Enrico Schaefer - April 2, 2023 - Social Media Lawyer
The influencing game of brand endorsements is one of many examples where technology goes faster than the government’s ability to regulate and enforce. It is hard to estimate the compliance level of influencers and celebrities with Part 255 of the FTC endorsement regulations. Celebrities and influencers who provide endorsements for a living are more likely to comply with Part 255. Brands are more likely to require disclosures in their influencing and endorsement contracts. Agencies that represent brands and celebrities are more likely to be aware of the regulatory requirements of the endorsement. I would argue that most endorsements occur outside the professional influencing environment and that over 98% of endorsements, as defined by the FTC, do not comply with the disclosure requirements. In the world of social media, everyone’s got an angle. Very few of those angles are disclosed, even if the person endorsing a product or service has a horse in the race.
The FTC is aware of this problem, which was recently highlighted in the FTX Meltdown, and the undisclosed material connections across crypto and NFT projects. While some may argue too little too late, the FTC has been engaged in rulemaking and has proposed updates to its Part 255 endorsement regulations.
The Federal Trade Commission (FTC) will likely modify Part 255 regarding using endorsements and testimonials in advertising in 2023. The revisions accentuate the necessity of disclosing material connections between endorsers and advertisers and the need for clear and conspicuous disclosure. These long overdue updates also necessitate endorsers to provide honest opinions and for the endorser to possess the qualifications and expertise they claim to have. These updates emphasize and enhance the principle that organizations and social media influencers must follow basic disclosure, honesty, and substantiation guidelines. Additionally, the FTC seeks to strengthen the core compliance incentive; endorsers and advertisers can be held liable for false or misleading endorsements or for disclosing material connections. Interestingly, the update for the first time, adds incentives that encourage technology platforms such as Twitter, Facebook, TikTok, and YouTube to develop tools to facilitate endorsers’ compliance with disclosure requirements and recordkeeping to substantiate any claims.
Advertisers and endorsers must clearly disclose any material connections that may affect the endorsement’s credibility. This includes personal, family, and employment relationships or financial incentives such as payments, discounts, or free products. The proposed update emphasizes the importance of disclosing any material connections between advertisers and endorsers. A material connection is any relationship that could potentially affect the credibility of an endorsement. Examples include personal, family, or employment relationships and financial incentives like payments, discounts, or free products. The goal of disclosing these connections is to provide transparency to consumers so they can make informed decisions about the products or services being endorsed.
One issue that the industry continues to grapple with is how to make the disclosure of a material connection when it would not otherwise be obvious to the consumer. We have seen on Twitter, Facebook, TikTok, and YouTube various schemes to include hashtags and other easy to implement disclosures. There is still no industry standard on how and where to make the material disclosure. Regardless, the FTC understands that these disclosures need to be more prominent and that social media platforms need to participate in the disclosure requirement.
Disclosures must be clear and conspicuous to ensure consumers can quickly notice and understand them. The FTC advises against using ambiguous language, small font sizes, or placing disclosures in areas that consumers might overlook. Disclosures of material connections must be clear and conspicuous to ensure that consumers can quickly notice and understand them. Advertisers and endorsers should avoid using ambiguous language, small font sizes, or placing disclosures in areas consumers might overlook (e.g., in footnotes or at the end of a video). The proposed update encourages using clear, easy-to-understand language and prominent placement of disclosures to improve consumer understanding.
Another area where brands, agencies, and endorsers get in trouble is on the issue of honesty. A celebrity or influencer can’t just decide to endorse a product or service because they’re getting paid for it. They must honestly believe in their endorsement. While this is a difficult thing to measure, we have certainly seen instances where influencers fail to use the product and service sufficiently prior to agreeing on a paid endorsement.
