On October 2, 2009 the FTC Published Its Final Updated Guides Governing Endorsements & Testimonials. Below Is An Analysis Of The Updated Guides. The Basic Theme Is: Social Media Meets The FTC.

QUICK SUMMARY OF THE 1980 GUIDES. FOR THE MOST PART, ALL OF THESE ELEMENTS STILL EXIST IN THE NEW GUIDES

  • An endorsement is "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) which message consumers are likely to believe reflects the opinions, beliefs, findings, or experience of a party other than the sponsoring advertiser."
  • If an advertisement uses an endorsement or testimonial, the endorsement must accurately reflect the honest, current opinions, findings, beliefs or experience of the endorser.
  • If the advertisement represents that endorser uses the product, the advertiser can run the endorsement only so long as he has “good reason to believe” the endorser remains a bona fide user.
  • Any connections between seller and endorser that might materially affect the weight or credibility of the endorsement must be disclosed (except payment to an expert or celebrity). NOTE: This has changed in the new Guides. The exception on celebrity disclosure of payment from the advertiser was limited to traditional media in the new Guides because knowledge of the celebrity's connection with the advertiser may be material to consumers for endorsements made in certain nontraditional contexts (e.g., on talk shows, in social media, etc.).
  • If the advertisement represents that the endorser is an expert:

The endorser’s qualifications must give him or her the expertise represented.

The endorsement must be supported by an actual exercise of the expert’s expertise in evaluating product features or characteristics.

  • If the advertisement implies that the endorsement was based upon a comparison, such comparison must have been included in the expert’s evaluation.
  • If the net impression created by the endorsement is that the advertised product is superior to others with respect to any feature, then the expert must in fact have found such superiority.
  • Endorsements by organizations are viewed as representing the judgment of a group whose collective experience exceeds that of any individual member, and whose judgments are generally free of the sort of subjective factors which vary from individual to individual.
  • The advertiser must have its own substantiation for all material statements of fact made by an endorser as if the claims made by the endorser were in the advertiser’s own words.
  • The testimonial must not use unusual experiences or abnormal results that promise more than can be reasonably expected by the average individual.
  • In a consumer endorser scenario, if true, the advertiser must disclose the fact that the endorser knew or had reason to know or believe that if the endorsement favored the product, some benefit (such as appearing in an ad) would be given the endorser.
  • An advertiser may not alter a quotation received from an author of a testimonial if the alteration will not fairly reflect the full quotation's substance. Moreover, a quote may not be presented out of context if it will distort the author's experience or opinion.

HIGHLIGHTS OF THE NEW GUIDES (SOCIAL MEDIA MEETS THE FTC)

Most, but not all, of the changes to the Guides center on addressing the way in which advertisers and consumers use new media outlets to discuss products and services. Likewise, both rounds of comments expressed concern about how difficult it would be to monitor and police the vast blogging and viral media world. In response, the Commission's final comments include the following highlights.

"The Commission will, of course, consider each use of these new media on a case-by-case basis for purposes of law enforcement, as it does with all advertising."

"In analyzing statements made via these new media, the fundamental question is whether, viewed objectively, the relationship between the advertiser and the speaker is such that the speaker's statement can be considered "sponsored" by the advertiser and therefore an "advertising message." And, if a statement is deemed sponsored, a disclosure would be necessary that there is a material connection between the advertiser and speaker/endorser because the connection could affect the credibility of the endorser.

