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Avoiding the Consequences of Undisclosed Endorsements and Testimonials.  This week, let’s focus on what’s required to include fair and non-deceptive endorsements and testimonials in advertising.

Endorsements and the Golden Age of Television:

The explosive growth of television in the 1950s and ’60s brought remarkable new techniques in subliminal and unspoken advertising, including the use of models and settings not to deliver facts but to evoke a pleasing association between the product and the viewer. Soon, the use of sports figures, actors, and other celebrities using the power of their notoriety to endorse others’ products and services became commonplace. Fearing that star-struck consumers might mistakenly believe their heroes were making the endorsements out of their heartfelt beliefs that everyone needed to know the glories of the goods they were endorsing – rather than (at least in part) because the celebrities were being paid to do it – the FTC issued its first Guides Concerning the Use of Endorsements and Testimonials in Advertising (16 C.F.R. Part 255) in 1973.  Of course, they have evolved since then.

As made clear by the Guides, staff and judicial interpretations of Section 5 of the FTC Act, case law under Section 43(a) of the Lanham Act, decisions of the National Advertising Division, and much more, the bedrock of fair advertising has always been Truth.  If the message(s) received by consumers – i.e., what the consumer takes away, which is not necessarily the same thing as what the ad actually says – is essentially truthful, then it will not be unfair or deceptive.  But if the message(s) that the ad communicates (by whatever means) bends or distorts the truth, the ad will be unlawful, even if its spoken or written words happen to be true. And that is the case whether the message(s) are communicated by celebrities, actors, experts in the field, actual users filmed by “hidden cameras,” or Authentic Average Janes and Joes.

Guides Concerning the Use of Endorsements:

While they are not legally binding, the Guides provide the FTC Staff’s interpretations of the law, which are helpful in their details and examples.

The Guides define endorsements and testimonials broadly to mean any advertising message consumers are likely to believe reflects the opinions, beliefs, findings, or experience of someone other than the sponsoring advertiser. Endorsements must also reflect the endorser’s honest opinions, findings, beliefs, or experience.

Among other things, the Guides require:

  1. Endorsers must be bona fide users of the products or services at the time they give their endorsements;

  2. Advertisers are subject to liability for false or unsubstantiated statements made through endorsements or for failing to disclose material connections between themselves and their endorsers, and endorsers also may be liable for statements made in the course of their endorsements;

  3. Advertisements presenting endorsements by what are represented to be “actual consumers” should utilize actual consumers or clearly and conspicuously disclose that the persons are not actual consumers; and

  4. An organization’s endorsement must be reached by a process sufficient to ensure that the endorsement fairly reflects the collective judgment of the organization.

In other words:

  • ·      Endorsements should be honest;

  • ·      They should reflect the actual experiences of the endorsers;

  • ·      Those experiences should be typical (so, for example, if one person loses 50 lbs on a diet, but others usually lose only 10 lbs, the higher figure for weight loss is not typical, and the person losing an unusually-high amount wouldn’t be the right person to endorse the product); and

  • ·      All endorsements should “clearly and conspicuously” disclose material connections.  Put another way, the fact that you’re being paid to endorse a product could materially affect a consumer’s thinking about your endorsement, so you should disclose it. The updated Guides have even added a definition for “clear and conspicuous” as a disclosure that “is difficult to miss (i.e., easily noticeable) and easily understandable by ordinary consumers.” (255.0(f)) (e.g., #ad #sponsored [Post follows]).

“Influencers,” Crypto, and the Latest Updates to the Guides:

The Digital Age has brought as many changes to advertising as television did in the 1950s and 60s, with new generations of eyeballs encountering new challenges to Truth. Where once actors, sports heroes, doctors, and others earned their “celebrity” status through accomplishments in their field, which (presumably) would entitle their views to respect, today “influencers” have emerged who are essentially famous for being famous and encouraging people to follow their leads in dress, alcohol, leisure, and diversions. Some things have changed dramatically, such as whole new industries like crypto. Other things haven’t changed at all, like fake reviews, spreading disinformation, and especially advertisers’ and celebrities’ disinclination to pop the balloon of consumer adoration by disclosing that they are, after all, being paid.

The Guides are Keeping Up:

The May 2022 latest update to the Guides addresses these issues, partly by adding subsections on endorser liability (255.1(e), intermediary liability (think ad agencies and PR firms) (225.1(f)), and an admonition that advertisers should not take action to distort or misrepresent what consumers think of products (255.2(d)).  (Note: The manipulation and distortion of online reviews have become hot topics, and the Guides have some helpful examples, including examples of appropriate neutral screening techniques for online reviews and inappropriate payments of incentives for positive online reviews).

All of this information and more appears in the most recent version of the Guides, a link to which follows:

Enforcement is Tightening, too:

On Monday, October 3d, the Securities and Exchange Commission (“SEC”) charged celebrity Kim Kardashian for unlawfully promoting a crypto security, EthereumMax, without disclosing that she was being paid to promote it.  A link to the SEC’s press release follows:

Kardashian is one of many crypto influencers accused of “shilling” cryptocurrencies.  Note that the word “shill” is used in the jargon-heavy crypto world specifically to mean “to promote or endorse some crypto in a way that is misleading or insincere, in return for money or some other interest (often tokens).” YouTube is full of influencers who are rumored to be “shillers.” However, the action against Kardashian by the SEC is expressly designed to “serve[] as a reminder to celebrities and others that the law requires them to disclose to the public when and how much they are paid to promote investing in securities.”

Hosch & Morris, PLLC is a boutique law firm dedicated to data privacy and protection, cybersecurity, the Internet and technology. Open the Future℠.