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On Tuesday, Dec. 1, 2009, the revised "Guides Concerning the Use of Endorsements and Testimonials in Advertising" released by the Federal Trade Commission came into effect. John P. Feldman, an authority in these types of advertising regulations and compliance, put together some thoughts concerning the implications of these Guides upon coming into effect, continuing his thoughtful and practical analysis. John's analysis asks and answers the following questions about these Guides:

• What does this mean for advertisers?
• What is the most dramatic shift in enforcement policy?
• What will this mean for advertisers that use celebrity endorsers?
• How much control should sponsoring advertisers exercise over endorsers in new media channels?
• What impact will the FTC's new approach to clinical trials have on the OTC, cosmetic, and pharmaceutical industry?
• Is there a role for self-regulation and what do you make of the proposed "best practices" recently announced by the Word of Mouth Marketing Association (WOMMA)?

John's analysis can be downloaded here.

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An important and relevant topic that has been addressed through several articles on Adlaw by Request in the past is the FTC’s position and guidance on endorsements and testimonials in advertising. Moreover, in a digital, social media age where blogs, social networking sites and other real time digital tools have become commonplace for user and advertiser alike, the line between them can and often has become awfully blurred. This, and many other examples, are addressed in the FTC’s long-awaited revised "Guides Concerning the Use of Endorsements and Testimonials in Advertising," issued yesterday. As reported previously on Adlaw by Request, the final revisions are intended to update the FTC’s guidance, last revised in 1980, and provide advice to advertisers and agencies regarding compliance with the FTC Act.

The principle espoused and defended by the FTC that a consumer should be informed of any material connection between the advertiser and the maker of the statements is expressly set forth in the FTC Guides, even though these cases were always fact-sensitive and subject to review on a case-by-case basis.  The analysis will, as always, turn on facts that may or may not support the existence of a “material connection,” but if a company, for example, sponsors research about its products or services (or potentially about the products or services of a competitor, if the results will be used in a comparative ad), that same company must disclose its sponsorship in the ad. Similarly, although consumers may expect celebrities to be paid for appearing in commercials, if an endorsement is made outside that context – for example, on a talk show, at a book signing, at a motion picture premiere, or on Facebook, Twitter or other social media – any material relationships and connection must be disclosed.

For more information on this topic, our esteemed colleague Joe Rosenbaum presented a seminar entitled, "Trust Me, I'm a Satisfied Customer: Testimonials & Endorsements in the United States" at the University of Limerick this past July. You can go to the previous Legal Bytes blog post and download a copy of Joe’s presentation at any time.

Want to know more about the FTC Guides, or the implications to social media advertising and marketing, or traditional advertising?  Feel free to contact me or the Reed Smith attorney with whom you regularly work.

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As we’ve discussed previously on Adlaw by Request, the Federal Trade Commission ("FTC") is in the process of revising its Endorsement and Testimonial Policies and Guidelines – the first set of revisions since 1980. In addition to compelling greater disclosure and substantiation on advertisers that wish to employ endorsements and testimonials in their advertising, the FTC has cast its net to include blogs, message boards and street teams among those parties that would be subject to these new enactments. The purpose of this article is to address the effect such guidelines will have on blogs.

By way of introduction, endorsements refers to any advertising message (including verbal statements, demonstrations or depictions of the name, signature, likeness, or any other identifying personal characteristic of an individual or the name/seal of an organization) that consumers are likely to believe reflects the opinions, findings or experience of an independent party other than the advertiser about a particular product. The FTC has expressed its intention to treat endorsements and testimonials identically in the context of its review and enforcement activities.

Generally speaking, endorsements: (i) must reflect the honest opinions, findings, beliefs or experiences of the endorser, (ii) may not convey an express or implied representation that would be deceptive if made by the actual advertiser, (iii) may not be presented out of context or worded so as to distort in any way the endorser’s opinion or experience with the advertised product, and (iv) may only be communicated by endorsers who are bona fide users of the product at the time of the endorsement, and the endorsement may continue to run so long as the advertiser has good reason to believe that the endorser remains a bona fide user of the product. From a liability perspective, both advertisers and endorsers alike can be held liable on the basis of false or unsubstantiated statements made through endorsements.

