Changes in FTC?

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FTC Proposes Revisions To Guidelines for Advertising Endorsements

The Federal Trade Commission ( " FTC " ) has requested comment on amendments

to its Guides Concerning the Use of Endorsements and Testimonials in

Advertising ( " Guides " ). These Guides govern the use of consumer and

expert endorsements and testimonials in advertising - including viral

advertising occurring through blogs and other Internet-based endorsement

programs. Although the Guides are not binding, they explain how the FTC

interprets Section 5 of the FTC Act's prohibition on unfair or deceptive

acts or practices. Consequently, the FTC could bring a Section 5

enforcement action based on practices that are inconsistent with the

Guides.

As background, the FTC has not changed its Guides since they were

released in 1980. In January 2007, the Commission released two studies

it had commissioned on testimonials and issued a broad invitation for

comments on the continued importance and appropriateness of the Guides.

Twenty-two comments were submitted. Based on this feedback, the

Commission is now proposing extensive revisions to the 1980 Guides. The

changes to the Guides include:

1. declaring that both advertisers and endorsers are legally

responsible for false or unsubstantiated statements made in

endorsements, or failing to disclose material relationships;

2. eliminating the safe harbor formerly provided by " results not

typical " language in consumer testimonials;

3. expanding the obligation of experts and celebrities to disclose

certain contractual relationships (for instance, when speaking on talk

shows); and

4. suggesting potentially sweeping liability for advertisers who

encourage blogging about and viral marketing of their products.

The Commission invites comments on the revised Guides by January 30,

2009. Below is a brief summary of the Commission's proposed changes.

Definition of Endorsement: The Guides currently define an endorsement as

an advertising message that consumers are likely to believe reflects the

opinions, beliefs, findings, or experience of a party other than the

sponsoring advertiser. The FTC's revised Guides would clarify that the

only criterion relevant in determining whether a statement is an

endorsement is whether consumers believe it reflects the endorser's

views. To illustrate this point, the FTC plans to include language and

examples demonstrating that a statement may be an endorsement even if:

(1) the statement is identical to statements made by the sponsoring

advertiser or (2) the person making the statement is speaking from a

script (as opposed to giving the endorsement in his or her own words).

January 6, 2009

Consumer Law 2

Endorser and Advertiser Liability: The revised Guides would specify that

both endorsers and advertisers are liable for false or unsubstantiated

statements made through the endorsement or for failing to disclose

material connections between the endorser and the advertiser. Although

it never mentions the case, we understand the revisions are, in part, a

response to the Ninth Circuit's decision in FTC v. Garvey, 383 F.3d 891

(9th Cir. 2004) (concluding that a celebrity endorser was not liable

because statements were substantiated by his own experience).

Consumer Endorsements: The revised Guides would modify how

advertisements involving consumer endorsements, also known as

testimonials, are treated. Specifically, the Commission proposes to add

a new provision specifying that a consumer endorser's statement about

the performance of a product or service will be interpreted as a

representation that the product or service also will be effective for

other consumers. Anecdotal evidence about a consumer's individual

experiences would be insufficient to substantiate claims requiring

scientific evidence because the experiences may be attributable to a

placebo effect or other factors unrelated to the advertised product or

service.

The FTC also proposes to amend the Guides so that a statement reflecting

the consumer endorser's experience concerning a key attribute of the

product or service generally cannot be supported with a disclaimer of

typicality (e.g., " Results Not Typical " ). The FTC recognizes that

disclaimers of typicality are sufficient in limited circumstances, like

gambling advertisements, where the consumer likely understands from the

nature of the product or service that the endorser's experience is not

generally representative. However, in the majority of cases, the FTC

indicates that the advertiser typically would need to possess and rely

upon adequate substantiation to support the representations made by the

consumer endorser. If the advertiser does not have substantiation that

the endorser's experience is representative of what other consumers will

generally achieve, then, according to the FTC, the advertiser should

clearly and conspicuously disclose the generally expected performance of

the product or service under the depicted circumstances and have

adequate substantiation for that representation.

The FTC recognizes that this revision would increase costs for

advertisers who previously have not documented consumers' experiences

with their products or services. However, the FTC concludes that in most

cases, competent and reliable scientific evidence will be available and

that the change is necessary to avoid consumer deception.

In addition to the above, the FTC invites comments on some specific

points around consumer endorsements, including:

1. feedback on the product categories where a new requirement to

disclose " generally expected performance " would prevent legitimate use

of testimonials; and

2. the wording of a proposed footnote that would let particularly

strong disclaimers justify consumer testimonials.

Disclosing Material Connections with Celebrity and Expert Endorsers: The

FTC's revisions would add new examples illustrating when a connection

between the advertiser and a celebrity or expert endorser must be

disclosed. According to the FTC, advertisers generally need not disclose

that a celebrity or expert endorser was paid because consumers

ordinarily will expect that these endorsers will be compensated for

their endorsements. However, if a celebrity or expert endorser touts the

performance of a product or service in an interview, the FTC notes that

the relationship should be disclosed because there is no reason for

consumers to suspect that the endorser has a relationship with the

advertiser. In contrast, where a celebrity wears clothing bearing a

company's 3

logo but does not mention the company or the clothes, no disclosure of

the existence of an endorsement contract is necessary because the

celebrity has made no representations about the clothes. The FTC invites

comments on the example embodying these principles.

The FTC also seeks comment on an example that would require expert

endorsers to disclose " a significant financial interest in sales of the

product " (including through an ownership interest).

Applying the Guides To New Media: The FTC's revisions provide guidance

on how endorsements appearing in new media, like blogs and message

boards, would be treated. For example, where an " advertiser participates

in a blog advertising service " and the blogger endorses the advertiser's

product or service, both the blogger and the advertiser could be

responsible for the claims made through the endorsement. Consequently,

the FTC recommends that the advertiser train the blogger to avoid making

deceptive statements and that the advertiser monitor the statements made

in the blog. In addition, the FTC tentatively suggests that blogger

endorsers, endorsers posting on discussion boards, and endorsers

participating in " street team " programs (e.g., a program where prizes

are awarded each time a team member talks to a friend about the

advertiser's product) should disclose material relationships between the

advertiser and the endorser. The FTC invites comment on these principles

and corresponding examples.

Disclosure of Financing Scientific Research: The FTC reaffirmed its

policy of not requiring disclosure in advertisements where a drug

company uses findings from scientific research that the drug company

funded provided that the design and conduct of the research project are

controlled by the outside research organization. The FTC, however, is

seeking comment on suggestions made by thirty-three state Attorneys

General that this policy is inconsistent with other portions of the

Guides.

*** If you have any questions concerning the material discussed in this

client advisory, please contact the following members of our consumer

law practice group:

Egan eegan@... Calkins

scalkins@... Yaron Dori ydori@... Lindsey Tonsager

ltonsager@...

S. Kalman PhD, RD, CCRC, FACN

Miami Research Associates

Director, Nutrition & Applied Clinical Research

6141 Sunset Drive #301

Miami, FL. 33143

(fax)

www.miamiresearch.com <http://www.miamiresearch.com/>