News Briefs

FTC Issues New Rules on Endorsements and Testimonials

On Oct. 5, the Federal Trade Commission approved final revisions to the guidance it gives to advertisers on how to keep their endorsements and testimonials in line with the FTC Act. The notice represents the first major update since 1980 to the FTC's Guides Concerning the Use of Endorsements and Testimonials in Advertising. The Guides address testimonials and endorsements by consumers, experts, organizations, and celebrities, including endorsements through blogs, social networks, and other online media.

Most prominently, the revised Guides remove the safe-harbor provision that had allowed advertisers to use consumer testimonials to make extreme performance claims, but then to state that the “results are not typical.” Now, advertisers will be required to clearly disclose the results that consumers can generally expect.

Also, the revised Guides more specifically define when and how “material connections” between advertisers and endorsers must be disclosed. “While decisions will be reached on a case-by-case basis, the post of a blogger who receives cash or in-kind payment to review a product is considered an endorsement,” the FTC stated. “Thus, bloggers who make an endorsement must disclose the material connections they share with the seller of the product or service.”

The new guidelines have been published in the Federal Register, and they will take effect on Dec. 1. They can be found at www.ftc.gov/os/2009/10/091005endorsementguidesfnnotice.pdf.

“These new FTC Guides constitute a sea change for certain marketing practices that are widespread and effective in all industry sectors,” said Anthony DiResta, attorney with Manatt, Phelps & Phillips, LLP, and general counsel to the Word of Mouth Marketing Association. “Transparency and honesty are essential in communications by consumers or experts in all media formats.”

Many franchisors are using social media for branding and marketing purposes, as well as working with celebrity spokespeople. The new rules affect how franchisors and their franchisees can conduct those campaigns, leading one franchise marketer to say that franchises “had better make sure they know what their franchisees are doing online.”

In a conference call to discuss the new Guides, DiResta said that marketers should check their marketing immediately to make sure that they are complying with the new rules. “As a practical matter, we're on notice now,” he said. “Campaigns started even before the Dec. 1 deadline are a risk-management issue for advertisers ' It would be prudent to go back and re-evaluate past campaigns.” However, online campaigns that have ended will not be subject to FTC review, he said.

DiResta added that he does believe the new rules will be followed with more aggressive enforcement activity, but “the FTC staff will not be online most of the day [seeking violations of the rules]. The FTC really does listen to consumer complaints or complaints by consumer groups ' And the groups concerned about abuses of social media are not shy.”

McDonald's Franchisees in NJ, PA Sued By EEOC

The Equal Employment Opportunity Commission (“EEOC”) filed lawsuits in September against a New Jersey McDonald's franchisee for allowing male employees to be the victims of sexual harassment by a female supervisor and against a Philadelphia-area franchisee for allowing harassment of an employee with an intellectual disability. The New Jersey lawsuit, Equal Employment Opportunity Commission v. McDonald's USA, Civil Action No. 09-5028, was filed on Sept. 30 in U.S. District Court, District of New Jersey (Newark). A teenager who worked in a McDonald's claimed that he was harassed by a female manager when he was 16 and 17 years old.

The Philadelphia lawsuit, Equal Employment Opportunity Commission v. McDonald's USA, Civil Action No. 09-4347, was filed on Sept. 24 in the U.S. District Court for the Eastern District of Pennsylvania against Alstrun LLP, which operates five McDonald's franchises in Pennsylvania. It was filed on behalf of Timothy Artis, who claimed that he was repeatedly called degrading names and subjected to physical threats. Artis alleged that he was physically grabbed and shoved, and that he was forced to perform hazardous duties outside of his job description, such as removing a raccoon from a trash can. The restaurant failed to stop the harassment despite repeated complaints from Artis' mother, according to EEOC.

During FY 2008, disability discrimination charges filed with the EEOC rose to 19,453, an increase of 10% from the prior fiscal year and the highest number of disability charges filed in 14 years.

Roark Capital Makes First Franchise Purchase Since June 2008

Venture capital firm Roark Capital added its 15th franchise system by purchasing Pet Valu in September for about $131 million. The deal represents Roark's first franchise purchase since the acquisition of Primrose Schools in June 2008. Pet Valu is described as “Canada's leading small-format specialty retailer and wholesale distributor of pet food and supplies.” The company generates C$230 million in system sales across 356 franchised and corporate stores in Canada (295 stores in Ontario and Manitoba) and the United States (61 stores in Pennsylvania, New Jersey, Maryland, and Virginia).

