FTC Regulates Blogger, Viral Marketing Relationships: Analysis and compliance tips

The Federal Trade Commission (FTC) is regulating the use of blogs and other consumer-generated new media content in marketing. Revised advertising rules issued by the agency broadly extend the concept of endorsements and testimonials to include as sponsored advertising all sorts of loose new media relationships that are increasingly used in place of traditional radio and television advertising and paid endorsements.  These rules fundamentally change the legal and regulatory landscape for Web 2.0 marketing and should be studied carefully by bloggers, marketers and online advertising agencies, all of whom will now have to contend with new compliance obligations.

On October 5, the FTC issued its final revised Guides Concerning the Use of Endorsements and Testimonials in Advertising, the first rewrite of the Guides since 1980.  Under the revised rules, which go into effect on December 1, companies that make payments or give free products to bloggers and other online commentators in order to generate positive buzz or favorable reviews for their products will now have to monitor closely the statements and claims made about the products and ensure that these relationships, if material, are clearly and conspicuously disclosed.  Otherwise, they will face liability for unfair or deceptive advertising practices under Section 5 of the FTC Act, even if they do not control what the bloggers say (or, indeed, whether they say anything).  The bloggers themselves will face similar liability for false or misleading statements and non-disclosure of material connections.  Marketers are also responsible for advising bloggers of their responsibilities.

While not actually binding law, the Guides serve as administrative interpretations of the law, issued to provide guidance on what the FTC considers to be deceptive behavior.  However, this does not mean compliance is optional.  Violations are punishable by civil penalties of up to $11,000 per violation. In addition to the regulation of Web 2.0 marketing which is the focus of this article, the Guides also include other significant changes, such as a new requirement that testimonials which do not describe typical consumer experiences must include clear and conspicuous disclosures of the results consumers can generally expect to achieve by using an advertised product.

By its very nature Web 2.0 marketing encompasses a variety of informal and fuzzy relationships which fall within the purview of the FTC’s new rules even though they are qualitatively different from traditional uses of endorsements in advertising.  For example, a marketer may provide unsolicited samples of its products to members of a blogger network who sign up for the network so that they can review the products on their sites.  Or a marketer may supply a product, such as a video game, to one particularly well-read blogger known as an expert or authority in his area in the hope of gaining a positive review.  Or the marketer may institute a word-of-mouth or viral marketing scheme where participants receive something of value (such as a payment or an entry in a sweepstakes) to e-mail their friends or send out tweets about the marketer’s product.  All of these relationships may now be characterized by the FTC as endorser-advertiser relationships, wherein both the “endorser” (i.e., the person generating the content about the product) and the “advertiser” (the marketer) must ensure the absence of false or misleading statements and the “clear and conspicuous” disclosure of connections that are not reasonably expected by the target audience and are likely to influence purchasers’ assessment of the credibility of the statements.

When is a Favorable Post an “Endorsement”?

The Guides define an “endorsement” as an advertising message that consumers will likely believe reflects the opinions, beliefs, findings or experience of a party other than the sponsoring advertiser, whether the endorser’s statements are the same as or different from the sponsoring advertiser’s.  Knowing the level of incentive that turns blogger commentary into a compensated “endorsement,” thereby rendering both the blogger and the advertiser potentially liable for failure to disclose material connections and for deceptive statements, is critical.  The FTC notes on page 10:

“[A] blogger could receive merchandise from a marketer with a request to review it, but with no compensation paid other than the value of the product itself. In this situation, whether or not any positive statement the blogger posts would be deemed an “endorsement” within the meaning of the Guides would depend on, among other things, the value of that product, and on whether the blogger routinely receives such requests. If that blogger frequently receives products from manufacturers because he or she is known to have wide readership within a particular demographic group that is the manufacturers’ target market, the blogger’s statements are likely to be deemed to be “endorsements,” as are postings by participants in network marketing programs. Similarly, consumers who join word of mouth marketing programs that periodically provide them products to review publicly (as opposed to simply giving feedback to the advertiser) will also likely be viewed as giving sponsored messages.”

