Following the decision of the Supreme Court of the United States in AMG Capital Management, LLC v. FTC, the new leadership of the Federal Trade Commission (FTC) is testing a different, more aggressive and creative tactic regarding civil penalties to obtain money from companies. In October 2021, the FTC resurrected a rarely used statutory authority: Section 5 (m) (1) (B) of the FTC Act (45 USC Â§ 45 (m) (1) (B)), better known as name of Penalty Offense. Authority. This section allows the FTC to initiate civil proceedings in federal district court when it: 1) proves that a defendant knew their conduct was in violation of FTC law and 2) when the FTC previously issued a administrative order (not a consent order) that determined that the conduct in question was unjust or deceptive.
To establish that a company “knew” that its advertising conduct was deceptive or unfair, the FTC may send a company a notice of criminal offenses (commonly referred to as a “Section 205 synopsis”) describing conduct that the FTC has committed. previously found to be unfair or misleading. Thus, if a business has received a notice and subsequently engages in the practices described in the notice, the FTC is permitted to pursue civil penalties of up to $ 43,792 per violation in a federal district court. . Penalty violation notices sent to over 700 companies as of mid-October clearly show in bold that:
Receipt of this notice alerts your business that engaging in the conduct described therein could subject the business to civil penalties of up to $ 43,792 per violation. See 15 USC Â§ 45 (m) (1) (B).
The advisories also recommend that recipients review their ad approval, testimonial and review practices to ensure compliance and thereby warn of a possible increase in FTC enforcement activity. in this domain. In the FTC’s opinion, each recipient of the notice now has the requisite knowledge that the delimited driving could result in penalties of up to $ 43,792 per violation. By describing certain acts or practices that the FTC has previously found to be unfair or deceptive in administrative proceedings, the FTC attempts to provide the framework for its exercise of criminal offenses. This will give the FTC greater leverage when investigating the alleged use of false endorsements and testimonials, as the FTC will be in a better position to threaten lawsuits if a company is unwilling to respond to requests made by the FTC. during investigation negotiations.
Examples of misleading advertising
In the notices, the FTC lists certain types of advertising that it considers misleading:
- falsely claiming an endorsement by a third party
- claim that an endorser is a real user, current user or recent user
- continue to use an endorsement without a valid reason to believe that the endorser continues to subscribe to the views presented
- misrepresent that an endorsement represents the experience, views or opinions of users or alleged users
- use an endorsement to make misleading performance claims
- failure to disclose an unexpected material connection to an endorser
- mistakenly believe that the endorser experience represents the typical or ordinary consumer experience
The notice goes on to say that positive consumer reviews are a type of endorsement the FTC may deem illegal when they’re bogus or when a business fails to adequately disclose an important link. Thus, in addition to the mentions used in traditional advertising media (i.e. television, online), the Notice applies to mentions and complaints made in posts by social media influencers. Therefore, if an endorser or influencer makes a claim about a product, the FTC expects that the speaker actually used the product, that the claims are accurate, and that consumers can expect the same from the product. product (i.e. results are typical). And, when a business provides any consideration for the review, the business must disclose that the endorser or influencer received something in return.
What businesses need to know if they’ve received a notice
The FTC has been clear: ignorance is no excuse. The FTC’s decision to send out the notices signals that businesses will not get a second chance to comply following an unfair and deceptive conduct warning. All businesses – not just those that received the notice – should review their current policies, procedures and practices for approval, testimonials and advertising review to ensure that they are in line with the expectations of the FTC.
Policies should mandate an internal and independent compliance review protocol for all advertising and approval content used, and companies would do well to document the process of maintaining substantiation of claims made. Companies should also have mechanisms in place to monitor and resolve complaints made in advertising content posted by third-party affiliates and business partners such as social media influencers. Finally, businesses should also be sure to carefully investigate and respond to consumer complaints alleging that the claims made by the business did not match the consumer’s experience with the service or product, as such complaints may be a harbinger of regulatory review.
Businesses should review the FTC’s multiple resources to ensure ad approval, testimonial, and review compliance.
It is essential that all businesses that engage in social media marketing or online advertising have a strong and compliant social media policy that incorporates all of the FTC guidelines on testimonials and recommendations. Such a policy is not discretionary – it is mandatory.