Five Stars for FTC: Agency Issues Updated Endorsement Guides and Proposed Rule to Address Increasing Use of Social Media and Consumer Reviews in E-commerce

We reported over a year ago that the Federal Trade Commission (“FTC”) had proposed updates to its Guides Concerning the Use of Endorsements and Testimonials in Advertising.¹ The updated Endorsement Guides are finally here. The newly issued Guides are long overdue to address the burgeoning trend of companies using social media, online influencers, and various other methods, such as boosting, suppressing, or incentivizing endorsements and customer reviews, to promote their products. In addition, FTC has proposed a new rule to strengthen its ability to obtain financial penalties in enforcement actions. For any company doing business in the digital marketspace, these are a must read.

Background

• FTC’s Endorsement Guides provide guidance to businesses, social media influencers, marketers, and other promotors on truthful and transparent advertisements or customer reviews. Essentially, the Endorsement Guides “advise businesses on what practices may be unfair or deceptive in violation of the FTC Act.”²
• The FTC last revised its Endorsement Guides in 2009, before social media influencers and customer reviews became the primary sources of product endorsement.
• To address the current methods by which advertisers promote their products and services to customers, FTC announced in May 2022 that it was seeking public comments on proposed updates to the Endorsement Guides.
• FTC announced the final revised Endorsement Guides on June 29, 2023.
• The newly published Endorsement Guides contain a number of revisions, most notably:

1. 1. Advising advertisers that they should refrain from “procuring, suppressing, boosting, organizing, publishing, upvoting, downvoting, or editing consumer reviews” to distort or otherwise misrepresent consumers’ opinions of a product;
   2. Noting that incentivized reviews, even those with adequate disclosures, could still be considered deceptive “if the solicited reviews contain star ratings that are included in an average star rating for the product and including the incentivized reviews materially increases that average star rating”;
   3. Advising that an employee posting a review of her employer’s products or services “should clearly and conspicuously disclose their relationship to” her employer. And “[t]o the extent that the employer has directed such endorsements or otherwise has reason to know about them, it should also be monitoring them and taking other steps to ensure compliance”;
   4. Defining “clear and conspicuous” disclosures as “difficult to miss (i.e., easily noticeable) and easily understandable by ordinary consumers”;
   5. Updating the definition of “endorser” to include social media or other virtual influencers;
   6. Updating the definition of “endorsement” to include fake reviews, statements by social media or other virtual influencers, and social media tags;
   7. Explaining that while advertisers will be liable for any deceptive endorsements, endorsers, influencers, and intermediaries (e.g., advertising agencies, public relations firms, review brokers, reputation management companies) may also be liable;
   8. Emphasizing child-directed advertising is of special concern to FTC and “practices that would not ordinarily be questioned in ads directed to adults might be questioned when directed to children.” ³

• FTC has also proposed a new rule to stop marketers from using illicit review and endorsement practices, such as using fake reviews, suppressing honest negative reviews, and paying for positive reviews, which deceive consumers looking for real feedback on a product or service and undercut honest businesses.⁴
• In line with the revised Endorsement Guides, FTC has also updated its “What People Are Asking” guidance, which provides more specific examples and direction for entities or individuals seeking to avoid deceptive advertising or conduct that otherwise violates the FTC Act.⁵

AGG Observations

• Advertisers, companies, and intermediaries should take note that FTC has updated the Endorsement Guides with more specific guidance on several key topics, including the use of social media influencers and incentivized reviews.
• Review gating and review moderation is getting increased scrutiny from FTC, and we are getting a lot of questions from clients as to what may or may not be permissible.
• Misrepresenting a product having hundreds or thousands of five-star reviews on average is a growing trend that the new Guides aim to discourage.
• By targeting fake reviews and virtual endorsers in the updated Guides, FTC is well aware that these are key issues to reduce consumer deception in the digital and metaverse marketplaces.
• With the growing trend of using social media influencers, companies and intermediaries should have a system in place to review all public-facing creative assets used by social media influencers prior to the influencer posting the material. Likewise, influencers should independently review creative assets prior to publication considering that, under the revised Endorsement Guides, influencers can now be liable for deceptive endorsements.
• Companies, advertisers, intermediaries, and influencers should consider the intended audience for their advertisements or promotions, and they should be especially cautious when publishing advertisements or promotions directed at children. Such material will generate more scrutiny from FTC, and companies, advertisers, intermediaries, and influencers should have any such material independently reviewed to ensure potential risks are minimized.
• If an advertiser or other entity is concerned that its promotion, advertisement, endorsement, or review is deceptive or otherwise violates the FTC Act, FTC’s revised Endorsement Guides and the “What People Are Asking” resource provide insightful and instructive guidance and examples to help evaluate the material.
• For those who might find themselves in a gray area when it comes to using influencers and consumer reviews, the proposed FTC rule makes it clear that it intends to pursue, under threat of financial penalties, those who engage in consumer deception through selling or obtaining fake reviews, review hijacking, buying positive or negative reviews, illegally suppressing reviews, and the like.

If you have any questions related to FTC’s updated Endorsement Guides, please contact AGG Brands & Advertising attorneys Anuj Desai and Erin Winn.

[1] https://www.agg.com/news-insights/publications/prove-it-all-night-and-all-day-ftc-reiterates-that-companies-must-have-substantiation-for-product-claims-or-pay-the-price/; https://www.agg.com/news-insights/publications/tell-me-lies-tell-me-sweet-little-lies-the-ftc-and-some-state-attorneys-general-sue-for-deceptive-advertising/;  https://www.agg.com/news-insights/events/selfie-or-stealthy-the-evolving-legal-risks-for-social-media-influencer-advertising/.

[2] https://www.ftc.gov/news-events/news/press-releases/2023/06/federal-trade-commission-announces-updated-advertising-guides-combat-deceptive-reviews-endorsements?utm_source=govdelivery.

[3] https://www.ftc.gov/system/files/ftc_gov/pdf/p204500_endorsement_guides_in_2023.pdf.

[4] https://www.ftc.gov/legal-library/browse/federal-register-notices/16-cfr-part-465-trade-regulation-rule-use-consumer-reviews-testimonials.

[5] https://www.ftc.gov/business-guidance/resources/ftcs-endorsement-guides-what-people-are-asking.