FTC Warns Over 700 Companies Endorsements Could Lead to Civil Penalties
Yesterday, the Federal Trade Commission issued a press release suggesting that the agency will be cracking down on allegedly deceptive practices in social media and online reviews, scrutinizing in particular reviewers who allegedly fail to disclose material connections to the company or present their atypical experience as ordinary. The FTC claims that it is “blanketing industry” with Notices of Penalty Offenses, and indeed the list of recipients of the notices includes licensors, manufacturers, and retailers in nearly every sector of the economy, in addition to several major advertising agencies. The notices state “the fact that a company received a Notice was not based on a review of its advertising and in no way suggests that the company has violated the law.”
The FTC, rather, asserts that issuing the notices will allow it to seek civil penalties against any of the recipient companies in the future, should they (or, more specifically, their reviewers) engage in conduct described in the notices as having been found unlawful in any previous FTC administrative order, excluding consent orders. Such civil penalties are capped at $43,792 per violation. According to the FTC, violative conduct includes:
- Falsely claiming an endorsement by a third party;
- Misrepresenting that an endorser is an actual user, a current user, or a recent user;
- Continuing to use an endorsement without good reason to believe that the endorser continues to subscribe to the views presented;
- Misrepresenting that an endorsement represents the experience, views, or opinions of users or purported users;
- Using an endorsement to make deceptive performance claims;
- Failing to disclose an unexpected material connection with an endorser; and
- Misrepresenting that the experience of endorsers represents consumers’ typical or ordinary experience.
Issuing the notices represents another step in shifting FTC enforcement as the agency reacts to the U.S. Supreme Court’s decision earlier this year rejecting the FTC’s longstanding practice of seeking monetary redress through equitable remedies like restitution or disgorgement, rather than civil penalties. For years, the FTC has rarely sought any form of monetary redress in matters regarding the endorsement of prominent, established brands, opting instead to issue rounds of warning letters. Presumably, the expectation was that public shaming would be enough to coerce changes the FTC felt were necessary. With yesterday’s announcement, those days may be behind us.
For more information, please contact Katie Bond, Samuel Butler, or your regular Lathrop GPM contact.