AT&T argued that the term “Price Lock” is misleading because T-Mobile isn’t locking the price of its service for any amount of time. T-Mobile countered that “Price Lock” isn’t a claim about locking its price, but rather the name of a policy that allows customers to cancel their service and receive their last month for free, if they cancel within 60 days of a price increase. In fact, an on-screen disclosure reads: “Get your last month of service on us if we ever raise your internet rate.”

NAD noted that the term “price lock,” without qualification, “conveys the message that the price is locked for monthly service as long as the consumer wants the service.” In this case, T-Mobile argued that term is clearly qualified by its on-screen disclosure. Even though NAD acknowledged that the disclosure in the commercial was fairly prominent – which is not something we frequently hear from NAD – it found that the disclosure wasn’t enough to prevent the claim from being misleading. Why?

Although companies can use a disclosure to clarify a claim, NAD wrote that “a disclosure cannot contradict the claim it qualifies.” More specifically: “A disclosure that ‘Price Lock’ does not lock the price but gives consumers one month of free service if certain conditions are met contradicts the main message communicated by the ‘Price Lock’ claim.” Accordingly, NAD recommended that T-Mobile either stop making the claim or better explain the details of its policy “as part of the main claim.”

A good song and dance can brighten a neighbor’s day, but it takes talent to pull that off. Drift off key or miss a few steps on the porch and your neighbors will show that Ring camera footage to their friends and laugh at you every chance they get. A good disclosure can save a claim, but it also takes talent to pull that off. If your disclosures aren’t clear or they clash with your claim, your competitors will show that footage to NAD and laugh at you, too.

Glad pointed to its online disclosures, but NAD didn’t think they were sufficient. For example, on Glad’s website, “the disclosures appear at the bottom of the webpage and require scrolling through other content unassociated with the claim (and occasional restatements of the claim) before reaching the disclosure.” And on another page, the disclosure appeared “in white text on a grey-trash-bag background,” making it “difficult to notice or read without zooming in on the image.”

Glad argued that it included clear disclosures on all packages. NAD noted that “although some versions of some sides of the product packaging include sufficient disclosures, consumers may only look at one panel of the package before making a purchase. Typically, consumers may only see the consumer-facing panel,” which in this case included the durability claim “with a disclosure far from the claim it qualifies.” NAD recommended Glad include the disclosure “on every panel where the claim is made.”

NAD’s analysis on package disclosures is different than what we’ve seen from some courts that have held that it’s reasonable to expect consumers to flip a package over and look at relevant information on other sides. Click here, for an example. Glad indicated they would appeal that portion of the decision, so we’ll need to see what NARB says. In the meantime, this case is a reminder that NAD continues to have high expectations for advertisers making claims on packages (and arguably low expectations for consumers reading them).

Last year, for example, a California federal court ruled on a case in which a plaintiff claimed that the term “fruit naturals” on the front of fruit cups made by Del Monte Foods misled her into thinking that the products “contained only natural ingredients,” when that wasn’t the case. Del Monte argued that reasonable consumers wouldn’t be misled because the back of the cups clearly discloses that they include ingredients like citric acid, potassium sorbate, and sodium benzoate.

The court held that the term “fruit naturals” does not “make any affirmative promise about what proportion of the ingredients are natural” and was, therefore, ambiguous. The court found that “such ambiguity can be resolved by reference to the back label, which clearly discloses the inclusion of multiple synthetic ingredients.” Moreover, the use of “general knowledge and common sense” would lead consumers to understand that the product included some synthetic ingredients.

In contrast, consider a case that NAD initiated involving claims on the front of Quilted Northern packages advertising that the toilet paper was made “sustainably.” Because that term is ambiguous, NAD considered whether the advertiser had effectively qualified it. In that case, the advertiser included an explanation on the front of the package. NAD didn’t think that was sufficient, though, because the claim appeared at the top, the explanation appeared at the bottom, and there were a lot of other things in between. Similarly disclosures on the back of the package couldn’t cure the issue NAD found on the front.

What would the FTC think? Odds are they’d be closer to NAD’s position. We’ve already seen that in some contexts – such as the revised Endorsement Guides – the FTC has taken stricter positions on what is necessary for a disclosure to be clear and conspicuous, often insisting that it must be “unavoidable.” And when the FTC announced in 2022 that it was seeking input on ways to modernize its .com Disclosure Guidelines, the tone of the press release suggested that more stringent requirements were on the way.