Although liability from false endorsements can arise from several different scenarios within the context of blogs, the two most common developments are likely the following: (i) blogger reviews, and (ii) undisclosed payments made by advertisers to bloggers. In the first scenario, bloggers are continually on a mission to find new content about which to write, and advertisers are constantly seeking innovative and organic means by which to disseminate their messages. For a blogger to write a review about a particular product on his/her blog, the blogger will be deemed an "endorser" by the FTC. Therefore, should the blogger fail to verify (or request verification of) an advertiser’s substantiation with respect to any product claims, the advertiser can be subject to liability for false and unsubstantiated statements made through the blogger’s endorsement, and the blogger may also be subject to liability for the same unsubstantiated representations (intentional or unintentional) made in the course of his/her review (aka endorsement).

The second potential pitfall involves a blogger’s failure to clearly and conspicuously disclose any payments (in cash or in goods) that he/she receives from an advertiser. Especially in those situations in which a blogger is neither an expert, nor is known to a significant portion of the viewing public/ readership but receives some form of payment from the advertiser, this fact must be disclosed to the public. The FTC’s reasoning behind this disclosure requirement should be fairly obvious – receipt of consideration by the blogger will likely have a material effect on the credibility that the public ascribes to the endorsement. As mentioned above, the payment/consideration can take the form of cash, free or discounted goods (even for testing purposes), gift certificates, or even advertising revenues on the blog, itself.

So, what is an advertiser to do that wants to enlist the services of bloggers? The answer involves training and monitoring. Advertisers must provide their bloggers with training on the do’s and don’ts of endorsements and claims, making sure that each claim is truthful and substantiated. For those bloggers who regularly receive consideration in some form or another, advertisers must closely monitor their blogs and have clearly defined policies in place that set forth the steps by which deceptive advertising must be halted and immediately taken down, when discovered. Lastly, and particularly for bloggers who are receiving payment in some form or another, advertisers should consider developing a reasonably simple but focused set of terms and conditions and/or an actual agreement/insertion order that lays out the obligations of the blogger, and the risk allocations should a problem arise.

… as for the bloggers, one approach to address the payment disclosure requirement is to bifurcate sections of their blog between a paid advertising area and an editorial (i.e., non-paid advertising) area. So long as a user knows at all times in which of the two "areas" he/she is situated, bloggers (and advertisers, by extension) can get some level of comfort that their disclosure requirements have been satisfied. The objective, simply put, is to convey transparency to the consumer. This point was recently encapsulated by Jory Des Jardins, Co-Founder of BlogHer: "It's time to look at the finer distinctions between compensated programs that have emerged as social media enters awkward adolescence. To us, the question is not whether anyone should ever compensate bloggers, it's under what circumstances should you compensate them? And if you do compensate them, what are your obligations, and theirs?"

While the FTC isn’t expected to roll out its new Endorsement and Testimonial Policies until later this summer, advertisers and bloggers must start to think about these issues and put policies and documents into effect that address them. Consult your local advertising and marketing attorney for further assistance.

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Reed Smith Advertising, Technology & Media partners John P. Feldman and Anthony E. DiResta filed comments on March 2nd with the Federal Trade Commission on behalf of the firm's clients, Association of National Advertisers (.PDF) and Word of Mouth Marketing Association (.PDF), in response to the FTC's request for comments regarding proposed revisions to its Guides Concerning the Use of Endorsements and Testimonials in Advertising.

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This post was written by Dan Jaffe.

Last November, the Federal Trade Commission released a Federal Register notice detailing the changes that it plans to make to its guidelines for the use of endorsements and testimonials in advertising.  These are the first changes to the guidelines in decades and will dramatically change how marketers can use endorsements and testimonials in advertising. 

