On June 29, 2023, the Federal Trade Commission (FTC) released a long-awaited update to its Guides Concerning the Use of Endorsements and Testimonials in Advertising, better known as the Endorsement Guides, a crucial turning point in the fight against fraudulent reviews and endorsements. The regulatory body's latest measures signify an urgent and comprehensive response to the surge in deceptive practices that manipulate consumer choices and undermine fair business operations.
A Response to Contemporary Challenges - Endorsement Guides
In the context of an online marketplace that increasingly relies on endorsements and reviews to influence consumer purchase decisions, the updated Endorsement Guides are intended to ensure that endorsements and reviews are genuine and reflect the true opinions of actual users to help preserve the integrity of market competition.
The updated Endorsement Guides offer key insights into best practices and deceptive advertising pitfalls for advertising professionals, influencers, and brands, including the following:
1. Consumer Review Integrity: The Endorsement Guides now articulate a novel principle that addresses the manipulation of consumer reviews by procuring, suppressing, boosting, or editing reviews to distort consumer perceptions of a product. Key aspects of this principle include:
- Advertisers should not manipulate reviews in a manner that results in the distortion or misrepresentation of what consumers think of their products, regardless of whether the reviews meet the definition of "endorsements."
- Companies that forward only favorable reviews to a third-party review website or omits unfavorable reviews is engaging in a misleading practice.
- Companies that regularly flag negative reviews as fake without a reasonable basis for doing so is engaging in an unfair or deceptive practice.
2. Incentivized, Employee, and Fake Negative Reviews: The revisions tackle the issue of incentivized reviews, reviews from employees, and false negative reviews of a competitor. These actions can create a skewed representation of products or services.
3. Defining 'Clear and Conspicuous': The guides include a better articulated definition of what constitutes "clear and conspicuous" in the context of a required online disclosure:
- For online disclosures to be effective, they must be unavoidable.
- If a disclosure is not visible without the viewer having to click "more," then the disclosure is not unavoidable and thus is not clear and conspicuous.
- On TikTok, a disclosure in the text description of the video is insufficiently conspicuous, given the platform's reliance on audiovisual content.
- The hashtag “#sweepstakes” on its own is vague, and needs to include the name of the company promoting the sweepstakes.
4. Broadening the Definition of 'Endorsements': The definition of "endorsements" has been broadened to encompass fake reviews, virtual influencers, and tags on social media platforms to better reflect the evolving nature of endorsements in the digital age.
5. Liability for Advertisers, Endorsers, and Intermediaries: The revised Endorsement Guides provide a more comprehensive explanation of the potential liability for advertisers, endorsers, and intermediaries.
- Advertisers are responsible for and must monitor the actions of endorsers, even absent a contractual relationship between them.
- Endorsers may be liable for false statements, including falsely representing that they have used a product or experienced a service.
- Intermediaries, including public relations firms or reputation management companies, may be liable for ads containing endorsements they know, or should know, are deceptive.
6. Child-Directed Advertising: The revisions underscore the importance of child-directed advertising, emphasizing it as a special area of concern, stating that practices that "would not ordinarily be questioned in advertisements addressed to adults" might face special scrutiny when directed to children, who are not always capable of fully understanding disclosures.
7. Clarity on Material Connections: The revisions clarify the concept of "material connections," which involve financial or familial ties between advertisers and endorsers.
To help simplify the task of ensuring transparency across evolving channels, the FTC has also edited its publication: FTC's Endorsement Guides: What People are Asking, a user-friendly article that offers answers to frequently asked questions concerning endorsements and consumer reviews.
Final Thoughts on the Updated Advertising Guides
Following the rules laid out in the revised Endorsement Guides means paying careful attention. Advertisers are responsible for the actions of their endorsers. This means companies have to keep an eye on their partners and make sure their ads follow FTC rules.
