The Federal Trade Commission (“FTC”) put more than 700 companies on notice this week by way of letters in which it addressed “unlawful practices relating to the use of endorsements and testimonials.” In the newly mailed letters, a template of which was published on Wednesday, the FTC alerted companies ranging from luxury brands and well-known conglomerates to retail platforms, social media sites, and mass-market apparel entities, among others, that they could be subject to civil penalties of up to $43,792 per violation in connection with fake or misleading endorsements and/or reviews.
According to the FTC’s template letter, “Companies use endorsements and testimonials in many forms to advertise and market their products and services, both in traditional and social media, as well as in the form of online reviews.” While endorsements and testimonials are not inherently problematic, the government agency – which is tasked with promoting consumer protection, and eliminating and preventing anticompetitive behavior in the market – asserted that “as reflected by [its] enforcement actions and other efforts, some companies use these advertising tools in a manner that deceives consumers.”
Addressing the types of uses of endorsements and testimonials that are likely “deceptive or unfair and are unlawful under Section 5 of the Federal Trade Commission Act,” a federal law that broadly prohibits deceptive practices in advertising, the FTC pointed to the following: “Falsely claiming an endorsement by a third party; misrepresenting whether an endorser is an actual, current, or recent user; using an endorsement to make deceptive performance claims; and misrepresenting that the experience of endorsers represents consumers’ typical or ordinary experience.”
Also problematic, according to the FTC, failing to disclose an unexpected material connection with an endorser. After all, the agency requires that material connections between brands and publications – and brands and influencers, celebrities, etc. – must be “clearly and conspicuously” disclosed. Such disclosure may come in the form of hashtags, such as #Ad or #sponsored, as well as plain language that alerts consumers to the fact that an endorsement is the result of a connection between the endorser and the company at issue.
With the foregoing in mind, the FTC stated that the receipt of its letters puts the companies at issue on notice about the unlawful nature of – and the potential penalties that can come with – such misleading endorsement activities, and the government agency recommend that companies “carefully review the notice and take any steps necessary to ensure that [their] practices do not violate the law.”
As for the companies that received letters, the FTC confirmed that they include sportswear brands like Nike, adidas, Converse, and Skechers; fashion and luxury groups Kering, LVMH, Richemont, Tapestry, and Supreme-owner VF Corp.; luxury brands, such as Rolex, Chanel, and Tiffany & Co.; retailers like Bloomingdales, Macy’s, Target, eBay, Amazon, and Walmart; and mass-market brands Gap, Banana Republic, Aeropostale, Patagonia, Victoria’s Secret, and Urban, among others. Also on the list of recipients: Apple, Facebook, Inc. and Google, online game platform Roblox, the newly-public Honest Company, and Kylie Jenner’s brand Kylie Cosmetics, LLC. (Jenner, for one, has come under fire in the past for failing to properly disclose sponsored posts on her personal Instagram account.)
The FTC was sure to note that its staff “is not singling out” companies by way of its letter or “suggesting that [recipients] have engaged in deceptive or unfair conduct.” Instead, the agency stated that it is “widely distributing letters and the notice to large companies, top advertisers, leading retailers, top consumer product companies, and major advertising agencies,” seemingly in anticipation of a potential push to crackdown on unlawful practices by major market players.
While deceptive reviews and endorsements have been a focus of the FTC as of late, with the agency sending out more than one round of warning letters to influencers and brands in 2017 and hinting at stronger action against big-name influencers, brands, and the platforms, the letters appear to be warning to companies that the Commission may be planning to come down harder in the not-too-distant future. More specifically, Hunton Andrews Kurth LLP attorney Phyllis H. Marcus states that by sending the 700-plus Notice of Penalty Offenses, the FTC “is hoping to create the requisite knowledge now to pin on recipients later, a strategy was presaged by FTC Commissioner Rohit Chopra and Consumer Protection Director Samuel Levine in an October 2020 article, ‘The Case for Resurrecting the FTC Act’s Penalty Offense Authority.’”
“It is clear that, in the wake of the Supreme Court’s decision in April 2021, [in which it] rejected the FTC’s ability to use the FTC Act to obtain restitution and disgorgement from companies that engage in unfair or deceptive advertising practices, the agency is looking for new ways to, in the words of Chopra and Levine, ‘substantially increase deterrence and reduce litigation risk by noticing whole industries of Penalty Offenses, exposing violators to significant civil penalties, while helping to ensure fairness for honest firms.’”
Going forward, Marcus encourages companies to educate themselves about FTC-approved endorsement and testimonial practices, and “to review their internal policies for using endorsements and testimonials in ads, and make sure they comply with the FTC’s requirements.”