FTC Issues Final Sweeping Changes to Endorsement and Testimonial GuidesGuidelines Effective As of December 1, 2009

Kelley Drye Client Advisory

The Federal Trade Commission has completed its review, initiated in January 2007, of its Guides Concerning the Use of Endorsements and Testimonials in Advertising. The Guides, issued in 1972 and last revised in 1980, are designed to assist businesses and others in conforming their endorsement and testimonial advertising practices to the requirements of the FTC Act.

The changes to the FTC’s Testimonial and Endorsement Guides represent some of the most substantial changes to advertising policy in the past 25 years.  The key changes are highlighted in this Advisory.

Marketers should consider the facts surrounding any consumer-generated or other third-party new media statement to determine if the statement is a sponsored” advertising message and subject to the Guides.

The Guides clarify that, regardless of the media used for dissemination (e.g., blog, newspaper, infomercial, word of mouth” marketing, talk show appearance), advertising messages presented as the opinion or findings of a party other than the advertiser will be considered endorsements for the purposes of FTC enforcement.  Although the FTC will treat endorsements in new media” the same as endorsements in traditional media, it elaborated on the types of facts that advertisers should consider in determining if a third party, new media message is an advertising message,” and thus an actionable endorsement.

In its notice accompanying issuance of the Guides, the FTC elaborated on when it will consider a message in new media to be an advertising message” sponsored by the advertiser:

  • [I]n analyzing statements made via these new media [e.g., blogs, other consumer generated media, talk show appearances], 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.”
  • In other words, 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 facts and circumstances that will determine the answer to this question are extremely varied and cannot be fully enumerated here, but would include:
    • 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 length of the relationship;
    • the previous receipt of products or services from the same or similar advertisers, or 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. Again, the issue is whether the consumer-generated statement can be considered sponsored.”

Marketers should have contracts with endorsers using new media that clearly delineate how such media will be used by the endorser and should monitor endorsers’ conduct.

Given the risks of new media endorsements, marketers should review their contracts with  endorsers to specify precisely the content of the messages and how they may be conveyed using new media (e.g., blogs; Facebook entries; Tweets; radio, TV, or Internet interviews; YouTube videos).  Training materials should be created for such use.  Even if a marketer elects not to allow any new media” discussions, a contract addendum or other document should be created setting forth that prohibition.  Moreover, the FTC has expressly stated that marketers should monitor the conduct of their endorsers:   “[A]dvertisers who sponsor these endorsers (either by providing free products - directly or through a middleman - or otherwise) in order to generate positive word of mouth and spur sales should establish procedures to advise endorsers that they should make the necessary disclosures and to monitor the conduct of those endorsers”.

Marketers should monitor paid blogs and ensure paid bloggers are properly trained.

The Guides make clear that a marketer should monitor paid third party blogs and ensure that paid bloggers are properly trained.  A new example provides as follows:

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 for this condition.  The advertiser is subject to liability for false and unsubstantiated statements made through the blogger’s endorsement.  The blogger also is subject to liability for misleading and unsubstantiated representations made in the course of the endorsement.  The blogger is also liable if she fails to disclose clearly and conspicuously that she is being paid for her services.

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.

Accordingly, marketers will need to monitor and ensure training for any paid, third-party media.  For instance, if a marketer uses network marketing programs (e.g., a program where consumers periodically receive free or discounted goods and may choose to write reviews), it will need to ensure the training of and monitor reviews by participants.  However, where a blogger or other third party receives only free product, the situation will need to be analyzed on a case-by-case basis for whether the resulting media is a sponsored ad.  The FTC explained that, in such cases, the advertiser should consider, in particular, the value of the product and the notoriety of the blogger or other third party.

Marketers should limit their employees’ intended or unintended endorsements.

The Guides provide the following example:

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.

Accordingly, marketers should issue guidance regarding employees’ intended or unintended endorsements in appropriate training materials.

Consumer testimonials reflecting non-typical consumer experiences should disclose the results consumers can generally expect to achieve.

The FTC has revised the Guides to require that non-typical testimonials be accompanied by a clear and conspicuous disclosure of generally expected results. Accordingly, advertisers can no longer use atypical consumer testimonials with a Results Not Typical” or similar disclaimer.  The Commission noted that the Guides do not require advertisers to determine with precision what the typical consumer” would achieve with the product.   Rather, the Commission explained that the required disclosure is the generally expected performance in the depicted circumstances.”  Thus, advertisers are provided some reasonable leeway to make this disclosure.  For example, the Commission explained, the term generally expected results” is used rather than average” in order to convey that this disclosure would not have to be based on a strict mathematical average of users of the product, such as might be developed from a valid survey of actual users.  Substantiation for a generally expected results” disclosure could be extrapolated from valid, well-controlled clinical studies of individuals matching the profile of the persons in the ad even though consumers’ real world results are not likely to match exactly the results in the clinical study.   Importantly, the Commission stated that, in some instances, advertisers may rely on generally accepted scientific principles (e.g., the average individual needs a net calorie deficit of 3,500 calories to lose 1 pound) to determine generally expected results.

