News Briefs

FTC Proposes New Rules for Endorsements, Testimonials

The Federal Trade Commission (“FTC”) has issued proposed changes to its advertising guides (“Guides”) regarding the use of endorsements and testimonials. The Federal Register notice about the proposed Guides can be found at (http://www.ftc.gov/os/fedreg/2008/november/081128guidesconcerningtheuseofendorsementsandtestimonials.pdf). The deadline for commenting on the proposed Guides is March 2.

Several years in the making, the Guides would change how the FTC considers a firm's obligations to accurately use testimonials to promote its products and services. Under current guidelines, the FTC allows a marketer to use a disclaimer such as “results are not typical” to avoid misleading consumers, with some restrictions. But FTC-commissioned research, cited in the Federal Register notice, indicates that many customers believe they and other purchasers will get the same results as the endorser recites, even if those results are not representative of a typical experience. The FTC's proposed solution is that marketers provide “an affirmative disclosure of the results that are typical.”

What is “typical”? The FTC proposed to define that, too. The advertiser must have “evidence that the endorser's experience is representative of what consumers will generally achieve with the advertised product in actual, albeit variable, conditions of use,” wrote the FTC. As a general rule, the FTC suggested that “representative” reflects the outcome for half of the users of the product or service.

The proposed new Guides also give examples for the first time of how the rules would apply to marketing claims over which the company does not have direct control, such as word-of-mouth information passed along from one consumer to another. Reflecting the development of online promotions, the Guides would incorporate the “potential liability of advertisers who use bloggers to promote their products and of the bloggers themselves,” if those bloggers make misrepresentations.

Although the Guides are advisory in nature (not a trade regulation rule with the force of law, like the Franchise Rule), the proposed changes could have a significant impact on franchisors and franchisees who use customer testimonials in advertising products and services, or who use franchisee testimonials in marketing franchise opportunities. “The difference between Guides and a trade regulation rule, such as the Franchise Rule, is simple,” said David Koch, Plave Koch PLC (Reston, VA). “If you do something contrary to the Franchise Rule, you have violated the law. If you do something contrary to the Guides, you might (or even probably) have violated the law, but the FTC still has to prove that the particular endorsement or testimonial was deceptive as used.”

Koch provided the following example. Franchisors often use customer endorsements to promote the goods and services of the brand, and some franchisors use endorsements from existing franchisees to promote the franchise opportunity. “The impact from the proposed changes in the Guides will depend on how detailed the endorsement is,” he said. “The main question is whether the endorsement conveys specific results that are not likely to be typical for other purchasers. A generic endorsement like 'this is a great product,' or 'I've had a good experience with this franchise' is not going to be affected. On the other hand, a specific endorsement like, 'I lost 30 pounds' or 'I've doubled my income with this franchise' will be greatly affected if the franchisor knows that the stated results are not typical. If the proposed changes are adopted, which seems pretty likely, the franchisor will have to add a statement disclosing the results that are typical. So in the first example, the franchisor would have to add, 'The typical customer loses 5 pounds.'”

While much of the discussion in the Guides reflects problems with weight-loss claims, the application of the rules is much broader. “Obviously, the affirmative disclosure of typical results will dilute the impact of the individual endorser's results ' which is exactly what's intended by the FTC,” said Koch. “In practice, the requirement may discourage franchisors and other advertisers from using any endorsements that convey specific results.”

FTC Proposes New Rules for Endorsements, Testimonials

The Federal Trade Commission (“FTC”) has issued proposed changes to its advertising guides (“Guides”) regarding the use of endorsements and testimonials. The Federal Register notice about the proposed Guides can be found at (http://www.ftc.gov/os/fedreg/2008/november/081128guidesconcerningtheuseofendorsementsandtestimonials.pdf). The deadline for commenting on the proposed Guides is March 2.

Several years in the making, the Guides would change how the FTC considers a firm's obligations to accurately use testimonials to promote its products and services. Under current guidelines, the FTC allows a marketer to use a disclaimer such as “results are not typical” to avoid misleading consumers, with some restrictions. But FTC-commissioned research, cited in the Federal Register notice, indicates that many customers believe they and other purchasers will get the same results as the endorser recites, even if those results are not representative of a typical experience. The FTC's proposed solution is that marketers provide “an affirmative disclosure of the results that are typical.”

What is “typical”? The FTC proposed to define that, too. The advertiser must have “evidence that the endorser's experience is representative of what consumers will generally achieve with the advertised product in actual, albeit variable, conditions of use,” wrote the FTC. As a general rule, the FTC suggested that “representative” reflects the outcome for half of the users of the product or service.

The proposed new Guides also give examples for the first time of how the rules would apply to marketing claims over which the company does not have direct control, such as word-of-mouth information passed along from one consumer to another. Reflecting the development of online promotions, the Guides would incorporate the “potential liability of advertisers who use bloggers to promote their products and of the bloggers themselves,” if those bloggers make misrepresentations.

Although the Guides are advisory in nature (not a trade regulation rule with the force of law, like the Franchise Rule), the proposed changes could have a significant impact on franchisors and franchisees who use customer testimonials in advertising products and services, or who use franchisee testimonials in marketing franchise opportunities. “The difference between Guides and a trade regulation rule, such as the Franchise Rule, is simple,” said David Koch, Plave Koch PLC (Reston, VA). “If you do something contrary to the Franchise Rule, you have violated the law. If you do something contrary to the Guides, you might (or even probably) have violated the law, but the FTC still has to prove that the particular endorsement or testimonial was deceptive as used.”

Koch provided the following example. Franchisors often use customer endorsements to promote the goods and services of the brand, and some franchisors use endorsements from existing franchisees to promote the franchise opportunity. “The impact from the proposed changes in the Guides will depend on how detailed the endorsement is,” he said. “The main question is whether the endorsement conveys specific results that are not likely to be typical for other purchasers. A generic endorsement like 'this is a great product,' or 'I've had a good experience with this franchise' is not going to be affected. On the other hand, a specific endorsement like, 'I lost 30 pounds' or 'I've doubled my income with this franchise' will be greatly affected if the franchisor knows that the stated results are not typical. If the proposed changes are adopted, which seems pretty likely, the franchisor will have to add a statement disclosing the results that are typical. So in the first example, the franchisor would have to add, 'The typical customer loses 5 pounds.'”

While much of the discussion in the Guides reflects problems with weight-loss claims, the application of the rules is much broader. “Obviously, the affirmative disclosure of typical results will dilute the impact of the individual endorser's results ' which is exactly what's intended by the FTC,” said Koch. “In practice, the requirement may discourage franchisors and other advertisers from using any endorsements that convey specific results.”