Scarinci Hollenbeck, LLC, LLCScarinci Hollenbeck, LLC, LLC

Firm Insights

FTC Warning - Online Endorsements Can Lead to Costly Enforcement

Author: Scarinci Hollenbeck, LLC

Date: November 30, 2021

Key Contacts

Back
FTC Warning - Online Endorsements Can Lead to Costly Enforcement

A product endorsement by a celebrity or a social media influencer can be invaluable in growing sales of new products...

A product endorsement by a celebrity or a social media influencer can be invaluable in growing sales of new products. The profits from these sales, however, can quickly disappear if your advertisement draws the ire of regulators like the Federal Trade Commission (the “FTC”).

The FTC recently issued warning letters to hundreds of companies alerting them to widespread illegal practices in the use of endorsements. The recipients included top consumer products companies, leading retailers and retail platforms, and major advertising agencies.

“Fake reviews and other forms of deceptive endorsements cheat consumers and undercut honest businesses,” Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, said in a related press statement. “Advertisers will pay a price if they engage in these deceptive practices.”

FTC Notice of Penalty Offenses 

The warning letters took the form of FTC Notice of Penalty Offenses (the “Notice”). Under Section 45(m)(1)(B) of the FTC Act, the FTC may notify companies that certain acts or practices have been found in administrative decisions (other than consent orders) to be deceptive or unfair. As the FTC explained in a blog post discussing the Notice, companies that receive a Notice are now deemed to have “actual knowledge” that those practices violate the law. If the company engages in that conduct in the future, the statute allows the FTC to sue the company, seeking civil penalties of up to $43,792.00 per violation. 

The Notice sent to the companies outlines a number of practices that the FTC has determined to be unfair or deceptive in prior administrative cases, including:

  • Claiming – directly or by implication – that a third party has endorsed a product or its performance when that’s not the case (this includes fake reviews);
  • Misrepresenting that an endorsement reflects the experience, views, or opinions of users or purported users;
  • Misrepresenting an endorser as an actual, current, or recent user of a product;
  • Continuing to advertise an endorsement unless the advertiser has good reason to believe the endorser continues to subscribe to the views presented in the endorsement;
  • Using testimonials to make unsubstantiated or otherwise deceptive performance claims – even if the testimonial is genuine;
  • Failing to disclose a connection between an endorser and seller of a product if that connection might materially affect the weight or credibility of the endorsement or review and if consumers wouldn’t reasonably expect that connection; and
  • Misrepresenting – explicitly or implicitly – that the experience of an endorser represents the typical or ordinary experience of users of the product.

The FTC emphasized that recipients of the Notice are not alleged to have engaged in any wrongdoing, noting that “the fact that a company received a Notice was not based on a review of its advertising and in no way suggests that the company has violated the law.” Nonetheless, the FTC’s actions still send a clear message that it plans to step up enforcement of Section 5 in this area.

FTC Using New Tools to Police Online Advertisements

The FTC’s reliance on the Notice suggests that the agency is shifting gears in the wake of the Supreme Court’s decision in AMG Capital Mgmt. v. FTC, which limited the FTC’s ability to use Section 13 of the FTC Act to obtain restitution and disgorgement from entities that engage in unfair or deceptive advertising practices. Going forward, the agency will likely continue to rely on less frequently used enforcement tools to accomplish its enforcement goals.

Notably, the FTC similarly relied on the FTC Act’s penalties to target false claims by for-profit colleges. In a press release announcing that the agency had sent a Notice of Penalty Offense to 70 colleges, FTC Chair Lina M. Khan stated that the FTC was “resurrecting a dormant authority to deter wrongdoing and hold accountable bad actors who abuse students and taxpayers.”

Key Takeaway

Recipients of the Notice are now on notice that any future online advertising practices alleged to be “deceptive” could result in penalties of up to $43,792.00 per violation. For all businesses that use online endorsements, the Notice provides an important opportunity to review your advertising practices to ensure that any endorsements comply with the FTC Act. We have previously discussed the use of online endorsements here and remain ready to help businesses ensure that their advertising campaigns do not result in unintended liability. Additional resources are also available on the FTC Business Center’s Endorsements, Influencers, and Reviews portal.

If you have questions, please contact us

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

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Scarinci Hollenbeck, LLC, LLC

Related Posts

See all
SPACs Are Back, What You Need to Know post image

SPACs Are Back, What You Need to Know

Special purpose acquisition companies (better known as SPACs) appear to be making a comeback. SPAC offerings for 2025 have already nearly surpassed last year’s totals, with additional transactions in the pipeline. SPACs last experienced a boom between 2020–2021, with approximately 600 U.S. companies raising a record $163 billion in 2021. Notable companies that went public […]

Author: Dan Brecher

Link to post with title - "SPACs Are Back, What You Need to Know"
Short Form Merger: Streamlining the Process for Businesses post image

Short Form Merger: Streamlining the Process for Businesses

Merging two companies is a complex legal and business transaction. A short form merger, in which an acquiring company merges with a subsidiary corporation, offers a more streamlined process that involves important corporate governance considerations. A short form merger, in which an acquiring company merges with a subsidiary corporation, offers a more streamlined process. However, […]

Author: Dan Brecher

Link to post with title - "Short Form Merger: Streamlining the Process for Businesses"
Tariff Response Options for Small Businesses Facing Financial Distress post image

Tariff Response Options for Small Businesses Facing Financial Distress

The Trump Administration’s new tariffs are having an oversized impact on small businesses, which already tend to operate on razor thin margins. Many businesses have been forced to raise prices, find new suppliers, lay off staff, and delay growth plans. For businesses facing even more dire financial circumstances, there are additional tariff response options, including […]

Author: Brian D. Spector

Link to post with title - "Tariff Response Options for Small Businesses Facing Financial Distress"
Common Causes of Partnership Disputes and How to Resolve Them post image

Common Causes of Partnership Disputes and How to Resolve Them

Business partnerships, much like marriages, function exceptionally well when partners are aligned but can become challenging when disagreements arise. Partnership disputes often stem from conflicts over business strategy, financial management, and unclear role definitions among partners. Understanding Business Partnership Conflicts Partnership conflicts place significant stress on businesses, making proactive measures essential. Partnerships should establish detailed […]

Author: Christopher D. Warren

Link to post with title - "Common Causes of Partnership Disputes and How to Resolve Them"
President Trump's Termination of Member Gwynne Wilcox post image

President Trump's Termination of Member Gwynne Wilcox

On January 28, 2025, the Trump Administration terminated Gwynne Wilcox from her position as a Member of the National Labor Relations Board (NLRB or the Board). Gwynne Wilcox, a union side lawyer for Levy Ratner, was confirmed to the Board for an original term in 2021 and confirmed again for a successive five-year term expiring […]

Author: Matthew F. Mimnaugh

Link to post with title - "President Trump's Termination of Member Gwynne Wilcox"

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Sign up to get the latest from our attorneys!

Explore What Matters Most to You.

Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.

Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.

Let`s get in touch!

* The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!