FTC Unveils New Endorsement Guides and Proposed Rule on Consumer Reviews: What Your Business Needs to Know and Opportunities to Shape What’s Next

It has been a busy summer for the Federal Trade Commission (FTC or the Commission). The FTC ended June with a "bang" and started July 4 fireworks early with a week of notable developments. After capturing headlines on June 27—when Congress passed the INFORM Consumers Act to further enable the FTC to regulate "online marketplaces," and the White House announced two Republican Commissioner nominees to fill vacancies left by recent departures—the Commission also announced significant new updates to its regulations and enforcement policies toward deceptive reviews and testimonials:

• First, on June 29, the FTC published the final version of the revised Endorsement Guides, along with corresponding revisions to the Commission’s popular FAQ page, FTC Endorsement Guides: What People Are Asking.
• Then, on June 30, the Commission announced a Proposed Rule on the Use of Consumer Reviews and Testimonials addressing many (but not all) of the same issues as the revised Endorsement Guides issued just one day prior. The new Proposed Rule appears to be motivated by the Commission’s desire to combat the perceived prevalence of "fake" consumer reviews and to seek hefty civil penalties for such conduct. Publication of the Proposed Rule in the Federal Register will trigger a 60-day public comment period during which businesses, trade associations, and other stakeholders can provide fresh input on the FTC's proposals.

These separate developments—and the takeaways and implications of each—are described in further detail below. From bloggers to businesses, brands to influencers, anyone involved in reviews and endorsements "seen by and impacting U.S. consumers" should be monitoring the newly revised guidance from the FTC¹ and seriously considering the opportunity to weigh in on the Proposed Rule before the Commission codifies changes that shape the way endorsements and reviews will be regulated.

Changes to the Endorsement Guides and Accompanying "What People Are Asking" Guidance

First published in 1980 and last updated in 2009, the Endorsement Guides advise the public on advertising practices the Commission may view as unfair or deceptive in violation of Section 5 of the FTC Act. The Commission has also published supplemental guidance in the form of frequently-asked-questions entitled "FTC's Endorsement Guides: What People Are Asking," last revised in 2017. The publication of the new updates reflects a year-long effort, commenced in May 2022, that included a public notice-and-comment period and input from numerous stakeholders, including businesses and industry groups.

The FTC's revised Guides and FAQs reflect the expanded scope of conduct that the Commission will scrutinize. Advertisers in the FTC's sphere know that "an endorsement is an advertising message that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser."² But the FTC now makes clear that in today's world, endorsements can be as simple as tagging a company on social media, and they can also take myriad other forms, including online reviews or posts from influencers. While the Endorsement Guides do not themselves have the force of law, they do explain the FTC's interpretation of endorsement-related practices that may be deemed "unfair" or "deceptive" in violation of Section 5 and thus subject to law enforcement action.

These changes to the Endorsement Guides may have particular impacts on advertisers:

• New, Broader Definition of "Clear and Conspicuous" Disclosures: The Commission clarified that disclosures should be "unavoidable" and "easily understandable by ordinary consumers." If a disclosure is not visible without the viewer having to click "more," then it is not clear and conspicuous in the FTC's view. Likewise, built-in disclosures on certain social media platforms do not necessarily mean the disclosure is "clear and conspicuous": depending on placement, readability and clarity, such notices may not meet the requisite level of "unavoidable" disclosure. The FTC also clarified that disclosures must appear through the same means as the triggering claim—e., if the triggering claim is made both visually and audibly, then the disclosure must also appear in both mediums.

If the Proposed Rule is finalized, then this would become the first definition of "clear and conspicuous" (a term which the Commission uses regularly in settlement orders and guidance documents) to appear in a formal Trade Regulation Rule.

