Interpreting FTC's New Endorsement Guidelines

This series examines changes to the Federal Trade Commission (FTC) guidelines for product endorsements and testimonials. The revised new guidelines took effect Dec. 1, 2009.

Section 255.2: Consumer Endorsements

The section on the use of consumer endorsements and testimonials in advertising is the most heavily amended section in the FTC's Guides. The New Guides require advertisers employing consumer endorsers to “possess and rely upon adequate substantiation, including, when appropriate, competent and reliable scientific evidence, to support efficacy claims made through endorsements, just as the advertiser would be required to do if it had made the representation itself.” Anecdotal evidence about the individual experience of consumers is not sufficient to substantiate claims, and if the consumer's message is deemed a sponsored message, the advertiser is responsible for what is said.

Section 255.2 and its examples are primarily concerned with products whose general efficacy and typicality are capable of being discerned (weight-loss and hair-treatment drugs and an energy-saving device). But the last example added to this section involves an advertisement that shows on-the-spot assessments of a movie from viewers leaving a theater. The reason no message of typicality would need to be conveyed is that the patrons' statements would be understood to be their subjective personal opinions. However, the Commission cross-references to '255.5 (discussed below) and notes that if the consumers were offered free movie tickets to make the comments, that arrangement must be disclosed.

The New Guides also do away with the current safe harbor provided by disclaimers of typicality. The prior Guides allowed advertisers that use non-representative consumer testimonials to “clearly and conspicuously disclose the limited applicability of the endorser's experience to what consumers may generally expect to achieve.” That is, a clear and conspicuous disclosure that “results are not typical” sheltered the advertiser from liability. The New Guides require that, when a testimonial conveys that the endorser's results are what consumers can generally expect to achieve and the advertiser does not possess adequate substantiation for that claim, the advertiser must “clearly and conspicuously disclose the generally expected performance in the depicted circumstances.” In its response to comments, the Commission noted that this is not intended to require a mathematical average but rather extrapolated generally expected results under whatever circumstances are depicted based on substantiation. It also notes that a “Results Not Typical” disclosure does not itself violate the Guides, but that it will review the overall net impression of the ad, and likely consumer perception of the ad as a whole, to determine if a consumer would appreciate the generally expected results.

These requirements can be met by an advertiser that is selecting and publishing consumer endorsements. Evolving media gives advertisers myriad new ways to harness consumer reviews and endorsements ' regardless of whether they were originally procured or solicited by the advertiser ' such as posting or linking to the results of a Twitter public-feed search or a Facebook fan-page message feed on the advertiser's Web site. When the advertiser is posting or linking to such consumer comments on third-party sites, as opposed to editorially selecting individual consumer comments to publish, the advertiser may lack the ability to control the consumer posts, making compliance in such circumstances practically impossible. Even where the advertiser is paying or otherwise motivating consumers to blog, tweet, e-mail or text, it lacks the ability to review the substance prior to publication and, in many instances, will not even have the ability to see what was published.

Nonetheless, such comments, when deemed by the Commission to be messages “that consumers are likely to believe reflect the opinions, beliefs, findings or experiences of a party other than the sponsoring advertiser” ' but are nonetheless deemed “sponsored” ' are the responsibility of the sponsoring advertiser. And as New Example 5 in '255.1(d) (discussed in Part One of this series in the December 2009 issue) points out, the FTC may hold the advertiser and the consumer liable for such claims; particularly if the advertiser did not exercise best efforts to control, prevent and rectify the misleading, unsubstantiated or otherwise legally insufficient statements of the consumer.

Section 255.5: Disclosure of Material Connections

This rule requires that material connections between the endorser and the seller of a promoted product be disclosed when they “might materially affect the weight and credibility of the endorsement (i.e., the connection is not reasonably expected by the audience).” While the substance of this section remains unchanged, the Proposed Guides released in November 2008 sought to add new examples to clarify the scope of the rule, including application to sampling and otherwise engaging consumers via social and other evolving media and regarding a celebrity's use of non-traditional media. In its commentary, the FTC solicited comments about these examples particularly regarding “the expectations held by consumers as to the relationships that exist between advertisers and endorsers and these new marketing contexts.” This generated significant comments, and the New Guides revised one example to “clarify that in the case of endorsements disseminated by consumer-generated media, the relationship between the advertiser and the endorser may not be apparent” and to make the sponsoring advertiser's “obligations more apparent.”

