FTC proposes revisions to Guides Concerning Use of Endorsements and Testimonials in Advertising

I. Proposed Revisions

The Federal Trade Commission (“FTC” or “Commission”) on November 21, 2008, announced proposed revisions to the Guides Concerning Use of Endorsements and Testimonials in Advertising (the “Guides”). The FTC’s Guides are advisory in nature, but provide advertisers insight into the considerations that inform the Commission’s enforcement decisions regarding testimonials and endorsements. The current version of the Guides has been effective since 1980 and has become the basis for industry standards with respect to testimonials and endorsements used in advertisements. Many of the testimonials and endorsements used in today’s advertisements, however, would be prohibited under the proposed revisions. The Commission has stated that revisions are necessary to show how various principles articulated in the Guides apply in high-tech contexts. Comments on the proposed revisions are due January 30, 2009. Below is a summary of the key proposed revisions.

A. Old Rules, New Media

Under the proposed revisions, advertisers could face liability for false or unsubstantiated statements made in endorsements, or for failing to disclose connections between the advertisers and endorsers and could face liability for their statements. These are not new principles, and are in fact, the subject of Commission enforcement proceedings. The Commission, however, demonstrated that these principles are applicable to new media, such as to bloggers that test products and make representations to their readers. In such cases, the advertiser and the blogger could be held liable for endorsements made through the blog.

B. Consumer Endorsements

The Commission would interpret consumer testimonials in advertisements as representing that the product is effective for the purpose shown in the advertisement. Advertiser would be required to substantiate support for efficacy claims made in testimonials just as it would be required to do if they made the representations directly. The Commission indicated that anecdotal evidence about a consumer’s individual experience would not be sufficient to substantiate a claim requiring scientific evidence.

Testimonials that depict atypical results would be required to clearly and conspicuously disclose the generally expected performance in the depicted circumstances and the advertiser must possess and rely on adequate substantiation for the representation. A “Results not typical” disclaimer would be inadequate under the proposed revision. Instead, whenever atypical testimonial are used, advertisers would be required to identify and disclose the generally expected performance. Research needed to substantiate such claims would likely increase costs for advertisers.

C. Expert Endorsements

The Commission proposes to amend the Guides to require that an expert endorser must have the expertise that the advertisement implies the expert possesses. The Commission also proposed to clarify that it is deceptive for an endorsement by an institution whose name implies that it is an independent testing organization with expertise, when that is not the case.

D. Disclosure of Material Connections

The Commission has expressed support for retaining the requirement that advertisers must disclose connections between themselves and endorsers that may materially affect the weight or credibility of an endorsement. However, the Commission proposed to delete the language from the Guides that currently states that so long as an advertiser does not represent that an expert or well-known personality has provided an endorsement without compensation, the advertiser need not disclose that the endorser has been paid.

E. Celebrity Endorsements

The Commission proposed requiring advertisers to disclose their financial connection with a celebrity endorser. Specifically, the Guides would provide that an advertiser should disclose when a celebrity has been paid for endorsing a product during a routine interview and knowledge of this financial interest likely would affect the weight or credibility of the endorsement. However, the Guides would not require such a disclosure when a celebrity appears in an interview wearing clothes with the insignia of a company with which the celebrity has an endorsement contract but does not mention the company or the clothes.

II. Request for Comments

The Commission has asked interested parties to comment on the following specific issues:

1. Whether there are product categories for which the requirement – that an advertisement should clearly and conspicuously disclose the generally expected performance in a depicted circumstance when an advertiser does not possess adequate substantiation for the representation – would prevent advertisements from using endorsements even though the advertiser believes that an endorser’s experiences are or likely are generally representative; and if there are any such categories, the costs and benefits to the advertiser, competition, and consumers of the inability to use endorsements in ads along with supporting empirical data;

2. If consumers know that an expert has a significant financial interest in sales of the product (e.g., ownership interest in a company or compensation based on product sales), is this information likely to affect their assessments of the expert’s credibility; and whether there are other financial compensation arrangements that would be relevant to how a consumer assesses an expert’s credibility;

3. Whether a celebrity’s financial connection to an advertiser should be disclosed when a celebrity has been paid for endorsing a product during a routine interview and knowledge of this financial interest likely would affect the weight or credibility of the endorsement; and whether such disclosure should not be required when a celebrity appears in an interview wearing clothes with the insignia of a company with which the celebrity has an endorsement contract but does not mention the company or the clothes;

4. Whether the general principle that material connections between endorsers and advertisers should be disclosed to new forms of marketing, including blogs, discussion boards, and “street teams”; and consumer’s expectations regarding the relationships between advertisers and endorsers in these new marketing contexts;

5. The Commission’s decision to modify Example 1 of Section 255.5 to provide additional factual background and to explain why an advertiser’s payment of expenses to a research organization need not be disclosed in an advertisement; and whether there is a discrepancy between Section 255.5 and the current Example 1; and extrinsic evidence of consumer understanding regarding this issue.