Surprise, surprise, it turns out that the Federal Trade Commission (“FTC”) is serious about the misuse of endorsements and testimonials in advertising. In October 2021, the FTC sent out a Notice of Penalty Offenses to approximately 700 companies, warning them that certain acts or practices, based on FTC precedent in past litigated cases, violated the FTC Act and advertisers engaging in those practices could face substantial civil penalties. On June 29, 2023, the FTC updated its 2009 Guidelines on Endorsements and Testimonials. The next day, the FTC proposed a trade regulation rule covering the use of endorsements and testimonials. These actions, along with more than two dozen individual cases brought in the past decade, make clear that policing the use of testimonials is an FTC priority. It is imperative that companies relying on influencers to market their products stay informed and compliant with these regulations.
What Is Covered?
If I post on my Facebook page that I used Skinny Biscuits to lose weight, that’s an endorsement. But if I have no relationship to the Skinny Biscuit company and I am not selling Skinny Biscuits, it is not an endorsement subject to the FTC Act, no matter how false it is.1 To be subject to the FTC Act, there must be a “sponsoring advertiser.” To be a “sponsoring advertiser,” the advertiser must provide something material to the endorser in hopes that they endorse the advertiser’s product or service. For example, a company handing out free samples on the sidewalk outside the train depot is likely not doing it to generate social media posts. If this is the case, while the free sample may be material, the company would not be a “sponsoring advertiser.” However, a company that sends a free sample to a blogger who regularly writes about the products they use would likely be deemed a “sponsoring advertiser.”
An important caveat to keep in mind is that a third-party statement that is not initially subject to the FTC Act can fall under its jurisdiction if the advertiser later uses it to promote a product. For example, if Skinny Biscuits shares my post about losing weight, the company would violate the FTC Act if it could not substantiate the weight loss claim I made in my statement.
Assuming there is a sponsoring advertiser, social media posts by influencers are endorsements. Fake reviews are also endorsements. A featured review on the company’s website is an endorsement. Even if a review is not featured, it is an endorsement if there is a material connection between the endorser and the advertiser.
Why Does it Matter?
Advertisers are liable for statements made by their endorsers, including influencers and affiliate marketers. For example, an advertiser can be liable if a paid influencer fails to disclose a material connection or if the paid influencer makes a false claim or a performance claim about a product that the advertiser cannot substantiate.2 Advertisers may also be liable for statements made by independent third parties if they use those statements to promote their products. In the Skinny Biscuits example cited above, Skinny Biscuits will be liable if they share my Facebook post and cannot substantiate the weight loss claim.
What Is a Material Connection?
To be a covered endorsement, there must be a material connection between the endorser and the advertiser. A material connection is a relationship between an advertiser and an endorser that would affect the weight or credibility that consumers would give to the endorsement. Material connections can include:
- The receipt of payment from the advertiser for posts or reviews 3
- The receipt of free product
- The opportunity to participate in a sweepstake
- Family or employment relationships
- The opportunity to receive publicity
What Are the Advertisers Monitoring Responsibilities?
The FTC has stated that it “expects advertisers to be responsible for and monitor the actions of their endorsers.”4 However, there is no duty to monitor employees’ posts unless the employer has solicited the reviews.5
What Would a Reasonable Monitoring Procedure Look Like?
When it comes to monitoring, one size does not fit all. A reasonable monitoring program will vary depending on a number of factors, including the number of influencers involved, the relationship between the influencers and the advertiser, the nature of the product or service involved, and the likelihood of consumer injury. An effective program is going to involve at least four elements: education, monitoring, compliance, and documentation.
The advertiser should provide influencers with a statement of their disclosure responsibilities and a copy of the FTC’s publication titled “Disclosures 101 for Social Media Influencers.” The influencer should acknowledge receipt of both. While designing an adequate monitoring program can be challenging, one safe alternative is to require influencers to obtain preapproval of any posts they make. If that is not feasible, devise a plan to implement periodic monitoring of the major influencers, including those with the largest circulation or who are paid the most. Monitor less prominent influencers on a random, periodic basis and affiliate marketers on a monthly basis.6
The advertiser should, by contract, retain the right to immediately terminate and cease payment to any influencer or affiliate marketer who has:
- misrepresented, in any manner, his or her independence or impartiality;
- failed to disclose clearly and conspicuously his or her connection with the advertiser;
- misrepresented his or her experience with the product or service; or
- made any performance claim not authorized by the advertiser.
More importantly, the advertiser must enforce this provision against influencers who engage in such conduct.7
The final element is documentation. The advertiser should document its monitoring activity and compliance actions, including retaining all compliance-related correspondence.
