This is an interview with FTC Defense Attorney Nick Oberheiden of Oberheiden P.C. Nick handles FTC compliance and defense matters nationwide.
Despite what many people seem to think, the internet is not the wild west when it comes to oversight and enforcement. Several government agencies share responsibility for ensuring that internet marketers comply with the law, with the most-prominent being the U.S. Federal Trade Commission (FTC).
Internet marketers can (and do) run into problems with the FTC in a variety of different ways. While most FTC enforcement actions are civil (as opposed to criminal) in nature, internet marketers have faced criminal charges in some cases.
Even in civil cases, penalties can include hundreds of thousands, if not millions, of dollars in fines and damages. With this in mind, internet marketers need to take compliance seriously, and they need to take affirmative steps to ensure that they will be able to defend themselves effectively in the event of an FTC investigation.
So, what does this mean, exactly? Here are 10 ways internet marketers can get into trouble with the FTC—as well as some tips they can follow to mitigate their risk of liability:
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1. Ignoring the FTC’s rules for online endorsements
The FTC defines an endorsement as, “any advertising message . . . that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser.”
While there is nothing inherently unlawful about endorsing products or services online (or seeking endorsements from social media influencers), internet marketers must follow the FTC’s guidelines in order to remain compliant.
These guidelines appear in 16 CFR Section 255, and the FTC adopted them specifically to address what the agency identified as widespread misleading use of endorsements in the online realm.
Crucially, the FTC’s guidelines do not apply to all online endorsements. As the agency explains:
“If you mention a product you paid for yourself, there isn’t an issue. Nor is it an issue if you get the product for free because a store is giving out free samples to its customers.”
Where issues can arise is the endorsement of products for which the endorser receives compensation from the advertising party. Generally speaking, if an influencer or other endorser receives compensation for providing an endorsement, then the relationship needs to be disclosed.
However, rather than establishing a list of approved conduct and prohibitions, the FTC instead requires internet marketers to interpret its guidance and make their own decisions about what is permissible and what isn’t. This, of course, is easier said than done, and internet marketers who don’t invest the time necessary to make informed decisions can find themselves facing FTC scrutiny.
2. Ignoring the FTC’s rules for online testimonials
The FTC has also provided guidance for the publication of online testimonials. Under 16 CFR Section 255, the FTC, “intends to treat endorsements and testimonials identically in the context of . . . enforcement.”
Thus, similar to endorsements, the FTC evaluates internet marketers’ use of testimonials on a case-by-case basis. The key question is whether an internet marketer’s use of a testimonial is likely to be “deceptive” to reasonable consumers. If it isn’t, then there isn’t a problem. But, if it is, then publishing the testimonial could lead to FTC enforcement action.
To be clear, the FTC is not actively monitoring all internet marketers’ use of endorsements and testimonials. This simply isn’t possible; and, even if it was, it wouldn’t be a good use of agency resources. Instead, the FTC primarily relies on consumers and companies to report deceptive advertising practices.
When is a testimonial likely to be considered “deceptive” by the FTC? When evaluating internet marketers’ use of testimonials, the FTC typically analyzes three factors:
- Do the testimonials used provide an accurate assessment of overall consumer sentiment or typical results (or, has the company selectively chosen positive testimonials)?
- Are the testimonials legitimate (or, are they fabricated or compensated endorsements)?
- Has the company included adequate disclosures and disclaimers in order to avoid misleading consumers (or, could consumers get a false impression based on the testimonials published)?
Again, however, there are relatively few hard-and-fast rules. When in doubt, internet marketers should generally err on the side of disclosure or speak with an FTC defense lawyer; and, if there are any internal concerns about whether use of a testimonial may be misleading, these concerns should be taken into account when deciding whether to publish a testimonial online and/or include any disclosures or disclaimers.
3. Creating native advertising that is misleading to consumers
The FTC has also placed native advertising under enhanced scrutiny in recent years. As the agency explains:
“A basic truth-in-advertising principle is that it’s deceptive to mislead consumers about the commercial nature of content. Advertisements or promotional messages are deceptive if they convey to consumers expressly or by implication that they’re independent, impartial, or from a source other than the sponsoring advertiser – in other words, that they’re something other than ads.”
Today, plenty of reputable online news outlets allow the use of native advertising. Here, too, the practice itself is not inherently unlawful. Instead, the question is whether the nature of the advertisement is likely to be misleading to consumers.
In short, will consumers understand that a native ad is in fact an advertisement? Or, are they likely to think that the ad is a news article? If the latter, then clarification and/or additional disclosures will be required.
Depending on the specifics of a particular native ad, the FTC instructs that some or all of the following may be necessary in order to comply with the law:
- A disclosure in clear and unambiguous language;
- A disclosure as close to the native ad as possible;
- Use of a font and color that are easy to read;
- For video ads, a disclosure that is “on the screen long enough to be noticed, read, and understood;” and/or
- For audio disclosures in videos, podcasts or other media, “a cadence that’s easy for consumers to follow and in words consumers will understand.”
