The Federal Trade Commission (FTC) recently sent more than 700 businesses a Notice of Penalty Offenses targeting illegal advertising practices, specifically those involving endorsements and testimonials.  National advertisers that received the notice include top consumer products companies, leading retailers and retail platforms, and major advertising agencies. Food and beverage companies on the list include Amway Corp., Anheuser-Busch Companies, LLC, General Mills, Inc., Hershey Co., Nestlé USA Inc., PepsiCo, Inc., Tyson Foods, Inc., and many restaurant and fast food chains, among others.

Under Section 45(m)(1)(B) of the Federal Trade Commission Act (the “Act”), the FTC has authority to notify companies of certain acts or practices identified in administrative decisions as deceptive or unfair. Once a company receives notice from the FTC pursuant to Section 45(m)(1)(B), that company has “actual knowledge” that those practices violate the Act. If the company engages in that conduct in the future, the Act allows the FTC to sue the company, seeking civil penalties under Section 45(m)(1)(B)(2).

This means companies that received the FTC’s Notice of Penalty Offenses Concerning Deceptive or Unfair Conduct Around Endorsements and Testimonials now have “actual knowledge” that certain endorsement-related practices violate Section 5 of the Act. Prohibited practices listed in the notice include:

  • Claiming, expressly or by implication, that a third party has endorsed a product or its performance when the third party has not endorsed the product or its performance, including fake reviews;
  • misrepresenting that an endorsement reflects the experience, views, or opinions of users or purported users of a product;
  • misrepresenting an endorser as an actual, current, or recent user of a product or service;
  • continuing to advertise an endorsement unless the advertiser has good reason to believe that the endorser continues to subscribe to the views presented in the endorsement;
  • using testimonials to make unsubstantiated or otherwise deceptive performance claims, even if the testimonial is genuine;
  • failing to disclose a connection between an endorser and seller of a product or service, if that connection might materially affect the weight or credibility of the endorsement or review and if consumers would not reasonably expect that connection; and
  • misrepresenting, explicitly or implicitly through the use of testimonials, that the experience of an endorser represents the typical or ordinary experience of users of a product or service.

Note that the list of October 2021 notice recipients includes a disclaimer stating that “the fact that a company’s name is on the list is not an indication that it has done anything wrong.” Similarly, the absence of a company’s name on the list does not mean that the company has not engaged in deceptive practices through the use of endorsements or testimonials. While the FTC did not send the notice to companies based on a review of their advertising practices, as explained in an FTC Business Blog post, the purpose of the notice was to send a “reminder of the established law regarding the use of endorsements and testimonials” and notify companies that future deceptive practices “could result in penalties of up to $43,792 per violation.” The remaining questions are whether the FTC’s reminder will survive litigation, and if so, whether courts will enforce large financial penalties against companies on that basis.