Just days after the FTC announced that it was resurrecting its Penalty Offense Authority to crack down on for-profit higher education institutions’ false promises about graduates’ career opportunities and earnings prospects, the FTC is invoking this authority to “blanket industry with a clear message” about fake online reviews and other deceptive endorsements.
The FTC has revived this dormant authority—the latest example of its creative use of different enforcement tools to obtain monetary relief in the wake of the Supreme Court’s AMG opinion—to hold companies accountable, via significant financial penalties, for unfair and deceptive business practices.
As we previously wrote, former FTC Commissioner Rohit Chopra had championed the use of this authority and identified for-profit colleges as one possible industry for use of this enforcement tool, while identifying other targets like multilevel marketing programs, gig economy networks, and fake review and influencer fraud.
The FTC now has quickly turned its attention to fake online reviews and other deceptive endorsements, sending a Notice of Penalty Offenses to more than 700 companies, representing an array of leading retailers, consumer product companies, and ad agencies. In doing so, the Commission advises recipients of significant potential civil penalties—up to $43,792 per violation—they could incur if they use endorsements in ways that were found to be illegal in FTC administrative decisions rendered in the 1940s through the 1980s. Under Section 5(m) of the FTC Act, the FTC can obtain penalties against other entities not party to the original proceeding if it can show the entity had actual knowledge that the act had been found to be unfair or deceptive. However, the FTC points out that a company’s inclusion on the list of recipients is not an indication the company has acted illegally.
Practices outlined in the FTC notices include:
- 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 an unexpected material connection with an endorser; and
- misrepresenting that the experience of endorsers represents consumers’ typical or ordinary experience.
The FTC will seek to use these older decisions involving television and print advertising to challenge advertising on social media and the internet. Whether a court finds the conduct in the older cases and that challenged in a newer case to be the same will need to be litigated. But given the civil penalties at issue, advertisers should closely review their use of endorsements and testimonials.