Liability traps, intermediaries, and changes to disclosure guidelines

The FTC recently made changes to its guide concerning the use of endorsements and testimonials in advertising. Scott Hervey and Jessica Marlow discuss these changes and their expected impact on the influencer marketing industry in this episode of The Briefing. 

Watch this episode on the Weintraub YouTube channel here.

Show Notes:

Scott:
It’s a new year, and some changes are in place for those in the influencer marketing business, whether it’s on the brand side or on the talent side. We’ll be covering recent changes to the FTC’s guide concerning the use of endorsements and testimonials in advertising on this installment of The Briefing by Weintraub Tobin. Happy New Year, and thank you for tuning in to today’s installment of The Briefing.

I’m Scott Hervey of Weintraub Tobin, and today, I’m joined by a first-time guest to The Briefing, my law partner, Jessica Marlow. Jessica, welcome to the briefing.

Jessica:
Thank you, Scott. Happy to be here.

Scott:
So, Jessica, can you give us a little background on the FTC’s involvement in endorsements and testimonials and the endorsement guide?

Jessica:
Absolutely. So, the FTC has the authority to investigate and bring cases related to endorsements made on behalf of an advertiser under section five of the FTC Act, which generally prohibits deceptive advertising. The endorsement guide is intended to give insight into how the FTC perceives various marketing activities involving endorsements and how the FTC’s acts prohibition against deceptive advertising might apply to those particular activities. The guides do not have the force of law, but they are considered to reflect safe practices, meaning that if your marketing activities are inconsistent with the guides, that could result in law enforcement actions alleging deceptive advertising, which could include fines or restitution.

Scott:
That’s a great summary. So, I understand that the guides have been around since, believe it or not, 1979, with the biggest update occurring in 2009, which addressed bloggers. Remember those celebrity endorsers and UGC user-generated content. Since then, the guides have continued to be updated to address the evolution of social media advertising. So, what’s new? Or what’s new in this most recent update to the guide?

Jessica:
Well, the FTC has provided some new guidance on what is an endorsement and who is an endorser. The historical definition of endorsement is any advertising, marketing or promotional message for a product that consumers are likely to believe reflects the opinions beliefs finding experiences of a party other than the sponsoring advertiser. So, the FTC has now included tags and social media posts in the list of things that can be considered.

Scott:
Endorsement and the FTC’s position on who is an endorser. Now that changes. A reflection of the proliferation of AI influencers. The FTC now defines an endorser as that which quote appears to be an individual, group or institution. The FTC did make it clear that this language does not just apply to virtual or fabricated influencers. It also applies to writers of fake reviews and nonexistent entities that purport to give endorsements. So, let’s talk about something that I’m sure everybody loves talking about. That’s liability.

Jessica:
Oh, yes, liability. So, let’s dive into that a little bit further. Everyone likes talking about how they can be sued. So, the previous language about advertiser liability said that advertisers are subject to liability for misleading or unsubstantiated statements made through endorsements. When there is a connection between the advertiser and the endorser, the FTC has deleted the wording. When there is a connection between the advertiser and the generally, there’s a connection between the advertiser and the endorser because it is, after all, a marketing or promotional message. However, the FTC has pointed out that a connection is not always needed for an advertiser to be liable for an endorsement. If, for example, an advertiser retreats a positive statement by an unrelated third party, or let’s say, republishes in an advertisement, a positive review by an unrelated third party, then that statement or review becomes an endorsement for which the advertiser may be liable despite the lack of any such connection.

Scott:
That’s an interesting potential trap for liability. And I know lots of brands that do that, and they have no insight into whether or not the original poster or tweeter is being truthful in what they’re saying.

Jessica:
Right?

Scott:
Yeah, like, oh, this is my favorite thing. I use it all the time, and they repost it. That could not be true. Right. We’ll talk about best practices at the end, but I definitely can think of one thing that brands and advertisers probably need to be very thoughtful of when they’re reposting and retweeting posts from third parties that they have no relationship with. Right? There’s a new section in this part of the guide that also talks about who may be liable and for what. And this new section addresses the liability of intermediaries, namely advertising agencies, PR firms, review brokers, and other similar entities.

Jessica:
The focus of this new section is to hold libel, those parties that had a role in creating deceptive ads in the first place. So, based on an FTC comment about not holding libel, production company that merely provides production services and didn’t have any knowledge about the accuracy of the statements in an endorsement, it appears that purely passive parties that have no actual knowledge about the deceptive or false nature of an ad would likely escape liability.

Scott:
So, agents and managers, you’re okay; there’s a new requirement about performance claims. It seems that the standard your results may be different might not be enough. If the claim performance is not the typical result, the advertiser must clearly and conspicuously disclose the generally expected performance in the depicted circumstances. And to be effective, this disclosure must alter the net impression of the advertisement so that it’s not misleading.

Jessica:
Wow, lots of changes coming our way. The FDC has also made some changes to the section of the guides addressing the disclosure of material connections between the endorser and the seller of the promoted product. This is what usually triggers the inclusion of hashtag and and similar sorts of tags, hashtag sponsored things like that. It’s always been clear that a financial relationship is a material connection that must be disclosed. A material connection now includes a business, family or personal relationship. It can also include a situation where the endorser is provided with free or discounted products, including products that are unrelated to the actual endorsed product, regardless of whether the advertiser requires an endorsement in return. So, material connection may also include other benefits, such as early access to a product or an event receipt of prize appearing on TV. So, it’s something that’s not necessarily as obvious as a paid endorsement for a particular product.

Scott:
So, Jessica, you do a lot of work in this space. Do you think any of these changes or revisions to the guide are a big surprise?

Jessica:
I do think that it’s a bit of a change, and I think that FTC is going broader in terms of who they’re considering an endorser. What you talked about knowing your results may differ, not necessarily being enough. So I think with the amount of money that’s being spent and the amount of advertising that exists on social media, the FTC is really just trying to sort of hone in and make the average buyer aware that there’s a lot of sponsored content out there and to try to provide a little bit more of a roadmap. But this is certainly something that everyone should be paying attention to. Content creators, agents, managers, lawyers, everyone that’s sort of on the team should be aware of these new guides that are in place and should be abiding by these accordingly to avoid getting into trouble.

Scott:
Yeah, that’s some really great advice. Jessica, thank you for joining us today.

Jessica:
My pleasure. Thanks for having me.

Scott:
Thank you for listening to this episode of the Briefing. We hope you enjoyed this episode. If you did, please remember to subscribe, leave us a review and share this episode with your friends and colleagues. And if you have any questions about the topics we covered today, please leave us a comment.