Social media, use of influencers for sponsored content, and outright fake online reviews have blurred the line between advertising and authentic content, leading to what FTC calls an “explosion in deceptive endorsements” across the marketplace. To combat this, FTC is now using its Penalty Offense Authority: By sending a Notice of Penalty Offenses, the agency is opening up the possibility of seeking civil penalties against companies that engage in conduct that they know has been found unlawful in previous FTC administrative orders.
Ivan Wasserman, Managing Partner,Amin Talati Wasserman,explained this move toWholeFoods: “Under the FTC Act, the FTC actually does not have the general authority to obtain civil penalties for deceptive marketing practices such as the deceptive of endorsements and reviews. When you saw companies paying big amounts to the FTC in recent years for making false, misleading, or unsubstantiated claims about foods and dietary supplements, those have generally not been civil penalties. They have been what is known as ‘equitable’ relief, typically in the form of providing restitution to consumers who purchased the product as a result of the deceptive claims. However, last April the Supreme Court’s decision in a case called AMG Capital Management v. FTCheld that the FTC cannot obtain such relief in a court action. Yesterday’s action is an attempt by FTC to get around all of that—at least for the 700 companies who received the notice. A ‘Notice of Penalty Offense’ such as this identifies conduct that the FTC has determined, in prior administrative orders, violates the FTC Act. A company that engages in that conduct after receiving a notice may be subject to civil penalties of up to $43,792 per violation.”
Importantly, the letter isnota notice that an offense has been committed—the businesses that receive it may not have committed any offense at all. It is, explicitly, intended to deter misconduct.
The offenses outlined in the Notice include:
- falsely claiming an endorsement by a third party
- misrepresenting whether an endorser is an actual, current, or recent user
- using an endorsement to make deceptive performance claims
- failing to disclose an unexpected material connection with an endorser
- misrepresenting that the experience of endorsers represents consumers’ typical or ordinary experience
“This represents the FTC’s proverbial ‘shot across the bow’ warning to all marketers to knock it off with the rampant use of fraudulent endorsements and reviews on the internet,” Wasserman commented. “Whether against any of the 700 companies that received the notices or not, I expect to see increased enforcement by the FTC in this area in the coming years, so it is critical for companies of all sizes to understand the rules, and have policies and procedures in place to ensure that they follow them.”
FTC noted that the agency has createdmultiple resources for businessesto ensure that they are following the law when using endorsements for advertising purposes.
“The online world is a great tool for business, but like many tools, it gets developed and exploited before the guard rails catch up,” commented Len Monheit, CEO,Trust Transparency Center.“In this case, FTC is catching up to exploitive practices that take advantage of consumer vulnerability. More companies need to take a long view and operate with the principles of Trust Transparency as then this type of notice wouldn’t be needed. It’s good to see FTC taking action to clean up misleading claims as they hurt consumer trust.”