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December 01, 2009

DSA News

FTC to Change Guidelines on Testimonials and Endorsements

by Jeremy D. Tunis, with additional reporting by Jewelyn Wellborn

One issue the DSA has been monitoring is the FTC’s work on updating the Guides Concerning the Use of Endorsements and Testimonials in Advertising. One might wonder: What’s the real meat of these changes? How do I make sure I’m following these new standards set by the FTC to the best of my ability?

It’s always important to understand the basics.

The FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising were first promulgated in 1975 and modified in 1980. They offer examples of endorsement and testimonial practices to assist businesses in conforming to Section 5 of the FTC Act, which prohibits unfair and deceptive advertisements. In late 2008, the FTC issued proposed revisions to the Guides. The DSA participated by submitting comments and suggestions. The Guides are not official regulations or laws but rather provide guidance to help companies comply with the FTC Act. The recent changes go into effect Dec. 1, 2009, which means all companies must make sure they are in compliance right away.

So, what is it, exactly, that your company can and cannot do in terms of endorsements or testimonials?

Over the years, testimonials of “extraordinary results”(for instance, a person who lost 100 pounds in two months) from the use of a product could be used as long as the phrase “results not typical” was also included in the advertisement. Under the new Guides, the FTC essentially eliminates the safe harbor created by that statement and further requires that any depiction of extraordinary results be accompanied by a notice detailing what the average consumer can generally expect to obtain. Therefore, companies should be even more discerning when it comes to validating and promoting the use of their products based on isolated or atypical results. To remain in compliance with the FTC Act, a company should reasonably explain how an outcome was achieved and describe the critical part the product played in reaching that result, as well as any additional components that may have contributed to the success of the product.

Closely related to the elimination of the “results not typical” safe harbor within the Guides, the FTC also directs companies to have competent and reliable scientific evidence to substantiate any advertisement or endorsement that claims a product is effective for a particular purpose. If all the components to the success of the product are not disclosed (for instance, that exercise is typically critical to weight loss, which is beyond a consumer taking a dietary supplement), the ad could be considered deceptive under the FTC Act. Direct selling companies should be mindful of their product descriptions and how they may be interpreted if something beyond mere use is required to obtain ideal performance of the product.

Of particular interest to the direct selling industry, the Guides did not change the regulations for endorsements—any endorsement must reflect the honest opinions, findings, beliefs or experiences of the endorser, and nothing can be said by the endorser that could not be said by the business itself. But there is something new. Any material connection between the company and the endorser must be disclosed, and either the endorser or the company can be held liable for the statements made in the endorsement. This becomes important for the DSA’s membership when you consider the possibility of a distributor, blogger or other party making false representations about the abilities of your company’s product line, or even making unauthorized endorsements on behalf of your company.

A material connection is one in which a seller provides payment, promise of compensation or free product to an endorser. Such a relationship between the seller and the endorser must be disclosed in an ad, regardless of whether the endorser is a celebrity or an average consumer. Independent contractors, such as direct sellers, are considered to have a material connection to their company—a relationship subject to the FTC’s disclosure requirement when enforcing this provision.

The updated Guides don’t explicitly address earnings claims, but there is no reason to believe that earnings are not, at least in principle, covered by the concepts discussed in the Guides as well. Consistent with the DSA’s long-standing position on earnings claims, no matter who makes a claim with regard to earning potential, if the results are not typical or average, the statement should be accompanied by a clear and conspicuous disclosure of average earnings.

DSA member companies should review their activities in light of the revised Guides and make any necessary adjustments to promotional and marketing materials, including those carried through new media outlets like Facebook or Twitter, prior to the Dec. 1, 2009, effective date.

Each company should consult its own legal counsel to ensure its advertising, testimonials and endorsements meet the standards outlined in the Guides. With a careful review, there is no reason your company should be at risk when it comes to product endorsements.

Jeremy D. TunisJeremy D. Tunis is DSA Attorney and Manager of Global Regulatory Affairs.