February 18, 2020

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After Four Decades, FTC Announces Regulatory Review of The Endorsement Guides: What Does This Portend for Digital Advertisers and Social Media Platforms?

On February 12, 2020, the Federal Trade Commission (“FTC”) announced that it had voted 5‑0 to approve a proposed Federal Register Notice, seeking comment on whether to make changes to its Guides Concerning the Use of Endorsements and Testimonials in Advertising (“the Endorsement Guides”), which were enacted in 1980 and amended in 2009, as part of a systematic review of all current FTC rules and practices.  The FTC’s Endorsement Guides have evolved over the past forty years from regulating celebrity endorsements and testimonial advertisements to policing social media advertising, including influencer endorsements and native advertising.  The Endorsement Guides have steadfastly required transparency in advertising and that, if there is a connection between an endorser and the maker of a product being advertised or promoted which, if disclosed, might affect the weight or credibility of the endorsement, such connection must be disclosed clearly and conspicuously.  In the proposed notice, the FTC requested comment on a variety of questions, including the following:

  • “whether the practices addressed by the Guides are prevalent in the marketplace and whether the Guides are effective at addressing those practices;

  • whether consumers have benefitted from the Guides and what impact, if any, they have had on the flow of truthful information to consumers;

  • whether changes in technology or the economy require changes to the Guides;

  • whether guidance in the FTC’s guidance document “The FTC’s Enforcement Guides: What People Are Asking” should be incorporated into the Guides;

  • how well advertisers and endorsers are disclosing unexpected material connections in social media;

  • whether children are capable of understanding disclosures of material connections and how those disclosures might affect children;

  • whether incentives like free or discounted products bias consumer reviews even when a favorable review is not required to receive the incentive, and whether or how those incentives should be disclosed;

  • whether composite ratings that include reviews based on incentives are misleading even when reviewers disclose incentives in the underlying reviews;

  • whether the Guides should address the use of affiliate links by endorsers; and

  • what, if any, disclosures advertisers or operators of review sites need to make about the collection and processing of publication of reviews to prevent them from being deceptive or unfair.”

The notice will be published in the Federal Register in the near future. Comments need to be received within sixty days of publication and will be posted on www.regulations.gov.

Commissioner Rohit Chopra issued a separate statement which voiced “support [for] a close and careful review of the FTC’s non-binding Endorsement Guides and a self-critical analysis of the agency’s enforcement approach,” noting that the FTC should focus on lawbreaking advertisers rather than small influencers and how in the recent actions against Lord & Taylor and Sunday Riley that the FTC settled for no forfeiture of ill-gotten gains and findings or admission of liability or fault.  Commissioner Chopra welcomed broad public participation, announcing that “[t]he FTC will need to take bold steps to safeguard our digital economy from lies, distortions, and disinformation” and hoping that the FTC will consider taking the following steps, beyond voluntary guidance:

  • “Developing requirements for technology platforms (eg. Instagram, YouTube, and TikTok) that facilitate and either directly or indirectly profit from influencer marketing;

  • Codifying elements of the existing endorsement guides into formal rules so that violators can be liable for civil penalties under Section 5(m)(1)(A) and liable for damages under Section 19; and

  • Specifying the requirements that companies must adhere to in their contractual arrangements with influencers, including through sample terms that companies can include in contracts.”

This is an important watershed moment and time will tell whether the FTC will create new requirements for advertisers and social media platforms, including imposing penalties for civil liability.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.

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About this Author

Theodore Max, Attorney, Sheppard Mullin, Entertainment, Technology, Advertising
Member

Theodore C. Max is a member of the Entertainment, Technology and Advertising and Intellectual Property Practice Groups in the New York office, where he focuses on counseling clients on intellectual property issues and litigation. He is co-leader of the firm's Fashion and Apparel team. Mr. Max combines his skill and experience as a trial attorney with his knowledge of copyright, trademark and intellectual property law in servicing the firm's diverse clientele.

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