Yesterday the Federal Trade Commission (“FTC”) announced that it sent “Notices of Penalty Offense” (the “Notice”) to over 700 companies in nearly every industrial sector, ranging from leading retailers, tech platforms, top consumer product companies, and major advertising agencies, warning them that they could incur significant civil penalties – up to $43,792 per violation – if they use endorsements in ways that run counter to prior FTC administrative cases.
The Notice outlines a number of practices that the FTC determined to be unfair or deceptive in prior administrative cases, including, but not limited to the following:
- Falsely claiming an endorsement by a third party;
- Misrepresenting whether 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 view presented;
- Using an endorsement to make deceptive performance claims;
- Failing to disclose an unexpected material connection with an endorser; and
- Misrepresenting that the experience of endorsers represents consumers’ typical or ordinary experience.
The FTC stated it was prepared to use “every tool at its disposal” to go after bad actors with regard to deceptive endorsements and reviews. The move comes just months after the Supreme Court stripped the FTC of its authority to seek monetary relief directly in district court in consumer protection and antitrust matters under Section 13(b) of the FTC Act, which we previously wrote about here. In this latest move, the FTC has dusted off its hidden weapon – the Penalty Offense Authority – which allows the agency to seek civil penalties against a company that engages in conduct that it knows has been found unlawful in a previous FTC administrative order, other than a consent order.
By sending the Notice, the Commission aims to create the requisite knowledge to potentially institute civil penalty investigations later. It is important to note that while past endorsement actions have primarily resulted in consent orders, the FTC has been laying the groundwork to seek monetary penalties for quite some time.
The FTC makes clear on its list of recipients that inclusion on the list does not in any way suggest that the company has engaged in deceptive or unfair conduct. However, even brands not included on the notice list should take heed of the FTC’s warning – as this latest move indicates the FTC’s intention to pursue violations more aggressively.
Takeaway: This is another action by FTC chair Lina Khan signaling the Commission’s aggressive stance towards reviving its administrative powers under the FTC Act. We recommend that marketers review their overall marketing practices with respect to influencers, reviews and endorsements, including: (i) refreshing or implementing policies on endorsements and reviews for all relevant categories of individuals (i.e., employees, paid influencers, those who receive anything of value); (ii) reviewing active or pending campaigns to confirm compliance; (iii) collaborating with key stakeholders to conduct appropriate training, including for business / legal teams and influencers; (iv) assessing how influencers are engaged (whether directly or through an ad agency), including contractual best practices; and (v) reviewing the applicability of SAG-AFTRA obligations based upon the new influencer agreement and influencer waivers, which impact both signatories and non-signatories.