Driven by the proliferation of social media advertising that often blurs the line between genuine content and sponsored posts, the Federal Trade Commission last week sent more than 700 companies a notice of penalty violations warning them against the use of misleading notices in their online advertising. The notice advises recipient businesses that engaging in advertising conduct that the FTC has previously found to be unfair, illegal or deceptive under Section 5 of the FTC Act may expose them to liability up to at $ 43,792 per violation. As we predicted previously, these letters may reflect a shift in the FTC’s focus towards resorting to Section 5 of the FTC Act, following the Supreme Court’s opinion of the last term in AMG Capital Management vs. the FTC which restricted the ability of the FTC to seek monetary relief under section 13 (b) of the act.
The companies that receive the Notice include big, well-known names, including major retailers and major advertising companies. Recipients have also been asked to distribute copies of the notice to each of their affiliates engaged in the sale or marketing of products or services to consumers in the United States. While the FTC makes it clear that the recipients of the notice are not suspected of having committed wrongdoing, the scope of the notices sent – and the Commission’s 5-0 vote to authorize the notice and its distribution – demonstrates that the FTC is very focused on the use of misleading mentions in online advertisements and is prepared to aggressively prosecute advertisers who flout its guidelines.
The notice sent to businesses provides a non-exhaustive list of practices that the FTC has ruled illegal in previous FTC bylaws, including:
Falsely claiming an endorsement by a third party;
Distort whether an endorser is a real, current or recent user;
Use an endorsement to make misleading performance claims;
Not disclose an unexpected material connection with an endorser;
Distort that an endorsement represents the experience, views or opinions of users or intended users;
Falsely believing that the endorser experience represents the typical or ordinary experience of consumers; and
Continue to use an endorsement without a valid reason to believe that the endorser continues to subscribe to the views presented.
Copies of the case decisions discussed in the opinion are available on the FTC website. The notice also directs advertisers to additional resources, including a business guidance document for staff. FTC Approval Guides: What People Are Asking Forand the FTC Guides for the use of endorsements and testimonials in advertising, 16 CFR Part 255, for more information on their responsibilities under the FTC law.
While navigating the evolving regulatory landscape regarding deceptive online advertising can present challenges for businesses and their advertising partners, avoiding the practices described above will likely go a long way in mitigating the risk of facing enforcement action by the FTC and its subsequent liability. Our team continues to monitor these changes and will keep our readers informed of any FTC enforcement action resulting from today’s notices. Watch this space for further developments.
© 2021 Proskauer Rose LLP. Revue nationale de droit, volume XI, number 291