“Navigating the FTC’s Endorsement Rules”
InsideCounsel 12/21/15 By Gregory T. Everts
Consumer, celebrity, and expert endorsements can be an effective way to market your company’s products and services. But these endorsements are subject to the Federal Trade Commission’s (FTC) Endorsement Guides. The FTC Guides, which apply to both traditional and internet/social media, "at their core, reflect the basic truth-in-advertising principle that endorsements must be honest and not misleading." (See the FTC’s Endorsement Guides: What People Are Asking.)
Companies that obtain or encourage endorsements need to keep two concepts in mind: disclose and monitor. Disclosure is required where the advertiser provides something of value in exchange for a review, endorsement, or product mention, and advertisers — potentially — may be held responsible for an endorser’s claims and statements.
What is an Endorsement?
The definition of “endorsement” is broad and encompasses nearly every indirect advertising message. Specifically “endorsement” is defined as:
[A]ny advertising message (including verbal statements, demonstrations, or depictions of the name, signature, likeness, or other identifying personal characteristics of an individual or the name or seal of an organization) that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser . . . . (See FTC Endorsement Guidelines, 16 CFR §255.0(b).)
An endorser can be any individual, group, or institution who expresses opinions, beliefs, findings, or experiences relating to a company, product, or service. Endorsements include the traditional paid celebrity, but further include reviews by consumers or bloggers, product demonstrations, and even product mentions in social media.
What the Guidelines Require
In a nutshell, the guidelines require advertisers to comply with three basic principles:
- Endorsements must be truthful and not misleading;
- If there is a connection between the endorser and the marketer of the product that would affect how people evaluate the endorsement (a so-called "material connection"), and that consumers would not expect, it should be disclosed; and
- If the advertiser does not have proof that the endorser’s experience represents what consumers will achieve by using the product, the advertisement must clearly and conspicuously disclose the generally expected results in the depicted circumstances.
Truthful and Not Misleading
Being truthful requires the disclosure of material connections between advertiser and endorser. A connection is material if the benefit or incentive to the endorser would be likely to affect the endorsement's weight or credibility. Would a consumer evaluate the endorsement differently if he or she knew about the connection between advertiser and endorser? If so, the relationship is material and needs to be disclosed. Where there is a material connection, endorsers should not be making claims that are false, misleading, or unsubstantiated — i.e., claims the advertiser could not be making directly.
How Do I Disclose the Material Connection?
To be clear and conspicuous, the disclosure of a "material connection" between advertiser and endorser should be close to the claims to which it relates, in a font that stands out from the background and is easy to read. For video, the disclosure should be on the screen long enough to be read and understood. For audio, the disclosure should be read in a cadence, and using words, that consumers will understand.
Generally, disclosure requires no special wording. In the case of a consumer or blogger endorsement, the statement that "company X gave me this product to try" should give readers the information they need. As the FTC's FAQs acknowledge, disclosure can be a challenge in some of the new media, but is nevertheless required. On Twitter, for instance, the fact of a relationship with the company should be disclosed in every endorsing tweet. A posting on a Twitter homepage stating that the endorser is affiliated with a company, the FTC says, is not sufficient. The FTC thinks 140 characters allows ample room to disclose that a tweet is an endorsement, and suggests: 1)"sponsored" or "promotion" (9 characters); 2) "paid ad" (7 characters); or 3) "ad:" or "#ad" (3 characters). For product reviews on YouTube and other video sites, the FTC advises disclosure within the video itself. Having the disclosure at the beginning of the video is recommended; making multiple disclosures during the video is preferred. Posting a disclosure in the description of a video, the FTC says, is not sufficient to meet the clear and conspicuous requirement.
I Asked My Endorsers to Make the Disclosures, So I'm Done, Right?
A looming question for many companies is "will we be liable for what someone says (or doesn't say) about our product?" Given the broad definition of "endorsement," it's an important question, and the answer is "it depends." Companies can be held liable for sponsored advertising, and any company that uses bloggers or other social media influencers to promote its products should exercise caution. The closer the connection the greater the risk. While the FTC has acknowledged that it is "unrealistic" for a company to monitor every statement made by every endorser, the FTC does expect companies to have reasonable programming in place to train and monitor its social media network. Company compliance programs should have these fundamental elements: 1) an explanation of what can and cannot be said about products; 2) instruction to network members about their disclosure responsibilities; 3) an occasional search for what people in its network are saying; and 4) a follow up to findings of questionable practices.
The rule that advertising must be truthful and not misleading is the law. The FTC's Endorsement Guides are advisory only, but they provide valuable insight into how the FTC will evaluate endorsements when deciding if a company's marketing program is false or misleading. The fundamental point to keep in mind is that companies are responsible to ensure that advertising is truthful and not misleading when they hire, arrange, and/or encourage people to speak on their behalf. Companies should have a policy that deals with endorsements and should be proactive in monitoring advertising and social media endorsements. Failure to do so can have significant consequences, including the potential for enforcement action by the FTC.