Tragic (Legal) Mistake 2: Your Testimonials Gets You Sued By The FTC For Big Bucks

By Chip Cooper, Esq.

Your Failure To Follow The FTC Disclosure Rules For Testimonials On Your Website, Blog, and Social Media Platforms Gets You Sued By The FTC For Big Bucks

(You Failed To Disclose, Or Your Disclosure Wasn’t Conspicuous!)

Part 1 deals with the FTC’s rules regarding the disclosure of “material relationships” between advertisers and testimonialists and endorsers. The idea is that if the person giving the testimonial or endorsement is receiving some kind of benefit, then this should be disclosed to that consumers may be on notice that there is the possibility of bias. These rules first appeared in 2009.

Part 2 deals with the FTC rules regarding how these disclosures should be made. These rues first appeared in 2013.

Part 1
FTC Guides For Testimonials And Endorsements (2009)

On October 5, 2009, the FTC issued its revised Guides for the Use of Endorsements and Testimonials in advertising. The revised Guides focus on rules clarifying the use of endorsements in online advertising.

The Guides specify rules for marketers on the Internet, and they apply to two categories of marketers (these are the terms used by the FTC):

* “advertisers” – online marketers that recruit affiliates, resellers, and bloggers to promote the advertiser-suppliers’ products and services, and

* “endorsers” – affiliates, resellers, and bloggers that promote products and services for advertiser-suppliers.

Since the term “advertiser” alone is not a very descriptive term, this discussion will utilize the term “advertiser-supplier” to indicate that advertiser-suppliers are marketers who supply products or services.

In a nutshell, the Guides are aimed at protection of online consumers. The FTC wants to regulate online marketers to see if they're trading testimonials and favorable reviews for some kind of financial reward or other benefit.

The Guides clearly establish the principle that both advertiser-suppliers and their endorsers may be held liable for unsubstantiated, false, and deceptive marketing statements.

Advertiser-Suppliers: When Do The FTC Disclosure Rules Apply?

The threshold question for online marketers is “when do the FTC disclosure rules apply to my marketing practices”?

If all you do is market directly from your website with no involvement by intermediaries such as affiliates, resellers, or bloggers, the FTC disclosure rules do not apply.

However, if you recruit intermediaries – such as affiliates, resellers, or bloggers – to pitch your products or services, and this even includes people whom you compensate or provide free promotional materials or benefits for writing testimonials that you post on your site, then the FTC disclosure rules apply, and you’d be classified as an advertiser-supplier.

Intermediaries would also include viral marketing programs with incentives and network marketing programs where endorsers periodically review your products or services, and they receive a free product or service about which they write a review. If you utilize these viral and network marketing programs, you’ll also be classified as an advertiser-supplier.

If the FTC disclosure rules do apply, you may be held liable for the actions of your endorser.

This is the way the FTC put it:

“It is foreseeable that an endorser may exaggerate the benefits of a free product or fail to disclose a material relationship where one exists. In employing this means of marketing, the advertiser-supplier has assumed the risk that an endorser may fail to disclose a material connection or misrepresent a product, and the potential liability that accompanies that risk” (emphasis supplied).

If you’re an advertiser-supplier, this potential liability should be a wake-up call.

Endorsers: When Do Disclosure Rules Apply?

Again, the threshold question “when do the FTC disclosure rules apply to me”?

If all you do on your website is publish creative content about your areas of interest or your own products or services, you're not regulated by the FTC disclosure rules.

However, if you’re an intermediary (such as an affiliate, reseller, or blogger) for another online marketer, and you pitch someone else’s products or services, in exchange for payment of money, you’re clearly an endorser.

When you normally think of an endorser, you probably think of a celebrity or some other form of endorser, such as the pitch person on late night infomercials.

However, we all act as spokespersons frequently. We talk to our friends, and we post comments on social media, and in many cases these communications are acting as recommending a product or service. As such, we’re also spokespersons.

Organizations can also take the role of a spokesperson. Corporations, colleges and universities, and professional organizations all share information about products or services, and in such cases they are acting as spokespersons.

There’s a grey area in situations where you’re not paid money, but you may receive some sort of benefit. Under certain circumstances, where the applicable facts indicate “sponsorship”, you’ll be regulated as an endorser.