And, in detailing how the FTC will apply the new Guides to new media, it indicated that:

  • It will ask "In disseminating positive statements about a product or service, is the speaker: (1) acting solely independently, in which case there is no endorsement, or (2) acting on behalf of the advertiser or its agent, such that the speaker's statement is an "endorsement" that is part of an overall marketing campaign?"
  • The FTC will analyze (these are not exclusive):
    • Whether the speaker is compensated by the advertiser or its agent;
    • Whether the product or service in question was provided for free by the advertiser;
    • The terms of any agreement;
    • The language of the relationship;
    • The previous receipt of products or services from the same or similar advertisers;
    • The likelihood of future receipt of such products or services; and
    • The value of the items or services received.
  • "An advertiser's lack of control over the specific statement made via these new forms of consumer-generated media would not automatically disqualify that statement from being deemed an "endorsement" within the meaning of the Guides." Moreover, the Commission has made it clear that the advertiser of a sponsored message has an obligation to inform the endorser of the endorser's obligations under the Guide and to monitor and enforce compliance with the Guide's requirements (e.g., stop providing products to an endorser that fails to abide by the advertiser's instructions).
  • Both the advertiser and endorser can be held liable for misrepresentations and unsubstantiated claims. New statement in Section 255.1(d) - "Endorsers also may be liable for statements made in the course of their endorsements."
  • "Consumers who join word of mouth marketing programs that periodically provide them products to review publicly (as opposed to simply giving feedback to the advertiser) will also likely to be viewed as giving sponsored messages."

THE UPDATES

PURPOSE AND DEFINITIONS

  • This Section contains a new example targeted towards blogging:

"Example 8: 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 that rather than purchase the dog food with her own money, the consumer gets it for free because the store routinely tracks her purchases and its computer has generated a coupon for a free trial bag of this new brand. Again, her 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."

GENERAL

This section was amended to "clarify" that:

  • Advertisers are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose materials connections between themselves and their endorsers.
  • Endorsers may also be subject to liability for their statements.

The FTC indicates that the above is already the case, as evidenced by prior FTC law enforcement activity.

  • There are three new examples to Section 255.1. Two of them illustrate where liability could be imposed on both the expert and celebrity endorser and both note that the advertiser is also liable for misrepresentations made through the endorsement. A third new example (cited below) illustrates the potential liability of advertisers who use bloggers to promote their products and of the bloggers themselves:

"Example 5: 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. [See § 255.5.]"

This new example could be hugely problematic for advertisers who engage in sampling programs. In its comments, the FTC indicates that if an advertiser starts the process, it can be held liable for the communications from a blogger that ensue, even if it does not have ultimate control over the message disseminated by the blogger. Here is how the FTC thinks you should avoid the liability presented by this new example:

"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." (emphasis added)

In its comments, the FTC indicates that "the Commission, however, in the exercise of its prosecutorial discretion, would consider the advertiser's efforts to advise these endorsers of their responsibilities and to monitor their online behavior in determining what action, if any, would be warranted."

CONSUMER ENDORSEMENT

  • Requires advertisers using consumer endorsers to "possess and rely upon adequate substantiation to support efficacy claims made through endorsements, just as the advertiser would be require to do if it has made the representation itself."
  • Anecdotal evidence about the individual experience of consumers is not sufficient to substantiate claims requiring scientific evidence.
  • Removal of safe harbor for use of atypical results in advertising with typicality disclaimer. In other words, a "Results Not Typical" disclosure is not a safe harbor, comment reiterate that "Results Not Typical" may still be used in ads and that any analysis will include a review of the overall net impression of the ad – meaning that not all ads that include such a disclaimer will violate the Guides.
  • Atypical testimonials must be accompanied by disclosure of the results consumers generally achieve with the advertised product. Query – how do you achieve this when a blogger is involved? Or when someone tweets about your product?
  • 5 New Examples in Section 255.2

EXPERT & CELEBRITY ENDORSEMENTS

Three new applicable Examples (also see new Example 3 under Disclosure of Material Connections below, which discusses when a celebrity may have to disclose that he/she is a paid celebrity):

"Section 255.0 Example 6: An infomercial for a home fitness system is hosted by a well-known entertainer. During the infomercial, the entertainer demonstrates the machine and states that it is the most effective and easy-to-use home exercise machine that she has ever tried. Even if she is reading from a script, this statement would be an endorsement, because consumers are likely to believe it reflects the entertainer’s views."

