FTC Updates FAQs on its Endorsement Guides

The FTC recently updated its published guidance on the use of endorsements in advertising. In 2009, the FTC revised its Guides Concerning the Use of Endorsements and Testimonials in Advertising (“Endorsement Guides”). Following the release of the Endorsement Guides, the FTC issued an informal FAQ in June 2010 to answer some of the most frequently asked questions it had then received. Now, the FTC has revised those FAQs, “The FTC’s Endorsement Guides: What People Are Asking,” in order to expand on topics broached the first time around and to address new communication media and other issues not previously covered. The revised FAQs contain a lot of very valuable information regarding how the FTC staff interprets the Endorsement Guides. If your company uses endorsements in any of its advertising - from employment of a celebrity spokesperson to incentivizing discussion of your brand online through the use of a sweepstakes or contest - you will want to review the new FAQs in their entirety. For now, here are a few highlights:

(1) The Need for Disclosure, Generally. One of the fundamental principles of the Endorsement Guides is that any material connection between the endorser and the advertiser that would affect how people evaluate the endorsement and would not be reasonably expected by the audience must be disclosed. As the FTC notes, “[u]nder the law, an act or practice is deceptive if it misleads ‘a significant minority’ of consumers.” So, even if a majority of the audience would understand the connection between endorser and advertiser without a disclosure, if a significant minority of the audience would not, a disclosure is required in order to avoid deception.

(2) Space Limitations on Disclosure. The fact that Twitter and other media may severely limit the amount of content that can be communicated does not alleviate the need to “get [people] the information they need to evaluate sponsored elements.” Per the FTC, “[t]he words ‘Sponsored’ or ‘Promotion’ use only 9 characters. ‘Paid ad’ only uses 7 characters. Starting a Tweet with ‘Ad:’ or ‘#ad’ - which takes only 3 characters - would likely be effective."

(3) Online Promotions. Low- and no-value connections between endorser and advertiser can be enough to trigger the need to disclose the connection - including instances where the endorser receives entry into a promotion or is offered the opportunity to potentially appear in an ad (prior to giving his/her opinion of a product or service). Per the FTC “[t]he question you need to ask is whether knowing about that gift or incentive would affect the weight or credibility [the audience] give[s] to [the endorser's] recommendation.”

For sponsors of online promotions that involve social-media participation by entrants, we retain our long-standing advice that all posts incentivized by a promotion entry should be required to include a disclosure of that fact. The need for disclosure was reinforced with the FTC’s publication of its closing letter to Cole Haan last year and the revised FAQ again make plain the need to require such disclosure, but with one very noteworthy clarification. Per the revised FAQ:

My company runs contests and sweepstakes in social media. To enter, participants have to send a Tweet or make a pin with the hashtag, #XYZ_Rocks. (“XYZ” is the name of my product.) Isn’t that enough to notify readers that the posts were incentivized?

No. It’s likely that many readers would not understand such a hashtag to mean that those posts were made as part of a contest or that the people doing the posting had received something of value (in this case, a chance to win the contest prize). Making the word “contest” or “sweepstakes” part of the hashtag should be enough. However, the word “sweeps” probably isn’t, because it is likely that many people would not understand what that means. [emphasis added]

We consider use of “sweeps” in this manner to have been standard industry practice up until now and are somewhat dubious regarding the FTC’s claim that many users of social-media platforms would fail to understand to what “sweeps” refers, particularly in the context of a hashtag such as #XYZ_Rocks_Sweeps. That notwithstanding, sponsors of social-media promotions should now avoid use of the abbreviation “sweeps” in this manner and opt instead for “sweepstakes.”

(4) Celebrity Spokespersons Paid to Discuss a Product. Two related FAQs explore issues with celebrity spokespersons and other celebrities being paid to discuss a product online. In one hypothetical, a famous athlete is a well-known spokesperson for a particular product. In the other, a famous celebrity is commonly known by “many people” to regularly charge advertisers for mentioning their products in her tweets. In each case, the celebrity has a large Twitter following and the question is whether he/she needs to disclose his relationship with the advertiser each time (s)he tweets about the applicable product. According to the FTC, it depends on whether the celebrity endorser’s Twitter followers understand that the celebrity is a paid endorser. “If they know he’s a paid endorser, no disclosure is needed. But if a significant portion of his followers don’t know that, the relationship should be disclosed.” The FTC cautions that making such a determination “could be tricky in many cases” and recommends disclosure.

(5) Product placement. First and foremost, the FTC notes that the Federal Communications Commission requires TV stations to disclose product placements in TV shows. For its own part, the FTC treats issues of product placement on a continuum of sorts. Pure product placement (which is, per the FTC “merely showing products or brands in third-party entertainment or news content - as distinguished from sponsored content or disguised commercials”) requires no disclosure that the placement was paid for by the advertiser. On the opposite end of the continuum, if talent in the film or television show in which the product is placed makes it obvious in context that the placement is an advertisement, a disclosure is probably not required as the audience understands what is happening. The FTC uses the example of old-time television shows in which talent would momentarily step out of character and onto a different set in order to perform a commercial.

