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FTC Orders More Disclosure in Consumer Testimonials, Celebrity Endorsements [10/18/2009]

The days of phony online reviews and bogus testimonials are officially over -- at least the Federal Trade Commission hopes so.

The FTC Monday published its long-anticipated final guidelines laying out how companies can use consumer testimonials and celebrity endorsements to promote their products and services, both in the online and offline worlds. The guidelines had not been updated since 1980.

Among the changes:

• Ads that include consumer testimonials about a product or a service are now required to clearly disclose the results that consumers can generally expect, not merely very good results that are atypical. This does away with the "results are not typical" disclaimers, which advertisers have used to slide by unusual results described in a testimonial.

• Connections between advertisers and endorsers, including payments or free products provided by the advertisers, must be disclosed. This covers bloggers who receive cash or in-kind payment to review a product and post that review on a blog.

• Celebrity endorsers can now be held liable for false or unsubstantiated claims that they make. Celebrities also have a new duty to disclose their relationships with advertisers when making endorsements outside the context of traditional ads, such as on talk shows or in social media.

• If a company sponsors a research organization to study a product, and the study is then used to promote the product in an ad, the ad must disclose the connection between the advertiser and the research organization.

"The FTC is obviously invigorated, and this is showing them to be very pro-consumer," said Anthony DiResta, a partner at the Washington office of Los Angeles-based Manatt, Phelps & Phillips, who chairs the firm's consumer protection practice group. "The government is really trying to understand the new day in advertising."

DiResta offered mixed reviews on the actual changes. As general counsel of the Word of Mouth Marketing Association, a trade group that promotes advertising via social media, he applauded the requirement to disclose connections between advertisers and endorsers. "It does promote transparency and honesty," he said.

However, he's not as positively inclined toward the decision to do away with the "results may vary" disclaimer in favor of describing typical results. "Whenever there is going to be a claim of typicality, then there's going to have to be substantiation." And that can be costly and timely, DiResta added.

Barry Reingold, a Washington partner at Seattle-based Perkins Coie who counsels advertisers, predicts blandness ahead. He sees the FTC trying to water down an industry that has long offered creative and sometimes saucy messages.

Reingold believes advertisers will respond to the new rules by making fewer fact-specific claims. For example, the "I lost 50 pounds in a month" claims will be replaced by "I lost weight and feel great" claims, he said.

"They'll abandon the specific detail-oriented ads for the softer stuff," Reingold said. It may be the safer way to go, he added, but it won't be "very punchy." [For additional reaction from lawyers to the then-proposed FTC guidelines, read here.]

FTC officials denied the suggestion that they're trying to water down ads, saying the agency just wants to keep advertisers honest.

"We think that part of the problem with the hype and the punch lines and all of that is that it misleads consumers ... and we recognize that consumers have to have certain truthful and nonmisleading information in order to make good decisions. And that's all we've asked for," said Richard Cleland, assistant director of the FTC's Division of Advertising Practice. "What we're really taking away is the illusion that the typical person is going to be able to lose 75 pounds with a weight-loss product."

Cleland also said that the FTC, in making the rule changes, wanted to ensure that the transparency and truth-in-advertising principles that apply to print and television ads apply equally to advertising on the Internet, which, he said, has "opened up opportunities for fraud on a scale that never existed."

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