When Are Disclosures Required?
The two most common disclosures required when using endorsements or testimonials is the disclosure of material connection and typicality. The FTC Act requires a clear and conspicuous disclosure of material connections, unless it is obvious from the endorsement that it is an advertisement. Determining when it is obvious that an endorsement is an advertisement can be difficult. In this gray area, caution is advised. The FTC Act also requires a disclosure of typical results when the reported performance is not typical of what the general user will experience. For example, if an endorser says they lost 30 pounds but the evidence shows that the typical user only loses six pounds, the endorsement must include a clear and conspicuous disclosure that users can only expect to lose six pounds.
How to Make a Clear and Conspicuous Disclosure?
The most frequent violation in advertising is the failure to make clear and conspicuous disclosures when disclosures are required.8 All required disclosures must be clear and conspicuous, meaning that the disclosure must be easy to understand, hard to miss, and unavoidable. Applied to social media posts, this means that a disclosure that requires viewers to click on a “more” or “about me” button, or is buried in a string of hashtags, is not effective. A disclosure that doesn’t appear until the end of a post or video will be missed if the viewer doesn’t view the entire post or video. Likewise, a disclosure that requires the consumer to scroll down in order to see it is not effective. The rule of thumb is that the viewer must be able to see the endorsement and the disclosure simultaneously. For example, if the endorsement is in a picture, superimpose the disclosure over the picture. For endorsements in videos, place the disclosure in the video. The best practice is to make the disclosure in both the audio and video. For live stream, the disclosure should be repeated periodically.
What Should the Disclosure Say?
The FTC does not mandate specific disclosure language. However, the following disclosures are likely adequate: advertisement, ad, sponsored, and, if applicable, any language that indicates that the influencer received the product or service for free. In addition, “[insert brand] Ambassador” (e.g., Skinny Biscuits Ambassador) is likely to be acceptable.
American Beverage Association Warning Letter: Case Study
On November 13, 2023, the FTC announced that it had sent a warning letter to the American Beverage Association (“ABA”). The FTC alleged that the ABA paid a number of registered dieticians to post about the safety of aspartame. The FTC claimed that a number of posts appearing on TikTok and Instagram may be deceptive in violation of the FTC Act. The potential violations consisted of failure to include any disclosure; in videos, failure to include the disclosure in the video itself; placing the disclosure too far down in the text description; use of small print; poor contrast; placing the disclosure at the bottom of the screen; reliance on “built-in disclosure tools” like “paid partnership,” which were too easy to miss; failure to identify the sponsor; and use of abbreviations (e.g. “ameribev”) that viewers would not likely understand. The ABA warning letter is remarkable in that it includes just about everything that can go wrong with disclosures.
Manipulating Product Reviews
Generally, product reviews are endorsements. Advertisers may not procure, suppress, boost, organize, or edit reviews in a way that distorts or otherwise misrepresents what consumers think of their product or service. For example, buying positive reviews is unlawful. But, it is also unlawful to purchase negative reviews of a competitor’s product or service. Although an advertiser need not publish the endorser’s exact words, the advertiser cannot alter the meaning of the endorser’s statement. If the advertiser has altered the reviewer’s statement, the advertiser cannot represent that the statement is an exact quote. Advertisers may not forward only positive reviews to third-party review websites. “Review gating” occurs when a practice results in reviews that are substantially more positive than they would have been without the practice.9
Fashion Nova: Case Study
Fashion Nova is a fast-fashion apparel company. At the time the FTC filed this case, Fashion Nova solicited consumers on its product pages to write a review and the page displayed the average star rating for the product. 10 Fashion Nova used a third-party review interface that allowed Fashion Nova to choose to have certain reviews automatically posted based on the star rating and hold lower ratings for review later. The FTC alleged that the company posted four and five star reviews automatically, but failed to post lower rated reviews and, as a result, the “product reviews did not automatically reflect the views of all purchasers who submitted reviews.” The FTC order required the company to pay consumer redress in the amount of $4.2 million and to display all reviews, with limited exceptions.
Must All Reviews Be Posted?
Advertisers are not required to post all reviews provided that positive and negative reviews are treated the same. Specifically, reviews need not be posted if they:
- contain unlawful, harassing, abusive, obscene, vulgar, or sexually explicit content;
- contain content that is inappropriate with respect to race, gender, sexuality, or ethnicity;
- are reasonably believed to be fake;
- are unrelated to the advertiser’s product or service;11
- contain personal information or likeness of another person or are libelous;
- contain content that is false or misleading;12 or
- contain trade secrets or privileged or confidential information or financial information.
