Background
On October 13, 2021, the Federal Trade Commission (FTC) despatched a Notice of Penalty Offenses to greater than 700 companies, together with prime client manufacturers, retailers, e-commerce platforms and promoting businesses, concerning practices involving buyer endorsements, testimonials, evaluations, influencer advertising and native promoting that it considers to be misleading. The Notice didn’t allege that any of the recipients had engaged in wrongdoing. Instead, its objective is to determine a foundation for the FTC to hunt penalties if the recipients are discovered to have engaged in these allegedly misleading practices after receiving it.
The FTC’s guidelines require that every one endorsements and testimonials replicate the precise experiences of the endorser. The guidelines additionally require entrepreneurs and their companions to reveal any materials connections between an endorser and the marketer, so that customers can depend on correct evaluations and different testimonials, and simply differentiate between paid commercials and different statements made in change for a profit offered by the corporate, and natural statements or evaluations made by people.
The FTC issued up to date pointers on endorsements and testimonials in 2009 and extra native promoting steering
in 2015 to deal with social media influencers and promoting on social platforms the place it could be troublesome to differentiate promoting content material from editorial content material, and genuine evaluations or endorsements from paid evaluations or paid endorsements. The FTC has since introduced quite a few enforcement actions towards promoting businesses, manufacturers, sport firms, sport networks, and even influencers and expertise who’ve flouted the rules.
The latest warning to prime manufacturers, social or different e-commerce platforms and businesses is the newest warning shot by the regulators who warned particular person expertise and influencers of these pointers in 2017. Such notices are often adopted by a number of enforcement actions, which can now embody financial penalties.
The FTC’s focus on this newest warning is on the regulatory requirement that every one endorsements and evaluations should be correct when made by the endorser and proceed to be the sincere and real expertise the endorser had with the marketer’s product, whether or not such endorser is paid or not. Where an endorser is “paid,” the FTC’s pointers require a transparent and conspicuous disclosure (similar to “paid testimonial,” or within the influencer context a disclosure made by the influencer on social media similar to “#advert,” “#paid,” or “#model title ambassador”). One vital consideration for entrepreneurs to grasp is that “paid” can imply many alternative issues, together with that the endorser was given a free product to strive, was paid money, fairness or different monetary consideration, or is an worker, contractor, investor or different agent of the marketer.
The FTC has in a quantity of its enforcement circumstances, together with actions towards Lord & Taylor and Warner Brothers, targeted on the model or marketer itself, who the FTC notes has management over the assorted individuals in a advertising marketing campaign and is due to this fact primarily accountable to make sure that evaluations and endorsements of their merchandise are genuine and disclosures are being made by the assorted influencers or different individuals within the advertising marketing campaign. The FTC has particularly required entrepreneurs to not solely make sure that influencers or different paid endorsers are contractually required to make disclosures, but additionally to fairly monitor that disclosures are being made in a transparent and conspicuous method, and terminate non-compliant influencers or endorsers. The marketer or platform can be accountable the place practicable to take away pretend or inaccurate evaluations from their owned and operated channels, and guarantee if the marketer is selling a evaluate, together with boosting a social publish through paid media, that the services or products is in keeping with the claims or experiences of the endorser and correct as to the attributes of the services or products itself.
Companies, whether or not or not they obtained the Notice, ought to see these letters as a warning to evaluate their advertising actions and implement practices which might be compliant with FTC guidelines on endorsements and testimonials. This is particularly vital provided that FTC penalties for violation of its guidelines concerning unfair or misleading promoting will be as much as $43,792 per violation. Multiplied by every non-compliant testimonial, Instagram publish or native weblog publish, this penalty can shortly develop into very vital and a significant danger to companies.
Key Recommendations
In mild of this warning shot from the FTC, what ought to companies who use influencers or who solicit buyer endorsements, case research, or testimonials do now? At a minimal, they need to do the next:
Understand how they’re sourcing and utilizing third-party content material, together with evaluations, to market their model. Companies ought to determine the individuals of their advertising ecosystem that could be working with them, together with businesses, publishers and influencer companions, and perceive their respective practices round endorsement and testimonial advertising.Work with their advertising groups to create an ordinary set of promoting disclosures and advertising agreements and insurance policies for third-party companions, similar to influencers.Review their phrases of service to make sure that they correctly tackle endorsement and testimonial advertising to their prospects or shoppers.Review inner social media insurance policies and practices to make sure workers and different contractors or brokers are compliant with the FTC pointers.Enact a course of to observe compliance (or outsource monitoring) and terminate non-compliant companions.
Conclusion
Digital advertising typically strikes at a breakneck tempo, but transparency is ever extra crucial each to regulators and shoppers. Once firms higher perceive how they’re partaking third events to market their services, it will be significant for the advertising, enterprise and authorized groups to work collectively to develop a course of to make sure compliant advertising practices, together with disclosures which might be FTC compliant, and advertising agreements and operational practices that appropriately shield the enterprise.
The FTC’s guidelines concerning endorsement and testimonials cowl a variety of advertising actions and embody detailed steering, together with when applicable disclosure is required. The Notice reinforces the truth that the FTC continues to actively implement non-compliance. We advocate visiting the FTC’s on-line “Business Center,” a useful useful resource for companies to grasp these guidelines and not using a authorized background. The FTC additionally developed a really useful FAQ
as a useful resource and has issued disclosure pointers on methods to clarify and conspicuous disclosures.
Fenwick is offered to supply types, steering, coaching supplies or in any other case advise on how these guidelines might apply to particular person firms, and determine the most effective subsequent steps for lowering danger of non-compliance.
Please be happy to achieve out to your Fenwick contact or the authors of this alert for additional steering.
https://www.fenwick.com/insights/publications/ftc-issues-notice-of-penalty-offenses-for-endorsement-and-testimonial-marketing
