FTC Considers Updating Its Guides to Endorsements and Testimonials

On November 21, FTC announced that it is seeking public comments on proposed revisions to the Guides Concerning the Use of Endorsements and Testimonials in Advertising. The proposed revisions are intended to ensure that testimonials describe typical consumer experiences. FTC will stop accepting public comments on January 30, 2009. Nutritional Outlook spoke with John Feldman, a partner at Reed Smith LLP (Washington, DC), about the proposed changes.

Why is FTC considering making changes to the guides?

FTC regularly reviews its guides and rules. The Guides Concerning the Use of Endorsements and Testimonials in Advertising have essentially remained unchanged since 1980. As part of its ongoing regulatory review process, FTC sought comments on the costs and benefits of the guides, but this time it signaled a desire to address three things that were bugging it. First, it wanted to revisit the ubiquitous disclaimers “Results not typical” or “Your results may vary.” FTC placed in the record two studies that it commissioned in connection with an enforcement action. Those two studies conveniently suggested that consumers may take away a message of “typicality” when viewing an endorsement or testimonial, even when the advertisement contained a prominent disclaimer of typicality. Thus, a year ago, FTC sought comments on whether there needed to be a change to the guides to the extent they permit advertisers to avoid liability for false or deceptive advertising when they present a testimonial that conveys an unusual result by simply disclaiming typicality.

Second, FTC tried with mixed success to attach liability to celebrities and experts who make endorsements that violate the guides. The guides expressly warn that FTC believes the endorser can be just as liable as the advertiser for making deceptive testimonials.

Third, FTC sought to update the examples in the guides in a way that would capture many new Internet-based applications. Having not had a facelift since 1980, the examples in the guides suffered from a seeming lack of relevance. The proposed changes incorporate examples that include bloggers, word-of-mouth marketers, and those that post on message boards for marketing purposes.

How would the changes place additional burdens on advertisers that rely on testimonials?

The primary area in which advertisers could see an increase in costs is in the presentation of a consumer endorser whose experience is not typical of that which a consumer could reasonably expect to achieve. Think about the consumer who states in an advertisement that she saved 80% on her fuel bill by switching to a particular power company. Even if she did, in fact, save 80%, can another consumer reasonably expect to achieve the same result? Under the current guides, the advertiser would be required to simply state that the endorser’s experience is not typical. Under the proposed changes, the advertiser would need to disclose what would be typical. This could be a burden for some advertisers. They will have to figure out what is the typical result-the typical savings in the example above-and will have to disclose it. That means that there may need to be additional analysis for products and services.

What options for testimonials remain open to advertisers that have not tested their products?

There is no requirement that an advertiser use testimonials in its advertising. Even if it did not use a testimonial, it would still need substantiation for all of its advertising claims. So, not having testing for its products is probably not the right issue. The issue is whether the advertiser has historical data on the experience of consumers with its product or service. If an advertiser needs testing in order to substantiate its claims, then it could not make the claim anyway. The additional burden on advertisers is that even if the advertiser has data that shows that its product works or provides the advertised benefit, in the context of an endorsement, it must have the additional data that shows that the experience depicted is typical of what one could reasonably expect when using the product or service.

If a company has not tested a product's efficacy, what would be the basis for a claim that the testimonial is representative of the product's results?

One thing that FTC notes in its notice of proposed changes to the guides is that the valid endorsement of an expert or an organization that purports to have tested the advertised product can substantiate a claim. The issue of typicality comes into focus for consumer testimonials. It is there that an advertiser must be sure that it knows whether the experience depicted is typical of that which may be expected by consumers generally.

What does that mean? An advertiser will need to figure out what percentage of the time people save the advertised money, lose the advertised weight, catch the advertised monster bass, escape the advertised debt, etc. If an advertiser doesn’t have that data and only knows that the consumer’s result was verifiable, it may not be able to present the testimonial at all. This would be particularly salient for those that market new and innovative products. If there is no track record, there may be no way to gauge the typicality of the advertised results. FTC says, “too bad.” There is no legal right to use testimonials if they have the capacity to mislead consumers, and thus, according to FTC, the advertiser would have to find a different way to market his product.

Many companies, especially in the multilevel marketing category, rely on third-party distributors to sell their products. If a distributor that the company says it has “no control over” offers testimonials that don’t reflect the expected results for most consumers, could the company be liable?

Yes, to the extent that the company encourages through its sales meetings and materials and incentive programs the use of aggressive testimonials, the company could be held responsible for the testimonial statements made by distributors.

According to the guides, testimonials aren’t supposed to convey express or implied representations that the advertisers themselves are prohibited from making. Since consumers are unlikely to speak in the same phrasing used in structure-function claims, how would the rules affect what statements can be used? For instance, could a consumer endorsing the product use the terms arthritis or weight loss?

As the guides currently state, the endorsement message need not be phrased in the exact words of the endorser, unless the advertisement affirmatively so represents. However, the endorsement may not be presented out of context or reworded so as to distort in any way the endorser’s opinion or experience with the product. When it comes to certain types of structure-function claims, an advertiser will have to be careful to rephrase the endorsement in a way that does not create a drug claim. Consumers may use language that crosses the line that FDA would consider the boundary for structure-function claims.

Is there a way to protect consumers that is less burdensome than the remedies that have been proposed in the guides?

FTC does not propose any remedies in the guides. The guides are not even enforceable like rules. They are indications of how FTC approaches a certain type of advertising claim under its regulatory authority. It certainly could dampen certain types of commercial speech, and perhaps that is the real concern with the guides. The question is whether there are types of testimonials that become too dangerous or costly for advertisers to attempt, and consequently the advertiser chooses not to speak at all or not to communicate otherwise truthful information that could benefit consumers. Self-regulation is alive and well in the United States. The National Advertising Division of the Council of Better Business Bureaus (NAD) has been active in the area of testimonials and endorsements. NAD uses the guides to inform their opinions. Thus, when FTC finalizes its revised guides, you can be sure that NAD will actively seek to bring its self-regulatory monitoring activity into conformance with the new requirements.

Online Resources:

FTC Press Release:
http://www.ftc.gov/opa/2008/11/endorsements.shtm

Federal Register Notice:
http://www.ftc.gov/os/2008/11/P034520endorsementguides.pdf

Reed Smith LLP Web Site:
http://www.reedsmith.com