"Section 255.1 Example 3: An ad for an acne treatment features a dermatologist who claims that the product is “clinically proven” to work. Before giving the endorsement, she received a write-up of the clinical study in question, which indicates flaws in the design and conduct of the study that are so serious that they preclude any conclusions about the efficacy of the product. The dermatologist is subject to liability for the false statements she made in the advertisement. The advertiser is also liable for misrepresentations made through the endorsement. [See Section 255.3 regarding the product evaluation that an expert endorser must conduct.]"

"Section 255.1 Example 4: A well-known celebrity appears in an infomercial for an oven roasting bag that purportedly cooks every chicken perfectly in thirty minutes. During the shooting of the infomercial, the celebrity watches five attempts to cook chickens using the bag. In each attempt, the chicken is undercooked after thirty minutes and requires sixty minutes of cooking time. In the commercial, the celebrity places an uncooked chicken in the oven roasting bag and places the bag in one oven. He then takes a chicken roasting bag from a second oven, removes from the bag what appears to be a perfectly cooked chicken, tastes the chicken, and says that if you want perfect chicken every time, in just thirty minutes, this is the product you need. A significant percentage of consumers are likely to believe the celebrity’s statements represent his own views even though he is reading from a script. The celebrity is subject to liability for his statement about the product. The advertiser is also liable for misrepresentations made through the endorsement."

New Section 255.3 Example 6 illustrates an example where an expert’s endorsement is not supported by an adequate exercise of expertise.

"Example 6: A medical doctor states in an advertisement for a drug that the product will safely allow consumers to lower their cholesterol by 50 points. If the materials the doctor reviewed were merely letters from satisfied consumers or the results of a rodent study, the endorsement would likely be deceptive because those materials are not what others with the same degree of expertise would consider adequate to support this conclusion about the product’s safety and efficacy."

DISCLOSURE OF MATERIAL CONNECTIONS

  • Deletes the following section from Section 255.5:

"An example of a connection that is ordinarily expected by viewers and need not be disclosed is the payment or promise of payment to an endorser who is an expert or well known personality, as long as the advertiser does not represent that the endorsement was given without compensation."

In some of the Commission's prior commentary, the FTC indicates that it believes:

"(1) that consumers’ expectations about celebrities and about experts may not be completely congruent; and (2) that even with respect to celebrities, knowledge of the individual’s connections with the product’s marketer may be material to consumers for endorsements made in certain nontraditional contexts."

  • The new Guides differentiate among the types of payments an expert receives as affecting the consumers perception of the endorsement and the endorser's credibility – meaning that there could be instances where disclosure of the connection to the advertiser will be required.
  • The new Guides differentiate among in what media the endorsement is being made (e.g., on a talk show versus an advertiser placed print ad) - meaning that there will be instances where disclosure of the connection to the advertiser will be required in forms of media previously not contemplated.
  • New or Revised Examples:

"Example 1: A drug company commissions research on its product by an outside organization. The drug company determines the overall subject of the research (e.g., to test the efficacy of a newly developed product) and pays a substantial share of the expenses of the research project, but the research organization determines the protocol for the study and is responsible for conducting it. A subsequent advertisement by the drug company mentions the research results as the “findings” of that research organization. Although the design and conduct of the research project are controlled by the outside research organization, the weight consumers place on the reported results could be materially affected by knowing that the advertiser had funded the project. Therefore, the advertiser’s payment of expenses to the research organization should be disclosed in this advertisement." (emphasis added)