Conclusion
Influencer marketing is a favored form of online marketing and consumers rely heavily on reviews when making purchasing decisions. Accordingly, the FTC has advertisers that misuse endorsements and testimonials in its crosshairs. For companies that leverage influencer marketing and consumer reviews, it is critical to properly train in-house legal and marketing staff and influencers to reduce the risk of penalties from the FTC.
[1] Section 5 of the FTC Act prohibits the use of unfair or deceptive acts or practices in or affecting commerce.
[2] For example, in the FTC’s case against TEAMI LLC, the FTC cited an excerpt from an October 8, 2018, Instagram post by Molly Hopkins, a reality television personality with 161,000 Instagram followers stating, “Since becoming a #teamipartner, I can’t shut up about this tea !! Any chance I get to tell people about it, I talk their ear off. I’m honestly addicted, I have it on an automatic renewal😂 I’ve lost almost 40 freaking pounds with @teamiblends 30 day detox ….and this was before I was committed to working out and eating healthier !” In this example, Teami would be required to substantiate that the typical user of Teami detox tea will lose 40 pounds or make an adequate typicality disclosure. FTC v. TEAMI, Case No. 8:20-cv-00518 (Mar. 5, 2020). (Stipulated Judgment). https://www.ftc.gov/legal-library/browse/cases-proceedings/182-3174-teami-llc.
[3] FTC staff has been asked on numerous occasions whether there is a de minimis amount of payment that would not be considered material. Although there may be an amount that is so low that it would not affect the weight or credibility of an endorsement, the FTC has refused to identify what that amount might be.
[4] 88 FR 48092, 48095 (2023).
[5] In the Sunday Riley Modern Skincare case, the FTC alleged that the CEO of the company requested that employees of the company post reviews on the Sephora website. The FTC alleged that the reviews falsely represented that the reviews on the Sephora website reflected the independent experiences or opinions of impartial ordinary users of the products and that the reviews failed to clearly and conspicuously disclose that the reviews were written by Sunday Riley employees. SUNDAY RILEY MODERN SKINCARE, LLC, C-4729 (consent). https://www.ftc.gov/legal-library/browse/cases-proceedings/192-3008-sunday-riley-modern-skincare-llc-matter (Nov. 6, 2020).
[6] Here, the term affiliate marketer means any person or entity receiving a commission based on sales or referrals. An affiliate marketer who makes representations about the product or service is treated as an endorser.
[7] In certain cases, the FTC has allowed a company to provide an influencer or affiliate marketer with notice of failure to adequately disclose and an opportunity to cure the disclosure prior to terminating the endorser if the advertiser reasonably concludes that the failure to adequately disclose was inadvertent. In such a case, the advertiser should immediately inform any endorser to whom they have provided a notice that failure to adequately disclose a material connection will result in immediate termination.
[8] The Endorsement Guides define “clear and conspicuous” to mean that “a disclosure is difficult to miss (i.e., easily noticeable) and easily understandable by ordinary consumers.” The Guide states: “If a communication’s representation necessitating a disclosure is made through visual means, the disclosure should be made in at least the communication’s visual portion; if the representation is made through audible means, the disclosure should be made in at least the communication’s audible portion; and if the representation is made through both visual and audible means, the disclosure should be made in the communication’s visual and audible portions. A disclosure presented simultaneously in both the visual and audible portions of a communication is more likely to be clear and conspicuous. A visual disclosure, by its size, contrast, location, the length of time it appears, and other characteristics, should stand out from any accompanying text or other visual elements so that it is easily noticed, read, and understood. An audible disclosure should be delivered in a volume, speed, and cadence sufficient for ordinary consumers to easily hear and understand it. In any communication using an interactive electronic medium, such as social media or the internet, the disclosure should be unavoidable. The disclosure should not be contradicted or mitigated by, or inconsistent with, anything else in the communication. When an endorsement targets a specific audience, such as older adults, “ordinary consumers” includes members of that group.” https://www.federalregister.gov/documents/2023/07/26/2023-14795/guides-concerning-the-use-of-endorsements-and-testimonials-in-advertising.
[9] The undisclosed use of incentivized reviews in star rating could be a problem if it substantially affects the star rating.
[10] Fashion Nova, 173 F.T.C. 531 (consent agreement) (2022).
[11] Generally, customer service is “related” unless the review relates to customer service of a different seller.
[12] The fact that a review is negative is not a reasonable basis to exclude it as false or misleading.