Also, the Commission added an additional hypothetical to an example regarding celebrity endorsers, who are not required to disclose a material connection such as being a paid spokesperson in traditional advertising where it would be reasonably expected by consumers. But when speaking about a product on talk shows, in social media or in other contexts less clearly an ad, a disclosure of the connection is required, and both the celebrity and the advertiser are responsible for disclosure omissions and misstatements. The FTC noted in its response to public comments that it could exercise prosecutorial discretion where a talk show edited out the disclosure, or an advertiser had good rules and training and the celebrity simply slipped up.

New Example 7 imagines a college student who makes a name for himself as a video-game expert and is followed by readers on his personal blog who are interested in his gaming experiences. The manufacturer of a new video game system, as it has in the past, sends the blogger a free product and asks him to review it on his blog. He does. Because, the FTC supposes, “his relationship to the advertiser is not inherently obvious, readers are unlikely to know he has received the video game system free of charge in exchange for his review of the product, and given the [unstated] value of the [product], this fact likely would materially affect the credibility they attach to his [what he says about it]. Accordingly, the blogger should clearly and conspicuously disclose that he received the gaming system [for free]. 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.” The use of the video game industry is interesting because that industry relies heavily on consumer-generated reviews and it is common practice to send hardware and software products to gamer-bloggers and even send them on “press junkets” to attend launch parties and industry events.

New Media Different Than TV, Radio

In response to public comments, the FTC acknowledged that in traditional print, TV and radio, it does not require reviewers to disclose that the media outlet received the product for free, but opined that new media was different because the reviewer itself is the media outlet and the beneficiary of the free product, a fact consumers might want to know to weigh credibility. Not discussed is a common practice by bloggers that disclose that they received free product or consideration, but fail to disclose that they do not post reviews when they do not have favorable things to say about a product, information consumers may also arguably want to know.

Further, traditional media has a history of maintaining a separation of editorial, advertising and journalistic ethics that may make these review venues of less concern to the FTC than consumer blogs. As an example, in June 2008, the American Society of Magazine Editors (ASME) published the 13th edition of its ASME Guidelines for Editors and Publishers (www.magazine.org/asme/asme_guidelines/guidelines.aspx). These guidelines suggest that a publisher should label any advertisement or promotion that could be mistaken for editorial content. The disclosure should be as prominent as the publication's normal typeface. Advertisements also should not be placed immediately before or after editorial pages that discuss, show or promote the advertised products. Additionally, sponsorship language should not appear in connection with regularly occurring editorial content; it may be used with special issues, inserts, contests and the like, as long as the editorial content does not endorse the sponsor's products, and any page announcing the sponsorship is clearly an ad or is labeled as such.

In April 2009, ASME issued a set of Best Practices for Digital Media (www.magazine.org/asme/asme_guidelines/bestpracticesdigmed/index.aspx). These “Best Practices” advise that all Web pages should clearly distinguish between editorial content and sponsored or advertising content, and that any content from a source other than the Web page's editors should be labeled in a clear way. Also, a site should disclose its sponsorship and advertising policies, either on a disclosure page or in text accompanying an article. Indeed, the FTC, in its response to comments, noted that it would look at a reviewer of products in traditional media differently “if the reviewer were receiving a benefit directly from the manufacturer (or its agent).”

In New Example 8, an employee of a company that manufactures MP3 players posts messages online at a message board designed for discussion of MP3 players. The employee's posts promote her employer's products, but she does not reveal that she is employed by the manufacturer. Because “knowledge of this poster's employment likely would affect the weight or credibility of her endorsement,” she must clearly and conspicuously disclose her relationship to the manufacturer. This example is far less controversial than the other two, given that the employee is capable of being directed and controlled by the advertiser.

Responding to a public comment that a company that has a social media participation program and appropriate policies and practices should not be responsible for a rogue employee that fails to follow the rules, the FTC noted that “appropriate procedures would warrant consideration” and that it had never brought an enforcement action against a company for an isolated incident of an employee's or representative's failure to follow adequate company policy. New Example 3 reaches a similar conclusion when celebrity spokespeople speak about a product in social media, on talk shows or other venues that are not traditional ad messages. Accordingly, companies should have appropriate social media policies and practices in place that incorporate the New Guide's principles and train employees, celebrity spokespersons and vendors on them ' and enforce the rules.