Example 3: During an appearance by a well-known professional tennis player on a television talk show, the host comments that the past few months have been the best of her career and during this time she has risen to her highest level ever in the rankings. She responds by attributing the improvement in her game to the fact that she is seeing the ball better than she used to, ever since having laser vision correction surgery at a clinic that she identifies by name. She continues talking about the ease of the procedure, the kindness of the clinic’s doctors, her speedy recovery, and how she can now engage in a variety of activities without glasses, including driving at night. The athlete does not disclose that, even though she does not appear in commercials for the clinic, she has a contractual relationship with it, and her contract pays her for speaking publicly about her surgery when she can do so. Consumers might not realize that a celebrity discussing a medical procedure in a television interview has been paid for doing so, and knowledge of such payments would likely affect the weight or credibility consumers give to the celebrity’s endorsement. Without a clear and conspicuous disclosure that the athlete has been engaged as a spokesperson for the clinic, this endorsement is likely to be deceptive. Furthermore, if consumers are likely to take away from her story that her experience was typical of those who undergo the same procedure at the clinic, the advertiser must have substantiation for that claim.

Assume that instead of speaking about the clinic in a television interview, the tennis player touts the results of her surgery – mentioning the clinic by name – on a social networking site that allows her fans to read in real time what is happening in her life. Given the nature of the medium in which her endorsement is disseminated, consumers might not realize that she is a paid endorser. Because that information might affect the weight consumers give to her endorsement, her relationship with the clinic should be disclosed.

Assume that during that same television interview, the tennis player is wearing clothes bearing the insignia of an athletic wear company with whom she also has an endorsement contract. Although this contract requires that she wear the company’s clothes not only on the court but also in public appearances, when possible, she does not mention them or the company during her appearance on the show. No disclosure is required because no representation is being made about the clothes in this context.

"Example 6: An infomercial producer wants to include consumer endorsements for an automotive additive product featured in her commercial, but because the product has not yet been sold, there are no consumer users. The producer’s staff reviews the profiles of individuals interested in working as “extras” in commercials and identifies several who are interested in automobiles. The extras are asked to use the product for several weeks and then report back to the producer. They are told that if they are selected to endorse the product in the producer’s infomercial, they will receive a small payment. Viewers would not expect that these “consumer endorsers” are actors who were asked to use the product so that they could appear in the commercial or that they were compensated. Because the advertisement fails to disclose these facts, it is deceptive."

The following new examples illustrate the FTC's stance that material connections between the endorser and the advertiser should be disclosed in several new forms of marketing – blogs, discussion boards, and “street teams.”

"Example 7: A college student who has earned a reputation as a video game expert maintains a personal weblog or “blog” where he posts entries about his gaming experiences. Readers of his blog frequently seek his opinions about video game hardware and software. As it has done in the past, the manufacturer of a newly released video game system sends the student a free copy of the system and asks him to write about it on his blog. He tests the new gaming system and writes a favorable review. Because his review is disseminated via a form of consumer-generated media in which his relationship to the advertiser is not inherently obvious, readers are unlikely to know that he has received the video game system free of charge in exchange for his review of the product, and given the value of the video game system, this fact likely would materially affect the credibility they attach to his endorsement. Accordingly, the blogger should clearly and conspicuously disclose that he received the gaming system free of charge. The manufacturer should advise him at the time it provides the gaming system that this connection should be disclosed, and it should have procedures in place to try to monitor his postings for compliance."

"Example 8: An online message board designated for discussions of new music download technology is frequented by MP3 player enthusiasts. They exchange information about new products, utilities, and the functionality of numerous playback devices. Unbeknownst to the message board community, an employee of a leading playback device manufacturer has been posting messages on the discussion board promoting the manufacturer’s product. Knowledge of this poster’s employment likely would affect the weight or credibility of her endorsement. Therefore, the poster should clearly and conspicuously disclose her relationship to the manufacturer to members and readers of the message board."

"Example 9: A young man signs up to be part of a “street team” program in which points are awarded each time a team member talks to his or her friends about a particular advertiser’s products. Team members can then exchange their points for prizes, such as concert tickets or electronics. These incentives would materially affect the weight or credibility of the team member’s endorsements. They should be clearly and conspicuously disclosed, and the advertiser should take steps to ensure that these disclosures are being provided."

The FTC's press release that accompanies the Guides can be found here. The FTC's Federal Register notice that contains commentary from the FTC and a copy of the new guides can be found here