The Guides cite as an example a consumer who purchases a new brand of dog food and reviews its favorably on her personal blog.  If she purchases the dog food with her own money or gets it for free because the store routinely tracks her purchases and generates a coupon for a free trial bag of the new dog food, there is no endorsement.  However, if the consumer gets the dog food as a result of joining a network marketing program under which she periodically receives various products about which she can write reviews if she wants to, her positive review will be considered an endorsement.  As another example, a college student who has earned a reputation as a video game expert receives (as he has in the past) a copy of a newly released video gaming system along with a request from the manufacturer to write about it on his blog.   He tests it out and gives it a favorable review.  This is also an endorsement, and the FTC comments that because the review is disseminated via a form of consumer-generated media in which his relationship to the advertiser is not inherently obvious, and given the value of the gaming system, the blogger should clearly and conspicuously disclose that he received it free of charge.  Furthermore, “[t]he manufacturer should advise him at the time it provides the gaming system that this connection should be disclosed, and it should have procedures in place to try to monitor his postings for compliance.”  (Here the blogger would also have to comply with the FTC’s rules on the use of expert statements in advertising.)

In one of the Guides’ most controversial examples, a skin care product manufacturer participates in a blog advertising service that matches up advertisers with reviewers.  The marketer requests that the blogger try out its new body lotion and write a review.  The blogger, totally on her own initiative and without any direction from the manufacturer, makes an unsubstantiated recommendation that the product cures eczema.  Both the manufacturer and the blogger will be liable for the unsubstantiated claim and any failure to disclose that the blogger is being paid.

The FTC has explained that the purpose of the new rules is to treat new media in the same manner as traditional journalistic and advertising outlets.  However, as a practical matter, many businesses treat these channels differently and will have to scramble to implement the necessary monitoring and enforcement mechanisms.  When a business buys a conference sponsorship, for example, in the hope of generating some positive online buzz, is anyone at the sponsor giving the conference organizer’s blog and Twitter emissions at compliance review?  Indeed, the whole point of marketing to bloggers and through social media is to support a spontaneous and unforced style of commentary that has greater authenticity for cynical, tech-savvy consumers.   Of course, in response to such comments the FTC has countered that its rules are designed precisely to protect consumers’ ability to rely on this quality of the blogosphere in making purchasing decisions.   Controlling what bloggers say is not relevant; what matters for liability purposes is whether “the advertiser initiated the process that led to [the] endorsements being made – e.g., by providing products to well-known bloggers or to endorsers enrolled in word of mouth marketing programs ….”

Playing the Compliance Game

Unfortunately, corporate legal departments will now have to extend the long arm of compliance over a whole host of Web 2.0 marketing activities that until now may have been loosely policed, if at all.   “In employing this means of marketing,” the FTC dryly observes, “the advertiser has assumed the risk that an endorser may fail to disclose a material connection or misrepresent a product, and the potential liability that accompanies that risk.”  However, it also states that in the exercise of prosecutorial discretion it will consider “the advertiser’s efforts to advise these endorsers of their responsibilities and to monitor their online behavior ….”

What this means for companies is that they will have to design a compliance and monitoring program.  What it means for online advertising agencies is that they can expect new restrictions and levels of review from clients over their Web 2.0 marketing activities and should also expect to assume a role in their clients’ compliance and monitoring programs.  Companies will want to get a handle on what their marketing departments are doing to curry favor with bloggers and create buzz through viral online marketing and will be especially anxious to herd advertising and PR agencies into the corral, since the companies are legally responsible for the actions of these third-party agents.

If compensation, free products or other valuable incentives (such as sponsorships) are being offered in the hope of stimulating positive reviews, then the company will need to institute and document a process of advising bloggers and other new media commenters about their duty to disclose material connections and the limits on the factual claims they can make about a products and its beneficial effects.   There should also be periodic monitoring of the resulting posts, with documented follow-up action if necessary, to make sure they comply with the FTC’s endorsement guidelines.
If blogger relationships are managed through an advertising or PR agency, then the agency will likely have to provide detailed information for each campaign about its contacts with bloggers and will have to share in the responsibility of conveying the advertiser’s guidelines to them and monitoring their compliance.   Companies should include a specific allocation of responsibilities with respect to these issues in written contracts with their agencies.  At the very least, a company should reserve the right to audit and pre-approve an agency’s solicitation of bloggers so that the company knows which bloggers the agency is dealing with and whether the relationships are of a type that could lead to advertiser-endorser liability and can monitor the bloggers’ posts about the company’s products.

