The Notice of Penalty Offenses that was sent out by FTC allows the agency to seek civil penalties against a company that engages in deceptive conduct that it knows has been found unlawful in a previous FTC administrative order, other than a consent order.
Almost all of the largest companies in many industries were on the list. FTC is putting them all on notice, warning them to not use deceptive reviews or endorsements. The agency blanketed industry with a message that says if they use endorsements to deceive consumers, the FTC will come knocking on their doors.
“Fake reviews and other forms of deceptive endorsements cheat consumers and undercut honest businesses,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “Advertisers will pay a price if they engage in these deceptive practices.”
According to the agency, the rise of social media has blurred the lines between authentic content and advertising, leading to an explosion in deceptive endorsements across the marketplace.
The agency's 'spray and pray' approach underscores the pacing problem between innovation and regulation, where technology is changing faster than regulators can keep up. Ivan Wasserman, managing partner of Amin Talati Wasserman LLP, said FTC's new approach is a reflection of the unique times we live in.
“In my over 25 years of representing companies before the FTC, this is a first. The new FTC leadership is sending a loud and clear message that it is going to aggressively use all of the enforcement arrows in its quiver to protect consumers, and that it is very concerned about the rampant proliferation of deceptive product reviews and endorsements on the internet. This is consistent with new FTC Chair Linda Kahn’s focus on antitrust issues with big technology companies, and how they may be hurting competition and consumers."
Unfair or deceptive practices
The notice sent to the companies outlines a number of practices that the FTC determined to be unfair or deceptive in prior administrative cases. These include, but are not limited to: 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.
“Fake online reviews and other deceptive endorsements often tout products throughout the online world. Consequently, the FTC is now using its Penalty Offense Authority to remind advertisers of the law and deter them from breaking it. By sending a Notice of Penalty Offenses to more than 700 companies, the agency is placing them on notice they could incur significant civil penalties—up to $43,792 per violation—if they use endorsements in ways that run counter to prior FTC administrative cases,” the agency said in a statement.
No industry left untouched
The recipients of the FTC’s Notice of Penalty Offenses Concerning Deceptive or Unfair Conduct around Endorsements and Testimonials spans 17 pages and contains a wide range of large companies, top advertisers, leading retailers, top consumer product companies, and major advertising agencies.
The list of 700 companies include stores like Macy’s and Walmart, streaming giant NetFlix, ecommerce titans Amazon and Ebay, as well as big pharma players like Bayer and Johnson & Johnson. Recipients also include a number of dietary supplement companies, the most prominent being The Vitamin Shoppe.
On the top of each of those 17 pages, the FTC states “The fact that a company is on this list is NOT an indication that it has done anything wrong.”
Why notify companies that didn’t do anything wrong?
“Under the FTC Act, the FTC has no general authority to obtain fines or civil penalties for deceptive marketing practices. Instead, until recently, the FTC has been obtaining equitable relief from companies, such as requiring them to refund all consumers who purchased products. A recent court decision found that the FTC does not currently have the legal ability to obtain such relief. However, if the FTC sends a company a Notice of Penalty Offense such as this, which identifies things that the FTC has determined, in prior administrative orders violates the FTC Act, and the Company THEN does those things, it may be subject to civil penalties of up to $43,792 per violation—which can add up to huge numbers very quickly,” explained Wasserman.
What if you didn’t get a notice?
Wasserman noted that companies who did not receive the notice should not take that to mean they can do whatever they want. “Again, this action signifies that FTC is going to be actively policing reviews and endorsements. Trust me. You do not want to find yourself the target of an FTC investigation—even one that does not result in civil penalties.”
The FTC has a number of resources for businesses to ensure that they are following the law when using endorsements to advertise their products and services, including this guide on the use of endorsements and testimonials.