As we step into a new year, the landscape of influencer marketing is witnessing notable changes that impact both brands and talent due to recent updates to the Federal Trade Commission’s (FTC) Guide on Endorsements and Testimonials in Advertising. Let’s delve into the key insights shared in this informative episode of The Briefing by the IP Law Blog podcast.
Understanding the FTC’s Role
The FTC has the authority to investigate and bring cases related to endorsements made on behalf of an advertiser under Section 5 of the FTC Act, which generally prohibits deceptive advertising. The Endorsement Guide is intended to give insight into how the FTC perceives various marketing activities involving endorsements and how the FTC Act’s prohibition against deceptive advertising might apply to those activities. The Guides do not have the force of law. Still, they are considered to reflect safe practices – meaning that if your marketing activities are inconsistent with the Guides, that could result in law enforcement actions alleging deceptive advertising, which could include fines or restitution.
The Guides have been around since 1979, with the biggest update occurring in 2009, which addressed bloggers, celebrity endorsers, and user-generated content. Since then, the Guides have continued to be updated to address the evolution of social media advertising.
Changes – Endorsements, Endorsers, and the Material Connection Between Advertisers and Endorsers
The FTC provided some new guidance on what is an endorsement and who is an endorser. The historical definition of Endorsement is any advertising, marketing, or promotional message for a product that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser. The FTC has now included “tags in social media posts” in the list of things that “can be” an endorsement.
Also changed is who the FTC will consider an endorser. The FTC now defines an endorser as that which “appear[s] to be an individual, group, or institution. This is due to the proliferation of AI influencers. The FTC noted that this expanded definition does not just apply to virtual or fabricated influencers; it also applies to writers of fake reviews and non-existent entities that purport to give endorsements.
The FTC also made some changes to the section of the Guides addressing the disclosure of material connections between the endorser and the advertiser or seller of the goods. This connection is what triggers the inclusion of “#Ad” and similar tags. It’s always been clear that a financial relationship is a material connection that must be disclosed; the revised Guides say that a material connection now includes a “business, family or personal relationship” or a situation where the endorser is provided with free or discounted products (including products unrelated to the endorsed product), regardless of whether the advertiser requires an endorsement in return. A material connection may also include other benefits, such as early product access, receiving prizes, or appearing on TV. The disclosure of a material connection must be clear and conspicuous, which means that the disclosure must be difficult to miss and easily understandable by consumers.
Liability and Its Traps
Previously the Guide’s language about advertiser liability said that “advertisers are subject to liability for misleading or unsubstantiated statements made through endorsements when there is a connection between the advertiser and the endorser.” The FTC has deleted the wording “when there is a connection between the advertiser and the endorser.” Generally, there is a connection between the advertiser and the endorser because, most often, the content in question is a marketing or promotional message. However, the FTC pointed out that a connection is not always needed for an advertiser to be liable for an endorsement. If, for example, an advertiser retweets a positive statement by an unrelated third party or republishes in an advertisement a positive review by an unrelated third party, that statement or review becomes an endorsement for which an advertiser may be liable, despite the lack of any such connection.
The Guides also note new classes of persons that may be liable for a false or misleading advertisement. This new section addresses the liability of intermediaries, namely advertising agencies, PR firms, review brokers, and other similar intermediaries. The focus of this new section is to hold liable those parties that have a role in creating deceptive ads. Potential liability is tied to having knowledge about the accuracy of statements in an endorsement and a role in its creation or use. A purely passive participant who has no actual knowledge about the deceptive or false nature of an ad would likely escape liability.
Performance claims must now include clear and conspicuous disclosures, and the standard “your results may be different” will no longer cut it. If the claimed performance is not the typical result, the advertiser must clearly and conspicuously disclose the generally expected performance in the depicted circumstances. To be effective, the disclosure must alter the net impression of the advertisement so that it is not misleading.
As the influencer marketing landscape continues to evolve, staying informed about FTC guidelines is crucial for all stakeholders. The latest changes reflect the FTC’s effort to address the expanding sphere of sponsored content on social media. Adhering to these guidelines ensures a transparent and compliant influencer marketing environment in the new year.