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How to Guarantee the FTC Will Bust You

It has been approximately two years since the Federal Trade Commission published its “Final Guides Governing Endorsements, Testimonials – Changes Affecting Testimonial Advertisements, Bloggers, and Celebrity Endorsements.”  As set forth in my recent article entitled “The One FTC Article You Must Read,” the Federal Trade Commission considers everyone in the advertising stream, including non-sellers, liable for claims they knew or should have known to be false and unsubstantiated.

Given many of the offers still to this day being run by advertisers and CPA networks, it is safe to say that it is time for a refresher. If you don’t follow these rules, you are making it more likely that the FTC will take notice of you.

The Final Guidelines address endorsements by consumers, experts, organizations, and celebrities, as well as the disclosure of important connections between advertisers and endorsers.  Make no mistake about it – the Final Guidelines are not for show.  Regulatory enforcement actions for deceptive advertising often include allegations that someone in the stream of commerce failed to comply with these provisions.

The Final Guidelines state, in no uncertain terms, that advertisements featuring a consumer and conveying his or her experience with a product or service as typical when that is not the case will be required to clearly disclose the results that consumers can generally expect.  This requirement stands in stark contrast to the previous version of the relevant guidelines which permitted advertisers to describe unusual results in a testimonial so long as they included a disclaimer such as “results not typical.   Again, the Final Guidelines do not contain this safe harbor.

The Guidelines also illustrate the long standing principle that “material connections” (sometimes payments or free products) between advertisers and endorsers – connections that consumers would not expect and that might materially affect the weight or credibility of the endorsement – must be disclosed.  For example, when an endorser who appears in a television commercial is neither represented in the advertisement as an expert nor is known to a significant portion of the viewing public, then all those in the marketing stream should ensure the clear and conspicuous disclosure of either the payment or promise of compensation prior to and in exchange for the endorsement, or the fact that the endorser knew or had reason to know or to believe that if the endorsement favored the advertised product some benefit, such as an appearance on television, would be extended to the endorser.

What constitutes an endorsement when the message is conveyed by bloggers or other “word-of-mouth” marketers

A consumer who regularly purchases a particular brand of dog food decides one day to purchase a new, more expensive brand made by the same manufacturer.  She writes in her personal blog that the change in diet has made her dog’s fur noticeably softer and shinier, and that in her opinion, the new food definitely is worth the extra money.  This posting would not be deemed an endorsement under the Final Guidelines.  Assume that rather than purchasing the dog food with her own money, the consumer gets it for free because the store routinely tracks her purchases and its computer has generated a coupon for a free trial bag of this new brand.  Again, her posting would not be deemed an endorsement under the Final Guidelines.

Assume now that the consumer joins a network marketing program under which she periodically receives various products about which she can write reviews if she wants to do so.  If she receives a free bag of the new dog food through this program, her positive review would be considered an endorsement under the Final Guidelines and would have to be disclosed.  The Final Guidelines specify that while decisions will be reached on a case-by-case basis, the post of a blogger who receives cash or in-kind payment to review a product is considered an endorsement.  Thus, bloggers who make an endorsement must disclose the material connections they share with the seller of the product or service.

It is worth noting that bloggers are also potentially subject to liability for misleading or unsubstantiated representations made in the course of endorsement.  A blogger is also liable if he/she fails to disclose clearly and conspicuously that he/she is being paid for his/her services.  In order to limit potential liability, all those in the marketing stream should ensure that bloggers are provided with guidance and training concerning the need to ensure that statements they make are truthful and substantiated.  Advertisers and networks should also monitor bloggers who are being paid to promote its products and take steps necessary to halt the continued publication of deceptive representations when they are discovered.

During a recent interview with Inside Edition, I discussed FTC regulatory compliance and legal issues concerning celebrity endorsements.  The Final Guidelines make it clear that celebrities have a duty to disclose their relationships with advertisers when making endorsements outside the context of traditional ads, such as on talk shows or in social media.  For example, an infomercial for a home fitness system is hosted by a well-known entertainer. During the infomercial, the entertainer demonstrates the machine and states that it is the most effective and easy-to-use home exercise machine that she has ever tried.  Even if she is reading from a script, this statement would be an endorsement, because consumers are likely to believe it reflects the entertainer’s views.

