June 17, 2010

Results of the FTCs First Investigation into a Possible Violation of its New 'Guides Concerning the Use of Endorsements in Advertisements' 16 CFR Part 255

Importantly to any internet lawyer; in last October the Federal Trade Commission published a press release announcing that they had revised the old Guide Concerning the Use of Endorsements in Advertisements and Testimonials which was last updated in 1980.

The revised Guides have eliminated the “safe harbor” provision, made explicit that celebrity endorsers will be liable for false or unsubstantiated claims made in connection with an endorsement and the need to disclaim material connections to products that a celebrity is substantively discussing where the connection would otherwise not readily be apparent, and importantly, this material connection provision also extends to apply to bloggers who are now required to disclose any material connections between themselves and advertisers in connection with anything they are endorsing.

The “safe harbor” provision had enabled advertisers to use consumer testimonials which were unusual or exaggerated compared to common consumer experiences of the same products so long as the advertiser included a “results not typical” provision somewhere in the advertisement. 

In the words of the FTC, any connection which “might materially affect the weight or credibility of the endorsement” must be disclosed where the connection is “not reasonably expected by the audience.”

Any material connection between an advertiser and an endorser may come in the form a ‘gift’, or other compensation or incentive for the blogger to write or otherwise advertise word-of-mouth to consumers on behalf of the advertiser. Also, the blogger must disclose any other material connections that she may have with the manufacturer of the product being advertised.

This material connection between advertisers and bloggers was recently tested in an investigation by the FTC for the first time since its release of the revised Guides and this also marks the first enforcement action by the FTC on behalf of its revised guides.

The FTC explained that it had been concerned that the bloggers who attended the event would fail to reveal the fact that they had received gifts for posting content about the event. As reported at Arent Fox LLP;

“The investigation focused on a special event held by the popular fashion company, Ann Taylor LOFT. In January 2010 Ann Taylor LOFT launched a preview of its summer collection and announced the event to bloggers, noting that the “Bloggers who attend will receive a special gift, and those who post coverage from the event will be entered in a mystery gift card drawing where you can win up to $500 at LOFT!” The potential gifts ranged from $50 to $500. The small print of the announcement explained the catch: the bloggers who went to the event would have to send a link to their posts back to Ann Taylor LOFT's publicist within 24 hours and she would reveal the value of gift card they had won.”

The results of the FTC’s investigation were announced April 20, 2010 by the FTC's Division of Advertising Practices when they announced that the FTC had declined any enforcement against Ann Taylor LOFT and that it had closed its investigation into Ann Taylor LOFT for suspected violations of the Guides.

In explanation of the results of its investigation, the FTC first noted that the Ann Taylor LOFT preview event was the first and only event of its kind held by the company. Second, the FTC noted that the fashion company had posted a sign, which the FTC noted bloggers may or may not have seen, at the preview telling bloggers that they should disclose the gifts if they posted comments about the preview and noted further that, “only a very small number of bloggers posted content about the preview, and several of those bloggers disclosed that LOFT had provided them gifts at the preview.” Lastly, the FTC took into consideration Ann Taylor LOFT’s adopted written policy explaining that it will not issue any gift to any blogger without first informing the blogger that he or she must disclose the gift in his or her blog.

The FTC went on to explain that it, “expects that LOFT will both honor that written policy and take reasonable steps to monitor bloggers' compliance with the obligation to disclose gifts they receive from LOFT.” After noting that the investigation was closed and enumerating all of these factors, the FTC then reserved the right to take further action, if deemed necessary.

Although the Guides are merely administrative interpretations of the FTC’s Part 255 law designed to aid advertisers make sure they are in compliance with the law, they are not actually binding law themselves. Therefore as the FTC made note in its press release;

“In any law enforcement action challenging the allegedly deceptive use of testimonials or endorsements, the Commission would have the burden of proving that the challenged conduct violates the FTC Act.”

Internet attorneys and industry professionals should take note of this first FTC investigation into its new Guidelines. This initial investigation likely denotes the FTC’s ‘warning’ to the advertising industry that it is willing to take action to enforce the FTC Act and is monitoring the blogosphere for violations.

A PDF of the full FTC, 16 CFR Part 255, Guides Concerning the Use of Endorsements and Testimonials in Advertising can be found here.

More on this story can be found here;

FTC Publishes Final Guides Governing Endorsements, Testimonials

FTC Issues New Endorsements Guidelines Under 16 CFR Part 255 - "Word of Mouth Marketing"

FTC Finalizes Endorsement and Testimonial Guidelines for Advertisers

The FTC closes its first investigation against Ann Taylor under the endorsement guides

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