Endorsers must provide honest opinions, findings, or experiences in their endorsements. Advertisers cannot instruct endorsers to make false or misleading statements and must have procedures to monitor endorsers’ compliance. The proposed update requires endorsers to provide their honest opinions, findings, or experiences in their endorsements. Advertisers should not instruct endorsers to make false or misleading statements about a product or service. Additionally, advertisers must have procedures in place to monitor endorsers’ compliance with the requirement for honesty, ensuring the integrity of the endorsement.
With the FTC meltdown, we saw endorsers pitching FTC’s services to highly qualified investors. It is unclear exactly where the line is between an expert endorser and a non-expert, but we should expect the FTC to define this issue in upcoming enforcement proceedings. If you are an influencer, brand, or agency, you need to be sensitive to the issue of expert endorsements. If the influencer has special training or knowledge concerning the market niche in which the product or service is being endorsed, it is possible they will be considered an expert and held to a higher standard.
Experts endorsing a product or service must possess the qualifications and expertise they claim to have. Additionally, their endorsements must be based on a thorough and objective product or service evaluation. When experts endorse a product or service, they must possess the qualifications and expertise they claim to have. The proposed update aims to prevent misleading expert endorsements by ensuring experts have relevant credentials and experience. Furthermore, expert endorsements must be based on a thorough and objective product or service evaluation rather than merely personal preferences or opinions.
Advertisers must not use misleading testimonials. If they use consumer testimonials that claim specific results, they must be able to substantiate those results and disclose what a typical consumer can expect. Advertisers must avoid using misleading consumer testimonials in their advertisements. If consumer testimonials claim specific results, the advertiser must be able to substantiate those results with evidence. Additionally, the advertiser should clearly disclose what a typical consumer can expect from the product or service rather than implying that the testimonial results are universally achievable.
Organizations endorsing a product or service must follow the same disclosure, honesty, and substantiation guidelines as individual endorsers. Organizations, like individual endorsers, must follow the same guidelines for disclosure, honesty, and substantiation when endorsing a product or service. This means that organizations must disclose any material connections with advertisers, provide honest endorsements based on objective evaluations, and ensure that any claims made can be substantiated with evidence.
Both advertisers and endorsers can be held liable for false or misleading endorsements or for failing to disclose material connections. The proposed update clarifies that advertisers and endorsers can be held liable for false or misleading endorsements and for failing to disclose material connections. This shared liability encourages advertisers and endorsers to ensure compliance with the guidelines and fosters higher transparency and consumer protection in advertising. These updates aim to maintain transparency and consumer protection in advertising by ensuring that endorsements and testimonials are honest, clear, and not misleading.
Here are the essential changes in the proposed changes to Part 255 regulations for advertisers, brands, agencies, and influencers to consider.
The proposed update highlights the importance of disclosing unexpected material connections that are not readily apparent to consumers. For example, if an endorser has a family member who works for the advertiser or receives a commission on sales generated by their endorsement, they should disclose this information.
The update clarifies that endorsers should disclose their use of affiliate links, which provide them with a commission or other financial incentives when consumers click on the link and purchase. This helps consumers understand the potential influence of financial incentives on the endorsement.
The proposed update underscores the need for social media influencers to disclose material connections with advertisers. This includes sponsored posts, brand partnerships, and other relationships that could affect the credibility of their endorsements.
Endorsements by minors require special considerations. Since minors cannot understand the nature of their endorsement or material connection, the responsibility for disclosure falls on the advertiser.
Currently, technology and social media platforms can’t be sued for Part 255 violations. With the proposed update, social media sites and influencer networks are incentivized to develop tools and features that facilitate endorsers’ compliance with disclosure requirements.
The update emphasizes the importance of advertisers maintaining records to substantiate any claims made in endorsements or testimonials. This includes data on typical consumer results, as well as evidence supporting any specific results claimed in consumer testimonials.
There is no “safe harbor” for advertisers and endorsers who do not comply with the endorsement guides. It is important for brands and celebrities to understand that advertisers and endorsers cannot avoid liability by simply arguing that they were unaware of the rules or that their violations were unintentional.