• Not Only Advertisers on the Hook—Express Liability for Endorsers and Intermediaries: An advertiser is responsible for and must monitor the actions of its endorsers, even absent a contractual relationship between them. Other parties take note: intermediaries—such as advertising agencies, public relations firms, and reputation management companies —may be liable for their roles in creating or disseminating what they knew or should have known were deceptive endorsements. And endorsers (such as influencers) themselves can be liable for their representations.
• Focus on Consumer Ratings and Reviews: The new Guides focus extensively on companies' practices surrounding procuring, suppressing, boosting, organizing, editing, and publishing consumer ratings and reviews. Specifically, companies may not treat reviews in any way that distorts or misrepresents consumers' opinions. Examples of misleading conduct include deleting or suppressing negative reviews, offering incentives in exchange for positive reviews, review gating (e., encouraging positive reviews and discouraging negative reviews), and falsely reporting negative consumer reviews as "fake" on a third-party platform without substantiation.

Although the FTC acknowledges that companies generally are not responsible for reviews written by consumers without any connection to the company, retailers and other businesses can still be responsible for those reviews if they feature, highlight, repost, retweet, share, or otherwise adopt the reviews as part of their own marketing efforts. In those cases, a review becomes an endorsement and must follow all endorsement requirements. For example, the reviews must be truthful, claims must be substantiated, and the reviews must include any necessary disclosures.

• Expanded Disclosure Requirements for Atypical Results: The FTC believes that endorsements featuring consumers who achieved the best results with a product may lead others to expect the same results. For years, qualifying statements such as "results not typical" or "individual results may vary" have been insufficient, and the FTC has required advertisers to substantiate their performance claims or clearly and conspicuously disclose the generally expected performance in the circumstances shown in the ad. That remains true, but the revised Guides now also state that the "disclosure of the generally expected performance should be presented in a manner that does not itself misrepresent what consumers can expect. To be effective, such disclosure must alter the net impression of the advertisement so that it is not misleading."
• Additional Examples for Influencer and Affiliate Marketing: While the Guides have long specified that "material connections" between the endorser and the advertiser must be clearly and conspicuously disclosed, the revised Guides include new examples of material connections. In particular, the provision of free or discounted products, the possibility of winning a prize, or the payment of money through affiliate links all must be clearly and conspicuously disclosed. Likewise, opportunities to appear on television or in media promotions, even without an exchange of money, could also constitute material connections.
• Increased Scrutiny of "Independent" Review Sites: The new Guides address "independent review sites," which have material connections to various companies or offer a pay-to-play ranking system of products or services. Such sites, if connected to a company, should not be described as “independent” and should not purport to rank products or services based on allegedly objective criteria.
• Statement of Special Concern Regarding Endorsements Directed to Children: The Guides clarify that practices that "would not ordinarily be questioned in advertisements addressed to adults" might face special scrutiny when directed to children, as research suggests children are not always capable of fully understanding disclosures. The Guides do not provide further clarification on how such endorsements might be questioned or evaluated, but the FTC claims it is "exploring next steps,” which could include increased enforcement.

One of the major takeaways from the updated Guides and FAQs for businesses and brands is the expanded scope of liability for "deceptive endorsements." Businesses and brands should take a close look at their advertising and marketing guidance to make sure that they are not only complying with this updated guidance, but also that they are properly instructing others in the advertising chain to do the same.  

The Proposed Consumer Review Rule: Specific Prohibitions and Open Questions for the Upcoming Public Comment Period

As explained in the June 30 press release announcing the new Proposed Rule, the Commission believes that its ability to act against existing consumer review violations and deter future ones is hampered by its limited authority to seek civil penalties, pursuant to the Supreme Court's landmark ruling in AMG Capital Management LLC v. FTC (see here). Accordingly, the Commission has now proposed a rule addressing specific practices alleged to be unfair or deceptive, and posed several new questions to solicit further public input.  

The Notice of Proposed Rulemaking proposes to prohibit or limit these acts and practices: 

• Selling or Obtaining Fake Consumer Reviews and Testimonials: The Proposed Rule would prohibit businesses from writing or selling consumer reviews or testimonials by someone who does not exist, who did not have experience with the product or service, or who misrepresented their experiences. The Rule, if enacted, would also extend to third-party review brokers, and prohibit businesses from procuring or disseminating reviews or testimonials that it knew or should have known were fake.

