On October 13, 2021, the Federal Trade Commission (FTC) sent notices of criminal offenses to more than 700 businesses, including consumer brands, retailers, e-commerce platforms and advertising agencies, regarding practices involving customer referrals, testimonials, reviews, influencer marketing, and native advertising that it considers misleading. The notice did not allege that one of the recipients had committed a wrongdoing. Instead, its goal is to establish a basis for the FTC to seek sanctions if it turns out that recipients have engaged in these allegedly deceptive practices after receiving them.
FTC rules require that all endorsements and testimonials reflect the actual experiences of the endorser. The rules also require that merchants and their partners disclose any material connection between an endorser and the merchant, so that consumers can rely on accurate reviews and other testimonials, and easily differentiate paid advertisements and other claims made. in exchange for a benefit provided by the company, and organic statements or criticisms made by individuals.
The FTC released updated guidance on recommendations and testimonials in 2009 and additional guidance on native advertising in 2015 to address social media influencers and advertising on social platforms where it can be difficult to get to. distinguish advertising content from editorial content, and genuine reviews or recommendations from paid reviews or paid endorsements. The FTC has since launched numerous enforcement actions against advertising agencies, brands, game companies, game networks and even influencers and talents who flouted the guidelines.
The recent warning to big brands, social and other e-commerce platforms and agencies is the latest warning shot from regulators who warned individual talents and influencers of these guidelines in 2017. Such notices are usually followed by ‘one or more enforcement measures, which may now include financial penalties.
In this latest disclaimer, the FTC focuses on the regulatory requirement that all approvals and notices must be accurate when made by the endorser and continue to be the honest and genuine experience that the endorser had with the distributor’s product, whether or not that endorser was paid. When an endorser is “paid”, the FTC guidelines require clear and visible disclosure (such as “paid testimonial” or, in the influencer context, a disclosure made by the influencer on social media such as ” #announcement â,â # paid, âorâ #brand ambassador â). An important consideration that marketers should understand is that âpaidâ can mean a lot of different things, including that the endorser has received a free product to try, has been paid in cash, equity or other financial consideration, or is an employee, entrepreneur, investor or otherwise. agent of the merchant.
The FTC has, in a number of its enforcement cases, including actions against Lord & Taylor and Warner Brothers, focused on the brand or the distributor itself, which the FTC notes that controls the various participants in a marketing campaign and therefore is primarily responsible for ensuring that the reviews and endorsements of their products are genuine and that disclosures are made by the various influencers or other participants in the marketing campaign. The FTC has specifically asked marketers not only to ensure that influencers or other paid endorsers are contractually obligated to make disclosures, but also to reasonably monitor that disclosures are made in a clear and visible manner, and to end. non-compliant influencers or endorsers. The marketer or platform is also responsible, to the extent possible, to remove false or inaccurate reviews from their owned and operated channels, and to ensure that if the merchant is promoting a review, including promoting a social post through paid media, that the product or service conforms to the endorser’s claims or experiences, and specific as to the attributes of the product or service itself.
Businesses, whether or not they have received the Notice, should view these letters as a warning to review their marketing activities and implement practices that comply with the FTC’s rules on mentions and testimonials. This is especially important given that the FTC’s penalties for violating its rules regarding unfair or deceptive advertising can go up to $ 43,792. by offense. Multiplied by every non-compliant testimonial, Instagram post or native blog post, this penalty can quickly become very significant and a major risk for businesses.
In light of this warning shot from the FTC, what should companies do that use influencers or solicit customer referrals, case studies, or testimonials? At a minimum, they must do the following:
- Understand how they find and use third-party content, including reviews, to market their brand. Businesses need to identify participants in their marketing ecosystem that can work with them, including agencies, publishers, and influencer partners, and understand their respective supportive and testimonial marketing practices.
- Work with their marketing teams to create a standard set of advertising disclosures and marketing agreements and policies for third party partners, such as influencers.
- Review their terms of service to make sure they are addressing approval and testimonial marketing to their customers or consumers correctly.
- Review internal social media policies and practices to ensure employees and other contractors or agents are complying with FTC guidelines.
- Adopt a process to monitor compliance (or outsource monitoring) and terminate non-compliant partners.
Digital marketing often evolves at a breakneck pace, but transparency is increasingly essential for both regulators and consumers. Once businesses have a better understanding of how they engage third parties to market their products and services, it is important that marketing, sales, and legal teams work together to develop a process for ensuring compliance of marketing practices, including compliant disclosures. FTC, and marketing agreements and operational practices that adequately protect the business.
The FTC’s rules for approval and testimonials cover a wide range of marketing activities and include detailed guidelines, including when proper disclosure is required. The notice reinforces the fact that the FTC continues to actively enforce the non-compliance. We recommend that you visit the FTC’s online âBusiness Centerâ, a useful resource for businesses to understand these rules without legal training. The FTC has also developed a very useful FAQ as a resource and published disclosure guidelines on how to make clear and visible disclosures.
Fenwick is available to provide forms, advice, training material or advice on how these rules can apply to individual businesses, and identify the best next steps to reduce the risk of non-compliance.
Please do not hesitate to contact your Fenwick contact or the authors of this alert for more information.