Key takeaways

As these various actions taken by the FTC over the past several months show, the FTC has been very active in enforcing its endorsement and testimonial guides and in procuring significant penalties.  Any company posting reviews or working with influencers will want to be aware of the requirement to make clear and conspicuous disclosures, train and monitor paid endorsers, and ensure that reviews are fair and not deceptive.

In depth

The FTC announced this week that it has sent out checks totaling nearly USD 1 million to consumers who bought a weight-loss tea endorsed by celebrities, including  Cardi B, Jordin Sparks and Alexa PenaVega. The FTC settled the case against the tea company in March 2020 for USD 15.2 million (the amount of the total sales of the products), alleging that the company paid for endorsements from well-known social media influencers who did not adequately disclose that they were being paid to promote the product. In most instances, the celebrity posts disclosed that these were paid endorsements, but the disclosures were not made early enough in the posts (before the "more" button) to be noticed by consumers on their phones. Moreover, videos associated with the posts did not separately include the disclosures. 

In October 2021, the FTC sent a Notice of Penalty Offenses ("Notice") to more than 700 companies to notify them that certain acts related to endorsements and testimonials had been found to be deceptive or unfair. Under the FTC Act, receipt of the Notice means that the company has "actual knowledge" and that if they engaged in that conduct in the future, the FTC would sue, seeking civil penalties. FTC penalties can be high, and a single marketing promotion may give rise to many individually actionable offenses.

The Notice sent to the 700 companies lists the following deceptive acts:

• Falsely claiming an endorsement by a third party
• Misrepresenting that an endorser is an actual, current or recent user
• Continuing to use an endorsement without good reason to believe that the endorser continues to subscribe to the views presented
• Misrepresenting that an endorsement represents the experience, views, or opinions of users or purported users
• 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

Further, the Notice makes clear that positive consumer reviews are a type of endorsement, so such reviews can be unlawful if they are faked or when a material connection is not adequately disclosed. Note, however, that receipt of the Notice does not necessarily mean that the recipient's advertisement had been reviewed and found to be in violation of the FTC Act.

Further illustrating the FTC's current interest in enforcement in this area, in late January 2022, in it's first case involving a company's efforts to conceal negative reviews, the FTC announced that an online fashion retailer would be required to pay USD 4.2 million to settle the case, alleging that it had blocked negative reviews of its products from being posted to its website, thereby misrepresenting that the product reviews reflected the experience of all reviewers. The online retailer used a third party to manage its online product reviews, which immediately posted four- and five-star reviews but withheld lower-rated reviews for the retailer's approval. For four years, the online retailer never approved or posted any of the lower-rated reviews, which had the effect of inflating the products' ratings, aka, "review-gating." Under the proposed settlement agreement, the retailer must post all of its customer reviews of all current products, except those reviews that are unrelated to the product or contain obscene, sexually explicit, racist or unlawful content.

At the same time, the FTC released guidance documents for marketers regarding their use of reviews. It also sent letters to companies that might be engaged in the practice of review-gating, to put them on notice that the FTC  is concerned when companies take steps to avoid collecting or publishing negative reviews, such as by asking for reviews only from those likely to leave positive reviews, discouraging submission of negative reviews, subjecting negative reviews to greater scrutiny, refusing to publish negative reviews, or otherwise not treating positive and negative reviews equally.

The FTC's very recent guidance, "Soliciting and Paying for Online Reviews: A Guide for Marketers," offers the following tips to avoid potentially deceptive conduct that may violate the FTC Act:

• Don’t ask for reviews from people who haven’t used the product.
• Don’t ask your staff to write reviews without ensuring that they disclose in their review that you employ them and asked them to write it.
• Don’t ask for reviews only from customers you think will leave positive feedback.
• Don’t ask family and friends for reviews without ensuring that they disclose their personal connection in the reviews.
• Don't condition incentives on the review being positive.
• Always disclose if a review has been incentivized.

The FTC guidance also includes tips for working with comparison websites, review platforms, search engine optimization (SEO) companies and reputation management companies since the marketer can be responsible for their shortcomings.

In its recently released "Featuring Online Customer Reviews: A Guide for Platforms," the FTC has guidance for platforms operating review websites (this can include anyone that operates a website that features customer reviews):

• Have reasonable processes in place to verify that reviews are genuine and not deceptive.
• Don’t edit reviews to alter the message, change the tone or display in a misleading way.
• Treat positive and negative reviews equally. Don’t subject negative reviews to greater scrutiny.

Finally, also in late January, the FTC announced a USD 3.5 million settlement against an online contact lens seller. While many of the allegations relate to rules specific to contact lenses, some of the violations relate to practices intended to generate positive consumer reviews by offering free contact lenses for posting reviews. The seller did not advise the consumers acting as endorsers that they were required to disclose that they were being compensated for the reviews. Further, the seller's own Director of Customer Experience wrote positive reviews without any sort of disclosure. In addition to the USD 2 million in refunds and USD 1.5 million in civil penalties, the stipulated order requires the seller to notify the websites on which its deceptive endorsements had been posted of the reviews' lack of disclosures, provide each endorser with a clear statement of their responsibility to disclose that they were being compensated for the review, and maintain a system to monitor and review endorsements, including a system for removing non-compliant posts.