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Special Edition.  Advertising Guidelines.

Today is the Superbowl^®, which is the best day for everyone to catch up on the latest U.S. Federal Trade Commission Guidelines for advertising!  Advertising is the name of the game, particularly for the Big Game, and the rules have changed.  Will any of the major advertisers break the rules?  Watch and see!

But, are you up to date with the advertising transparency rules?  The Federal Trade Commission says you need to be up to date, or else...  We can help, so let's get right to it.  In this edition of the The Entrepreneurial Spirit^®, we address the newest Federal Trade Commission advertising guidelines.  Please keep in mind that advertising is a complex area of law and you need to consult with an experienced lawyer to help with implementation of your strategies and goals.  Forward this email to your social media team for future reference.

Newest FTC Advertising Rules

Title 16, Part 255, Guides Concerning the Use of Endorsements in Advertisements provides the latest transparency rules.  You, your marketing department, and your social media team, are all responsible for compliance, because your competitors—and the federal government—are watching you.  Depending upon your strategy, these rules can be used offensively in the marketplace to bring claims, in addition to as a prudent defense against incurring claims.

What is the Purpose?  The Guides do not purport to cover every possible use of endorsements and testimonials in advertising.  An endorsement means any advertising message that consumers are likely to believe reflects the opinions of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser.

Example 1: Reviews.  A film critic's review of a movie is excerpted in an advertisement.  The review is an endorsement because it is viewed by readers as a statement of the critic's own opinions.  Any alteration in or quotation that does not fairly reflect its substance is a violation of the standards.  Example 2:  Dramatizations.  A TV commercial depicts two unknown women in a supermarket buying a laundry detergent.  One comments to the other how clean her brand makes her family's clothes. This obvious fictional dramatization of a real life situation would not be an endorsement.  Example 3:  Reputable Person.  A manufacturer of automobile tires hires a well-known professional automobile racing driver.  In the commercials, the driver speaks of the smooth ride, etc., of the tires. Many consumers recognize this individual as not merely a spokesperson.  Accordingly, they may well believe the driver would not speak for an automotive product unless he actually believed in what he was saying and had personal knowledge sufficient to form that belief, being the driver's personal views.  This brings the advertisement within the definition of an endorsement.  Example 4:  Compensation.  A consumer who regularly purchases a particular brand of dog food decides one day to purchase a new, more expensive brand made by the same manufacturer.  She writes in her blog that the change in diet has made her dog's fur noticeably shinier, and that the new food definitely is worth the money.  This posting would probably not be deemed an endorsement.  Assume rather than purchase the dog food with her own money, the consumer gets it for free because the store tracks her purchases and its computer has generated a coupon for a free trial bag of this new brand.  Again, her posting would probably not be deemed an endorsement.  But, if the consumer joins a network marketing program under which she receives products about which she can write reviews.  If she receives a free bag of the new dog food through this program, her positive review would be considered an endorsement.

Generally.  Endorsements must reflect the honest opinions of the endorser.  An endorsement may not convey any representation that would be deceptive if made directly by the advertiser.  An advertiser may use an endorsement of an expert or celebrity only so long as the endorser subscribes to the views.  When the advertisement represents that the endorser uses the endorsed product, the endorser must have been a bona fide user of it at the time the endorsement was given.  Advertisers are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between themselves and their endorsers.

Example 1:  Experts.  A building contractor states that he uses the advertiser's exterior house paint because of its quick drying properties. This is an expert endorsement.  Example 2:  Preferences.  A television advertisement portrays a woman seated at a desk.  An announcer says, “We asked X, an administrative assistant for over ten years, to try these five keyboards and tell us which one she liked best.  The announcer asks her why she chose the advertiser's brand, and she gives her reasons. This endorsement would probably not represent that X actually uses the advertiser's keyboard at work. The endorsement may be an expert endorsements. Example 3:  Proven.  An ad for an acne treatment features a dermatologist who claims that the product is “clinically proven” to work.  Before giving the endorsement, she received a write-up of the clinical study in question, which indicates flaws precluding any conclusions about the efficacy of the product. The dermatologist is subject to liability for the false statements. The advertiser is also liable for misrepresentations made through the endorsement.  Example 4:  Ignorance.  A skin care advertiser requests that a blogger try a new body lotion and write a review of the product on her blog.  Although the advertiser does not make any specific claims about the lotion's ability to cure skin conditions and the blogger does not ask the advertiser whether there is substantiation for the claim, in her review the blogger writes that the lotion cures eczema. The advertiser can be subject to liability for misleading or unsubstantiated representations made through the blogger's endorsement. The blogger also can be subject to liability for misleading or unsubstantiated representations made in the course of her endorsement.  The blogger is also liable if she fails to disclose clearly and conspicuously that she is being paid for her services.  In order to limit its potential liability, the advertiser should ensure that the advertising service provides guidance and training to its bloggers. The advertiser should also monitor bloggers who are being paid.

