Monday, October 12, 2009

Limited Impact on Bloggers of New U.S. Federal Trade Commission (FTC) Guides on Payola : Cloaked Endorsements & Testimonials in Advertising

There has been a lot of discussion about this issue recently on the web, but the impact of new FTC Endorsement Guideleines on bloggers has perhaps been overblown.

Let us review what happened before we go into the actual impact of the recently issued FTC Final Guides Governing Endorsements and Testimonials, which directly impact websites and blogs who take freebies, i.e. free products such as books or cameras or whatever, and write about them without disclosing that affiliate relationship.

It has been reported by other sources online and in the printed press that violators face possible fines of up to $16,000 [some sources have used the older figure of $11,000], but in fact, either amount, old or new, is only a remote possibility as a fine, since a blogger would first be served with a cease and desist order in any case, to stop whatever alleged payola activity was being done.

The FTC Guides provide:
"For Release: 10/05/2009
FTC Publishes Final Guides Governing Endorsements, Testimonials
Changes Affect Testimonial Advertisements, Bloggers, Celebrity Endorsements

The Federal Trade Commission today announced that it has approved final revisions to the guidance it gives to advertisers on how to keep their endorsement and testimonial ads in line with the FTC Act.

The notice incorporates several changes to the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising, which address endorsements by consumers, experts, organizations, and celebrities, as well as the disclosure of important connections between advertisers and endorsers. The Guides were last updated in 1980.

Under the revised Guides, advertisements that feature a consumer and convey his or her experience with a product or service as typical when that is not the case will be required to clearly disclose the results that consumers can generally expect. In contrast to the 1980 version of the Guides – which allowed advertisers to describe unusual results in a testimonial as long as they included a disclaimer such as “results not typical” – the revised Guides no longer contain this safe harbor.

The revised Guides also add new examples to illustrate the long standing principle that “material connections” (sometimes payments or free products) between advertisers and endorsers – connections that consumers would not expect – must be disclosed. These examples address what constitutes an endorsement when the message is conveyed by bloggers or other “word-of-mouth” marketers. The revised Guides specify that while decisions will be reached on a case-by-case basis, the post of a blogger who receives cash or in-kind payment to review a product is considered an endorsement. Thus, bloggers who make an endorsement must disclose the material connections they share with the seller of the product or service. Likewise, if a company 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. And a paid endorsement – like any other advertisement – is deceptive if it makes false or misleading claims.

Celebrity endorsers also are addressed in the revised Guides. While the 1980 Guides did not explicitly state that endorsers as well as advertisers could be liable under the FTC Act for statements they make in an endorsement, the revised Guides reflect Commission case law and clearly state that both advertisers and endorsers may be liable for false or unsubstantiated claims made in an endorsement – or for failure to disclose material connections between the advertiser and endorsers. The revised Guides also make it clear 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.

The Guides are administrative interpretations of the law intended to help advertisers comply with the Federal Trade Commission Act; they are not binding law themselves. In any law enforcement action challenging the allegedly deceptive use of testimonials or endorsements, the Commission would have the burden of proving that the challenged conduct violates the FTC Act.

The Commission vote approving issuance of the Federal Register notice detailing the changes was 4-0. The notice will be published in the Federal Register shortly, and is available now on the FTC’s Web site as a link to this press release. Copies also are available from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,700 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

MEDIA CONTACT:
Betsy Lordan
Office of Public Affairs
202-326-3707
STAFF CONTACT:
Richard Cleland
Bureau of Consumer Protection
202-326-3088

(FTC File No. P034520)

(endorsement testimonial guide.wpd)"

What do those Guides really mean in practice?

Edward Champion at Ed Rants writes at his 4th UPDATE on this topic, following up an Interview with the FTC’s Richard Cleland:
"UPDATE 4: In an October 8, 2009 interview with Fast Company, Cleland has backpedaled somewhat, claiming that the $11,000 fine is not true and indicating that the FTC will be "focusing on the advertisers." The problem is that page 61 of the proposed guidelines clearly states, "Endorsers also may be liable for statements made in the course of their endorsements." And endorsers, as we have established in this interview, include bloggers. However, Cleland is right to point out that the guidelines do not point to a specific liability figure and that it would take a blogger openly defying a Cease & Desist Order to enact penalties. "
Joe Ciarallo at PRNewser in FTC Clarifies Blogger Guidelines: 'We've Never Brought a Case Against Somebody Simply for Failure to Disclose' scoops the world in explaining the Guides as follows - after PRNewser talked to FTC assistant director Richard Cleland.
Ciarallo writes, inter alia:
"The root problem here is that reports that there is a monetary penalty for violating these guidelines is untrue. The FTC does not have the authority to impose a fine for a violation to the FTC act," says Cleland who heads the FTC's division of advertising practices. "There is a provision that allows for a proceeding in federal court that allows for imposing of a monetary penalty for violation of trade regulation laws. The guidelines are not trade regulation laws."

Cleland also said the blogger or endorser would not be fined, but the advertiser would. "We have never brought a case against a consumer endorser and we've never brought a case against somebody simply for failure to disclose a material connection," he said. "Where we have brought cases, there are other issues involved, not only failing to disclose a material connection but also making other misrepresentations about a product, a serious product like a health product or something like that. We have brought those cases but not against the consumer endorser, we have brought those cases against the advertiser that was behind it. If people think that the FTC is going to issue them a citation for $11,000 because they failed to disclose that they got a free box of Pampers, that's not true. That's not going to happen today, not ever."

Read the rest of that posting here.

On that same issue read Jennifer Vilaga, Fast Company - FTC Responds to Blogger Fears: "That $11,000 Fine Is Not True"

Nevertheless, it is advisable not to put yourself in harm's way. One never knows what might happen tomorrow and FTC enforcement might impact a specific blog or blogger if an unfortunate chain of circumstances occurs. Be on the safe side and declare your affiliations if you are touting a product which you have received for free. For the consumer, in most cases, it surely makes little difference.

Previous Discussion of these Guides is found at:


Edward Champion, Ed Rants (with - at this date - 4 updates) - Interview with the FTC’s Richard Cleland

Etan on Tech, Orlando Sentinel - FTC says bloggers must disclose payments and freebies when reviewing products or risk being fined $16,000

Adam Ostrow, Mashable - FTC to Fine Bloggers up to $11,000 for Not Disclosing Payments

Veronica Arreola, Guardian - Bloggers get free stuff, so what?

Guardian Technology Blog - America's memo to bloggers: don't lie, or we'll fine you

Michael Learmonth, Advertising Age - FTC Cracks Down on Blogger Payola, Celebrity Tweets

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