FTC Stepping Up Scrutiny of Online Endorsements and Business Reviews – Are You Prepared?

FTC Stepping Up Scrutiny of Online Endorsements and Business Reviews – Are You Prepared?

The Federal Trade Commission (FTC) recently updated its Guides Concerning the Use of Endorsements and Testimonials — better known as the “Endorsement Guides.” The FTC also proposed a new rule that would give the FTC greater authority to bring enforcement actions for violations of its Endorsement Guides and crack down on illicit review and endorsement practices.

The revisions to the Endorsement Guides reflect businesses’ increased reliance on social media influencer campaigns, sponsored reviews, artificial intelligence, and other online marketing tools. If you advertise your business using digital and social media marketing, the updated Endorsement Guides and FTC rule proposal should definitely be on your radar.  To ensure compliance, we highly recommend working with experienced counsel to review your advertising practices and revise them as necessary to avoid drawing the ire of the FTC.

Updated FTC Enforcement Guides

Under the Federal Trade Commission Act (FTC Act), businesses are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between themselves and their endorsers. The Guides represent the FTC’s administrative interpretations concerning the application of section 5 of the FTC Act to the use of endorsements and testimonials in advertising. They are, however, advisory in nature and intended to provide regulatory guidance.

The FTC’s Endorsement Guides were last revised in 2009, well before the explosion of social media and influencer marketing. While the Guides reflect advances in technology, they remain focused on the same principles — claims in advertisements must be truthful, can’t be deceptive or unfair, and must be evidence-based. 

Significant Definitional Changes

One of the key changes is the definition of “endorsement” itself. The revised Endorsement Guides define “endorsement” as “any advertising, marketing, or promotional message for a product 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.” The FTC’s broader definition also make it clear that the term “endorsement” encompasses “verbal statements, tags in social media posts, demonstrations, depictions of the name, signature, likeness or other identifying personal characteristics of an individual, and the name or seal of an organization.”

Another significant change involves the term “clear and conspicuous.” Under the updated Endorsement Guides, “clear and conspicuous” means that a disclosure is difficult to miss (i.e., easily noticeable) and easily understandable by ordinary consumers. The Endorsement Guides further describe the characteristics necessary to make disclosures effective; for instance, in any communication using an interactive electronic medium, such as social media or the Internet, the disclosure should be “unavoidable.”

Procuring, Suppressing, Boosting, Organizing, Publishing, Upvoting, Downvoting, or Editing of Consumer Reviews

For the first time, the Endorsement Guides address“procuring, suppressing, boosting, organizing, publishing, upvoting, downvoting, reporting, or editing of consumer reviews.” The FTC specifically advises that advertisers should not take actions that have the effect of “distorting or otherwise misrepresenting what consumers think of their products, regardless of whether the reviews are considered endorsements under the Guides.”

The Endorsement Guides also feature several new examples intended to illustrate actions that the FTC considers misleading. For instance, if a manufacturer routinely flags negative reviews of its products as fake without a reasonable basis for believing that they actually are fake, resulting in truthful reviews being removed from the website, the FTC considers this misuse of the reporting option to be an unfair or deceptive practice.

Incentivized Reviews

With regard to incentivized reviews, the FTC advises that a marketer that recruits ordinary consumers to get a free product and receive a monetary payment in exchange for posting a consumer review of the free product on the marketer’s website, and makes clear to the reviewers that they are free to write negative reviews and that there are no negative consequences of doing so, must still clearly and conspicuously disclose the incentives provided to that reviewer. If the marketer fail to do so, the review is likely deceptive. When the resulting reviews must be positive or reviewers believe they might face negative consequences from posting negative reviews, a disclosure would be insufficient, according to the FTC.

Employee Reviews

The Endorsement Guides confirm that when a connection exists between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement, and that connection is not reasonably expected by the audience, such connection must be disclosed clearly and conspicuously. Because knowledge of an endorser’s employment “likely would affect the weight or credibility” of an endorsement made by the endorser, the employment relationship must be clearly and conspicuously disclosed.

To avoid potential liability for employee endorsements, the FTC advises employers to engage in appropriate training of employees. “To the extent that the employer has directed such endorsements or otherwise has reason to know about them, it should also be monitoring them and taking other steps to ensure compliance,” the Endorsement Guides state.

Fake Negative Reviews of Competitors

The latest version of the Endorsement Guides advise that although a paid or otherwise incentivized negative statement about a competitor’s service is not an “endorsement,” the statement, e.g., a paid negative review of a competing product, may still be deceptive in violation of Section 5 of the FTC Act. 