If this compliance burden is too onerous for companies and their online advertising agencies, the alternative is to implement policies that prohibit the payment of compensation or giving away of valuable products in the hope of generating positive online buzz.   Favorable reviews are not “endorsements” within the meaning of the Guides unless they have been incentivized in some way.

Tips for Bloggers

As for bloggers and other online commenters, they should be sure to disclose any compensation or benefits they receive to comment on products and, if they do have such a connection to an advertiser, should be very careful to follow the guidelines furnished by the advertiser or its advertising agency (which the advertiser is required to provide) and not make general or sweeping factual claims about the product or any claim that can’t be easily substantiated.  If a blogger chafes at submitting to this degree of oversight and control, he always has the option of buying the product himself, for example, rather than receiving it as a freebie.  The FTC has indicated that advertisers and not bloggers will be its main enforcement target.  However, a blogger who runs a “substantial operation” that violates the rules and who receives a warning will still be at risk.  Moreover, the FTC can adopt a more aggressive enforcement stance at any time.

The FTC’s rulemaking will heavily influence the way marketers generate buzz on the Internet and warrants close scrutiny of participation in blogger and viral incentive programs by all parties involved.

About Andrew M. Baer, Esq.

You can find Andrew Baer on Twitter @baerbizlaw.

  • http://www.whoisandrewwee.com andrew wee

    I wonder how well thought out these initiatives are, given that editorial content is typically under the purview of the FCC (Federal Communications Commission). Since the recommendation/endorsement, shouldn't be FCC be in a better position to set up guidelines between editorial/advertorial/advertising content?

    Pending a concrete set of rules, these guidelines seem to leave a lot of room for interpretation and will likely involve lots of unintended consequences that the commission probably has not thought through.

  • http://www.bloggingwithchris.com Chris Peterson

    Hi Andrew Baer,

    I agree with Wee that they are in gray area. But let's hope, with some white in it, there is definitely some positive possibility of getting good results for the bloggers & readers as well.

  • Tim Townsend

    I have not been incentived by the FTC to leave this comment. Now that full disclosure is out of the way, I wonder how they think they can pay for all this policing of the internet. If the FTC hopes to pay for it with fines it just turns into another back door tax on businesses in an already tough economy. The majority of consumers don't need to be told that blogs are not 100% reliable information. If the FTC was really concerned about this they could run ads to educate more consumers about electronic media. The FTC selected this direction to raise money through fines because a additional taxes would be unpopular. If you vote for democrats you get more taxes, they are just savvy enough to hide them as fees and fines these days.

  • http://www.iphoneness.com Panah Rad

    Hi Andy,

    Great article. Can you give more tips on how the disclosure should happen? Let's say you are an affiliate marketer for eBay. Do you just disclose it on your disclosure page or do you have to basically state your relationship after each and every post.

    Also, the lines are a bit blurry here. There are a lot of bloggers who are affiliate marketers as well. How far should we go with our disclosure.

  • http://Www.MoneyMaker-Tips.Com Gary

    Maybe this "cover our backsides" statement will keep us within the FTC rules compliance …