The FTC disclosure rules drill down into this grey area by providing 3 scenarios where a consumer reviews a product or service:

* no endorsement – a consumer purchases a product with his/her own money, and posts a review or opinion on a blog (result: FTC disclosure rules do not apply because there is no relationship at all with the advertiser-supplier; no worries);

* no endorsement – same scenario, except that a coupon for a free trial of the product is generated by the store's computer, based on his/her purchases (result: FTC disclosure rules do not apply because there is no relationship with the advertiser-supplier indicating “sponsorship”; no worries); and

* endorsement – the consumer is part of a network marketing program where he/she periodically reviews products and receives a free product for
which he/she writes reviews (result: FTC disclosure rules do apply because there is a relationship with the advertiser-supplier based on the stream of free products indicating “sponsorship”; there are legitimate worries about how to comply with the FTC disclosure rules).

A good example would be a dentist who recommends a particular brand of toothpaste and provides a complimentary sample for you. If the toothpaste manufacturer or its representative provided the samples to the dentist for free, this would put the dentist in the category of an endorser who has received a benefit.

How do you determine whether a statement is a testimonial? According to the FTC, the determination must be made solely from the perspective of the consumer. If the consumer would view the statement as influenced by the advertiser-supplier, it’s covered by the FTC disclosure rules.

Tip: you should always look at the question of whether to disclose through the eyes of the consumer. If the consumer might be influenced by a relationship, then it’s material and it should be disclosed.

What Do The FTC Disclosure Rules Require Advertiser-Suppliers And Endorsers To Do?

If you’re an advertiser-supplier that sponsors endorsers, the FTC disclosure rules require you to:

* provide guidance and training to your endorsers to help them understand their legal obligations regarding advertising statements about your products or services; primarily, that their claims are truthful, not misleading, and substantiated, and

* monitor your endorsers and take steps to remedy advertising statements, practices, or procedures that are unlawful. In essence, advertiser-suppliers should implement policies and procedures to ensure that their endorsers comply with the FTC disclosure rules.

* Also, you should disclose “material connections” you have with persons who provide endorsements and testimonials for you. “Material connections” involve the payment of money or providing free promotional materials or benefits for the endorsements or testimonials.

* If you make a statement that refers to findings by a research organization, any “material connection” with the research organization must be disclosed.

* Remember that testimonials are considered to be ad claims, so the rules discussed in Mistake 1 apply. level of success was significantly greater than typical, provided that a “results not typical” disclaimer accompanied the endorsement. Beginning in December, 2009, the “results not typical” disclaimer won’t be effective any more. Now, you need a statement regarding the generally expected results.

If you’re an endorser that is sponsored by an advertiser-supplier, the FTC disclosure rules require you to:

* disclose “material connections” involving the receipt of money or free promotional materials or benefits for promoting your advertiser-suppliers’ products or services,

* if you write an endorsement for a product or service, you must be a bona fide user who is writing based on actual experience at the time the endorsement is given (for example, writing a review of a book you haven’t read or a product that you haven’t tried out is a no-no), and

* disclose typical results that should reasonably be expected from a product or service (“results not typical” disclaimers won't work anymore).

What Do Endorsers Have To Say To Comply?

There are no precise rules. The best recommendation is to use common sense, and to clearly and succinctly disclose the relationship and benefit.

Basically, disclose if you got a complimentary product, or that you are an affiliate who may be paid a commission. For example –

* “Apple gave me this new iPad to try out.”

* “I received a complimentary flight by Delta Air Lines.”

Another example: for a paid celebrity endorser, a photo of the celebrity with the caption “Compensated Endorser”.

You could even create a simple icon with the caption: “Disclosure – I get free stuff to review on my blog.”

Use your imagination, be clever. But get the idea across that you’re receiving compensation or other benefit.

The Reverb Communications Case: If You’re Tempted To Use Fake Endorsements, Don’t Do It!

The FTC’s first case enforcing the FTC disclosure rules was against Reverb Communications which was settled in 2010.

At that time, Reverb Communications was a public relations firm representing major clients in the video game industry, including clients such as MTV Games and Harmonix, as well as smaller firms that sell mobile game apps via the iTunes store. According to the FTC, Reverb’s fee often includes a percentage of the sale of its clients’ gaming apps.

