Enforcement on Endorsements

November 10, 2013

Tips for avoiding legal risk by disclosing connections between advertisers and endorsers.

Product endorsements can be a powerful advertising tool to help differentiate a product from competitors, spread the word about a product, share stories from satisfied users, and generate numerous other marketing benefits. Product endorsements can carry a great deal of weight with consumers, especially endorsements from satisfied customers, respected experts, and trusted public figures. When the prominent heart surgeon Dr. Oz discusses products on his popular TV talk show, for example, sales for those products can significantly increase.1 Similarly, endorsements from satisfied users can help potential consumers assess a product’s performance and significantly influence sales.

Like all forms of advertising, endorsements must be made in a truthful and non-misleading manner in compliance with Section 5 of the Federal Trade Commission Act.2 Since 1980, the Federal Trade Commission has issued guidance, or “Endorsement Guides,” regarding steps that advertisers can take to help ensure that endorsements comply with the FTC Act. This guidance was recently updated, in 2009, to provide new examples regarding how endorsements should be made using today’s marketing media.3 Adhering to the FTC’s recommendations can reduce the risk that the Commission will take exception to an endorsement.

Endorsement Recommendations

The FTC defines endorsements as “any advertising message (including verbal statements, demonstrations, or depictions of the name, signature, likeness or other identifying personal characteristics of an individual or the name or seal of an organization) that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser.”4 An advertiser’s lack of control over specific statements made by an individual does not disqualify the statement from being deemed an endorsement. Rather, FTC will base its determination on whether a third party’s statement can be considered sponsored by an advertiser and, thus, an endorsement.

The FTC’s Endorsement Guides indicate that endorsements should adhere to the following principles: (1) endorsements must reflect the truthful experience of the endorser; (2) endorsements should not contain claims about product attributes that an advertiser cannot substantiate (e.g., an endorsement cannot claim that a product is effective for weight loss, unless an advertiser can substantiate, using the appropriate substantiation standard, that the product is, in fact, effective for weight loss); and (3) endorsements must clearly disclose any material connection between the advertiser and endorser.

Disclosure of Material Connections

The FTC’s recent enforcement record signals that review of endorsements is a high priority for the Commission. In particular, since revising the Endorsement Guides in 2009, many of the FTC’s enforcement activities have focused on the third principle: disclosure of material connections.

Whether a connection is material and must be disclosed depends on two factors: (1) whether the connection between the endorser and advertiser might materially affect the weight or credibility of an endorsement; and (2) whether the connection is reasonably expected by consumers.5 A connection’s effect on the credibility of an endorsement is a fact-specific inquiry, but FTC considers the payment of compensation, employment, and other benefits-such as promising a consumer that she will appear in an advertisement if she provides a product review-to create a connection that materially affects the credibility of an endorsement. Providing free and/or discounted products, even low-value free or discounted products, also can generate a material connection that must be disclosed.

The Endorsement Guides also hold that whether a connection must be disclosed depends on whether consumers would reasonably expect the connection. For this reason, material connection disclosures are generally not necessary in a traditional advertisement where a celebrity or expert is endorsing a product, because an ordinary consumer is likely to expect that the celebrity or expert endorser is being compensated. In the same type of situation, however, a disclosure would be needed for a compensated consumer endorser. In the past, traditional advertisements were one of the only forums through which endorsements would have been disseminated.  Thus, advertisers had significant control over whether an appropriate material connection disclosure was made.

In today’s market, however, endorsements can be made through numerous forums, such as an endorser’s social media accounts or blogs, in which an advertiser cannot control disclosure of a material connection. Yet, even in these situations, the FTC has maintained that an advertiser will still be liable for ensuring that an endorsement adheres to the three principles described above, including ensuring that material connection disclosures are made.

When an Advertiser Lacks Control Over an Endorsement  

While being liable for a third party’s failure to disclose material connections may seem overly risky and deter some advertisers from using endorsements, there are approaches advertisers can take to help mitigate liability and still enjoy the benefits of using endorsements. The Endorsement Guides and recent FTC orders provide numerous examples regarding steps advertisers can take, including: (1) providing clear, written policies regarding an endorser’s obligation to disclose a material connection; (2) training endorsers regarding obligations; (3) implementing reasonable monitoring programs to determine if endorsers are making disclosures as instructed; and (4) taking corrective action, such as withholding compensation or terminating endorsers, if an appropriate disclosure is not made. These types of steps can also be taken to help ensure that an endorsement adheres to the other two principles advanced by the FTC, such as by training endorsers about the types of claims that cannot be made about product attributes.

Where such appropriate actions have been taken to train, monitor, and discipline endorsers, FTC has indicated that it will likely exercise its prosecutorial discretion and not bring an enforcement action. As such, it is important, given the FTC’s increased scrutiny of endorsements, that advertisers review the adequacy of these activities in their current endorsement programs and be aware of what steps should be taken to help minimize legal risk for future endorsements.

References

1. M Spector, “The Operator: Is the most trusted doctor in America doing more harm than good?” The New Yorker, published online February 4, 2013.
2.  15 U.S.C. § 45.   
3. Guides Concerning the Use of Endorsements and Testimonials in Advertising Federal Acquisition Regulation; Final Rule, 74 Fed. Reg. 53124 (Oct. 15, 2009) (codified at 16 C.F.R. Part 255).   
4.  16 C.F.R. § 255.0(b).  
5.  16 C.F.R. § 255.5.