    "We are always amenable to being knowingly or unknowingly compensated by anyone for anything for doing something or nothing and any commissions, payments, remuneration, backhanders, gifts or items we didn't have before but do now either in any bank account, online affiliate account or in physical form dumped on our front porch or anywhere else on property or physical assets we own either wholly unencumbered or mortgaged to the hilt will have been received or given or sent or issued or posted or emailed to us or received by any other means after we have spent hours, days, weeks, months, years hovering over a computer screen tapping away endlessly attempting to produce online content, advertising, websites, blogs, ad narrative or any other words or images being visual, contextual, audible or any or all possible physical or mental sensory mediums that will enable us to show enough content, word arrangement, pretty or attractive images, videos or literally anything at all to be found of interest to anyone with a pulse such that they will be tempted or just remotely interested or as a direct result of our online efforts as hereinbefore mentioned or just aimlessly clicking out of boredom whilst reading the latest FTC ruling or any other voluminously unexplained pre-announcement of imminent stealth taxes/fines/imprisonment or generally what not to do and especially any lessons in how not to be able to earn a thing online or any or all descriptive terms used now or in the future to describe any issues now or in the future from any government funded, sponsored or otherwise agency either constitutionally elected or just put together on the spur of the moment body under the auspices of protecting the consumer to the end result they will eventually have no choice whatsoever and will only be able to purchase anything or nothing at the discretion of the latest ruling allowing for it"

    OK, now here's our ad narrative to entice you on the deal ….

    We got something here you might wanna buy ?

    We will make a profit if you do !

    Click here to buy ?

    Click here to leave ?

    Thanks and come back again soon :-)

  • http://kingcomforterset.blogspot.com brad

    Yea what Gary just said. But seriously. Does this also mean that Chuck Norris and Christy Brinkly will have to state that they are getting paid to say that they guarantee results from using their exercise equipment?

  • http://approvalsforwheels.com/ Don

    Like they are going to be able to police everyone.

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  • Tom

    Well, if I didn't have enough incentive with the taxes I am sure are comming from the obama admin, this may just be what it takes for me to take both my web site and my blog off shore.

  • http://bizop.ca michael webster

    1. The FTC regulatory power for this is to be found in Section 5(a) of the FTC Act, which give them the power to regulate misleading and deceptive advertising. In the end, the FTC is going to fine some advertisers for their lack of control over their affiliates – see the analogous case in MoneyGram.

    2. The real change here is not extending the 30 year old guidelines to online affiliates, but rather removing the safe harbor that disclaimers have typically enjoyed. I wrote about that issue here:
    http://www.bizop.ca/blog2/due-diligence/testimoni

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  • http://www.baerbizlaw.com Andrew M. Baer

    Panah raises a great concern, one I've heard elsewhere: what disclosure obligations do affiliate marketers have under the FTC rules and what if someone is both an affiliate and a blogger?

    In my view, the disclosure requirements don't apply to a typical sponsored ad run by an affiliate because someone looking at the ad is likely to understand it as advertising for which the site is (presumably) being compensated. The disclosure requirements apply to an "endorsement," which the new rules define as an advertising message that consumers will likely believe reflects the opinions, beliefs, findings or experience of a party OTHER THAN THE SPONSORING ADVERTISER, whether the endorser’s statements are the same as or different from the sponsoring advertiser’s. If a consumer perusing a site is likely to think it is the site owner or blogger speaking, not the seller of the product being written about, then there may be a disclosure obligation if the site owner or blogger is being comped or incentivized somehow for making the posts.

    If disclosure is required, it must be "clear and conspicuous." In FTC parlance, this requires, among other things, putting the disclosure somewhere near the post that constitutes the "endorsement" (i.e., the advertising). I would NOT bury it in the site T&C's — the FTC has criticized this practice in other contexts involving online advertising. So if there are multiple posts that constitute endorsements, you may need to include a short disclosure at the end of each post (unless you can associate a single disclosure with multiple posts in a way that makes it clear the disclosure relates to all of them).

    Having said that, I also don't think it is necessary to include a paragraph of legalese in each case. You might think about including a simple link entitled "Advertising Disclosure" after each post that causes a pop-up box to come up with a one-sentence disclosure (e.g., "The product reviewed by the author of this post was provided by ____ free of charge."). The bottom line here is that I don't think the FTC is going to take a hard line on bloggers, particularly where there is some good-faith attempt to comply (as described above). On the other hand, the product sellers may end up dictating what sort of disclosure they want, since they are also liable if the bloggers don't make the required disclosure.

