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When is a blog a sponsored endorsement? FTC revises testimonial guidelines to cover consumer-generated content

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Publications
8 OCT 2009

When is a blog a sponsored endorsement? FTC revises testimonial guidelines to cover consumer-generated content
INTELLECTUAL PROPERTY AND TECHNOLOGY ALERT

Scott W. Pink

On October 5, 2009, the Federal Trade Commission issued its revised Guides for the Use of Endorsements and Testimonials in Advertising. This is the first major revision of the Guides in about 30 years and reflects an attempt by the FTC to address evolving concerns posed by emerging digital advertising channels. A major focus of the Guides was clarifying when consumer-generated media constitutes an endorsement under the Guides. The Guides now make clear that both the blogger and the advertiser can be held liable for false or unsubstantiated endorsements made online. The FTC also addressed a number of other issues, including celebrity liability for endorsements, the elimination of the “safe harbor” for non-typical testimonials and the use of endorsements by organizations. All of these changes will require advertisers to make significant changes in how they use endorsements and testimonials in their advertising. The Guides, which take effect on December 1, 2009, are advisory in nature, but they reflect how the FTC would apply Section 5 of the FTC Act, which prohibits false and deceptive trade practices, in the context of endorsements and testimonials. The Application of the Guides to Consumer-Generated Content A. When is a blog an endorsement? In these revisions, a major focus of the FTC is to clarify when the Guides apply to an endorsement made through new media. It is now a relatively common practice for companies to use social media, such as blogs, to capture consumer reviews and endorsements of products. The question is when the consumer’s positive review or claim about a product constitutes an endorsement such that it becomes subject to the Guides and potential FTC enforcement for unfair and deceptive practices in violation of Section 5 of the FTC Act.

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10/8/2009

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The FTC attempts to answer this question by adding a new Example 8 to Section 255.0 of the Guides. Example 8 provides three different scenarios in which a consumer posts a review of a product on a blog. Each of the first two are not considered an endorsement under the Guides, whereas the third is: Not an endorsement: A consumer who purchases a product with her own money and posts an opinion or review on her personal blog. Not an endorsement: Same scenario as above, but the consumer gets the product for free because the advertiser tracks the consumer’s purchases and sends the consumer a coupon for a free product. Endorsement: The consumer is part of a networking marketing program under which she periodically reviews products and receives a free product about which she writes a review. These examples show that the greater the degree of coordination between the consumer and the advertiser, the more likely the consumer’s blog about a product could be considered an endorsement subject to the Guides. Advertisers (that is, companies whose products are being advertised) will therefore need to analyze any programs they have in place to solicit consumer feedback to determine if such feedback might be covered by the Guides. B. What is the liability of the blogger and advertiser for a false endorsement? The Guides also clarify that if a consumer posts a blog about a product that is considered an endorsement under the Guides, both the consumer and the advertiser could be held liable for false or unsubstantiated statements. The FTC provides an example of a skin-care products company that participates in a blog-advertising service that matches up advertisers with bloggers willing to promote the advertisers’ products on their personal blogs. If the blogger claims that the skin-care product cures a particular condition, and that claim is not otherwise substantiated, both the blogger and the advertiser could be subject to liability for misleading or unsubstantiated representations made through this blogger’s endorsement. To minimize this potential liability, the FTC recommends that advertisers provide guidance and training to bloggers emphasizing that any endorsements need to be truthful and substantiated. Advertisers are also advised to monitor bloggers who are being paid to promote products and to halt continued publication of deceptive representations when they are discovered. Advertisers should consider implementing policies and procedures to ensure that they are taking necessary steps to ensure compliance with the Guides. C. Do the blogger and advertiser have to disclose material connections? Another area of focus of the FTC was the requirement that advertisers and endorsers disclose any material connections between them when making endorsements. The general standard is that a connection must be disclosed if that connection might “materially affect the weight and credibility of the endorsement.” The FTC observed that, in the context of consumer-generated content, the endorser should bear the primary responsibility for disclosing any material connections. However, the advertiser also has certain obligations in this context: the advertiser should establish procedures to advise sponsored online endorsers to make the necessary disclosures and to monitor such endorsers to ensure compliance with this requirement. The FTC tried to provide guidance on when a material connection might exist in the online context. For instance, providing free products to a blogger for review or to a participant in a network marketing program creates material connections that might need to be disclosed. The Guides provide several new

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10/8/2009

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examples to indicate when such connections must be disclosed. The first example involves a video game expert who maintains a personal blog about his gaming experience. If a manufacturer of a video game system provides the expert a new gaming machine for free, and the endorser provides a positive review, the blogger is required to disclose that fact and the manufacturer is required to advise the blogger to make that disclosure. The second example involves an online message board of new music download technology frequented by MP3 player enthusiasts. If employees of a manufacturer of such technology post positive reviews of that manufacturer’s product on the message board, the employees should clearly and conspicuously disclose their relationship to the manufacturer. This example illustrates the need for companies to put in place policies and employee training that addressthe use of message boards and blogs to discuss a company’s products and services. The third example involves a viral marketing program in which consumers are given incentives to “spread the word” about an advertiser’s products--for example, a program giving points to consumers who speak to their friends about a particular advertiser’s product and then can exchange those points for prizes. The consumer should disclose the incentives and the advertiser should take steps to ensure the incentives are disclosed. The FTC also stated that celebrities have a duty to disclose their relationships with advertisers when making endorsements outside the context of traditional ads, such as on talk shows or in social media. An example is a celebrity that has been engaged as a spokesperson for a laser vision surgery clinic. If the celebrity touts the results of her laser vision surgery – mentioning the clinic by name – on a social networking site that allows fans to read in real time what is happening in her life, the celebrity is obligated to disclose her relationship to the clinic. Other Important Changes to the Guides A number of other important changes and clarifications not specifically tied to the use of social media in advertising were made to the Guides. The following is a brief summary of the key changes: The FTC clarified that the determination of whether a statement constitutes a testimonial or endorsement must be made solely from the perspective of the consumer. The question is whether the consumer is likely to view the statement as reflecting the view of the endorser, rather than that of the advertiser. The FTC added language specifically stating that celebrity endorsers may be liable for statements made in the course of their endorsements. The FTC does not view this as a change, but as an explicit recognition of principles already made clear through enforcement actions. A celebrity cannot escape liability merely by reading a script; in reading the script, the celebrity is endorsing the product and making claims on the advertiser’s behalf, and thus must make reasonable inquiries about the substantive basis for any claims the advertiser wishes to make. The FTC eliminated a safe harbor disclaimer for non-typical claims. The general rule is that an endorsement or testimonial must be representative of what consumers will generally achieve with an advertised product and the advertiser should possess and rely upon adequate substantiation for the claims being made. Under the old Guides, an advertiser could use a “non-typical” experience as an endorsement as long as the advertiser disclosed that the endorser’s experience was non-typical. This disclaimer is no longer a safe harbor under the new Guides. Now, if an advertiser wants to use a nontypical experience as an endorsement, the advertiser must also disclose the “generally expected” experience of consumers.

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10/8/2009

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This new “generally expected” disclosure requirement will require advertisers to be more careful in ensuring that they have adequate substantiation for any claims made in endorsements, whether or not the results that are claimed are typical. This may involve conducting data collection and analysis to support the generally expected result that is disclosed. In addition to requiring the disclosure of material connections in the context of social media, the FTC also clarified that if a company that refers in an advertisement to the findings of a research organization that conducted research sponsored by the company, the advertisement must disclose the connection between the advertiser and the research organization.

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10/8/2009


				
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