What does this mean for you? It depends what side of the argument you’re on. If you’re an advertiser facing a class action lawsuit over claims on your packages, a growing number of cases suggest you should be able to rely on disclosures that appear on those packages. However, if you are looking to challenge a competitor over claims on its packages, a growing number of cases suggests that NAD may be a friendly forum for you to bring your challenge.

The rule’s reach is expansive: it establishes prohibited claims, mandates disclosures, prohibits certain categories of add-on products, requires express, informed consent for charges and prescribes how to obtain that consent, and imposes weighty recordkeeping requirements. As drafted – and barring judicial review – the rule will result in fundamental changes to the way vehicles are currently marketed and sold in the U.S.

We first highlight three key takeaways, then take a closer look at the rule’s requirements below.

1. The final rule is narrower in scope than the proposed rule. Some disclosure and consumer consent requirements appearing in the FTC’s initial proposal from June 2022 are absent from the final rule. For example, the final rule does not require dealers to present consumers with “add-on lists” detailing all optional add-on products or services and their prices, or obtain signed declinations from consumers before charging for such optional add-ons. (“Add-ons” are generally defined as any products or services that consumers are charged for when buying a car and which are not installed or provided by the vehicle manufacturer.)
2. The FTC will be able to seek monetary relief, including consumer redress and civil penalties, for rule violations. Section 19 of the FTC Act specifically allows the FTC to seek monetary relief in cases involving rule violations. Once the final rule goes into effect (and assuming no court interference), the FTC will be able to seek monetary relief whenever dealerships make prohibited misrepresentations to consumers or fail to follow other enumerated requirements. Section 5 of the FTC Act separately authorizes the FTC to seek civil penalties for violations of rules.
3. The final rule’s recordkeeping requirements are extensive, and failure to follow them will subject dealers to monetary penalties as well. All motor vehicle dealers covered by the rule will be required to keep copies of records demonstrating compliance with the rule. This includes materially different ads, sales scripts, training and marketing materials, purchase orders, financing and lease documents, written communications with consumers about sales, consumer complaints and inquiries related to sales or add-ons, and others. Records must be kept for a period of two years from the date of creation, and failure to do so is considered a violation of the rule.

Prohibited Misrepresentations

The rule prohibits motor vehicle dealers from making misrepresentations regarding “material” information relating to a number of enumerated topics. Some are obvious and expected, such as misrepresentations about:

• costs or terms of purchasing, financing, or leasing a vehicle (for example, total costs, down payments, interest rates, repayment schedules, or financing options);

• costs and other features of add-ons (for example, that an add-on is required, the add-on’s benefits, or a consumer’s right to cancel an add-on);

• availability of a specific vehicle at an advertised price;

• whether the consumer is purchasing or leasing a vehicle;

• any information on or about a consumer’s application for financing, including the consumer’s income or down payment amount; or

• conditions of repossession.

Others, however, are not as straightforward. For example, dealers may not advertise a price that accounts for rebates or discounts not available to all consumers. For example, if a rebate or discount applies only to the most expensive version of a vehicle make and model or is only available to consumers with high credit scores, it cannot be included in the advertised price. Dealers may advertise limited rebates or discounts only if they clearly and conspicuously disclose those rebates’ limitations.

Yet other categories have little to do with car-buying specifically, such as the prohibition on misrepresenting that consumer reviews or ratings of the dealer’s services are unbiased, independent, or ordinary consumer reviews or ratings. This prohibition underlines the agency’s continued focus on endorsement and review practices across industries.

Required Disclosures

The rule requires dealers to disclose three types of information in a way that is “clear and conspicuous.”

First, dealers must disclose the offering price whenever referencing a specific vehicle, whether in ads or in a consumer communication. The “offering price” is the full cash price at which a dealer is willing to sell the car; dealers are permitted to exclude only required government charges from this amount. The offering price must include any preinstalled or required add-on charges. It also cannot reflect rebates or discounts not available to typical consumers.

Second, dealers who offer optional add-ons to consumers must disclose that the add-ons are not required in order to purchase the vehicle.