    Finally, with regard to affiliate marketers who are also bloggers, a big question is what kind of incentive are they getting for writing favorable blog posts? Is it merely the affiliate advertising revenue (i.e., they want to say good things about the product they are being paid to run affiliate ads for) or are they getting something else too? The latter case is easier — I would say include disclosure near the relevant blog posts, as discussed above. In the former case, one could make the argument that the presence of the ad means consumers are likely to suspect that the site owner has a compensated relationship with the product seller and that the blog posts are therefore sponsored advertising. To be safe, I would probably still include some kind of short disclosure about the relationship, but the point is at least arguable. However, I think an ordinary blogger/affiliate running a site out of his house who isn't realizing a significant amount of revenue and hasn't previously been warned by the FTC is not facing a huge risk. (That said, the FTC may very well read ReveNews and disagree with me!)

    Now for my own disclosure: the foregoing is provided for informational purposes only and does not constitute legal advice on a specific matter. You should consult with an attorney before taking any definite action on this or any other legal matter. (Sorry, we have to say this!)

    Andy

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  • Rick

    Since when is the FTC allowed to enact laws? Answer…never. This is an INTERPRETATION of current law. In otherwords, the FTC can huff and puff all they want…..nothing has actually changed.

  • http://bizop.ca michael webster

    @Andy;

    1. When people see any sort of advertising on a web page, as reasonable consumers they should infer some compensation is paid to the owner if they: a) click, or b) click and perform some action. The placement of these type of ads, whether by adsense or affiliate, would not attract the attention of the FTC.

    2. However, the use of PPC advertising to take consumers from search to a landing page may very well attract FTC attention.

    3. Finally, the vast majority of affiliate marketers for income earning opportunities: a) suggest unrealistic earnings, but b) purport to qualify what they said in a) away with a disclaimer.

    It is this practice which attract a great deal of FTC action, in my view, because the FTC now argues that you cannot do a) and b), unless you have and disclose typical consumer experience. This are potentially very simply actions for the FTC to bring.

  • Artie Breml

    Here we go again; the govt getting involved in something that they totally don't understand – Internet commerce. I had to swallow real hard here – for a minute, I had a bad flashback, and thought Bush and his cronies were still in office. Amazing how the Obama administration has done nothing to shed itself of the Bush image. By the way, this all sounds totally nebulous to me – sounds like a lawyer that you find on the back of a matchbook cover, could drive major holes through this "regulation".

  • Mike Cooper

    So we the US taxpayers whom pay these thugs salary and are their actual employer…time to move for four years…

  • http://chazradical.com chazradical

    You have to figure the only way to police bloggers and endorsements is with some software or algorithm. You have millions of bloggers and maybe billions of ads.

    My suggestion would be to over disclose and turn the disclosure into a marketing ploy.

    For example, you might put in the disclosure that you receive affiliate commissions if the visitor clicks on a link and buys something, but put in bold that you were not provided a free sample to review nor were you paid to review the product.

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  • http://chazradical.com chazradical

    There are so many legal landmines in the new regs – equal protection (newspapers and bloggers treated differently regarding free book review copies), free speech, overbroad regs, selective enforcement, vagueness – that I would love to challenge. If I had time to waste and money to burn.

    Better to live under the radar.

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  • http://www.ppcsearchenginemarketing.org PPC Guy

    I'm tired of seeing get rich quick ads and other misleading ads on reputable sites such as FaceBook, FoxNews, USA Today. These are all scams and I'm glad that the advertising agency paying these publishers will not be responsible for the publisher's unethical practices.

  • http://www.infowheelchair.com waheed

    What happens if you are a site that compare the pros and cons of a particular group of products, does that make you an endorser?

  • http://popculturelinks.blogspot.com Blogger1

    If this can cut down on the scammers and junk mailers then I am all for it.

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  • rickmarteen

    Viral marketing depends on a high pass-along rate from person to person. If a large percentage of recipients forward something to a large number of friends, the overall growth snowballs very quickly. If the pass-along numbers get too low, the overall growth quickly fizzles.

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