Podcast - The FTC Announces Three Important Developments

Welcome to another podcast of Clearly Conspicuous. As we noted in previous sessions, our goal in these podcasts is to make you succeed in this very aggressive and progressive environment with the government regulatory officials. We want to make you aware of what's going on with both the federal and state consumer protection agencies and give you practical tips for success. It's a privilege to be with you today.

The FTC’s Three Important Developments

Today, we discuss three important developments just announced by the Federal Trade Commission. One, its final revisions to the endorsement guides. Two, a proposed new rule on the use of consumer reviews and testimonials. And three, updates to a key step guidance publication for businesses, endorsers and members of the advertising industry.

The Past Revisions of the Endorsement Guides

So let's focus on the final revised endorsement guides. Last revised in 2009, the guide concerning use of endorsements and testimonials in advertising by the FTC offers advice for businesses on how the FTC Act applies in the use of endorsements. As part of its regulatory review efforts, the FTC announced in May of 2022 that it was seeking public comment on proposed updates to the guides to ensure they reflect current advertising trends, including how longstanding legal principles apply in social media and review platforms. The revised endorsement guides reflect the feedback received and recent law enforcement experiences.

So here are the six final changes that really merit your attention:

1. These guides articulate a new principle regarding not procuring, suppressing, organizing, upvoting, downvoting, or editing consumer reviews in ways that are likely to distort what consumers really think about a product.
2. These guides addressed incentivized reviews, reviews by employers and fake negative reviews by competitors.
3. The guide added the definition of clear and conspicuous and warned that a platform's built-in disclosure tool might not be adequate.
4. The guides update the definition of endorsements to clarify that it can include fake reviews, virtual influencers and social media tags.
5. The guides provide a clearer explanation of the potential liability that advertisers, endorsers and intermediaries face for violating the law.
6. The guides emphasized special concerns with child-directed advertising.

The Proposed Rule on the Use of Consumer Reviews and Testimonials

So let's now move to the proposed rule on the use of consumer reviews and testimonials. In addition to announcing final changes to the endorsement guides, the FTC is proposing a new rule on the use of consumer reviews and testimonials based on comments received in response to a November 2022 advance notice of proposed rulemaking. Comments on the notice are being requested now on a rule that is designed to fight clearly deceptive practices involving consumer reviews and testimonials. The FTC believes there is a need for a rule specifying certain practices as illegal. A rule that clearly spells out prohibited practices and authorizes courts to impose civil penalties that could strengthen the FTC enforcement actions and have a deterrent effect when companies map out their marketing strategy.

The proposed rule would specifically prohibit the following practices:

1. Selling or obtaining fake consumer reviews and testimonials.
2. Review Hijacking. To be a bit more specific here, the proposed rule would ban businesses from using or repurposing a consumer review written for one product so that it appears to have been written for a substantially different product. And by the way, the FTC recently brought an enforcement action challenging the practice of review hijacking.
3. Buying positive or negative reviews. Here, businesses would be prohibited from providing compensation or other incentives contingent upon the writing of consumer reviews expressing a particular settlement, either positive or negative.
4. Insider reviews and testimonials.
5. Company control review websites where businesses would be prohibited from creating or controlling websites that claim to provide independent opinions about a category of products that includes their own products.
6. Illegal Reviews Suppression. And seven: selling fake social media indicators.

The FTC Revised and Expanded the Publication, "What People Are Asking"

So finally, let's discuss the updated stack guidance. With respect to the endorsement guides, the FTC has issued a publication called "What People Are Asking," and it has been a to-the-point business resource for many years. But the FTC has now revised and expanded the publication to answer 40 more questions that may be on the minds of businesses. With a particular focus on influencers and the required disclosure of material connections across different platforms and issues related to reviews. For a 360-degree perspective and the use of endorsements and reviews, please read these revised endorsement guides in the updated publication.

Concluding Thoughts

So here's the key takeaway: the FTC regulates social media. I want to say that again because I think there is a common misunderstanding about social media regulation. The FTC regulates social media, platform companies that engage in social media advertising, bloggers, influencers and brand ambassadors must pay attention. Simply put, all stakeholders and all actors in the social media ecosystem must pay attention to what the FTC is doing. So please stay tuned for further programs and I wish you continued success and a meaningful day. Thank you.