Third, any claims about monthly payment amounts trigger required disclosures regarding the total amount the consumer will pay based on those monthly payments. And if consumers are presented with multiple payment options at different monthly payment amounts, dealers must also disclose if opting for a lower monthly payment will increase the total cost of the vehicle. The goal here is to avoid framing a payment option as less costly based on lower monthly payments alone, when in fact the total cost is higher or the deal reflects a balloon payment at the end.

Prohibition on Add-Ons that Provide No Consumer Benefit

Perhaps one of the most vague and open-ended mandates in the rule is the prohibition on charges for add-ons “if the consumer would not benefit from such an Add-on Product or Service.”

Staff suggests it will use objective standards to evaluate consumer benefit, such as whether the consumer is eligible to use the add-on; whether the add-on’s coverage excludes the vehicle at issue; and whether the add-on will actually work on the vehicle.

It also provides several examples of add-ons it considers of no benefit, including: nitrogen-filled tires when the tires contain no more nitrogen than exists in the air; products or services that don’t cover the vehicle or are duplicative of the vehicle’s warranty; rust-proofing products that don’t prevent rust; theft-prevention products that don’t prevent theft; engine oil-change services for electric cars; or software subscription services for vehicles that do not support that software.

While the examples are illustrative, the “no benefit” standard remains amorphous and potentially subjective. Auto dealers will need to consider the standard in light of the provided examples and be able to provide a reasoned analysis to support benefits of add-on products and services.

Express, Informed Consent for Charges

Dealers are required to get express, informed consent for all charges. Consumers must affirmatively consent to charges after receiving information about the purpose and amount of the charge. Express, informed consent can’t be obtained through signed contracts alone, or through documents with pre-checked boxes or featuring any design or template intended to manipulate users.

Recordkeeping Requirements

All auto dealers will be required to create and retain any records necessary to demonstrate compliance with the rule. Enumerated categories of information include (but are not limited to) advertisements and marketing materials; sales scripts and training materials; purchase orders; financing and leasing materials; written consumer communications relating to sales, financing, or leasing; add-on service contracts and GAP agreements; and consumer complaints related to sales, financing, leasing, or add-ons. Records must be retained for two years from the date of creation.

In justifying the rule’s recordkeeping burden, the FTC references the Telemarking Sales Rule, 16 CFR 310.5 (“TSR”), and the Business Opportunity Rule, 16 CFR 437.7 (“BOR”), noting that both require covered entities to retain certain records for a specified period of time to demonstrate compliance. While it’s true that these rules do require some record retention, the burden here is indisputably higher and seems more akin to recordkeeping mandates in FTC consent orders. Indeed, Staff references such order requirements in justifying the rule’s recordkeeping burden. The obvious logical gap is that auto dealers covered by the rule have not been accused of any wrongdoing nor placed under an FTC order. Nevertheless, if they fail to maintain all records required under this section, they will be in violation of the rule and subject to monetary penalties under Section 19.

If the rule goes into effect as drafted, auto dealers will need to overhaul recordkeeping practices significantly to ensure they can demonstrate compliance with the rule if faced with an FTC investigation.

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As noted above, the rule’s effective date is in July 2024. We’ll be watching this space closely for possible court challenges and ensuing FTC enforcement activity.

Initially proposed in 1972, the Guides have long set guardrails for the use of endorsements and testimonials in advertising, at the time focusing on mediums such as TV, radio, and written publications. The Guides were revised in 1980 and 2009 to address new advertising law principles and reflect more recent uses of endorsements and testimonials. Though the Guides themselves are not trade rules that carry civil penalties, they provide a roadmap of how the FTC will approach enforcement under its Section 5 authority for endorsements and testimonials. Back in February 2020, we reported that the FTC was seeking public input on potential changes to the Guides to better address the current advertising landscape, including social media influencers. The FTC reviewed over a hundred comments from individuals, academics, trade associations, and companies and presented their proposed revisions during last week’s open meeting.

The proposed changes demonstrate the FTC’s interest in addressing evolving advertising practices and methods targeting consumers of all ages, especially on the internet and through social media. The proposed changes also suggest that this FTC will continue to push the envelope from prior standards in evaluating when advertising will be considered unfair or deceptive under the FTC Act. While not expressly proposed in the revised Guides, the preamble expresses skepticism that existing disclosure tools offered by social media platforms are adequate, for example, where the tools create superimposed disclosures on images that are unlikely to be seen or where disclosures appear above, rather than below, a picture or video where a consumer may not look.

