Federal Trade Commission announces changes to the endorsement guidelines, issues proposed rule on consumer reviews
In a long-awaited move, on June 29, 2023, the Federal Trade Commission (FTC) significantly updated its endorsement guidelines. The guidelines, along with the freshly updated FTC's Endorsement Guides: What People Are Asking page, aim to ensure transparency and protect consumers in the swiftly evolving digital landscape.
The FTC also announced a proposed rule on the use of deceptive consumer reviews and testimonials.
Updated endorsement guidelines
Here are key highlights from the newest guidance on endorsements, testimonials, and customer reviews:
- Changing the definition of “endorsements”: The FTC updated its definition of “endorsements” to encompass statements by virtual influencers, fake positive reviews, and tags on social media platforms.
- Definition of “clear and conspicuous”: The guidelines indicate that, to be “clear and conspicuous,” a disclosure must be “difficult to miss (ie, easily noticeable) and easily understood by ordinary consumers.” Additionally, the FTC states that for interactive digital media like social media and the internet, the disclosure must be “unavoidable.” Further, the disclosure format should match the format of the accompanying endorsement. For example, if the endorsement is visual and audible, the disclosure should be visual and audible as well. The FTC also provided an example demonstrating that a social media platform’s built-in disclosure tool may not be sufficient to rely on.
- Liability of intermediaries: The guidelines make clear that all parties in an advertising transaction may share the liability for any deceptive or misleading conduct. Intermediaries such as advertising agencies and public relations firms may be on the hook for creating or disseminating what they knew, or should have known, to be deceptive endorsements.
- Incentivized reviews: The FTC confirmed in the updated guidelines that, when an advertiser incentivizes consumers to provide a rating or review, for instance by offering those consumers a free product, then the advertiser must make clear that they are free to write negative reviews and that there are no negative consequences for doing so, and the incentive must be disclosed. Also, when incentivized ratings are included in aggregated ratings (eg, five stars), and their inclusion meaningfully increases the average rating, there must be appropriate disclosure of the incentivized reviews.
- Presentation of reviews: The FTC articulated that companies should refrain from procuring, suppressing, boosting, organizing, publishing, upvoting, downvoting, reporting, or editing customer reviews in a way that misrepresents what consumers think of their products. For example, a company’s actions in deleting negative reviews, suppressing less-than-stellar reviews, falsely reporting negative reviews as false on third-party platforms, or encouraging positive reviews and discouraging negative reviews are likely to be misleading. While companies are allowed to edit unlawful or abusive content in their customer reviews, these criteria must be uniformly applied to both positive and negative reviews.
- Atypical results: The guidelines suggest that when an endorsement conveys a result not typically experienced by users of the product, a “results not typical” disclaimer alone is ineffective to avoid deceiving consumers. Instead, the disclosure should affirmatively communicate the typical outcome a consumer would encounter so that they can properly judge the effectiveness of the product.
- Advertising to children: The FTC also addressed advertisements intended for children, stating that “practices that would not ordinarily be questioned in advertisements addressed to adults might be questioned in such cases.” While the guidelines do not expand on this, the FTC has made it clear they will be addressing this in further depth in the future.
- Best practices for advertisers: The guidelines remind advertisers that they should (i) provide guidance to their endorsers to ensure their statements are not misleading and to disclose unexpected material connections; (ii) monitor compliance; and (iii) take action to remedy any non-compliance. “While not a safe harbor, good faith and effective guidance, monitoring and remedial action should reduce the incidence of deceptive claims and reduce an advertiser’s odds of facing [an FTC] enforcement action.”
Inside the updated “What people are asking” endorsement guides
In addition to updating the guidelines, the FTC also updated the FTC's Endorsement Guides: What People Are Asking page for the first time since 2017. In the updated version, the FTC provides more guidance on how to make adequate material connections disclosures on social media platforms, brand monitoring of influencers, platform disclosure tools, and further guidance on online reviews.
Proposed rule on use of consumer reviews and testimonials
Further, the FTC announced a new proposed rule, which addresses many of the FTC’s concerns regarding deceptive review practices by spelling out prohibited practices. Importantly, if finalized, the rule would trigger civil penalties for violators.
The proposed rule prohibits reviews by people who do not exist, who do not have experience with the product reviewed, or who materially misrepresent their experience with a product. It prohibits advertisers from incentivizing a consumer to express a particular sentiment in a review (whether positive or negative), suppressing negative reviews, and failing to clearly and conspicuously disclose the existence of a relationship between the advertiser and the reviewer. The proposed rule also prohibits “review hijacking” and selling fake followers and views.
The FTC acknowledges concern over generative AI in the notice of the proposed rule; specifically, how AI can be used to generate customer reviews that are indiscernible from actual reviews, commenting “the widespread emergence of AI chatbots is likely to make it easier for bad actors to write fake reviews.”
The proposed rule was announced on June 30, 2023 and will be published soon and then open for public comments for a period of 60 days from publication.
These actions demonstrate the FTC’s strong focus on protecting consumers by ensuring the accuracy and transparency of endorsements and reviews. The changes made to the endorsement guidelines and the proposed new rule on consumer reviews and testimonials also reflect a greater trajectory by the FTC to address growing trends in digital technology such as virtual reality and AI and their potential to significantly impact the advertising landscape.
If you would like assistance in reviewing your advertising or to discuss best practices in setting up a holistic compliance program for endorsements, reviews, or influencers, please contact either of the authors or your usual DLA Piper relationship attorney.
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