An In-Depth Look At The FTC’s Updates To The Endorsement Guides—Part 2 Of 2 – Consumer Law

The Federal Trade Commission (FTC or Commission) issued the much
anticipated final revisions to its Guides Concerning the Use of Endorsements and
Testimonials in Advertising (the Endorsement Guides) just
before the July 4th weekend. The industry already had a glimpse of
these revisions when the FTC issued its proposed updates in May 2022, but after its
review of the public comments submitted in response to the proposed
updates, the Commission further refined the text and examples in
issuing the final revised Endorsement Guides and also provided more
specific guidance in an updated version of its accompanying
document to the Endorsement Guides, FTC’s Endorsement Guides: What People Are
Asking (FAQs).

This article is Part 2 of our two-part series analyzing the
revised Endorsement Guides and the updated FAQs, primarily as
compared to the proposed updates in May 2022. See Part 1 for a discussion on consumer reviews,
fake reviews and fake users and an expanded definition of
“endorsement.”

Clear and Conspicuous Definition

The FTC adopted its previously proposed definition of
“clear and conspicuous” in Section 255.0(f) of the
Endorsement Guides. The phrase “clear and conspicuous” is
generally used in the Endorsement Guides in connection with the
requirement to disclose any material connection between the
endorser and the seller of the endorsed product (commonly referred
to as a “material connection disclosure”). The new
“clear and conspicuous” definition includes the following
key concepts:

A “clear and conspicuous” disclosure is
“difficult to miss (i.e., easily noticeable) and
easily understandable by ordinary consumers.” If an
endorsement targets a particular audience, such as older adults,
then “ordinary consumers” include such targeted
audience.

If an endorsement is made visually, then the disclosure should
be visual; if an endorsement is made audibly, then the disclosure
should be audible; if the endorsement is made both visually and
audibly, then the disclosure should be visual and audible.

If the endorsement is made on an “interactive electronic
medium, such as social media or the Internet, the disclosure should
be unavoidable.”

The disclosure should not be inconsistent with anything in the
endorsement.

These concepts are not entirely new and follow the
Commission’s position on disclosures generally, but the final
revisions to the Endorsement Guides and the updated FAQs provide
more specific guidance on how disclosures should be made and
delineate the FTC’s views on effective disclosures. For
example, the updated FAQs provide the following guidance:

“Ad,” “Paid ad,” or “#ad” are
still acceptable for paid posts as well as receipt of a free
product.

“#endorsement” is not clear enough.

“#ambassador,” “#client,”
“#consultant,” “#advisor” and
“#partner” are all problematic because they are ambiguous
and confusing, but adding the brand name (e.g.,
“#XYZ_Partner” or “#XYZ_Client”) might be clear
enough.

“Sponsored” and “Promotion” at the
beginning might be fine, but “Sponsored by XYZ” or
“Promotion by XYZ” would be clearer.

Disclosures in TikTok videos should be superimposed over the
videos instead of in the text description.

Disclosures in the comments to Facebook posts are not clear and
conspicuous.

“#freeproduct” or “I received free tickets”
is not clear as a free product disclosure because it does not
identify who gave the endorser the product; but, stating that
“I was given a free [name of product] to review” would be
clearer.

“#comped” or “#hosted” for nonpaid
endorsements of events is not clear enough without also including
the brand that provided the free tickets/invitation and a
description of what the brand provided for free.

Notably, contrary to the general industry practice on social
media sweepstakes disclosures, the Commission stated in the updated
FAQs that “#sweepstakes” alone is not a sufficiently
clear disclosure to indicate a post that is incentivized by a
sweepstakes. For the disclosure to be clearer, the FTC recommended
that the name of the brand or product be included in the disclosure
also (e.g., “#XYZ_sweepstakes”). Previously, the FTC had
only disfavored abbreviations like “#sweeps.”

Disclosures of a Material Connection

The FTC made several clarifications in the Endorsement Guides
and the updated FAQs on the circumstances under which a material
connection disclosure should be made as well as the scope of the
disclosure. Acknowledging that not all connections are material
enough to warrant a disclosure because some connections are
“too insignificant to affect the weight or credibility given
to endorsements,” the FTC established a new standard for
determining whether a disclosure is necessary based on the concept
of “significant minority.” Section 255.5(a) of the
Endorsement Guides now states that a disclosure is required when
“a significant minority of the audience for an
endorsement does not understand or expect the connection”
(emphasis added). While the term “significant minority”
was referenced in the prior version of the FAQs, the FTC had not
used that as a standard to differentiate between a connection that
requires a disclosure and a connection that does not.

The determination of what a “significant minority” of
the consumers means was left unclear in the Endorsement Guides. In
the Supplementary Information section of the Endorsement Guides,
the FTC noted that whether a connection is insignificant to the
audience’s evaluation of the endorsement is a “highly
fact-specific” question that in some cases “might require
empirical testing.” However, Section 255.5(a) lists several
examples of what the FTC considers to be a material connection:
monetary payment, provision of free or discounted products or
services, early access to a product and the possibility to win a
prize, be paid, or appear on television or in other media
promotions.