The deadline for comments was originally January 31, 2009, but the FTC recently extended the comment period to March 2, 2009.  We are planning to file comments and need our members’ assistance to effectively respond.  If you can offer specific guidance on how the proposed rule will affect your use of endorsements and testimonials, please let us know as this will help us formulate our detailed comments.

Background

The guidelines currently allow marketers to use truthful testimonials that are not generally representative of what consumers can expect from the advertised product so long as the marketers clearly and conspicuously disclose either (1) what the generally expected performance would be in the depicted circumstances, or (2) the limited applicability of the depicted results to what consumers can generally expect to receive; i.e., that the depicted results are not representative or typical.  The revised guidelines would require substantiation of results that consumers would generally achieve (“generally expected results”) through use of the product.  The FTC states that this change eliminates the existing “safe harbor” which allows advertisers to include non-representative testimonial claims in their ads if they clearly and conspicuously state that the depicted results are “not typical.”  The Commission now argues that non-typicality disclaimers alone generally are not sufficient to overcome the false or deceptive impressions of typicality generated by testimonials.  The FTC, therefore, is demanding additional substantiation delineating “generally expected results.”  

In taking this action, the Commission largely discounted the constitutional arguments made in comments filed in 2007 by both ANA and other groups in response to the FTC’s review of the guidelines.  We argued in our comments that the Commission already has sufficient power to penalize false or deceptive claims.  We also argued that requiring pre-publication proof of claims is more extensive than necessary to advance the government’s interest.  Therefore, it would impose an unconstitutional burden on truthful, nondeceptive speech while providing little benefit to consumers. 

In response, the Commission, while making multiple references to our comments, argued that its new guidelines would withstand scrutiny under the U.S. Supreme Court’s Central Hudson test for commercial speech.  It argued that its interest in requiring further disclosure is to prevent deception.  By requiring pre-publication substantiation, the guidelines would materially advance this interest, and since they would require information to prevent a misleading impression, they are reasonably tailored to meet that objective. 

The Commission relied on two consumer surveys in formulating the new guidelines.  In our original comments, we argued that these studies had numerous serious methodological and technical flaws.  These concerns were dismissed by the FTC, claiming that the studies provided “useful empirical evidence” regarding testimonial messages.

The FTC’s position in regard to this rulemaking could have significant precedential impact on advertising beyond the testimonial and endorsements area.  The FTC’s point of view in this rulemaking is that truthful statements, even limited by clear and conspicuous disclaimer information, can prove insufficient to protect reasonable consumers.  Clearly, this type of analysis can affect broad categories of advertising.  

You may also wish to examine a detailed memorandum put together by Reed Smith which provides further information in regard to this issue.  Reed Smith provides representation for the ANA through our general counsel, Doug Wood.

If you have any questions, you can reach me at 202-296-2359 or at djaffe@ana.net.

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This post was written by John P. Feldman and Anthony E. DiResta.

One of the most frequent strategies employed by advertisers is to let the consumer hear about the advertised product or service from a third party, someone other than the advertiser itself. At its root, an endorsement or testimonial when used in advertising is the advertiser’s way of saying, “Don’t just take my word for how wonderful my product or service is, listen to this unbiased person whose opinion you should rely upon to make a purchasing decision.” The Federal Trade Commission (FTC or Commission) originally published Guides Concerning the Use of Endorsement and Testimonials in Advertising (The Guides) in 1972. The Guides have not been updated since 1980. In January, 2007, the FTC sought comments on proposed modifications and updates to the Guides. In particular, the Commission sought comments on whether so-called “disclaimers of typicality,” statements like “Results not typical” or “Your results may vary,” should continue to be a valid way to communicate that a testimonial does not represent experiences consumers will generally achieve with the advertised product or service.

Click here to view the alert.

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