While the previous version of the relevant guidelines did not explicitly state that endorsers as well as advertisers could be liable under the FTC Act for statements they make in an endorsement, the Final Guidelines and recent regulatory enforcement actions reflect Federal Trade Commission case law and clearly state that both all those in the marketing stream, including networks and endorsers may be liable for false or unsubstantiated claims made in an endorsement – or for failure to disclose material connections between the advertiser and endorsers.

If you are using a consumer’s to describe what a product will do for an average consumer, everyone in the marketing stream must be prepared to substantiate that the individual making the statement is, indeed, an average consumer.  If it was an extraordinary result, the public must be informed what the typical result is.

Be vigilant about the use of consumer endorsements.  An advertisement employing endorsements by one or more consumers about the performance of an advertised product or service will be interpreted as representing that the product or service is effective for the purpose depicted in the advertisement. Therefore, the those in the marketing stream must possess and rely upon adequate substantiation, including, when appropriate, competent and reliable scientific evidence, to support such claims made through endorsements in the same manner as others in the marketing stream would be required to do if they had made the representation directly, i.e., without using endorsements.

Consumer endorsements themselves are not competent and reliable scientific evidence.  An advertisement containing an endorsement relating the experience of one or more consumers on a central or key attribute of the product or service also will likely be interpreted as representing that the endorser’s experience is representative of what consumers will generally achieve with the advertised product or service in actual, albeit variable, conditions of use.  Therefore, as set forth above, all those in the marketing stream should possess and rely upon adequate substantiation for this representation.  If those in the marketing stream do not have substantiation that the endorser’s experience is representative of what consumers will generally achieve, the advertisement should clearly and conspicuously disclose the generally expected performance in the depicted circumstances, and all those in the stream the stream must possess and rely on adequate substantiation for that representation.

Please note that the information conveyed in this article is provided for informational purposes only and does not constitute, nor should it be relied upon, as legal advice.  This is only a brief overview of some of the legal and regulatory issues surrounding the use of testimonials and endorsements.

Remember to obtain guidance from a licensed and experienced affiliate marketing attorney to ensure that your matter is handled properly from the beginning.

—–

Richard B. Newman is an Internet Law Attorney at Hinch Newman LLP


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Richard B. Newman

Richard B. Newman is an Internet Lawyer at Hinch Newman LLP focusing on advertising law, Internet marketing compliance, regulatory defense and digital media matters. His practice involves conducting legal compliance reviews of advertising campaigns across all media channels, regularly representing clients in high-profile investigative proceedings and enforcement actions brought by the Federal Trade Commission and state attorneys general throughout the country, advertising and marketing litigation, advising on email and telemarketing best practice protocol implementation, counseling on eCommerce guidelines and promotional marketing programs, and negotiating and drafting legal agreements.

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19 Comments

  1. Lily, I checked out your site and it does not comply with FTC guidelines. You need to consult a lawyer with regards to disclosing clear and conspicuously when a material interest arises and it needs to be at the place where the affiliate link is and not as a link at the bottom of your pages. You could quite easily be sued by the FTC.

    “Simply don’t lie” isn’t so simple right?

      1. No it doesn’t. Even if was in writing at the bottom of her page it would still not apply. It needs to be CLEAR and CONSPICUOUS and placed where the affiliate link is, not on a sub page or buried in the terms at the bottom of the page.

        Basically you can use your common sense, if the person who clicks the link is fully aware that you will be paid for any actions they may take then it complies. The only way to make them fully aware is to spell it out just before or after the link in clear terms. Putting some text anywhere else will not make them fully aware.

    1. Any blogs that have affiliate links that do not spell out that the blog is getting paid for linking out to them does not comply.

      Not sure if not complying with the FTC is considered a crime in the pure definition (i.e. you can be jailed for it) but they can sue you and basically bankrupt you for not complying.

      1. So why are grocery stores allowed to sell food without a disclaimer that they are actually making a profit on it? How are car dealers exempt? As a matter of fact, why don’t we just jail all capitalists and be done with it. Just require people to sell stuff at cost and be don with it.

        1. Excellent point Tim. But the difference is deception. When you go to the furniture store, you understand that they are there to profit from your sale. When you read a news story, the commentator should be made to disclose if he has a monetary interest in your purchase. That allows the buyer to decide whether the story is biased or not. It has nothing to do with capitalism, it has to do with lying.