In addition to importing the term “significant
minority” from the FAQs into the revised Endorsement Guides,
the FTC also added a clause in Section 255.5(a) articulating its
position from the FAQs on what should be disclosed in the
material connection disclosure. The revised Section 255.5(a) states
that a material connection disclosure “does not require the
complete details of the connection, but it must clearly communicate
the nature of the connection sufficiently for consumers to evaluate
its significance.” While the FTC refined the existing examples
illustrating this principle, the basic guidance remains the same,
including that (i) an endorsement does not need to disclose how
much the endorser was paid and a simple “paid” disclosure
is sufficient, but such “paid” disclosure is not good
enough if the endorser is an employee or co-owner; and (ii) if an
endorser received a product for free plus an additional payment,
then a disclosure only stating that the endorser received a free
product is not sufficient.

Affiliate Marketing

The FTC added additional guidance on disclosure of affiliate
marketing relationships in both the revised Endorsement Guides and
the updated FAQs. In a new example added to Section 255.5(b)
(Example 11), a blogger writes an independent review of
coffeemakers with links to websites where the products can be
purchased and receives a payment when a consumer who clicks on one
of these affiliate links buys the product. In such an event, the
FTC notes that the review should “clearly and conspicuously
disclose the compensation.” Further illustrating this point,
the updated FAQs describe a product review channel on YouTube where
the reviewer receives the products for free and gets an affiliate
commission for purchases made by consumers who click on an
affiliate link included in the description of the videos. The FTC
recommends including a disclosure of the affiliate relationship in
the videos as well as in the description near the links. According
to the updated FAQs, “affiliate link” by itself or a
“buy now” button is not an adequate disclosure, but
“paid link” next to an affiliate link is good enough if
made clearly and conspicuously and the reader can see both the
review containing that disclosure and the link at the same time.
The FTC does not, however, consider “commissionable link”
to be a clear disclosure.

Liability of Advertisers

It has been well established, both expressly in the prior
versions of the Endorsement Guides and in the FTC’s enforcement
actions, that advertisers can be liable for the statements made by
endorsers as well as for the failure of endorsers to make a
material connection disclosure. In the revised Endorsement Guides,
the FTC further clarified in Section 255.1(d) that an
advertiser’s liability extends to “deceptive
endorsements” even when the endorser is not liable. To
mitigate such liability risk, the FTC recommends that advertisers
provide guidance to their endorsers, monitor the endorsers’
activity and take remedial action. Although the FTC states in the
updated FAQs that it does not expect advertisers to monitor every
social media post by endorsers, the FTC also states that an
advertiser is responsible for what its endorsers post “for a
reasonable time, such as a few months” after the contractual
relationship ends. Additionally, the FTC recommends that
advertisers establish a preapproval process for endorsement posts,
especially for ephemeral endorsements on Instagram or Snapchat
stories, to ensure that endorsers are complying with the
Endorsement Guides.

Liability of Endorsers and Intermediaries

The revised Endorsement Guides include a new Section 255.1(e)
that expressly states that endorsers are potentially liable for
statements they “know[] or should know to be deceptive,”
such as falsely representing that they have used the product or
making unsubstantiated claims about the product’s performance
that are inconsistent with the endorser’s own experience.
Endorsers may also be liable for failing to clearly and
conspicuously disclose an “unexpected” material
connection between themselves and the advertiser.

Additionally, a new Section 255.1(f) identifies advertising
agencies, public relations firms, review brokers and reputation
management companies as intermediaries that may also be liable for
creating or disseminating endorsements they know or should have
known were deceptive and for endorsements that did not disclose
unexpected material connections.

Children

The FTC did not elaborate further in the final revised
Endorsement Guides regarding endorsements directed to children,
explaining in the Supplementary Information section that it does
not believe that the specifics of material connection disclosures
directed to children should be addressed in the Endorsement Guides.
It did, however, add a statement in the updated FAQs that a
disclosure that works with adults may not work with younger
children and that advertisers and endorsers should be careful in
their use of endorsements directed to children.

Why It Matters

The many substantial edits to the Endorsement Guides and the
FAQs, including the new and modified examples included in the
documents, provide a fuller picture of the FTC’s position on
the endorsement practices that it considers to be deceptive or
unfair in violation of Section 5 of the FTC Act. While the
Commission’s guidance that addresses the recent developments in
social media and digital technology used in marketing is helpful,
its perspective on deceptive endorsement practices (especially with
respect to what is a clear and conspicuous disclosure and when a
material connection disclosure should be made) leaves much room for
interpretation and debate.

Keep in mind that, unlike the FTC’s rules, such as the
Children’s Online Privacy Protection Rule, the Endorsement
Guides are still just guides and do not have the force of law;
however, companies and endorsers alike would do well to review
their current practices and make any appropriate adjustments in
light of the FTC’s very public declaration of its views on
deceptive endorsement practices.

We wish to thank Summer Associate Annie Nguyen for her
contributions to this article.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

https://www.mondaq.com/unitedstates/consumer-law/1349688/an-in-depth-look-at-the-ftcs-updates-to-the-endorsement-guidespart-2-of-2

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