On October 13, the Federal Trade Commission (FTC) issued over 700 “Notice of Penalty Offenses” to a broad swath of businesses, warning them that using endorsements that deceive customers could result in significant civil penalties.
Overview
Through a press release,[1] the FTC issued the warnings to a large, diverse group of companies, covering almost every facet of American business to include advertising agencies, alcohol beverage companies, retailers, restaurant chains, pharmaceutical companies, hospitality businesses, and others. See the complete 17-page list of companies that runs the gamut from 1-800-Flowers.com through Zulily.
In these notices, the FTC warns companies not to engage in what it considers “unfair” or “deceptive” trade practices. The press release includes the following warning from the director of the FTC’s Bureau of Consumer Protection: “Fake reviews and other forms of deceptive endorsements cheat consumers and undercut honest businesses. Advertisers will pay a price if they engage in these deceptive practices.”
The FTC breaks down these unfair and deceptive trade practices into the following broad categories, “… 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; and misrepresenting that the experience of endorsers represents consumers’ typical or ordinary experience.”
Notably, the FTC stresses that it is not saying that any of the listed companies engaged in the discussed unfair or deceptive conduct. Instead, it simply issued the Notice of Penalty Offenses, so it could seek civil penalties in the future if the companies violate the covered policies. The potential civil penalties are steep — up to $43,792 per violation.
In addition to issuing the press release and the notices, the FTC also created the following resource guide for companies to use to ensure they stay in compliance with the FTC’s rules and the law.
Our Take
Having taken this aggressive and widespread action, the FTC appears to mean business. Companies are now on notice that follow-on enforcement action could happen without additional notice or warning. We therefore recommend that companies consult early and often with attorneys well-versed in this complex regulatory arena.
[1] See https://www.ftc.gov/news-events/press-releases/2021/10/ftc-puts-hundreds-businesses-notice-about-fake-reviews-other.