The FTC has sent a strong message to industry that it plans to hold companies responsible for using endorsements and customer testimonials that deceive consumers. The recent warning signals the FTC's focus on fake reviews and endorsements and the agency's intent to hold brands and advertising service providers accountable where necessary. The agency is paying particularly close attention to how brands communicate with customers through third party influencers on social media.
On October 13, 2021 the FTC issued a Notice of Penalty Offenses to over 700 companies. Recipients of the notice spanned brands across the consumer product ecosystem including:
- Traditional consumer product brands and manufacturers, particularly in the fashion, beauty, food, tobacco and alcohol industries.
- Travel, entertainment, fuel and hospitality brands.
- Pharmaceutical, wellness and medical device companies.
- Companies providing advertising, marketing, data and technology services to brands or directly to consumers.
The related press release specified that the notice was widely sent to industry participants. The FTC says the fact that a company received the notice does not in any way suggest that the agency believes the company has engaged in deceptive or unfair conduct.
Civil penalties threatened by the agency could reach up to $43,792 per violation. The purpose of this broad communication under the agency's Penalty Offense Authority is to place the businesses on notice that they could incur civil penalties if they use endorsements in ways that contradict previous FTC administrative orders (not consent orders). That Authority allows the FTC to pursue civil penalties against a company where they knew their conduct violated the FTC Act and the FTC previously issued an administrative order (not a consent order) finding that the conduct at issue was deceptive or unfair. This campaign previews another creative approach the FTC will use to seek civil penalties for deceptive practices following the Supreme Court's AMG Capital decision, which we previously covered.
The specific administrative cases flagged by the FTC as a basis for potential future enforcement are available on their website. The FTC notice listed the following activities as unfair or deceptive trade practices:
- Making claims which expressly or impliedly represent, falsely, that a third party has endorsed a product or its performance.
- Misrepresenting that an endorsement shows the experience, views, or opinions of product users.
- Misrepresenting an endorser as an actual user, a current user, or a recent user of a product or service.
- Continuing to advertise endorsements without good reason to believe that the endorser continues to subscribe to the stated views.
- Using testimonials to make unsubstantiated or otherwise deceptive performance claims, even if the testimonials are genuine.
- Failing to disclose a connection between an endorser and the seller of an advertised product or service, if the existence of that connection would not be reasonably expected by consumers and might materially affect the weight or credibility of the endorsement.
- Using testimonials that explicitly or implicitly misrepresent that the endorser's experience with a product or service also represents the typical or ordinary experience of other users.
Putting it into Practice: Brands and advertising service providers alike should review their use of third party influencers and endorsers to ensure they are following best practices in light of the FTC's reminder and remain vigilant regarding potential FTC enforcement including civil penalties.