Interested parties have 60 days to comment from publication in the Federal Register, which should occur shortly. Changes proposed include:

• Define “clear and conspicuous.” The Guides would include a stricter definition of “clear and conspicuous” which would require disclosures to be unavoidable, particularly by social media users. The revised definition would also provide that a disclosure must appear through the same means as the triggering claim (i.e., if the triggering claim is made both visually and audibly, then the disclosure must also appear both ways).
• Expand Liability to Advertisers, Endorsers, Intermediaries, and Platforms. The proposed Guides clarify that all parties in an advertising transaction may be liable for their role in endorsements. Intermediaries, such as advertising agencies, may be liable for their roles in disseminating what they knew or should have known were deceptive endorsements. Additionally, platforms could also be liable for facilitating misrepresentations if they lack appropriate built-in disclosure tools. And as we know from recent FTC actions and guidance, endorsers (such as influencers) themselves can be liable for their representations.
• More Detailed Guidance on Consumer Reviews. Building on recent FTC guidance and enforcement regarding misleading consumer review practices, the revised Guides would clarify that businesses are responsible for the presentation of their consumer reviews and that companies may be liable for moderating consumer reviews in a way that overstates positive reviews while discouraging or disfavoring negative reviews. Proposed examples of misleading conduct include deleting or not publishing negative reviews, buying “fake” reviews, and review gating (i.e., encouraging positive reviews and avoiding negative reviews).
• Expand Disclosure Discussion on Atypical Results for Consumer Endorsements. The FTC is proposing to add to existing section 255.2(b) to clarify “that the disclosure of the generally expected performance should be presented in a manner that does not itself misrepresent what consumers can expect.” The proposed changes also include new and revised examples, which reflect more stringent expectations related to disclosures of generally expected results where such disclosures qualify a consumer endorsement promoting an atypical result. Moreover, while not expressly acknowledging the change, the FTC also appears to be proposing to delete an existing reference in a footnote stating that “the Commission cannot rule out the possibility that a strong disclaimer of typicality could be effective in the context of a particular advertisement.”
• Expand the Definition of Endorser. The FTC proposes that the Guides expand the definition of “endorser” to encompass the emerging trends of advertisers relying on artificial or virtual influencers.
• Provide Additional Examples for Influencer Marketing. While the Guides have long specified that material connections must be clearly and conspicuously disclosed, the proposed revisions provide new examples of material connections that necessitate disclosure, including the provision of free or discounted products or the possibility of winning a prize, of being paid, or of appearing on television or in media promotions.
• Include the Targeted Audience in Evaluation of Disclosure. When assessing whether a disclosure is clear and conspicuous, the revised Guides would evaluate whether a specific targeted audience would have understood the disclosure. As part of this proposal, the FTC is also considering a section that addresses advertisements specifically targeted to children and the elderly. The FTC announced it will host a workshop to address this issue on October 19, 2022.

While some of the principles embodied in the proposed revisions have been articulated in previous guidance and enforcement, other principles are new. We encourage you to review the proposed changes and assess how they impact your practices related to endorsements and testimonials. Before the proposed changes to the Guides are finalized, the FTC is required to consider and respond to comments submitted in writing, which as noted above are due within 60 days of publication in the Federal Register.

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Teachers were instructed to apply by the stated deadline, and the application process required that entrants provide their personal contact information, as well as copies of their employee badges and work email addresses. Many thought that they would receive, or at least have a good chance to receive, a free dress. Unfortunately, that was not the case. Although the Instagram post contained caveats that the “offer [was] valid while supplies last[ed]” and that the “winners” would be notified, it did not disclose that only 250 teachers would receive a free dress.

After receiving close to 1 million entries, Draper James announced that the offer was a sweepstakes and provided all entrants with a coupon for 20 to 30% off. The inevitable resulted: complaints, angry comments on social media, and a class action lawsuit alleging, among other things, breach of contract and violation of the California Consumer Legal Remedies Act and Unfair Competition Law. The complaint, initially filed in Los Angeles County Superior Court but removed last week to the U.S. District Court for the Central District of California, alleges that Draper James made an offer, promising new dresses in exchange for entrants providing their personal contact and employment information, and then breached that promise. That entrants, even if they did not receive a free dress, were added to the brand’s email marketing database only added fuel to the fire. The plaintiffs seek restitution and disgorgement, as well as injunctive relief.

