2022 FTC and NAD Roundup

2022 has proven to be an interesting year at the Federal Trade Commission (FTC or Commission) and the National Advertising Division (NAD). Below is a roundup of some of the highlights from the FTC and the NAD this past year, which will surely set the tone for how both bodies regulate advertising in 2023.

FTC Proposed Rulemaking and Guidance

• Earnings Claims (March 2022): The FTC published an Advance Notice of Proposed Rulemaking (ANPR), detailing its objectives in addressing deceptive or unfair claims through rulemaking, and soliciting comments from the public. The FTC raised, among other points, that it has “not seen probative evidence that disclaimers effectively cure atypical earnings claims.” After the FTC reviews the ANPR comments, the next step is for the FTC to publish a Notice of Proposed Rulemaking (NPR) setting forth the proposed rule text for public comment. 
• Endorsement Guides (May 2022): The Commission issued a request for public comment on its proposed updates to its Guides Concerning the Use of Endorsements and Testimonials in Advertising (Endorsement Guides). As we previously discussed, the FTC expanded the definitions of “endorser” and “endorsements” to include social tags and virtual influencers, clarified when a disclosure of material connection is required, redefined “clear and conspicuous” as it relates to disclosures, and added a new section addressing consumer reviews. While these updates are still proposed and not final, we expect the FTC to move forward with publishing the final Endorsement Guides in the coming months after reviewing the public comments. 
• .com Disclosure Guidelines (June 2022): The FTC solicited public comment on ways to modernize the Commission’s .com Disclosures: How to Make Effective Disclosures in Digital Advertising guidance (.com Disclosure Guidelines), specifically regarding topics such as sponsored and promoted ads on social media, “dark patterns” (deceptive online techniques to encourage users to do things they didn’t intend to do), manipulative user interface designs on websites and mobile apps, hyperlink use, and online disclosures when consumers must navigate multiple webpages. After the FTC reviews the comments, it may move forward with publishing updated .com Disclosure Guidelines. 
• Green Guides (December 2022): On December 14, the FTC solicited public comment on how to update its Green Guides for the Use of Environmental Claims (Green Guides). The Commission requested general comments on the continuing need for the Green Guides, as well as comments on whether specific topics in the Green Guides should be revised, such as carbon offsets and climate change, recyclable material, “compostable,” “degradable,” “ozone-friendly,” “organic,” “sustainable,” and energy use and efficiency claims. The comment period will end on February 21, 2023. 
• Health Products Compliance Guidance (December 2022): On December 20, the FTC issued its Health Product Compliance Guidance (Health Product Guidance) for businesses, a revised business guide of its Dietary Supplements: An Advertising Guide for Industry. The Health Product Guidance draws from the dozens of cases the FTC has brought against companies for false or misleading advertising claims for dietary supplements, foods, over-the-counter drugs and other health-related products over the years. The new Health Product Guidance includes, among other things, details about the amount and type of evidence needed to substantiate health-related claims, emphasizing that high-quality randomized and controlled human clinical trials are the most reliable form of evidence.

FTC Litigation and Administrative Actions

• In the Matter of Fashion Nova, LLC (Settled, March 2022): The FTC filed an administrative complaint against Fashion Nova, LLC, an online clothing retailer, alleging that the company suppressed reviews with negative ratings of its products on its website and mispresented that the product reviews reflected the views of all purchasers who submitted reviews. The company settled with the FTC for $4.2 million and is prohibited from suppressing consumer reviews of its products. 
• FTC v. First American Payment Systems, LP (Settled, July 2022): The FTC filed a complaint against payment processing company First American Payment Systems, LP, and two of its sales affiliates (collectively, defendants) in the U.S. District Court for the Eastern District of Texas, alleging that the defendants targeted small and medium-sized businesses to lure them into enrolling in its payment processing service. The FTC alleged that once the businesses were enrolled, the defendants withdrew funds from their accounts without their consent, and made it difficult and expensive for them to cancel the service. The defendants settled with the FTC and are required to pay $4.9 million to the harmed businesses, make it easier for businesses to cancel the service and cease making misrepresentations about the service. 
• In the Matter of Weber-Stephen Products LLC; In the Matter of Harley-Davidson Motor Company Group; In the Matter of MWE Investments, LLC (Settled, October 2022): The FTC filed administrative complaints against Weber-Stephen Products LLC (Weber), Harley-Davidson Motor Company Group (Harley) and MWE Investments, LLC (MWE), alleging that the companies violated the Magnuson-Moss Warranty Act (Mag-Moss), which provides that companies cannot void a consumer’s product warranty or deny warranty coverage if the consumer uses another company for parts or to repair the product. The FTC alleged that all three companies had product warranties violating this provision of Mag-Moss and restricting consumers’ right to repair their purchased products: Weber for its gas and electric grills, Harley for its motorcycles, and MWE for its outdoor generators. All three companies settled, agreeing to prohibit further violations of Mag-Moss, revise their warranty language, send notices of this revision to consumers  and take other remedial measures. 
• In the Matter of Google LLC, iHeartMedia, Inc. (Settled, November 2022): The FTC filed an administrative complaint against Google LLC (Google), the tech giant, and iHeartMedia, Inc. (iHeartMedia), a mass media corporation, alleging that the companies engaged radio personalities to air thousands of endorsements promoting their use of and experience with Google’s Pixel 4 phone, when in reality, the radio personalities never used the phone and were reciting a script that Google provided to iHeartMedia. The FTC announced that it had worked with seven state attorneys general to sue the companies on the same grounds. Google and iHeartMedia settled with the FTC and the state attorneys general, agreeing to stop such misrepresentations, and will pay $9.4 million in penalties pursuant to the state settlements. 
• In the Matter of Epic Games, Inc. (Settled, December 2022): The FTC filed an administrative complaint and a federal complaint in the U.S. District Court for the Eastern District of North Carolina, against Epic Games, Inc. (Epic), a video game developer, for its online video game, Fortnite. The administrative complaint alleged that Epic utilized “dark patterns” to trick Fortnite players, many of whom were children, into making purchases and racking up unauthorized charges without parental involvement. “Fortnite’s counterintuitive, inconsistent, and confusing button configuration led players to incur unwanted charges based on the press of a single button,” the FTC stated. The FTC’s federal complaint alleged that the company violated the Children’s Online Privacy Protection Act Rule by collecting personal information from players under age 13, without obtaining their parents’ verifiable consent. The FTC also alleged that Epic engaged in unfair practices by enabling voice and text chat communications for players by default, which led to harassment and bullying on Fortnite. Epic settled both cases with the FTC for $520 million in total, agreeing to stop such practices and adopt stronger privacy settings. 
• In the Matter of HomeAdvisor, Inc. (Ongoing): The FTC filed an administrative complaint against HomeAdvisor, Inc., a lead-generation company, alleging that it used a wide range of deceptive and misleading tactics in selling home improvement project leads to service providers, such as small businesses in the gig economy, including by misrepresenting that its leads resulted in home improvement job rates higher than HomeAdvisor’s own data supported. A proposed consent agreement is being considered by the Commission.

