By Gary D. Hailey, Esq. and Mikhia E. Hawkins, Esq.
The Federal Trade Commission (FTC) announced that it has approved final revisions to its Guides Concerning the Use of Endorsements and Testimonials in Advertising (Guides), which address endorsements and testimonials by consumers, experts, organizations, and celebrities in advertising. The revisions, which went into effect on December 1, 2009, include the addition of hypothetical examples involving new media channels to illustrate the principle that material connections between advertisers and certain endorsers (such as monetary compensation) must be disclosed. The new examples address what messages constitute endorsements when the message is conveyed through word-of-mouth channels and user-generated content platforms such as blogs, online discussion boards, and social networking websites. Trade and professional associations often endorse the products and services of third-party companies both to generate non-dues revenue for the association and to provide a service to members (e.g., tailored products and services, discounted prices, and the like). These arrangements often are referred to as affinity relationships. Associations also may utilize endorsements and testimonials to promote membership, as well as the industries and professions they represent. Endorsements and testimonials can be very valuable to associations, but failing to comply with the FTC's standards for these marketing tools can subject them to liability under the FTC Act.
This article discusses the changes to the Guides and how they apply to endorsements and testimonials utilized by trade and professional associations. It also provides an overview of other standards set forth in the Guides.
Endorsements and Testimonials in New Media
Disclosures of Material Connections: Organizations of many types are exploiting the marketing possibilities that new media outlets present. If an endorser with whom an organization has a material connection makes a favorable statement about the organization or its products or services in traditional advertising or through a new media channel, the relationship must be disclosed. The Guides state that "[w]hen there exists a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience), such connection must be fully disclosed." A material connection includes, for example, the provision of compensation or, in some cases, free products or services, to the endorser.
The revised Guides provide examples of endorsements and testimonials conveyed through new media to illustrate when a material connection disclosure is needed in the context of new media marketing. In determining whether a disclosure of a relationship between an endorser and an association is warranted, the central issues are whether knowledge of the relationship would affect the weight or credibility of the endorsement, and whether the audience would reasonably expect that the relationship exists. Consider, for example, the following set of circumstances:
An online message board is designated for discussions by people getting started in sales and marketing jobs in a particular industry. They exchange information about networking opportunities, business-getting techniques, etc. Unbeknownst to the message board community, an employee of an industry association has been posting messages on the discussion board promoting association membership and attendance at networking events sponsored by the association.
Readers of the online message board would likely not expect that the person posting messages about the association is an employee of the association, and knowledge of the employment relationship likely would affect the weight or credibility of the employee's comments on the message board. Therefore, the employee should clearly and conspicuously disclose the employment relationship to readers of the message board. Associations should consider including such a requirement in its social networking policy (applicable to the association's employees, as well as its officer, directors and other volunteer leaders) and the association's employee handbook.
Likewise, material connections should be disclosed when the association is the endorser, as illustrated by the following example:
An association maintains a blog that features regular entries from a meeting planner who posts about sightseeing opportunities, suggested restaurants, etc., in the cities where the association's upcoming meetings will be held. Her entries also mention special promotions (e.g., airline, hotel or rental car discounts) offered by the companies who participate in the association's endorsed affinity programs. Readers of the blog would likely not reasonably expect this relationship between the endorsed companies and the association. Thus, the blog should communicate the fact that there is a relationship between the association and the affinity partner, but this should be easy to accomplish without the need for a formal legal-sounding disclaimer. For example, the blogger can simply say something like, "This month, the association's rental car partner, company X, is offering our members a special discount on weekend rentals" or "Because X is the official hotel of our association, you can get a free room upgrade when you make your reservation by calling this special number."
Prior to the recent amendments, the Guides provided that "[a]n example of a connection that is ordinarily expected by viewers and need not be disclosed is the payment or promise of payment to an endorser who is an expert or well known personality, as long as the advertiser does not represent that the endorsement was given without compensation." The revised Guides clarify that endorsements by a celebrity may, under certain circumstances, warrant a disclosure of a material connection between the celebrity and the association the celebrity is endorsing. If a relationship between the celebrity and the association exists that would affect the weight or credibility of the endorsement, and the audience would not reasonably expect that the relationship exists, then the relationship must be disclosed to the audience.
Celebrity Endorsements: Celebrity endorsements through certain new media outlets may particularly warrant material connection disclosures. Recipients of messages conveyed through word-of-mouth or user-generated content platforms generally assume that the message is not sponsored by a third-party unless this fact is disclosed. If, for example, a celebrity makes a casual comment extolling a particular product through Twitter, the celebrity's Twitter followers may not expect that the product marketer is remunerating the celebrity. Accordingly, a material connection disclosure may be required under such circumstances.