Consumer endorsements. An advertisement using endorsements by consumers, the advertiser must possess adequate substantiation, including, when appropriate, competent and reliable scientific evidence, to support such claims.  Otherwise, the advertisement should clearly and conspicuously disclose the expected performance. The Commission tested the communication of advertisements containing testimonials that clearly and prominently disclosed either “Results not typical” or the stronger “These testimonials are based on the experiences of a few people and you are not likely to have similar results.”  Neither disclosure adequately reduced the communication that the experiences depicted are generally representative.

Example 1: Usage.  A brochure for a baldness treatment consists entirely of testimonials from satisfied customers. The advertiser must have competent and reliable scientific evidence that its product is effective. The ad will also likely communicate that the endorsers' experiences are representative of what new users of the product can generally expect. Therefore, even if the advertiser includes a disclaimer such as, “Notice: These testimonials do not prove our product works. You should not expect to have similar results,” the ad is likely to be deceptive unless the advertiser has adequate substantiation that new users typically will experience results similar to those experienced by the testimonialists. Example 2:  Details.  An advertisement for a cholesterol-lowering product features an individual who claims that his serum cholesterol went down by 120 points and does not mention having made any lifestyle changes.  A well-conducted clinical study shows that the product reduces the cholesterol levels of individuals with elevated cholesterol by an average of 15% and the advertisement clearly and conspicuously discloses this fact. Despite the presence of this disclosure, the advertisement would be deceptive if the advertiser does not have adequate substantiation that the product can produce the specific results claimed by the endorser (i.e., a 120-point drop in serum cholesterol without any lifestyle changes).  Example 3:  Express Conditions.  An advertisement for a weight-loss product features a formerly obese woman. She says in the ad, “Every day, I drank 2 WeightAway shakes, ate only raw vegetables, and exercised vigorously for six hours at the gym. By the end of six months, I had gone from 250 pounds to 140 pounds.”  The advertisement accurately describes the woman's experience.  The advertiser must have substantiation, however, for any performance claims conveyed by the endorsement. If the advertisement simply features “before” and “after” pictures, the ad may be likely to convey that her experience is representative.  If consumers cannot generally expect to achieve such results, the ad should clearly and conspicuously disclose what they can expect to lose. Example 4: Actors.  An advertisement purports to portray a “hidden camera” situation in a crowded cafeteria at breakfast time. A spokesperson for the advertiser asks a series of actual patrons of the cafeteria for their spontaneous, honest opinions of the advertiser's recently introduced breakfast cereal.  Even though the words “hidden camera” are not displayed on the screen, and even though none of the actual patrons is specifically identified during the advertisement, the net impression conveyed to consumers may well be that these are actual customers, and not actors.  If actors have been employed, this fact should be clearly and conspicuously disclosed.  

Expert endorsements. Whenever an advertisement represents that the endorser is an expert, then the endorser's qualifications must in fact give the endorser the expertise that he or she is represented as possessing.  The evaluation must have included an examination of the product at least as extensive as someone with the same degree of expertise to support the conclusions.  The expert must in fact have found any product superiority.