The iTunes store provides users the ability to post reviews of gaming applications that are available for purchase. These reviews include a rating system (based on a possible rating of one to fire stars) and written text.

According to the FTC, during a period of approximately one year Reverb employees posted reviews in the iTunes store favorable to games of Reverb’s clients. The reviews were posted in a manner that would convey the impression that disinterested consumers had posted them.

In addition to giving five-star ratings to Reverb’s clients’ games, Reverb’s employees posted written endorsements such as:

“Amazing new game”,
“ONE of the BEST”, and
“Really cool game”.

The FTC brought suit claiming that Reverb Communications engaged in deceptive advertising by having its employees pose as ordinary consumers posting reviews, while failing to disclose that the reviews were from paid employees working on behalf of their clients. Reverb agreed to settle the case.

The basic lesson of the Reverb Communications case is clear – don’t use employees or contractors to post fake endorsements under any circumstances.

The FTC stated in its press release announcing the Reverb Communications settlement: “Companies, including public relations firms involved in online marketing need to abide by long-held principles of truth in advertising. Advertisers should not pass themselves off as ordinary consumers touting a product…”.

The FTC settlement with Reverb requires Reverb to remove the previously posted deceptive endorsements and to refrain from using employees to post fake reviews for its clients in the future.

Part 2
How to Provide The Required FTC Disclosures (2013)

The foregoing discussion focused on the general rules for when the FTC disclosure rules apply. The follow-up question is how to make the required disclosures, with confidence. That’s what’s discussed in Part 2.

In 2000, the FTC released the original .com Disclosures. The purpose was to provide guidelines regarding marketing and advertising on the Internet so that consumers could be protected.

In 2013, the FTC issued revised .com Disclosures. It’s purpose was the same, except the FTC attempted to keep up with changes in technology since the original .com Disclosures.

The FTC’s .com Disclosures Apply To Anyone Engaged in Digital Advertising And Marketing

This means that big companies as well as solo entrepreneurs who operate a single ecommerce website are engaged in digital advertising and marketing, and therefore are subject to the guidelines of the .com Disclosures.

It’s important to note that the .com Disclosures are not definitive law, meaning that they are guidelines. So, compliance is voluntary; however, if you engage in practices contrary to the .com Disclosures, particularly if consumers have sent complaints to the FTC or if there is a pattern of noncompliance, you may very well get the dreaded knock on your door from the FTC.

The .com Disclosures address many issues regarding disclosure placement that reflect the current Internet landscape –

Social media, generally;
Specific constraints of certain social media, for example the character limitations of Twitter;
Automation of engagement on social media;
Mobile apps, and particularly the space limitations of mobile device screens;
Hashtags (#); and
Linked disclosures on a website;
Just to name a few.

The bottom line is that the responsibility of the advertiser to ensure that –

* all providers, including their own website, social media platforms, blogs, or video platforms, are capable of including the appropriate disclosures, and

* in fact, do provide the appropriate disclosures.

.com Disclosures General Rules And Principles

The .com Disclosures provide the following general rules

stating that all disclosures should be –

* Proximate to the information so the consumer does not have to hunt for it;

* Of at least the same size as the message;

* In the same format as the message;

* Accessible on all platforms used; and

* Understandable by the consumer.

The .com Disclosures provide the following 5 general rules.

1. The same consumer protection laws that apply to commercial activities in other media apply online, including activities in the mobile marketplace. The FTC Act’s prohibition on “unfair or deceptive acts or practices” encompasses online advertising, marketing, and sales.

In addition, many Commission rules and guides are –

* not limited to any particular medium used to disseminate claims or advertising, and

* therefore, apply to the wide spectrum of online activities.

2. When practical, advertisers should incorporate relevant limitations and qualifying information –

* into the underlying claim,

* rather than having a separate disclosure qualifying the claim.

3. Required disclosures must be clear and conspicuous.”

In evaluating whether a disclosure is likely to be clear and conspicuous, advertisers should consider –

* its placement in the ad, and

* its proximity to the relevant claim.”

The closer the disclosure is to the claim to which it relates, the better.”