In other instances, the advertiser may be able to limit the scope of the disclosure by limiting the circumstances depicted in the advertisement.  For example, if all of the testimonials used in an advertisement are clearly identified as persons who have been members of a weight loss clinic for at least one year, the disclosure can be based on performance data from that group, allowing an advertiser to exclude results from those consumers who participated only for a few weeks.  In any event, the disclosure of generally expected results should clearly identify the group from which the data were obtained.  In short, advertisers have some flexibility.  The Commission’s view is that the generally expected results” disclosure will, on the whole, provide more useful information to consumers than the results not typical” disclaimers even if they are not mathematically precise.

If an advertiser does not yet have sufficient information as to the results consumers can generally expect to achieve with its product, the Commission explains that the advertiser can still use general testimonials - i.e., testimonials that do not make specific performance claims - provided that the net takeaway of the ad is not misleading.   For example, a testimonialist might praise the taste of a company’s reduced calorie foods, or the fact that a particular exercise video was the best ever.”

Significantly, the Commission’s discussion of this change states that a strong disclaimer of typicality may avoid the risk of FTC law enforcement action if the advertiser has valid empirical testing demonstrating that the net impression of its advertisement is not deceptive. The Commission stated that it is not presently prepared to incorporate a specific numerical standard for generally representative” that would apply to all endorsements for all products, stating only that fewer than 20% is not generally representative.

Expert endorsements by organizations should reflect the collective judgment of the organization.

The Commission has amended the Guides to clarify that if an endorser is not a bona fide independent testing organization (e.g., it was established and operated by the advertiser), the endorsement would be deceptive.  In addition, the organization should have a process in place to ensure that its endorsements reflect the collective judgment of the organization” rather than  a single staff person.  The Commission suggests that the organization’s management should adopt specific procedures and standards to be applied in the review process, including, for example, clear statements concerning the qualification of the individual(s) conducting the review, the criteria against which products are to be judged, and other requirements or prohibitions management deems appropriate (such as a prohibition against staff members reviewing products in which they have a financial interest).

Advertisers need to advise celebrity endorsers to disclose their relationship with the advertiser.

The Commission has concluded that when celebrities are paid spokespersons, their endorsements are commercial messages, regardless of whether they are disseminated in a traditional advertising context - i.e., a television commercial or print ad - or elsewhere such as on social networking sites. Accordingly, the Guides have been revised to put advertisers on notice that the Commission expects the advertiser to advise a celebrity in advance about what he or she should (and should not) say about a product or service, and about the need to disclose their relationship in the course of interviews and other media events in which the celebrity mentions the company or product.   Evidence that the advertiser did so would provide a strong argument to the Commission that it should exercise its prosecutorial discretion in the event that a celebrity fails to disclose his or her relationship with the advertiser or makes unauthorized claims about the advertiser’s product (or if the celebrity properly disclosed the relationship but that disclosure was ultimately edited out of the program).

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Guidelines are advice, not law.

Commission Guides are not rules or regulations.  These Guides, like all others, represent predictions of how the Commission would view statements about products and services, whether the statements are made by companies themselves or by other parties.  By following the Guides, an advertiser can reduce the risk that the Commission will take exception to an ad.  By departing from the Guides, an advertiser will raise risk.  But perhaps the most important message in this announcement is that advertisers cannot be sure one way or the other.  Just as the Guides will not themselves condemn an ad, they will not provide a safe harborThe ultimate test of the legality of an advertisement is not whether it complies with the Guides, but whether it meets the requirements of the law:

The Commission agrees that each ad must be evaluated on its own merits to determine whether it is misleading. The proposed revisions to Section 255.2 would not change that fundamental tenet of the Commission’s approach to law enforcement. Nor would they prohibit the use of disclaimers of typicality. The proposed revisions would eliminate the safe harbor for results not typical” and similar disclaimers that developed following the issuance of the 1980 Guides, thereby putting advertisers who use testimonials on the same legal footing as those who convey the same claims to consumers directly (that is, without testimonials).[1]

With the Guides, the Commission is telling advertisers what it might investigate and how it will view these types of claims.  Whether the Commission actually prosecutes claims that do not comply with the Guides will still depend on its ability to show that the claims are deceptive or unsubstantiated and that the claims can be attributed to the advertiser.  Are consumers deceived because a blogger or reviewer failed to disclose that he or she received a free sample of a product?  Do consumers believe that a testimonial is a typical experience?  In many cases the answer will be no, but the Commission now presumes that the answer will be yes.  The guidance to advertisers is that the burden will be on them: either follow this advice or prepare to dispel the Commission’s suspicions.

Please contact a member of Kelley Drye’s Advertising Law Group if you have any questions about how the Guides will impact your advertising and marketing campaigns.

Kelley Drye & Warren LLP

The attorneys in Kelley Drye & Warren’s Advertising and Marketing practice group have broad experience at the FTC, the offices of state attorneys general, the National Advertising Division (NAD), and the networks; substantive expertise in the areas of advertising, promotion marketing and privacy law, as well as consumer class action defense; and a national reputation for excellence in advertising litigation and NAD proceedings. We are available to assist clients with developing strategies to address issues contained in this Advisory.

Christie Grymes Thompson
(202) 342-8633

William C. MacLeod
(202) 342-8811

Dana B. Rosenfeld
(202) 342-8588

John E. Villafranco
(202) 342-8423

[1]           Notice at 25 (footnote omitted).