Of course, the same principles apply when the endorsement is made through a traditional media channel. For example:
During an appearance by an older celebrity on a television talk show, he comments that he is a member of an association of senior citizens and often takes advantage of various discounts it offers its members, purchases its endorsed insurance and financial products, and then encourages viewers to join the association. The celebrity does not disclose that he has a contractual relationship with the association and has agreed to promote membership in the association in his public appearances whenever possible. Consumers might not realize that a celebrity promoting association membership in a television interview has been paid for doing so, and knowledge of such payments would likely affect the weight or credibility consumers give to the celebrity's endorsement. Without a clear and conspicuous disclosure that the celebrity has been engaged as a spokesperson, this endorsement is likely to be deceptive. Once again, it should be relatively easy to make the required disclosure by saying something like the following: "I've always been concerned about how hard it is for many older Americans to make ends meet, so the X association has asked me to help it tell seniors how they can save money if they join the association."
Again, the key issue is whether the relationship between the association and the endorser would affect the endorsement's weight or credibility, and whether the audience would reasonably expect that the relationship exists. With respect to celebrity endorsements, the nature of the platform through which the endorsement was conveyed may affect the likelihood that the audience will expect that a particular type of relationship exists between the celebrity and the endorsed association.
Which Parties Are Liable for Deceptive New Media Endorsements?
The FTC has noted that it recognizes that advertisers do not have complete control over the content of endorsements made through word-of-mouth and user-generated content media, such as blogs, "street teams," and social networking sites. Nonetheless, the agency takes the position that an advertiser may be liable for deceptive statements (including endorsements that are not accompanied by material connection disclosures where necessary) made through such media channels if the advertiser initiated the process that led to the endorsements, by, for example, providing free products to bloggers or individuals enrolled in the advertiser's word-of-mouth marketing programs.
However, the FTC has stated that a marketer's establishment of appropriate policies and procedures relating to new media endorsers would be considered in the agency's decision as to whether law enforcement action is warranted. The procedures can include regular monitoring of endorsers and measures to be taken in the event endorsers fail to comply with the procedures (e.g., cease providing free products to that individual). The FTC opted not to specifically describe such procedures and, instead, deferred to associations, businesses and others to develop procedures they deem to be appropriate. Many associations have begun to adopt written policies governing employee and volunteer leader participation in online social networking websites; associations should ensure that such policies are broad enough to cover all of the proscriptions contained in the Guides.
Other Standards under the Revised Guides
In addition to the material connection disclosure requirement, the Guides provide various other standards for the use of endorsements and testimonials in advertising. Associations that utilize endorsements and testimonials should ensure that they comply with all applicable standards set forth in the Guides, including those discussed below.
Disclosure of Generally Expected Results
The amendments to the Guides eliminate a "safe harbor" that has long allowed advertisers to use testimonials reporting specific successful experiences with an advertised product or service as long as the advertiser disclosed the limited applicability of the endorser's experience. Generally, in the past, an advertiser could disclose the limited applicability of the testimonial through statements such as "results will vary" or "results not typical." Under the revised Guides, advertisements that relate a consumer's experience with a product or service and suggest that the experience is typical when that is not the case must clearly disclose the results that consumers can generally expect in the depicted circumstances.
In the FTC's view, it is likely that testimonials presenting the specific experiences of a product user will be viewed as claiming that those experiences are typical of what consumers will generally experience. The agency has noted that the revised Guides do not prohibit the use of typicality disclaimers altogether, and that a clear, conspicuous and informative disclaimer may, in certain circumstances, be sufficient.
Endorsements by Associations
The FTC's amendments do not change the standards set forth in the Guides regarding endorsements by associations. However, in its notice approving the amendments, the FTC addressed such endorsements.
Under the Guides, endorsements by associations "must be reached by a process sufficient to ensure that the endorsement fairly reflects the collective judgment of the organization." The FTC clarified that the association's governing body does not have to participate in the process. However, the agency believes that a single staff person's decision concerning an endorsement may not be sufficient to ensure that the process reflects the association's collective judgment and does not involve subjective factors that may vary from individual to individual.
The FTC stated that an association's management could adopt specific procedures and standards to be applied in review processes that are conducted in determining whether the association will provide an endorsement.
Gary Hailey is a partner and Mikhia Hawkins is an associate in Venable's advertising and marketing practice group. They can be reached at 202-344-4000, or at gdhailey@venable.com or mehawkins@venable.com.