The Essential Guide to FTC Compliance, Investigations, and Enforcement

The Essential Guide to FTC Compliance, Investigations, and Enforcement

By Kronenberger Rosenfeld, LLP

High Risk Advertising Practices

Certain business activities present increased risk of an FTC investigation or FTC lawsuit—often because the FTC has determined that this activity is historically rife with unfair, deceptive, or otherwise non-compliant practices. As affects e-commerce merchants and those in the performance marketing industry, these areas of increased risk can be divided into four categories: (1) advertising practices (meaning, the substance of the advertising), (2) advertising methods (as in method of delivery), (3) billing practices, and (4) offers or verticals. This section focuses on the first category, high-risk advertising practices, and how to ensure compliance in your advertising content.

Benefit Claims and Substantiation

Advertising is any claim about the advertised product or service made to a consumer, regardless of whether that claim is made in a display ad, in a promotional email, on a website, on a radio or television commercial, in a video sales letter (“VSL”), on an Amazon marketplace listing, on product packaging or labels, on a billboard or in-store signage, or through any other means. Simply put, any time you make a claim about your product, you need to be able to back it up with proof. The type of proof, or “substantiation,” required is often dictated by the nature of the claim, and the more specific the claim is, the more nuanced the substantiation needs to be. The following are just a few examples that, together, demonstrate a spectrum of substantiation:

Claim Substantiation
Only $19.95! Sales records demonstrating product was sold to consumers for $19.95.
Comes in your choice of five colors Product samples showing the product was available in five colors.
Our lowest price of the year! Advertising and product listing records for the year demonstrating that, prior to the time the claim was made, the product was always sold at a higher price.
Certified organic A certificate from a USDA-accredited agency showing that the product has been deemed organic.
I lost 10 lbs. in 2 weeks! A testimonial affidavit (as described in Section 1.2.2) from the person to whom the quote is attributed testifying, under penalty of perjury, that after using the product, he lost 10 lbs. in 2 weeks, and preserving medical records or photographic evidence that can further back the statement up.
Supports a healthy heart Peer-reviewed studies, published in reputable medical journals, showing the active ingredient(s) in the product (taken in the same form and in approximately the same amount as is included in the product) have been shown to have a beneficial impact on cardiovascular health.
You can lose up to 10 lbs. in 2 weeks! A clinical weight loss study conducted by a recognized testing facility showing that study participants who used the specific product (and not just a similar product) lost up to 10 lbs. in 2 weeks.
You will look 10 years younger! It is impossible to prove that average users of a product look 10 years younger; therefore, this claim should not be made.

We recommend maintaining a “substantiation file” of all support for your product benefit claims and placing it in a secure location such that it will not be lost or deleted. The time to locate substantiation for your advertising claims is concurrent with—that is, at the same time as—your advertising. If you do so, you will have peace of mind from an FTC compliance perspective that you can back up everything you tell consumers about your product. Do not wait until you are facing an FTC investigation or FTC lawsuit to try and reverse engineer support for your advertising claims.

Testimonials, Endorsements, and Before/After Pictures

An endorsement is any advertisement or indication of sponsorship for your product by a third party. An endorsement can be as overt as a celebrity spokesperson saying “I endorse this product,” to something as subtle as an Instagram influencer posting a picture of herself with your product in her purse. A testimonial is a specific type of endorsement wherein the third party speaks to their own experience with the product, such as “I lost thirty pounds using this product.” Even before/after pictures can serve as a testimonial to the product’s effectiveness.

The FTC takes endorsements and testimonials very seriously. Any endorsement that does not disclose that the third party received something of benefit (e.g., money, commissions, equity in your company, or even free product) is considered false and misleading and therefore a violation of the FTC Act. Similarly, testimonials that are misleading in any manner—for example, by photoshopping before/after pictures, or attributing a testimonial to a non-customer or even a fake customer—are not compliant. In response to the growing use of social media influencers to advertise products, the FTC issued updated endorsement guidelines, which provide tips on disclosing sponsorship or payment when posting testimonials online, including by influencers on social media.

The key to ensuring your endorsements and testimonials are compliant is to make certain that they are (a) truthful and (b) transparent. Regarding truthfulness, do not say or do anything that would exaggerate or otherwise misstate the results the endorser experienced as a result of using the product. As for transparency, clear and conspicuous disclosure that the endorser was compensated is required.

When space is limited for disclosures, like in social media posts, disclosures such as #ad or #promotion may be adequate, depending on the circumstances. In situations where a product reviewer received free product in exchange for a review, that must be disclosed in the review itself.

Best practices for complying with the law governing endorsements and testimonials is in flux due to continually changing technology and internet advertising practices. Thus advice from experienced FTC defense lawyers is recommended for businesses facing these issues.

“Made in the U.S.A.” Claims

Claims that products are “Made in the U.S.A.” are regulated by the FTC. Just because you are a U.S. business does not mean you are able to make this claim with abandon. The FTC requires that products advertised as “Made in the U.S.A.” be “all or virtually all” made in the United States. It is deceptive—and therefore a violation of the FTC Act—to sell merchandise advertised or marked as “Made in the U.S.A.” (or a similar phrase) if it has been entirely or substantially made, manufactured, or produced outside of the United States. Of course many products have components that are sourced internationally, and in those cases the question is whether the final product sold to consumers has been substantially transformed with processes in the United States. If you’re confident you meet these criteria and choose to use a “Made in the U.S.A.” designation in connection with your product, you need to have substantiation on file to support these claims, including supplier and manufacturing records showing the product was made, or substantially transformed, in the United States.

Time/Exclusivity Pressures

For years, a popular internet advertising technique has been to pressure customers into completing a sale with suggestions that supply is running out, a sales price will soon increase, or an exclusive invitation to participate in the offer will expire. However, such “pressures” are often demonstrably false—upon refresh of the page a week later, the limited supply remains the same, the sale never ends, and the invitation code always works. Because any effort to deceive or trick a customer into making a purchase, no matter how trivial, is a violation of the FTC Act, the FTC regularly takes action against companies engaging in false pressures.

Stock Photography & Fictional Spokespersons

Internet advertising as we know it would not exist without the availability of stock photography, but certain uses of stock photography can land you in trouble with the FTC. Specifically, when stock photography featuring a model (as opposed to background, landscapes, or abstract graphics) is used in conjunction with your product, it can lead consumers to believe the model is a bona fide user of the product. The issue is whether the stock photography is used in a manner that suggests or implies certain product benefits. For example, if your offer is for an online learning course and you use stock photography featuring a model sitting at a computer, the image is merely illustrative of the product but does not promise certain benefits from using it. By contrast, if your offer is for a weight loss product and you use stock photography featuring a slender model in a bikini with a measuring tape around her waist, it suggests that she has actually used the product to lose weight and attain her good figure. Because the model did not use your product, the use of the stock photography in the second example is false and misleading and therefore non-compliant.

Another common misuse of stock photography is to depict a fictional spokesperson or “face” of the offer. If it is clear from your advertising that the spokesperson is fictional (e.g., Progressive’s “Flo” or Jack in the Box’s “Jack”), then it is not misleading. However, if you use stock photography to depict someone identified as the CEO of your company, the inventor of your product, or a doctor endorsing the product, you’re deceiving consumers by leading them to believe the depicted persons are real. As such, it’s a violation of the FTC Act.

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