4. Making false claims of effectiveness or success
False advertising claims are a core focus of the Federal Trade Commission Act (FTC Act) and a multitude of other federal laws and regulations. These laws and regulations prohibit online marketers from making false claims of any kind, but place particular emphasis on claims about the effectiveness of a particular product or a service provider’s record of success.
Any blatantly false claim is likely to draw strict scrutiny from the FTC. The FTC has a number of investigative tools at its disposal, and it uses these tools to aggressively target online marketers suspected of misleading consumers.
This is true in cases involving both intentional misrepresentations and unknowing misrepresentations—with intentional fraud carrying the potential for criminal prosecution.
5. Making unsubstantiated claims
Unsubstantiated claims can lead to just as much trouble as false claims. When making claims about the effectiveness of a product or service, the FTC requires internet marketers to have adequate substantiation. If a factual marketing claim cannot be substantiated (or proven), then it cannot be made.
This applies to specific claims (i.e. ABC Company’s product outperforms XYZ Company’s product) as well as superlatives (i.e. ABC Company is the best in the business). If a marketing claim is capable of being proven or disproven, then making the claim without proof constitutes deceptive advertising under the FTC Act.
Internet marketers don’t necessarily need to publish their substantiation, but they do need to have it on record. In the event of an FTC investigation, having substantiating documentation readily available can be the difference between avoiding charges and facing prosecution for FTC Act violations and other charges.
6. Making deceptive claims (i.e. claims based on half-truths)
Internet marketers must also be extremely careful to avoid making claims that are deceptive because they are only partially true.
Consider, for example, an investment advisor who promotes the fact that dozens of his clients have earned substantial returns. If dozens of other clients have suffered substantial losses, then promoting the investment advisor’s success alone would be considered deceptive advertising under federal law (and under many state and international laws as well).
These types of half-truths seem to have become increasingly popular in recent years. But, while they may be pervasive online, this does not mean that they are acceptable or that the risks of making this type of misleading advertising claim can be ignored. Internet marketers must independently assess their own compliance obligations with an FTC defense attorney, and they must avoid following in others’ misguided footsteps.
7. Failing to maintain adequate data security
Data security is another key enforcement area for the FTC. Companies that have access to consumers’ data have an obligation to protect these data under federal law.
Different types of data are subject to different legal requirements; and, generally speaking, the FTC expects companies with greater resources to deploy greater cybersecurity measures.
With that said, once again, internet marketers need to assess their specific compliance obligations in light of the nature of their online activities, and they must make informed decisions about what is necessary in order to maintain compliance.
8. Violating antitrust laws
Federal antitrust laws prohibit companies from working together to implement anticompetitive practices. They also prevent large companies from gaining monopolies that unreasonably restrain competition in the marketplace.
From supply chain restrictions to mergers and coordination between competing firms, there are numerous issues that can lead to trouble under the extraordinarily complex federal antitrust regime.
Most internet marketers won’t run into antitrust issues in their day-to-day business. But, for those who encounter these issues, compliance needs to be a priority. This is a priority enforcement area for the FTC, and companies can face swift and heavy enforcement action when suspected of engaging in anticompetitive practices.
9. Overlooking the FTC’s free online guidance
The FTC makes many resources publicly available online—including several resources that are specifically intended for internet marketers. Since the FTC puts these resources out there, they expect internet marketers to do their due diligence and put in the time and effort to comply with the law.
However, as mentioned above, much of the FTC’s guidance leaves questions unanswered. The agency provides explanations and examples, but it stops short of telling marketers specifically what is and isn’t permitted.
As a result, while internet marketers can (and should) carefully review the guidance that is available from the FTC, they must also ensure that they are confident in their interpretation of the FTC’s guidance and how they apply it within the context of their particular online marketing activities. This is why a short meeting with an experienced FTC defense lawyer can really put your mind at ease.
10. Ignoring inquiries from the FTC
Finally, in the event of an FTC inquiry, it is imperative to respond promptly and appropriately. This is true whether an FTC agent makes contact directly, the agency issues a subpoena, or the agency makes contact through any other means.
Ignoring an FTC investigation is a big mistake—and it is not one that will go overlooked. Attempting to conceal information or destroy potential evidence can have significant negative consequences as well.
An FTC investigation won’t simply go away. However, taking a proactive approach can significantly increase the likelihood of resolving an investigation without charges being filed.
By taking steps to comply with the law, document their compliance, and prepare in advance for the possibility of an FTC inquiry, internet marketers can significantly mitigate their risk of facing allegations of deceptive advertising (in addition to other civil or criminal charges).