Today, the FTC announced it had sent “Notices of Penalty Offense” to over 700 businesses, including top consumer products companies, large retailers, tech platforms, media and gaming companies, and ad agencies, warning them against engaging in deceptive and unfair practices when it comes to using endorsements and testimonials in ads.
This move was not quite the typical announcement from the FTC, which often uses its Business Blog and press releases to help educate business about their truth-in-advertising obligations. Rather, the FTC seems to have reached back (way back) into its toolkit available to it as an administrative enforcement agency and dusted off a rarely-used technique.
You see, the FTC generally does not have authority to seek civil penalties for a first violation of the FTC Act, its primary governing statute. Such authority is only triggered under certain circumstances – when an administrative cease-and-desist order, an agency rule, or the standards articulated by the Commission, are violated. It is that last category – prior acts or practices – that the Commission is relying on here.
The FTC’s civil penalty authority can be triggered where the Commission: (1) has already issued a written decision that certain conduct is unfair or deceptive, and (2) that a particular company knew the conduct was unfair or deceptive. In that case, the Commission can file actions in federal court seeking to obtain civil penalties from other companies that commit similar violations. Those written decisions the Commission is using as authority? Well, the earliest was issued in 1941, and the latest came out in 1984, all long before the advent of the Internet, e-commerce, social media, or influencer marketing.
By sending these 700+ Notice of Penalty Offenses, the Commission is hoping to create the requisite knowledge now to pin on recipients later. This strategy was presaged by FTC Commissioner Rohit Chopra and Consumer Protection Director Samuel Levine in an October 2020 article, “The Case for Resurrecting the FTC Act’s Penalty Offense Authority.” It is clear that, in the wake of the Supreme Court’s decision in April 2021 rejecting the FTC’s ability to use the FTC Act to obtain restitution and disgorgement from companies that engage in unfair or deceptive advertising practices, the agency is looking for new ways to, in the words of Chopra and Levine, “substantially increase deterrence and reduce litigation risk by noticing whole industries of Penalty Offenses, exposing violators to significant civil penalties, while helping to ensure fairness for honest firms.”
According to the FTC’s Business Blog, the fact that a company has received a Notice now does not indicate that the Commission has reason to believe it is breaking the law. The agency has not reviewed the recipients’ advertising for violations, at least not right now. However, companies that receive this Notice now have knowledge that engaging in conduct described therein could face a federal lawsuit by the FTC and be subjected to civil penalties of up to $43,792 per violation.
Today’s action, which builds upon a similar approach taken by the FTC last week targeting claims for for-profit colleges, has the potential to significantly alter the enforcement landscape going forward. Things to do now?
Check the list to see whether your company was sent a Notice;
Familiarize yourself with the endorsement and testimonial practices described as prohibited in the Notice; and
Review your internal policies for using endorsements and testimonials in ads, and make sure they comply with the FTC’s requirements.