Staying Out of Legal Hot Water as the FTC Revises Its Endorsement Guidelines

Although the FTC cannot bring enforcement actions based on a business's failure to comply with the guides, they are intended to provide direction to advertisers, influencers, social media platforms and others that would do well to stay on the commission's good side.

The proposals focus on new ways advertisers reach consumers through technology and social media. Although the FTC is now reviewing comments from interested parties on the proposed updates, it is likely that most of them will be adopted.

Transparency and deceptiveness are very much the focus of the new proposals. One change expands the definition of "endorsers" to include virtual influencers and computer-generated endorsers that appear to be individuals, groups or institutions.

The updated definition of "endorsement" clarifies that marketing or promotional messages not only apply to specific products, but also include communications that consumers are likely to believe reflect the opinion or experience of someone other than the advertiser. For example, under certain circumstances tagging a brand on social media can be considered an endorsement because consumers are likely to think that the person who created the post uses or likes the tagged brand.

The updates focus on three areas:

• Material connections: Advertisers and endorsers are obligated to disclose connections that might affect the weight or credibility of the endorsement. For example, the connections might include business, family or personal relationships; providing payment, discounted and/or free products or services; or early access to products.

The common practice of affiliate marketing is also considered to be a material connection. Disclosures must be made when an agreement calls for a publisher to receive a commission from sales generated by links embedded in an article or blog that allows a user to purchase a featured product or service. The FTC has also observed that certain existing disclosure tools used by social media platforms do not provide clear and conspicuous disclosure.

• Endorsers, Social Media and Influencers: Opinions must reflect the endorser's honest opinion. Embellishing experiences is considered deceptive advertising.

• Advertisers, Endorsers and Intermediaries' Liability:The proposed revisions state that an advertiser may be liable for an endorser's deceptive statement, even when the endorser is not liable.

Advertisers that procure fake reviews for products or services on their own website and third-party review websites are liable for procuring non-bona fide users and any unsubstantiated claims made in fake reviews.

Certain practices are considered misleading and unfair, such as deleting or not publishing negative reviews; threatening customers that leave negative reviews; and "review gating" (sending satisfied and dissatisfied customers down different paths to encourage positive reviews while avoiding negative reviews).

In addition, the revised guides suggest that endorsers, such as personalities and influencers, and intermediaries (such as advertising agencies and public relations firms) may be liable for disseminating what they know or should know are deceptive endorsements. This includes endorsements that fail to disclose material connections that a consumer would not reasonably expect -- such as a celebrity promoting a product produced by a company that she has an ownership interest in, or a celebrity promoting clothing that a fashion brand has provided to her for free.

Not abiding by endorsement regulations can have major consequences. The FTC has continued to bring enforcement actions against companies that it believes are using false and deceptive endorsements. Recent statements by FTC Chair Lina Kahn suggest this will continue to be a focus of the commission's enforcement efforts.

A case in point occurred in early November 2022, when the FTC and seven state attorney general offices announced charges against Google and iHeartMedia for allegedly airing approximately 29,000 ads featuring made-up testimonials by local radio personalities across the country that were written and disseminated by Google.

The FTC concluded that Google and iHeartMedia paid talent to promote Google's Pixel 4 smartphone -- even though the talent had never touched or used it. The two companies agreed to a settlement with the FTC and will collectively pay $9.4 million in penalties for distributing fake endorsements.

In the release announcing the action, FTC Bureau of Consumer Protection Director Samuel Levine stated: "Google and iHeartMedia paid influencers to promote products they never used, showing a blatant disrespect for truth-in-advertising rules ... The FTC will not stop working with our partners in the states to crack down on deceptive ads and ensure firms that break the rules pay a price."

Another example occurred in January 2022, when the FTC required online fashion retailer Fashion Nova to pay $4.2 million for blocking negative customer reviews from being posted on its website. The FTC complaint said that between 2015 and 2019, Fashion Nova used a third-party tool that review-gated customer comments. It automatically posted four and five-star customer reviews and withheld hundreds of thousands of lower-starred, negative reviews that misled customers.

That's all the more reason to become familiar with the updated endorsement guides. It can pay, to the tune of several million dollars, to abide by the commission's rules of the road.

This article was co-written by Sally Buckman, Manager and Carmel Amero, Associate at the law firm Lerman Senter PLLC. They can be reached at sbuckman@lermansenter.com and camero@lermansenter.com, respectively.

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