The Federal Trade Commission (“FTC”) announced use of its Penalty Offense Authority in connection with endorsement and testimonial enforcement actions. While the FTC has been consistently active in bringing actions based on endorsements or testimonials that it finds deceptive or unfair, it has only been able to impose injunctive relief, as penalty authority has not generally been available under Section 5 of the FTC Act. However, the FTC has the ability to seek penalties where it can show that a company had “actual knowledge” of the alleged misconduct.
Accordingly, to lay the groundwork for such enforcement, the FTC issued letters containing a Notice of Penalty Offenses to over 700 companies. The Notice highlights specific endorsement and testimonial practices that the FTC has determined to be unlawful. The letters do not claim the recipients engaged in any wrongdoing, but assert that companies are now on notice about the possibility of future FTC enforcement.
The letters serve two purposes. The first is to caution companies and advertisers against engaging in endorsement and testimonial advertising practices the Commission has deemed to be unfair or deceptive. The second is to put recipients on notice that engaging in prohibited conduct could result in civil penalties. By formally notifying companies in this manner, the FTC may be attempting to establish “actual knowledge,” a prerequisite to the FTC’s ability to seek civil penalties (up to $43,792 per violation) under its Penalty Offense Authority.
The Notice of Penalty Offenses highlights prior Commission settlements regarding endorsement and testimonial practices that the FTC considers unfair or deceptive, such as: 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 unexpected material connections with an endorser; and misrepresenting that the experience of an endorser represents consumers’ typical or ordinary experience.
These letters suggest that endorsements and testimonials will continue to be a focus of FTC enforcement, only now potentially accompanied with monetary penalties. Whether or not your organization received the FTC’s letter, this notice is a good reminder to review your endorsement practices, including for compliance with the FTC’s guidance on endorsements and testimonials in advertising and otherwise.