November 3, 2009

FTC Approves New Guidelines for Using Testimonials and Endorsements in Advertising; Guidelines Expressly Apply to Blogging and Other Forms of Social Media

On October 5, 2009, the Federal Trade Commission (“FTC”) announced a revised set of guidelines for the use of testimonials and endorsements in advertising.  The newly revised guidelines, titled “Guides Concerning the Use of Endorsements and Testimonials in Advertising” (“revised Guides”) are the first revisions since 1980.

Although the FTC guidelines do not have the force of law, they are extremely important inasmuch as they represent the FTC’s view of how Section 5 of the FTC Act (15 U.S.C. § 45) should be interpreted when applied to testimonials and endorsements.  Violations may result in fines of up to $16,000 per infraction, in addition to injunctive relief and requirements for corrective advertising. 

Summarized below are some of the most important new provisions for advertisers:

The revised Guides eliminate the long-standing safe harbor that previously allowed advertisers to use a “results not typical” or similar disclaimer when presenting consumer testimonials.  This mere disclaimer is no longer deemed effective.  Under the revised Guides, unless the advertiser can substantiate that the testimonial claim is representative of what consumers may reasonably expect to experience with the product or service, the advertisement “should clearly and conspicuously disclose the generally expected performance in the depicted circumstances, and the advertiser must possess and rely on adequate substantiation for that representation.”  16 C.F.R. § 255.2(b). 

The revised Guides establish new requirements for determining when a testimonial or endorsement is sponsored by an advertiser and the financial connections between the advertiser and endorser must be disclosed.  Under the revised Guides, an “endorsement” is “any advertising message … that consumers are likely to believe reflects the opinions, beliefs, findings or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser.”  16 C.F.R. § 255.0(b).  The FTC sets forth a number of non-exclusive factors to consider in order to determine whether a speaker’s statement should be considered “sponsored” by the advertiser (in which case, the revised Guides will apply).  The factors listed by the FTC are:  (i) whether the speaker is compensated by the advertiser or its agent; (ii) whether the product or service was provided free by the advertiser; (iii) the terms of the agreement between the speaker and the advertiser; (iv) the length of their relationship; (v) the prior receipt of products or services from the same or similar advertisers; (vi) the likelihood of future receipt of the same or similar products; and (vii) the value of the items or services received from the advertiser.

The revised Guides provide directions for applying the Guides in the context of social media such as blogging and twittering.  The FTC states that the revised Guides apply to blogging and the use of other forms of social media in advertising (e.g., micro-blogging, buzz, viral and word-of-mouth marketing).  The revised Guides provide new direction as to how the requirement for disclosure of “material connections” will apply in the social media context.  In fact, the FTC’s commentary expressly notes that bloggers may be subject to different (and presumably heightened) disclosure requirements than reviewers in traditional media.  Further, the revised Guides make no per se distinction between monetary compensation versus in-kind compensation (e.g., product giveaways) paid to the blogger, nor is there a per se distinction between professional versus amateur bloggers.  The FTC’s commentary emphasizes that advertisers using such forms of social media should establish procedures to advise endorsers to make the necessary disclosures of their material connections to the advertiser, and monitor their endorser’s conduct.

The revised Guides require that advertisers disclose their funding of research studies cited in product claims.  As an aspect of the requirement that advertisers disclose material connections with an endorser, the revised Guides now contain a specific example providing that advertising messages which disclose the results of research studies must disclose if that research was funded by the advertiser.  16 C.F.R. § 255.5, Example 1.  Importantly, however, the revised Guides do not appear to require disclosure if the research findings are used solely as substantiation for a claim.  Rather, it is the claim of the findings themselves and the making of that claim to consumers that triggers the requirement.  Relatedly, the revised Guides have updated the requirements for endorsements by organizations, and now emphasize that an organization should have a process in place to ensure that its endorsements reflect “the collective judgment of the organization.”  16 C.F.R. § 255.4.

The revised Guides impose additional guidelines relating to the use of celebrity endorsements.  The revised Guides purport to implement the FTC’s view that a celebrity making claims in an advertisement has an obligation “to make reasonable inquiries of the advertiser that there is an adequate basis for assertions that the script has them making.”  Notice of adoption of revised Guides, Section II(D).  In addition, the revised Guides now provide specific examples of how a celebrity might be liable for statements made in the context of social media. 

Effective Date.   The FTC’s revised Guides become effective on December 1, 2009.  Thus, advertisers have a brief period of time in which to review their current advertisements, compliance and monitoring procedures, and social media policies.