  2. @Nick I agree that the rule says the link must be Clear and conspicuous, and I agree it is a best practice to put the disclosure near the link, but I disagree that there is a specific requirement of how near the link the disclosure has to be to meet the clear and conspicuous requirement.

    It is correct to say that placing the disclosure in bold print right beside the link will guarantee you don’t get sued by the FTC for the disclosure not being clear and conspicuous enough. It is also correct to say that hiding the information in small type at the bottom of the page in the midst of a couple of legal paragraphs, or worse yet only disclosing it in the TOU that are only available by link likely will get you sued.

    It is not factual to say, however, that the FTC in this endorsement guide, has created a requirement to place disclosures next to your link. Of course the less clear and conspicuous your disclosures are the higher your risk of getting sued by the FTC is.

    You are right about not wanting to get sued by the FTC. The way the FTC is set up you often can not afford to lose a case so you must settle. They will typically hold you responsible for 100% of the revenue involved,. In the blogger’s case, that might be 100% of the revenue the company you link to received from consumers, though you only received relatively small commissions for driving the traffic there and had costs involved as well. Even the legal fees you will encounter trying to resolve the issue if the damages are relatively low can add up into the tens of thousands quickly.

    So it is best to be as clear and conspicuous as you can. The less clear and conspicuous your site layout, the more likely you will have FTC trouble.

    My own disclosure follows 😉
    This blog entry is not legal advice and are not intended as legal advice. You should consult with an attorney familiar with FTC marketing issues, guidelines and US laws.

  3. Nothing short of holding the customers hand through the entire sales process can make a consumer fully aware, and even then it’s questionable.

    I disagree with Nick Brimby as to the link having to be immediately before or after the affiliate link to be clear that it is an affiliate offer.

    I feel confident that the FTC will utilize common sense in future enforcement and will surely review the entire subject offer or advertisement before making a decision as to whether or not it meets their evolving criteria.

    As a small fish all you really have to worry about are proving value to your customers and dealing with them in a straight-forward manner.

  4. If the FTC really wants to stop this sort of practice they should start with the ads publishers allow advertisers to run on their properties.

    Bing, Fox News, Huffington Post and other big sites routinely allow misleading ads that point to fake blogs promoting some product that works “miracles.”

    Here’s a write up on . these scams

    1. Yahoo news has them as well. Some great new weightloss product story and then an affiliate link at the bottom of the article. I wouldn’t have noticed them except that I’m now a marketer as well.

  5. great blog, I agree with you that the rule says the link must be Clear and conspicuous, and it is good practice to put the disclosure near the link.

  6. Here’s a reality check. Flogs and scams are flourishing. When was the last time you watched CNN, MSNBC or for those dumb enough to watch Fox News — and didn’t see a TaxMaster commercial? There’s Patrick Cox “still” lying his ass off 24/7. AG’s from several states are after him for making fraudulent claims. All the networks know that TaxMasters is a scam and the ads keep running — on TV and online.

    What has the FTC done about his website? Sure, they catch a big fish every so often, but what are the odds of you getting nailed? Slim and none and Slim left town. They are just another useless agency.

  7. very informative blog, no-one would want to get sued by the FTC. The way theyre set up is that you simply cant afford to lose a case so you must settle, youve no choice and it will be very costly

  8. The FTC does not have the time for bloggers. Have you ever tried to file a complaint with the FTC? If you have concerns/paranoia, that should be one of the first things you check. Try calling the FTC and snitching on poor Lilly above. 99.999% certain that your complaint will be taken, recorded, and ignored.

    Glad to see the government regulating the Internet, and creating opportunities for foreign business. Thanks for that one. I live overseas, host overseas, and many of my networks are overseas. Just can’t wait to get back and get regulated though. Only after I get my balls checked at the airport for my own safety. Justice for all! Oh yeah!

  9. What about product reviews? I generally say “a sample was sent to us and blah blah…” is that okay???? I am worried now!

    Thanks

    ThoughtsFurPaws Administrator

  10. I’m wondering how all of this applies to non-us residents. Especially those who can bank, host, live and post all off shore? Will they have a free ride to do what ever they want while the US residents sit and watch?

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