Additional considerations include:

* the prominence of the disclosure;

* whether it is unavoidable;

* whether other parts of the ad distract attention from the disclosure;

* whether the disclosure needs to be repeated at different places on a website;

* whether disclosures in audio messages are presented in an adequate volume and cadence; whether visual disclosures appear for a sufficient duration; and

* whether the language of the disclosure is understandable to the intended audience.

4. To make a disclosure clear and conspicuous, advertisers should:

* Place the disclosure as close as possible to the triggering claim.

* Take account of the various devices and platforms consumers may use to view advertising and any corresponding disclosure. If an ad is viewable on a particular device or platform, any necessary disclosures should be sufficient to prevent the ad from being misleading when viewed on that device or platform.

* When a space-constrained ad requires a disclosure, incorporate the disclosure into the ad whenever possible. However, when it is not possible to make a disclosure in a space-constrained ad, it may, under some circumstances, be acceptable to make the disclosure clearly and conspicuously on the page to which the ad links the disclosure clearly and conspicuously on the page to which the ad links.

* When using a hyperlink to lead to a disclosure –

o make the link obvious;

o label the hyperlink appropriately to convey the importance, nature, and relevance of the information it leads to;

o use hyperlink styles consistently, so consumers know when a link is available;

o place the hyperlink as close as possible to the relevant information it qualifies
and make it noticeable;

o take consumers directly to the disclosure on the click-through page;

o assess the effectiveness of the hyperlink by monitoring click-through rates and other information about consumer use and make changes accordingly.

* Preferably, design advertisements so that “scrolling” is not necessary in order to find a disclosure. When scrolling is necessary, use text or visual cues to encourage consumers to scroll to view the disclosure.

* Keep abreast of empirical research about where consumers do and do not look on a screen.

* Recognize and respond to any technological limitations or unique characteristics of a communication method when making disclosures.

* Display disclosures before consumers make a decision to buy – e.g. before they “Add To Cart”. Also, recognize that disclosures may have to be repeated before purchase to ensure that they are adequately presented to consumers.

* Repeat disclosures, as needed, on lengthy websites and in connection with repeated claims. Disclosures may also have to be repeated if consumers have multiple routes through a website.

* If a product or service promoted online is intended to be (or can be) purchased from “brick and mortar” stores or from online retailers other than the advertiser itself, then any disclosure necessary to prevent deception or unfair injury should be presented in the ad itself – that is, before consumers head to a store or some other online retailer.

* Necessary disclosures should not be relegated to “terms of use” and similar contractual agreements.

* Prominently display disclosures so they are noticeable to consumers, and evaluate the size, color and graphic treatment of the disclosure in relation to other parts of the webpage.

* Review the entire ad to assess whether the disclosure is effective in light of other elements – text, graphics, hyperlinks, or sound – that might distract consumers’ attention from the disclosure.

* Use audio disclosures when making audio claims, and present them in a volume and cadence so that consumers can hear and understand them.

* Display visual disclosures for a duration sufficient for consumers to notice, read and understand them.

* Use plain language and syntax so that consumers understand the disclosures.

5. If a disclosure is necessary to prevent an advertisement from being deceptive, unfair, or otherwise violative of a Commission rule,

* and it is not possible to make the disclosure clearly and conspicuously,

* then that ad should not be disseminated.

* This means that if a particular platform does not provide an opportunity to make clear and conspicuous disclosures, then that platform should not be used to disseminate advertisements that require disclosures.

Download the .com Disclosures

Probably the most informative aspect of the .com Disclosures are the examples provided.

The only way to review these examples is to download the .com Disclosures for yourself. To download, search on any search engine for “FTC .com Disclosures 2013”. The file is in .pdf format.

Conclusion

The disclosure rules appear to be complex.

However, they’re not as complex as they may seem if you –

have a clear understanding of the difference between an advertiser-supplier and an endorser;
have a clear understanding of the role you are playing in a given situation (you may be an advertiser-supplier in some situations and an endorser in others); and
develop a few simple ways to make the required disclosures.

A basic understanding and awareness is really they key.

You can always look at the rules and guidelines as you develop your approach to compliance.

Here’s How To Make Sure You, Your Business & Website Is FTC Compliant

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Disclaimer: This article is provided for informational purposes only. It’s not legal advice, and no attorney-client relationship is created. Neither the author nor FTC Guardian, Inc. is endorsed by the Federal Trade Commission.