NAD Proceedings

• DoorDash, Inc. (Decided, February 2022): The NAD reviewed claims made by DoorDash, Inc. (DoorDash), an online food delivery company, regarding its significant monetary donations to Black Lives Matter. The NAD determined that DoorDash could reasonably support its claim that it was making such donations to Black Lives Matter based on invoices and acknowledgment letters provided by DoorDash. 
• SharkNinja Operating, LLC (Decided, June 2022): The NAD reviewed claims made by SharkNinja Operating, LLC (SharkNinja), a company selling home appliances, comparing its Shark HyperAir hair dryer to competitor hair dryers. NAD analyzed, among other claims, SharkNinja’s claim that “only with Shark Intelligent IQ Stylers can you get Saturday night hair every day of the week” in order to determine whether the claim was considered puffery or not. Reviewing the claim in the context of the other superiority claims SharkNinja made in the advertisement, the NAD determined that the claim conveyed a comparative superior performance message that only Shark HyperAir can achieve Saturday night hair, and therefore recommended that SharkNinja modify or discontinue its claim to avoid conveying this message of exclusivity. 
• Cash App (Decided, November 2022): The NAD reviewed a claim made by Cash App, a mobile payment service, in its commercial with rap artist Megan Thee Stallion. The commercial features the rap artist talking about how Bitcoin is available on Cash App for as little as $1, and later stating, “You’ll have your own empire in no time.” The NAD reasoned that while some consumers may consider this statement to be puffery, other consumers could still reasonably take away the implied message that Bitcoin investing generates significant wealth with minimum investment, an objective message requiring support. The NAD recommended that Cash App modify or discontinue its messaging. 
• American Beverage Association (ABA) (Decided, November 2022): The NAD reviewed claims made by the ABA, a trade organization representing beverage manufacturers, regarding its Every Bottle Back program, which aims to help reduce the nonalcoholic beverage industry’s use of virgin plastic, increase the use of recycled polyethylene terephthalate (PET) and increase PET recycling in the United States. The NAD determined that the ABA provided adequate substantiation for some of its environmental claims, such as “Our bottles are made to be remade” and “Increasing awareness about the value of 100% recyclable plastic bottles.” However, the NAD required the ABA to modify other environmental claims regarding the use of recycled materials in bottles and certain aspirational claims regarding ABA’s partnerships with nonprofit organizations to match the substantiation provided. 
• Blue Apron, LLC (Decided, November 2022): The NAD reviewed a claim made by Blue Apron, LLC (Blue Apron), a subscription-based meal kit company, that “Canceling meals is easy.” The NAD analyzed Blue Apron’s cancellation process to determine whether it was really “easy” as the claim reasonably conveyed, and determined that Blue Apron’s claim was reasonably supported since consumers sign up for and can cancel Blue Apron online. The NAD reasoned that consumers should be able to cancel a subscription-based service through the same medium as used for sign-up, which Blue Apron allows for its customers. 

The Children’s Advertising Review Unit (CARU) also had an active year with several notable decisions, including:

• In the Matter of Primark US Corp. (Decided, June 2022): As we previously wrote, CARU—a self-regulatory body under the same program as the NAD, BBB National Programs—recommended that Primark US Corp. (Primark) modify its children’s products and their associated advertising messages to comply with CARU’s Advertising Guidelines, which provide that “[a]dvertising should not portray or encourage negative social stereotyping, prejudice, or discrimination.” Primark advertised its clothes as “Girls Clothes” and “Boys Clothes,” along with slogans such as “Be Kind, Be Happy,” for products advertised as for girls and “Born to win” for products advertised as for boys. Primark argued that CARU lacked jurisdiction over the inquiry because CARU’s jurisdiction only extends to commercial messages or messaging directed toward children under the age of 13 that promote the sale of products or services, while CARU’s inquiry was focused on the products themselves. CARU rejected Primark’s argument and determined that the clothing furthered negative stereotypes that “boys should only embrace or aspire to power, action, and assertiveness, while girls should only embrace or aspire to being well-behaved, humble, and agreeable.” CARU therefore recommended that Primark modify its products and their advertising messages.

We will be sure to keep you updated on important happenings at the FTC and the NAD this year. Happy New Year from all of us in Manatt’s Advertising, Marketing and Media group!