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The Federal Trade Commission Act (“FTCA”) is a federal statute in the United States. Section 5 of the FTCA prohibits “unfair methods of competition and unfair or deceptive acts or practices”. The Federal Trade Commission (“FTC”) takes action against businesses engaged in deceptive advertising or promotions, or unfair trade practices.
The Guides Concerning Use of Endorsements and Testimonials in Advertising address the application of Section 5 of the FTCA to the use of endorsements and testimonials in advertising. An endorsement is deemed to mean any advertising message that consumers are likely to believe reflects the opinions of a person other than the sponsoring advertiser.
The Guides state that 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 (that is, the connection is not reasonably expected by the audience), such connection must be fully disclosed.
The Guides then give an example of a college student who has earned a reputation as a video game expert and writes blogs about his gaming experiences. The video game maker then sends the student a free video game system to play and asks him to write about it. The student plays the video game system and writes a favourable review. Because his review is not inherently obvious, readers are unlikely to know that he has received the game for free in anticipation of his review and, given the value of the video game system, this fact would likely materially affect the credibility they attach to the endorsement. Therefore, the student would be required to clearly and conspicuously disclose that he received the video game system free of charge (and the manufacturer should advise him that the connection should be disclosed and monitor his compliance).
A clear and conspicuous disclosure generally means that a disclosure has sufficient proximity to the claims to which the disclosure relates, is easy to notice, is prominent among other content and is presented in an appropriate font, format and colour. The FTC does not mandate the specific wording of disclosures. However, the same general principle – that people obtain the information they need to evaluate sponsored statements – applies across the board, including social media.
Below are some examples of recent cases where the FTC has brought actions against businesses for failing to make appropriate disclosures about their advertisements:
- Retailer Lord & Taylor paid 50 online fashion influencers to post Instagram pictures of themselves wearing the same dress from the new collection, but failed to require the influencers to disclose they had each received the dress, as well as thousands of dollars, in exchange for their endorsement. The FTC filed a complaint against Lord & Taylor for failure to disclose that the posts were paid-for promotions. The case resulted in a settlement.
- The FTC filed a complaint against two social media influencers (who are widely followed in the online gaming community), on the basis that they deceptively endorsed the online gambling service CSGO Lotto, while failing to disclose they jointly owned the company. They also allegedly paid other well-known influencers thousands of dollars to promote the site on YouTube, Twitch, Twitter, and Facebook, without requiring them to disclose the payments in their social media posts.
A consumer cannot bring a false advertising claim under the FTCA. However, a consumer can file a complaint with the FTC which may conduct an investigation and then bring an enforcement action against the advertiser.
Link to FTC Guides: