The Federal Trade Commission (FTC) recently issued Notices of Penalty Offenses regarding for-profit education, endorsements and testimonials, and money-making opportunities. Prior to this year, the FTC had used its Penalty Offense authority only once in this century. So why the sudden rebirth? In this webinar, Venable attorneys examined the FTC’s authority in this area, the substance of the notices, and their broad implications.

What Is a Penalty Offense?

Under the Penalty Offense authority, the FTC can seek civil penalties against a company or individual if it proves that they had actual knowledge that the FTC had already issued a written decision (after an administrative trial) against another entity that the same conduct was unfair or deceptive in violation of Section 5(m)(1)(b) of the FTC Act. Section 5 enables the FTC to hold the person, partnership, or corporation liable for a civil penalty of up to $43,792 per violation.

In the last few weeks, the FTC has sent out three different notices. The purpose of these notices was to allow the FTC to argue that the recipients had actual knowledge that the FTC had previously ruled certain acts or practices to be unfair or deceptive. Each of the letters specifies that the FTC is not singling out recipients or suggesting recipients are violating the law, which signifies that this is part of an effort to effect broad changes in industry behavior.


Continue Reading FTC’s Notice of Penalty Offenses: What Do They Mean for You?

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.


Continue Reading FTC “Blankets Industry” with Notice of Penalty Offenses Concerning Deceptive Reviews and Endorsements

An increasing number of celebrities and social media personalities are endorsing the use of cannabidiol (CBD) products through social media. Many of these “influencers,” however, fail to take into account and comply with the complex regulatory environment surrounding CBD advertisements, which can have consequences for CBD companies themselves. In the United States, the Federal Trade Commission (FTC) and the Food and Drug Administration (FDA) both limit the use of certain language in CBD endorsements. As these advertisements attempt to reach the broadest possible audience, possible violations are especially noticeable to regulators, who have stepped up their enforcement efforts in this area.

What is CBD?

With the passage of the 2018 U.S. Farm Bill, hemp-based CBD products were removed from the Drug Enforcement Administration’s list of scheduled substances, thereby decriminalizing the possession of such CBD products. The Farm Bill defines hemp as a strain of the Cannabis sativa plant species that does not contain more than 0.3% of the psychoactive component tetrahydrocannabinol (THC). Instead, hemp has significantly higher concentrations of CBD. The legalization of recreational and medicinal marijuana in certain states refers to the cannabis plant containing high levels of THC, which may also contain some CBD. Certain states, such as California, have stringent requirements regarding advertising cannabis products, but these rules do not apply to hemp-based CBD products.


Continue Reading CBD Advertisements: What CBD Companies and Celebrity Influencers Need to Know

Customer reviews can be used to promote or protect a brand. Reviews are relied upon by consumers when making any purchase. On March 26, Alexandra Megaris and Deborah Bessner hosted a webinar on “Customer Reviews: The Dos and Donts.” The webinar focused on a number of pressing topics surrounding customer reviews, including endorsements and testimonials,

Last week, the FTC entered into a settlement with Teami, LLC, a marketer of teas and tea-based skincare products that the FTC alleges promoted its products with deceptive, unsubstantiated health claims and endorsements by social media influencers who did not adequately disclose their material connections to (i.e., monetary payments from) the company. The action highlights the FTC’s continued focus on both health claims and influencer marketing.

According to the FTC’s two-count complaint, Teami and its individual owners claimed, without reliable scientific evidence, that their products would treat cancer, clear arteries, significantly decrease migraines, treat colds, prevent flus, cause “rapid and substantial” weight loss and burn body fat.

The defendants also allegedly misrepresented that social media posts by influencers reflected the views of ordinary users of Teami products, failing to adequately disclose that the influencers were paid for their endorsements. According to the FTC, such disclosures must be clear and conspicuous—and, in this context, because consumers’ Instagram feeds typically display only the first few lines of a longer post followed by an option to read more, that means that endorsers must disclose any material connections above the “more” link.


Continue Reading Stirring the Pot: Tea Marketer Settles with FTC Over Unsubstantiated Health Claims, Inadequate Influencer Disclosures

The FTC has issued a Proposed Notice requesting public comment on whether to make changes to its Endorsement Guides (“Guides”) as part of the agency’s periodic retrospective review. This review will serve as a key opportunity for industry participants to shape what happens next by showing what they are seeing in the marketplace when it comes to endorsements and testimonials, consumers’ understanding of them, and the effects of new technology and platforms.

While the FTC’s standard practice is to review its rules and guides every 10 years, this review promises to be anything but standard. This is particularly true considering that FTC Commissioner Chopra weighed in with a separate statement, noting that he hopes that the Commission will consider taking steps beyond the issuance of voluntary guidance, including codifying elements of the existing Endorsement Guides into formal rules that could trigger civil penalties and damages. He also suggested that the FTC develop requirements for technology platforms that facilitate and profit from influencer marketing and specify the requirements that companies must adhere to in their contractual arrangements with influencers. The Guides were first issued in 1980, and the Commission last sought public comment on them in 2007. Since that time, endorsement-related practices (and the media where they appear) have changed dramatically, with new platforms and apps emerging that provide new ways for companies and their endorsers to reach consumers. In an attempt to keep up with the changing times, the FTC issued an FAQ-type of document, Endorsement Guides: What People are Asking, and has modified it multiple times over the years.


Continue Reading FTC Aims to Shake Up Endorsements, Seeks Public Comment on Its Endorsement Guides

Last week, the FTC announced yet another settlement with a company regarding its customer review practices. This case involved a popular cosmetics brand that retailed at Sephora—Sunday Riley. According to the FTC, Sunday Riley’s managers and Chief Executive Officer ordered employees and interns to create fake Sephora accounts and submit reviews for their products. The FTC had obtained multiple company emails showing the lengths Sunday Riley went to drive positive customer reviews, including evading Sephora’s detection by manipulating IP addresses.

Sunday Riley and its CEO settled with the FTC. In the settlement, the company and CEO did not admit fault, which is standard in these settlements. Similar to other recent settlements relating to “fake” customer reviews, the parties agreed on a go-forward basis to not make misrepresentations about the status of an endorser or customer review and to disclose material connections in endorsements and reviews.


Continue Reading Customer Review Fraud Top of FTC’s Priority List

Positive online reviews have become essential for any business marketing goods or services over the internet, especially for trendy services like food delivery and custom health product sales. But the FTC’s newly-announced settlement with startup healthy snack service UrthBox reminds marketers that online praise must be freely given, not bought—even if the compensation offered isn’t monetary.

UrthBox, Inc., a San Francisco company offering direct-to-consumer snack deliveries on a subscription model, drew the FTC’s ire by maintaining an incentive program that offered free snack boxes to consumers who posted positive reviews on the BBB’s website. According to the FTC’s complaint, the plan was simple: when a consumer reached out to UrthBox, customer service representatives would offer to send free products to the consumer in exchange for a screenshot of a positive review. The program began with the customer service department at UrthBox, where representatives were paid bonuses based on the number of consumer complaints they were able to turn into positive online reviews. The impact was significant: where UrthBox’s BBB profile had only nine reviews (all negative) in 2016, by the end of the next year, the company boasted 695 reviews, 88% of them positive.


Continue Reading FTC’s Snack Service Settlement Reminds DTC Companies Not to Incentivize Reviews

Since updating its Endorsement Guides in 2015 to keep pace with the meteoric rise of social media and influencers in marketing, the FTC has placed a significant emphasis on the need to disclose material connections between advertisers and endorsers. Through its Guides, informal business guidance, blog posts, warning letters, and multiple enforcement

Astroturf was again in the news last week, but not because the big game whose name we can’t mention was played on synthetic turf. Rather, last week, the office of the NY Attorney General (“AG”) announced it reached a precedent-setting settlement with artificial engagement company Devumi LLC and related companies (“Devumi”) over the selling of