This promotion and its issues highlight the fact that, even if a business is trying to do good, things can go wrong. It is important that businesses communicate the material terms – including any restrictions or limitations – of any promotion. When that promotion is a sweepstakes, official rules are a must, as they lay out the specifics (e.g., winner selection, prize quantity) and provide protections for the business. For more information on structuring and advertising sweepstakes and contests, please check out our podcast or reach out to us directly.

For additional information see our new Advertising and Privacy Law Resource Center (https://www.kelleydrye.com/Advertising-and-Privacy-Law-Resource-Center), an online hub for advertising, privacy, and consumer protection legal information.

Also see the following Ad Law Access blog posts:

• Yoga Influencers’ Disclosures Show Limits of Flexibility
• SEC KOs Mayweather and DJ Khaled for Promoting Cryptocurrency Without Disclosures
• CA Court Considers When Disclosures Can Modify Claims
• Beyond “Clear and Conspicuous”: FTC Workshop Highlights Issues Related to Testing of Consumer Disclosures
• FTC Clarifies Standard for Clear and Conspicuous Disclosures

At the outset, the ERSP reminded Alo that an “individual does not have to say something positive about a product for a social media post to be considered an endorsement covered by the FTC Act. Simply posting a picture or video of a product, or, similarly, tagging a brand in the post, could convey the message that a person likes and approves of a product, and, therefore, may be an endorsement.” That endorsement triggers a disclosure requirement.

Although some influencers did disclose their connection to the company, ERSP took issue with the way some disclosures were made. For example, one influencer used the hashtag #ad – which is generally considered to be sufficient – but ERSP worried that it would get lost in the middle of 23 other hashtags. Also, some influencers used foreign words in their disclosures – such as #incollaborazionaloyoga – potentially making them hard for viewers to understand.

ERSP commended Alo for drafting guidelines that were based on the FTC’s Endorsement Guides and sharing them with its influencers, but reminded the company that simply telling influencers what they have to do is not enough. Companies also need to monitor compliance with their guidelines and take steps to address influencers that don’t comply. Moreover, companies should not re-post influencer posts that don’t include the appropriate disclosures.

Influencers and companies have some flexibility in how they make disclosures and structure their campaigns, but this case demonstrates that there is a limit to that flexibility. Disclosures have to be made in a way that viewers are likely to see and understand them. And companies can’t just give their influencers guidelines, and hope for the best. Instead, they need to take an active role in the campaigns to ensure they comply with the law.

The FTC filed its complaint back in March 2015 in the U.S. District Court for the Northern District of California and pointed to allegedly deceptive hard copy advertisements and internet sales through DirecTV's website. The complaint alleges violations both of the FTC Act and the Restore Online Shoppers' Confidence Act (ROSCA), which imposes specific requirements on negative option offers on the internet. DirecTV filed an unsuccessful partial motion for summary judgment on the ROSCA claims, as we previously discussed here.

More than two years after the initial complaint, settlement discussions fell through when FTC Commissioner Terrell McSweeny indicated she would not support an undisclosed settlement based on skepticism about the scope of equitable monetary relief and injunctive relief of the settlement. The $3.95 billion figure espoused by FTC attorneys in the first day of the bench trial sheds some light on why earlier negotiations may have ultimately fell through.

In the second day of trial, the FTC pressed DirecTV executives -- now part of AT&T, Inc. -- regarding the percentage of consumers misled by its billing practices according to internal surveys. The executive argued that, while there was indeed some evidence of consumers being confused about pricing practices, he did not believe such confusion was related to DirecTV's subscription price increases or early termination fees.

And in the third day of trial on Thursday, DirecTV's former chief sales and marketing officer Paul Guyardo testified that he instructed his team to place the disclosure at the bottom of the page in small font. When certain team members expressed concerns, Guyardo told them to proceed because he didn't think the disclosure needed to be prominent at that point in the marketing campaign, according to his testimony. The requisite size and location of disclosures for promotional offers is at the heart of the case.

The trial is expected to last a few weeks and is being presided over by U.S. District Judge Haywood S. Gilliam Jr.