Liability of Advertisers, Endorsers, and Intermediaries

The Endorsement Guides continue to advise that advertisers are subject to liability for misleading or unsubstantiated statements made through endorsements or for failing to disclose unexpected material connections between themselves and their endorsers. They also make it clear that an advertiser may be liable for a deceptive endorsement even when the endorser is not liable.

In its examples, the Endorsement Guides also advise that a direct relationship between an advertiser and endorser is not required for an advertiser to be liable for an endorsement: “If [an] advertiser retweets a positive statement by an unrelated third party or republishes in an advertisement a positive review by an unrelated third party, that statement or review becomes an endorsement for which an advertiser is liable, despite the lack of any such connection,” the FTC explains.

Under the amended Endorsement Guides, endorsers may be liable when an endorser makes a representation that the endorser knows or should know to be deceptive, including when an endorser falsely represents that they personally used a product. Also, an endorser who is not an expert may be liable for misleading or unsubstantiated representations regarding a product’s performance or effectiveness, such as when the representations are inconsistent with the endorser’s personal experience or were not made or approved by the advertiser and go beyond the scope of the endorser’s personal experience.

Advertising agencies, public relations firms, review brokers, reputation management companies, and other similar intermediaries may be liable for their roles in creating or disseminating endorsements containing representations that they know or should know are deceptive. The Endorsement Guides also make clear that such entities may also be liable for their roles with respect to endorsements that fail to disclose unexpected material connections, whether by disseminating advertisements without necessary disclosures or by hiring and directing endorsers who fail to make necessary disclosures.

FTC Proposed Rule on Use of Consumer Reviews and Testimonials

On June 30, 2023, the FTC published a Notice of Proposed Rulemaking, entitled “Rule on the Use of Consumer Reviews and Testimonials,” which would prohibit certain specified unfair or deceptive acts or practices involving consumer reviews or testimonials. The Proposed Rule follows the FTC’s advance notice of proposed rulemaking, which was announced last November. In addition to summarizing the comments that the agency received from interested parties, the Proposed Rule also includes examples of deceptive practices involving consumer reviews and testimonials from its past cases.

Under the Proposed Rule, the following would expressly be considered prohibited practices:

• Selling or Obtaining Fake Consumer Reviews and Testimonials: The proposed rule would prohibit businesses from writing or selling consumer reviews or testimonials by someone who does not exist, who did not have experience with the product or service, or who misrepresented their experiences. It also would prohibit businesses from procuring such reviews or disseminating such testimonials if the businesses knew or should have known that they were fake or false.
• Review Hijacking: Businesses would be prohibited from using or repurposing a consumer review written for one product so that it appears to have been written for a substantially different product.
• Buying Positive or Negative Reviews: Businesses would be prohibited from providing compensation or other incentives conditioned on the writing of consumer reviews expressing a particular sentiment, either positive or negative.
• Insider Reviews and Consumer Testimonials: The proposed rule would prohibit a company’s officers and managers from writing reviews or testimonials of its products or services without clearly disclosing their relationships. It also would prohibit businesses from disseminating testimonials by insiders without clear disclosures of their relationships, and it would prohibit certain solicitations by officers or managers of reviews from company employees or their relatives, depending on whether the businesses knew or should have known of these relationships.
• Company Controlled Review Websites: Businesses would be prohibited from creating or controlling a website that claims to provide independent opinions about a category of products or services that includes its own products or services.
• Illegal Review Suppression: Businesses would be prohibited from using unjustified legal threats, other intimidation, or false accusations to prevent or remove a negative consumer review. The proposed rule also would bar a business from misrepresenting that the reviews on its website represent all reviews submitted when negative reviews have been suppressed.
• Selling Fake Social Media Indicators: Businesses would be prohibited from selling false indicators of social media influence, like fake followers or views. The proposed rule also would bar anyone from buying such indicators to misrepresent their importance for a commercial purpose.

In its proposed rulemaking, the FTC acknowledges that the U.S. Supreme Court’s decision in AMG Capital Management LLC v. FTC has hindered the FTC’s ability to seek monetary relief for consumers under the FTC Act. According to the agency, it is hopeful that a rule formally prohibiting certain practices and allowing for the judicial imposition of civil penalties could strengthen deterrence and FTC enforcement actions. If promulgated, the Proposed Rule would authorize the FTC to seek civil penalties against violators (up to $50,120 per violation) as well as other monetary relief, such as consumer damages.

The FTC is currently accepting feedback regarding the utility and scope of its Proposed Rule. Following the 60-day comment period, it will determine whether to take the necessary next steps toward issuing a final rule.

If you have questions, please contact us

If you have questions or if you would like to discuss the matter further, please contact me, Dan Brecher, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.