Example 1: Relevance.  An endorsement of a particular automobile by one described as an “engineer” implies that the endorser's professional training are such that he is well acquainted with the design and performance of automobiles.  If the endorser's field is, for example, chemical engineering, the endorsement would be deceptive.  Or, for example, if a person is referred to as "Doctor" in a medical advertisement when the person is not a medical doctor.  Example 2:  Authenticity.  A manufacturer of automobile parts advertises that its products are approved by the “American Institute of Science.”  If the American Institute of Science is not a bona fide independent testing organization, the endorsement would be deceptive.  Even if the American Institute of Science is an independent bona fide expert testing organization, the endorsement may nevertheless be deceptive unless the Institute has conducted valid scientific tests of the advertised products and the test results support the endorsement message.  Example 3:  Congruency.  A manufacturer of a non-prescription drug product represents that its product has been selected over competing products by a large metropolitan hospital. The hospital has selected the product because the manufacturer, unlike its competitors, has packaged each dose of the product separately. This package form is not generally available to the public. Under the circumstances, the endorsement would be deceptive because the basis for the hospital's choice—convenience of packaging—is neither relevant nor available to consumers, and the basis for the hospital's decision is not disclosed to consumers.   

Endorsements by organizations. Endorsements by organizations, especially expert ones, are viewed as representing the judgment of a group whose collective experience exceeds that of any individual member, and whose judgments are generally free of the sort of subjective factors that vary from individual to individual. Example: A mattress seller advertises that its product is endorsed by a chiropractic association.  Because the association would be regarded as expert with respect to judging mattresses, its endorsement must be supported by an evaluation by an expert or experts recognized as such by the organization.

Disclosure of material connections. When 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, such connection must be fully disclosed.  For example, when an endorser who appears in a television commercial is neither represented in the advertisement as an expert nor is known to a significant portion of the viewing public, then the advertiser should clearly and conspicuously disclose compensation.

Example 1: Independence.  A drug company commissions research on its product by an outside organization.  The advertiser's payment of expenses to the research organization should be disclosed in this advertisement.  Example 2:  Compensation Relativity.  A film star endorses a particular food product. The endorsement regards only points of taste and individual preference. This endorsement must generally comply with the rules, but regardless of the star's compensation for the commercial, no disclosure of compensation might be required because such payments likely are ordinarily expected by viewers.  Example 3:  Disclosure.  During an appearance by a professional tennis player on a television talk show, the host comments that the athlete has risen to her highest level ever in the rankings. She responds by attributing the improvement in her game to the fact that she is seeing the ball better than she used to, ever since having laser vision correction surgery at a clinic that she identifies by name.  The athlete does not disclose that she has a contractual relationship with the clinic. Knowledge of such payments would likely affect the weight or credibility consumers give to the celebrity's endorsement.  Without a clear and conspicuous disclosure, this endorsement is likely to be deceptive.  Furthermore, if consumers think that her experience was typical, the advertiser must have substantiation for that claim.  Assume that instead of speaking about the clinic in a television interview, the tennis player touts the results of her surgery—mentioning the clinic by name—on a social networking site that allows her fans to read in real time what is happening in her life. Assume that during that same television interview, the tennis player is wearing clothes bearing the insignia of an athletic wear company with whom she also has an endorsement contract. Although this contract requires that she wear the company's clothes not only on the court but also in public appearances, when possible, she does not mention them or the company during her appearance on the show. No disclosure is required because no representation is being made about the clothes in this context.  Example 4:  Blog Reviews.  A college student maintains a personal “blog.”  As it has done in the past, the manufacturer of a newly released video game system sends the student a free copy of the system and asks him to write about it on his blog. Because his review is disseminated via a form of consumer-generated media in which his relationship to the advertiser is not obvious, readers are unlikely to know that he has received the video game system free of charge, and  this fact likely would materially affect the credibility of his endorsement. Accordingly, the blogger should clearly and conspicuously disclose that he received the gaming system free of charge.  The manufacturer should advise him at the time it provides the gaming system that this connection should be disclosed, and it should have procedures in place to try to monitor his postings for compliance. Example 5: Employee Postings.  An online message board designated for discussions of new music download technology.  An employee of manufacturer has been posting messages on the discussion board promoting the manufacturer's product.  Knowledge of this poster's employment likely would affect the weight or credibility of her endorsement. Therefore, the poster should clearly and conspicuously disclose. 

Conclusion.   Again, depending upon your strategy, these rules can be used offensively in the marketplace to bring claims, in addition to as a prudent defense against claims.  Please save this email for future reference, and forward to your entire advertising and social media teams.

Advertising with testimonials and endorsements is a common mechanism to present goods and services in social media and traditional media.  Understanding your options, rights and responsibilities regarding the FTC rules is crucial to implementing a successful advertising strategy.   — Gregg Zegarelli, Esq.