Tuesday, October 6, 2009

Details In The New FTC Endorsements and Testimonial Rules May Curb False Product Testimonial Claims But It Will Create Confusion

The Federal Trade Commission just released its final guidelines governing the use of edorsements and testimonials in advertising. Implementing updated rules for the first time since 1980 is a great idea. A lot has changed since the Carter administration. In particular, the Internet has supplanted television, radio, and printed newspapers as the most important media communication tool. However, upon closer review of the new rules, it appears that some of the rules are beneficial, while others are ill conceived, difficult to enforce, and create more problems than then solve.

I recently reviewed the text of Federal Register Notice 73 FR 72374 that was published last year. This notice discussed proposed changes to the regulations governing endorsements and advertisements. The new guidelines published in 16 CFR Part 255 are subject to go into effect on December 1, 2009. Under the new rules, bloggers will now have to disclose if they are receiving monetary incentives or payment in kind to write about a product or service. Additionally, celebrities will now be required to disclose if they have any economic ties to a product or service if they promote a product it on a talk show or via social media. I am in favor of the spirit of these rules because it will inform consumers about any possible conflicts of interest by those who are giving testimonials. Unfortunately, the rules appear to be intentionally broad and ambiguous and therefore they may cause more problems than they solve.

In addition, as part of the overhaul, there is a less publicized rule regarding celebrity endorsements that I like to call the Entertainment Lawyer Employment Act. Under this new rule, if a celebrity stars in an advertisement and reads a script that misleads the public about a product or a service, the celebrity may be personally liable along with the company who hired the celebrity. This new rule will force entertainment lawyers to include language in endorsement deals that requires advertisers to cover any attorney fees an endorser may incur related to the endorsement.

16 CFR Part 255 states, "[t]he addition of new Section 255.1 (d) and the new examples featuring celebrities, does not create new liability for celebrities, but serves merely to let them (and their advisors) know about the potential liability associated with their endorsement activities." I have to disagree with this assertion because it opens the door for celebrities to be held personally responsible for the information in their paid endorsements.

If you read example 4 on 73 FR 72391, you will understand the ridiculousness of the above statement about the rule. The rule places an unfair burden on celebrities and actors to ensure that the content of an advertisement is not misleading. This burden should only be with the company that is making the claim and not an actor. In the example that the FTC provides, a celebrity endorser is pitching a chicken roasting system. During the commercial's taping, the celebrity watches the roasting system cook 5 chickens incorrectly. However, the script calls for the celebrity to state, "if you want the perfect chicken every time, in just 30 minutes, this is the product you need." The celebrity follows the script as required by his or her contract and under the new rules the celebrity is subject to liability along with the advertiser for misrepresentation. The rationale given is that, "a significant percentage of consumers are likely to believe the celebrity's statements represent his own views even though he is reading from a script."

I have no problem with the advertiser being liable for intentional misrepresentations, but holding an actor, celebrity, professional athlete, or paid endorser liable also over reaches. This new rule may force paid endorsers to read scientific journals or memorize the Encyclopedia Britannica to ensure that their statements about products they endorse are true. Additionally, it may require specialized insurance to cover any claims that may arise from a celebrity endorsement. If a significant percentage of consumers in our country believe everything that comes out of a celebrity's mouth we have a bigger problem on our hands that no guidelines will be able to resolve.

If John Madden states, "EA Sports Madden NFL Football is the Perfect Football Video Game," he may be liable under the FTC's new rules for misrepresentation. Every Baltimore NFL fan knows this is a false statement because the perfect NFL football video game would have an All-Time Baltimore NFL team that includes both Johnny Unitas and Ray Lewis playing on the same Baltimore NFL team. Until Madden's NFL football game corrects this problem, Mr. Madden and EA Sports cannot claim that Madden NFL Football is the perfect product without incurring liability under the new rule.

Do you now see the ridiculousness of this part of the new guidelines?

Copyright 2009 by the Law Office of Bradley S. Shear, LLC. All rights reserved.