• Fraudulently "Hijacking" Reviews: Businesses would be prohibited from using or repurposing a consumer review written for one product so that it appears to have been written for a substantially different product.

• Buying Reviews (Positive or Negative): Businesses would be prohibited from providing compensation or other incentives conditioned on the writing of consumer reviews expressing a particular sentiment, either positive or negative.

• Displaying Undisclosed "Insider" Reviews and Testimonials: The proposed rule would prohibit a company's officers and managers or other company insiders from writing reviews or testimonials of company products or services, without clearly disclosing their relationship to the advertiser. It would likewise prohibit certain solicitations by officers or managers of reviews from company employees or their relatives, depending on whether the businesses knew or should have known of these relationships.

• Using Company-Controlled Review Websites: Businesses would be prohibited from creating or controlling a website that claims to provide independent opinions about a category of products or services that includes its own products or services.

• Illegally Suppressing Reviews: Businesses would be prohibited from using unjustified legal threats, other intimidation, or false accusations to prevent or remove a negative consumer review. The Proposed Rule also would bar a business from misrepresenting that the reviews on its website represent all reviews submitted when negative reviews have been suppressed.

• Selling Fake Social Media Indicators: Businesses would be prohibited from selling false indicators of social media influence, like fake followers or views. The Proposed Rule also would bar anyone from buying such indicators to misrepresent their importance for a commercial purpose.

There is substantial, but not complete, alignment between the practices covered by the revised Endorsement Guides and those addressed in the Proposed Rule. For example, child-directed advertising is not specifically included in the Proposed Rule, and therefore may fall outside the scope of the soon-to-commence comment period. Responding to commenters concerns, the Commission also clarified that the Proposed Rule would not require businesses to manually examine every review, extend liability for "reviews that a platform simply publishes," or limit reviews from consumers who had legitimately experienced using the product or service without making a purchase themselves (e.g., reviews of gifted items).  

When the Proposed Rule is published in the Federal Register (which should happen in the coming days), industry stakeholders and any member of the public will have 60 days to submit a comment. This provides an important opportunity for businesses to express their views on the Proposed Rule (including compliance burdens and ways in which to clarify the rule's scope), as well as to present information and data that could help shape the final version. Businesses and industry associations alike should consider weighing in on the many significant open questions, including:

• The 23 questions posed by the Commission soliciting input a variety of topics, including: the effectiveness of the Proposed Rule; whether a final rule is needed and what revisions should be made prior to finalization; new and additional relevant data, studies, and other evidence; the Proposed Rule's impacts on businesses, consumers, and governments; and additional areas where further explanation or clarification may be needed. The Commission has also asked for comments specific to each of the practices discussed above and the respective enforcement standards proposed for each.
• The scope of what constitutes a rule violation, which, if left overbroad, may subject businesses to rapidly accumulating civil penalties exceeding $50,000 per offense.
• Potential impacts on other advertising claims, including whether portions of the Proposed Rule—like the proposed codification of the definition of "clear and conspicuous" (and the Commission's disfavor of using hyperlinks to disclose information to consumers)—will extend to other areas of FTC enforcement.
• Potential impacts of new ever-changing technology—in fact, the Proposed Rule notes the Commission's concern that the widespread emergence of generative AI may make it easier for bad actors to write fake reviews. This is made even more notable given the announcement coinciding with the European Union’s proposed legislation regulating artificial intelligence and the ensuing week of protests from various companies that made headlines across the globe.

Please do not hesitate to contact the authors of this alert for help with any issues concerning the Guides or advertising counseling and compliance more generally.

Endnotes

¹ In their "What People Are Asking" page, the FTC notes of YouTube videos, "If it's reasonably foreseeable that [they] will be seen by and impact U.S. consumers, U.S. law would apply and you would need a disclosure."

2 16 C.F.R. § 255.0(b).