FTC Issues New Rules on Endorsements and Testimonials

On Oct. 5, the Federal Trade Commission approved final revisions to the guidance it gives to advertisers on how to keep their endorsements and testimonials in line with the FTC Act. The notice represents the first major update since 1980 to the FTC's Guides Concerning the Use of Endorsements and Testimonials in Advertising. The Guides address testimonials and endorsements by consumers, experts, organizations, and celebrities, including endorsements through blogs, social networks, and other online media.

Most prominently, the revised Guides remove the safe-harbor provision that had allowed advertisers to use consumer testimonials to make extreme performance claims, but then to state that the “results are not typical.” Now, advertisers will be required to clearly disclose the results that consumers can generally expect.

Also, the revised Guides more specifically define when and how “material connections” between advertisers and endorsers must be disclosed. “While decisions will be reached on a case-by-case basis, the post of a blogger who receives cash or in-kind payment to review a product is considered an endorsement,” the FTC stated. “Thus, bloggers who make an endorsement must disclose the material connections they share with the seller of the product or service.”

The new guidelines have been published in the Federal Register, and they will take effect on Dec. 1. They can be found at www.ftc.gov/os/2009/10/091005endorsementguidesfnnotice.pdf.

“These new FTC Guides constitute a sea change for certain marketing practices that are widespread and effective in all industry sectors,” said Anthony DiResta, attorney with Manatt, Phelps & Phillips, LLP, and general counsel to the Word of Mouth Marketing Association. “Transparency and honesty are essential in communications by consumers or experts in all media formats.”

Many franchisors are using social media for branding and marketing purposes, as well as working with celebrity spokespeople. The new rules affect how franchisors and their franchisees can conduct those campaigns, leading one franchise marketer to say that franchises “had better make sure they know what their franchisees are doing online.”

In a conference call to discuss the new Guides, DiResta said that marketers should check their marketing immediately to make sure that they are complying with the new rules. “As a practical matter, we're on notice now,” he said. “Campaigns started even before the Dec. 1 deadline are a risk-management issue for advertisers ' It would be prudent to go back and re-evaluate past campaigns.” However, online campaigns that have ended will not be subject to FTC review, he said.

DiResta added that he does believe the new rules will be followed with more aggressive enforcement activity, but “the FTC staff will not be online most of the day [seeking violations of the rules]. The FTC really does listen to consumer complaints or complaints by consumer groups ' And the groups concerned about abuses of social media are not shy.”

McDonald's Franchisees in NJ, PA Sued By EEOC

The Equal Employment Opportunity Commission (“EEOC”) filed lawsuits in September against a New Jersey McDonald's franchisee for allowing male employees to be the victims of sexual harassment by a female supervisor and against a Philadelphia-area franchisee for allowing harassment of an employee with an intellectual disability. The New Jersey lawsuit, Equal Employment Opportunity Commission v. McDonald's USA, Civil Action No. 09-5028, was filed on Sept. 30 in U.S. District Court, District of New Jersey (Newark). A teenager who worked in a McDonald's claimed that he was harassed by a female manager when he was 16 and 17 years old.

The Philadelphia lawsuit, Equal Employment Opportunity Commission v. McDonald's USA, Civil Action No. 09-4347, was filed on Sept. 24 in the U.S. District Court for the Eastern District of Pennsylvania against Alstrun LLP, which operates five McDonald's franchises in Pennsylvania. It was filed on behalf of Timothy Artis, who claimed that he was repeatedly called degrading names and subjected to physical threats. Artis alleged that he was physically grabbed and shoved, and that he was forced to perform hazardous duties outside of his job description, such as removing a raccoon from a trash can. The restaurant failed to stop the harassment despite repeated complaints from Artis' mother, according to EEOC.

During FY 2008, disability discrimination charges filed with the EEOC rose to 19,453, an increase of 10% from the prior fiscal year and the highest number of disability charges filed in 14 years.

Roark Capital Makes First Franchise Purchase Since June 2008

Venture capital firm Roark Capital added its 15th franchise system by purchasing Pet Valu in September for about $131 million. The deal represents Roark's first franchise purchase since the acquisition of Primrose Schools in June 2008. Pet Valu is described as “Canada's leading small-format specialty retailer and wholesale distributor of pet food and supplies.” The company generates C$230 million in system sales across 356 franchised and corporate stores in Canada (295 stores in Ontario and Manitoba) and the United States (61 stores in Pennsylvania, New Jersey, Maryland, and Virginia).