Any business or individual engaged in advertising must have a basic understanding of the FTC guidelines surrounding customer testimonials and product endorsements. New businesses tend to throw up any endorsement they can get without understanding the legal consequences of doing so blindly. The bottom line is that you or your business can be liable under the Federal Trade Commission (FTC) Act for: 1) not making any required average results or material connections disclosures in connection with your testimonials; and 2) for deceptive content made by a “sponsored” endorser of any of your products.
The FTC Act is used to prevent consumers from being deceived from: 1) endorsements made without actual knowledge of the goods and services being promoting; 2) customer testimonials that reflect uncommon or extraordinary results; and 3) endorsements and customer testimonials that are made by someone who is sponsored by the advertiser, rather than an independent, unbiased party, and the reader is unaware of the sponsorship.
The FTC defines an “endorsement” as any message sponsored by a third party “that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser.” Of course, we are talking about any positive reviews/statements made about your goods or services. A customer “testimonial” is a story or account of a consumer’s experience using a product or service and the results achieved. The FTC treats testimonials and endorsements as the same thing under their endorsement guidelines, which I discuss in detail below. A customer testimonial is an endorsement for purposes of FTC guidelines and the same rules apply to both!
Endorsements by celebrities must reflect the celebrity’s honest experience or opinion. This means if the endorsement represents that the celebrity uses or has used the product, the celebrity actually must use or have used the product. Also, once a celebrity or expert has endorsed a product, your business has an obligation to make sure the endorsement continues to reflect the endorser’s opinion. Celebrities have a duty to disclose their relationships or connections (sponsorship) with advertisers each time they make endorsement where not doing so might mislead the average consumer.
Any person making an expert endorsement must have sufficient qualifications to be considered an expert in the subject or field. Each expert endorsement must be supported by an actual evaluation, examination, or testing of the product that is customarily performed by other experts in order to support the conclusions stated in the endorsement.
The 2009 Revised FTC Guidelines
The real area of concern for Internet sellers, affiliates, bloggers, etc. lies in understanding the new rules under the FTC’s revised 2009 guidelines. If you are going to conduct internet marketing activities, you must be aware that the FTC published a set of revised guidelines in October of 2009 that dealt with new Internet media and product endorsements (“The FTC’s Guidelines Concerning the Use of Testimonials & Endorsements in Advertising”). Before 2009, the current guidelines regarding endorsements and testimonials were contained in the 1980 guidelines. Of course, this was before the advent of the Internet, making new guidelines necessary.
The revised guidelines made the following basic changes:
Stated that existing FTC guidelines apply to “new media” such as blogs and social networking sites (e.g. Facebook, Twitter) and that advertisements made through this media are subject to the same rules as traditional advertising forums; and
Required new disclosure responsibilities regarding average product performance (“average results”) in endorsements and customer testimonials, and regarding whether sponsorship or a “material connection” exists to any endorser of any of your products or services.
“New Media” Change
Essentially, the FTC now ensures any advertisement made on an Internet forum is regulated and covered under the FTC Act. Advertisers along with their “sponsored endorsers” are now all responsible for the content of their advertisements made on the Internet. This applies to websites, blogs, chat rooms, Facebook, Twitter and any other Internet media. This means your business could be liable for: 1) any deceptive advertisements it makes on websites, blogs, chat rooms or applications like Facebook and Twitter; and 2) for any deceptive endorsement or testimonial made by any “sponsored” endorser.
What Is a Sponsored Endorsement?
As you can imagine, it is critical to determine whether some positive opinion or review is actually considered to be a “sponsored endorsement.” The basic question is whether the positive statement made by any endorser can objectively be seen as sponsored by your Internet business. According to the FTC, when an endorser makes statements about your product does he or she: 1) act independently; or 2) act on behalf of your business as part of an overall marketing campaign? Of course, this depends upon the facts and circumstances of each separate endorsement.
If any of your employees or independent sales agents provides an endorsement or positive review about one of your products, this is a sponsored endorsement. Any consumer that purchases a product with his or her own money likes the product and provides a positive endorsement on his or her Facebook page or blog (or your website) is not providing a “sponsored” endorsement. But, there are situations in between that cause confusion for Internet businesses. This usually occurs when some third party, such as a blogger or an affiliate, expresses an opinion or provides a review about a product or service.
The FTC in the revised guidelines does state certain facts that would be considered as indicating a sponsorship with a third party endorser. These include: 1) whether the speaker is compensated by the advertiser or its agent; 2) whether the product or service in question was provided for free by the advertiser; 3) the terms of any agreement; 4) the length of the relationship; 5) the previous receipt of products or services from the same or similar advertisers, or the likelihood of future receipt of such products or services; and 6) the value of the items or services received.
For endorsements made on social media directly by individuals, the FTC testimonial guidelines state that receiving a payment, a free product or some other financial benefit from your business, in exchange for posting a product review or other endorsement, is a “material connection” subject to the disclosure requirement. The individual endorser is the party expected to clearly and conspicuously disclose that connection. However, your business is expected to advise its endorsers up front that this connection should be disclosed and have procedures in place to try to monitor postings by such individuals to confirm the connections are being disclosed.
My next few posts will break down material connections and average results disclosures under the revised FTC guidelines.