to disclose his relationship with the seller. But in situations where the seller has provided free products or services to the reviewer, the FTC will look at whether the receipt of the merchandise could affect the weight or credibility of the reviewer’s statements, and whether the connection between the seller and the reviewer would be reasonably expected by readers.

Generally speaking, if a consumer who has received a free product or service from an advertiser then makes positive statements about that product or service on her blog or via “word-of-mouth” marketing, and if (i) the product or service has substantial value, or (ii) the product or service is provided to the consumer as part of a network marketing program that the consumer participates in, or (iii) the consumer frequently receives free products and services from advertisers because she has an established blog readership or following within a particular field or demographic, then disclosure of the connection to the advertiser (in this case, the receipt of the free product or service) may be required. However, if the consumer’s receipt of the free product or service was isolated, if the free product or service was not provided by the advertiser (e.g., the consumer received it from a retail establishment, rather than from the manufacturer or seller directly), or if the product was of little value, disclosure may not be required.

Decisions as to what constitutes an endorsement in the context of new media will be made by the FTC on a case-by-case basis and the FTC acknowledges that bloggers may be subject to different disclosure requirements than reviewers in traditional media. Specifically, the FTC expresses its view that reviews published in traditional media, where there is independent editorial oversight, do not constitute sponsored advertising messages, because knowing whether the media entity that published the review paid for the item in question would not affect the weight consumers give to the reviewer’s statements. However, the FTC noted that this view of “traditional media” reviews would be different if the reviewer herself were receiving a benefit directly from the seller or manufacturer of the product or service in question.

  • Potential Shared Liability for Failure to Disclose

In the event that a material connection exists between an advertiser and an endorser in the consumergenerated media context, both the advertiser and the endorser (e.g., the blogger or word-of-mouth marketer) can be subject to liability for false or deceptive statements made by the endorser. While the FTC indicates that, in this context, the endorser is the party primarily responsible for disclosing material connections with the advertiser, the advertiser is not exempt from liability, even though the advertiser may have no knowledge of, or control over, the endorser’s statements. Thus, in employing this means of marketing, an advertiser assumes the risk that an endorser may fail to disclose a material connection or may misrepresent a product, and assumes the potential liability that accompanies that risk.

The FTC will consider an advertiser’s efforts to advise endorsers of their responsibilities, and to monitor their behavior, in making its assessment as to whether action is warranted. Accordingly, advertisers that use consumer-generated media in this manner would be well advised to establish procedures to advise endorsers that they should make the necessary disclosures, and monitor the conduct of those endorsers so the advertiser can identify and try to correct any errors or misrepresentations.

  • Requirements for Disclosure of “Material Connections” in Celebrity Endorsements

The FTC’s revised guidelines clarify that celebrities who provide endorsements to advertisers have a duty to disclose their relationship with the advertiser if the celebrity’s endorsement is made in a nontraditional advertising context. A celebrity endorser who appears in an advertiser’s “traditional” advertisements, such as television commercials, need not disclose that he is being paid to appear, because consumers typically expect that celebrities appearing in television ads are compensated for their appearances. The same is not true, however, of talk show appearances, statements made in social media, and appearances or statements made via other nontraditional advertising media. In such nontraditional advertising contexts, the celebrity must disclose the connection to an advertiser, because consumers might not realize that the celebrity is a paid endorser, rather than just a satisfied customer.

The FTC will assign liability in this context in the same manner as in the consumer-generated media context, discussed above, with the result being that both celebrity endorsers and advertisers can be liable for a celebrity endorser’s false or deceptive statements about the endorsed product. Although the advertiser will not have control over what the celebrity endorser actually says on a talk show, or how the show is edited, it may nonetheless be held liable if the endorser fails to make the required disclosure or makes false statements about the advertiser’s product. However, the FTC indicated in its Federal Register notice accompanying the revised guidelines that it would give significant weight, in deciding whether to bring an action, to evidence that an advertiser advised the celebrity in advance about what she should and should not say, and about the need to disclose the relationship with the advertiser. (The FTC indicated that such evidence will provide “a strong argument” for the exercise of the FTC’s prosecutorial discretion.)

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The guidelines described above have obvious implications for bloggers and celebrities who provide paid reviews or endorsements, or who receive free products or services from advertisers and subsequently make positive statements about such products or services. The guidelines also will impact any companies that use social networking, endorsements and testimonials to promote their own products and services. But the guidelines also may impact media companies whose reporting staff, talent or bloggers may have relationships with advertisers or sponsors that are sufficient to give rise to a disclosure requirement. (And one issue the FTC has not yet addressed is whether media companies whose journalists receive free products or services directly from advertisers will be liable for false or deceptive statements made by their employees, or for the employee journalist’s failure to disclose a connection to the advertiser.)