In New Example 9, a member of a “street team” is awarded points every time he talks to his friends about the street-team organizer's products. He can then exchange those points for prizes. Because, to the FTC, this incentive would materially affect the weight or credibility of the endorsements, the team member must also clearly and conspicuously disclose his relationship to the advertiser. Notably, unlike the other two examples, New Example 9 explicitly states that “the advertiser should take steps to ensure that these disclosures are being provided.” This example, however, does not indicate how specific the street-team member needs to be in disclosing his relationship. It is unclear whether the simple disclosure that he is a member of advertiser's street team or is an advertiser “Brand Ambassador” will suffice, or to what degree the compensation details or reward structure must be explained.

A common way currently employed in connection with posts, particularly where cash compensation has been paid, is to add the text “Sponsored Post.” On Twitter posts, which are limited to 140 characters, the designation '#SP” is starting to appear. Whether these notices will meet the FTC's long established requirements that material disclosures be clearly and conspicuously made is questionable. The Commission's comments regarding the totality of the circumstances and what consumers might reasonably understand or expect with respect to particular media and venues must guide these disclosures.

Consortium and Trade Organization Concerns

The vast majority of the 17 public comments submitted on the Proposed Guides came directly from, or on behalf of, major consortiums or trade organizations within the advertising and marketing industry. Perhaps not surprisingly given their similar situations, many comments echoed the same concerns. Many groups, including the Word-of-Mouth Marketing Association (WOMMA), the Association of National Advertisers (ANA), the American Association of Advertising Agencies (4As), and the Direct Marketing Association (DMA) expressed concern that the new media examples added to ”255.1 and 255.5 create substantial uncertainty as to advertiser liability. The 4As and the ANA were especially concerned that the new examples created liability for advertisers and endorsers in situations where either one, or both, lacked final editorial control over the endorsement. The ANA was also vocal in exploring when an advertiser potentially incurred liability for blogger comments stemming from samples it had freely distributed.

The New Guides resolve some of the ambiguity of the Proposed Guides regarding when and on whom liability can be imposed for product-related statements made on blogs, social-networking sites and other emerging communication channels. It is now clearer that both the sponsor and the speaker are potentially liable and the FTC will look at the circumstances to determine its enforcement decisions. The FTC has rejected cries that given that these new venues and tools eschew much of the editorial control associated with traditional advertising, it is unwise and unjust to subject either advertisers or consumers to liability for the other's actions, unless the consumer is either materially compensated or the advertiser actively encouraged or knowingly permitted the bad act. In traditional forums, testimonials used by advertisers could be carefully vetted to ensure the endorser's veraciousness. Further, the content of advertisements could be edited for compliance with the FTC's regulations, including claims substantiation and efficacy and typicality requirements.

In short, a traditional advertiser has substantial control over the speaker's message. The FTC is placing the risk of viral and social marketing's lack of that very control on the advertiser and telling advertisers they had better institute sound policies and practices to make reasonable efforts to prevent activities that may result in consumer confusion, including monitoring celebrity spokespersons in non-traditional media, and employees, vendors and consumers it engages to send sponsored messages into social media, and to take appropriate actions when violations are discovered. In its response to comments, the FTC suggested that an appropriate corrective action to a consumer blogger that failed to follow appropriate rules relating to sponsored posts might include to “cease providing free product to the individual.”

The Need to Develop Policies And Best Practices

Accordingly, every company should have ' and enforce ' policies and practices for its own use of social and other evolving media, as well as use by its employees, spokespersons, vendors and agents, including regarding how consumers are engaged, educated, monitored and handled. Best practices reflective of the FTC's Proposed Guides, and consistent with the New Guides, are already emerging, and many companies instituted the policies and procedures foreshadowed by the Proposed Rules. In May 2009, IZEA, a blognetwork advertising firm that pairs advertisers' products with relevant bloggers, began providing its advertiser clients with reports tracking whether its bloggers were disclosing compensation arrangements.

Companies can also look to industry best practices to guide them in developing their own policies. The WOMMA Ethics Code and Code of Conduct (www.womma.org/ethics), which the FTC specifically pointed to in its commentary to the Proposed Guides as an “important step” to ensuring “transparency for marketers who engage in new forms of marketing,” were updated on Aug. 10, 2009. WOMMA requires disclosure, veracity and transparency, and prohibits cash payments to consumers for their support. The Interactive Advertising Bureau (IAB) published its Social Media Advertising Best Practices (www.iab.net/socialads) in May 2009. Reportedly, the Children's Advertising Review Unit (CARU), a self-regulatory body that addresses marketing to children under the age of 13, is currently examining the use of social media for sell messaging to children as part of soon-to-be announced guidelines on blurring that counsels a more conservative approach regarding children and teens.