However, where talent in a television show or film expresses opinions on a product and has been paid by the advertiser to do so, a disclosure is necessary where the endorsement wouldn’t be expected by the audience and would affect the weight given by the audience to the endorsement. As an example, the FAQs describe a talk-show host who plays a video game as part of a televised segment and remarks “wow, this is awesome.” If the host (or the show, network, etc.) has been paid for that endorsement, the connection must be disclosed.

(6) Online Reviews. The revised FAQs also contain useful guidance for those advertisers operating a retail website that offers users the opportunity to leave product reviews. If there is a material connection between the company and the reviewer, the review should be disclosed. The FAQ specifically contemplates a program through which the advertiser distributes free products and asks that they write a review. The lesson, however, extends to other potential connections between advertiser and reviewer, such as structuring a promotion that awards entry based on writing product review.

In addition, the FTC cautions against soliciting reviews from those who haven’t tried your product:

I’m starting a new Internet business. I don't have any money for advertising, so I need publicity. Can I tell people that if they say good things about my business on Yelp or Etsy, I’ll give them a discount on items they buy through my website?

It’s not a good idea. Endorsements must reflect the honest opinions or experiences of the endorser, and your plan could cause people to make up positive reviews even if they’ve never done business with you. However, it’s okay to invite people to post reviews of your business after they’ve actually used your products or services. If you’re offering them something of value in return for these reviews, tell them in advance that they should disclose what they received from you. You should also inform potential reviewers that the discount will be conditioned upon their making the disclosure. That way, other consumers can decide how much stock to put in those reviews.

(7) User Video Endorsements & Placement of Disclosure.  A significant number of FAQs address how and where disclosure should be made in certain situations. At a very high level, the FTC’s advice often centers on the same general point: disclosures that are removed from and not integral to the endorsement itself (e.g., disclosures in a user’s profile page or in a single blog post, divorced from later posts that also contain endorsements) are unlikely to be effective.

Particularly interesting in the revised FAQ is the discussion of how disclosures should be made where the endorsement at issue takes the form of a user-created video posted to YouTube or a similar hosting service. The FTC states unequivocally that including the disclosure in the written “Description” field would not alone be effective as “[m]any people might watch the video without even seeing the description page, and those who do might not read the disclosure.” Per the FTC, “[t]he disclosure has the most chance of being effective if it is made clearly and prominently in the video itself.” Other FAQs indicate that a single disclosure should be included at the beginning of the video, rather than the end, but that having multiple, recurring disclosures during the video “would be even better.” Finally, the FTC notes that, for something like a live-streamed video, multiple, periodic disclosures would be necessary (as a user could “easily miss a disclosure at the beginning of the stream or at any other single point in the stream”) and that a continuous disclosure throughout the stream would be the most cautious tack.

(8) Non-verbal Endorsements. Posting a Photo or Video of a Product, without more, could be an endorsement and - if you have a relationship with the advertiser whose product is depicted - require disclosure. Per the revised FAQ:

I share in my social media posts about products I use. Do I actually have to say something positive about a product for my posts to be endorsements covered by the FTC Act?

Simply posting a picture of a product in social media, such as on Pinterest, or a video of you using it could convey that you like and approve of the product. If it does, it’s an endorsement.

You don’t necessarily have to use words to convey a positive message. If your audience thinks that what you say or otherwise communicate about a product reflects your opinions or beliefs about the product, and you have a relationship with the company marketing the product, it’s an endorsement subject to the FTC Act.

Similarly, the FTC notes that some platforms allow for conduct that could be an endorsement, but that do not allow for a disclosure. In those situations, the FTC recommends that advertisers not encourage use of such features to make an endorsement that requires disclosure:

I am an avid social media user who often gets rewards for participating in online campaigns on behalf of brands. Is it OK for me to click a “like” button, pin a picture, or share a link to show that I’m a fan of a particular business, product, website or service as part of a paid campaign?

Using these features to endorse a company’s products or services as part of a sponsored brand campaign probably requires a disclosure.

We realize that some platforms – like Facebook’s “like” buttons – don’t allow you to make a disclosure. Advertisers shouldn’t encourage endorsements using features that don’t allow for clear and conspicuous disclosures. However, we don’t know at this time how much stock social network users put into “likes” when deciding to patronize a business, so the failure to disclose that the people giving “likes” received an incentive might not be a problem.

An advertiser buying fake “likes” is very different from an advertiser offering incentives for “likes” from actual consumers. If “likes” are from non-existent people or people who have no experience using the product or service, they are clearly deceptive, and both the purchaser and the seller of the fake “likes” could face enforcement action.

Again, these are just a few highlights. The complete revised FAQs are too substantial to be adequately summarized here. However, if you are operating in this space, the revised FAQ are a worthwhile read.