The One Big Thing: FTC Disclosure Rules – What Everyone Should Know About Online Endorsements

The One Big Thing you need to know about this week is that the Federal Trade Commission has updated its Guides Concerning the Use of Endorsements and Testimonials in Advertising to bring it up to date for the Internet age. The guidelines haven’t been changed in nearly three decades.

At a glance, here’s what it means

• No more pay per post blogging unless that relationship is disclosed.
• It appears that any exchange of value between advertiser & blogger must be disclosed. In addition to direct payment, some examples that would appear to apply:
  • Review products to be returned;
  • Free products;
  • Client relationships;
  • Affiliate relationships such as the one I have with Amazon.com.
• The guidelines for how you disclose are vague except that “the consumers will notice” regardless of where that disclosure occurs.
• The guidelines cover endorsements outside of the blogosphere, to include both broadcast & social media
• A hype loophole that allows you to make extraordinary claims as long as you include a “results are not typical” disclaimer has been closed
• While fines for violating these rules can run as high as $11,000, monetary penalties appear to be the method of last resort to enforce compliance
• Guidelines go into effect December 1, 2009

All the coverage of the FTC guidelines cite the following passage as the most relevant portion:

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.

Brian Solis at TechCrunch worries about the FTC treating traditional journalists and bloggers differently, to which the FTC responds.

ClickZ lists the factors the FTC will consider for determining disclosure requirement:

According to the FTC’s guide revisions, factors determining whether an endorsement should carry a disclaimer include “whether the speaker is compensated by the advertiser or its agent; whether the product or service in question was provided for free by the advertiser; the terms of any agreement; the length of the relationship; the previous receipt of products or services from the same or similar advertisers, or the likelihood of future receipt of such products or services; and the value of the items or services received.”

ClickZ also explains that while the endorser is primarily responsible for disclosure, advertisers are responsible for educating those endorsers about the requirements and monitoring those endorsers they sponsor:

Not only are advertisers potentially liable for misleading statements about their products, the guidelines also put endorsers themselves, as well third parties such as WOM marketing agencies on guard. “[T]he Commission believes that the endorser is the party primarily responsible for disclosing material connections with the advertiser,” notes the guide. “However, advertisers who sponsor these endorsers (either by providing free products — directly or through a middleman — or otherwise) in order to generate positive word of mouth and spur sales should establish procedures to advise endorsers that they should make the necessary disclosures and to monitor the conduct of those endorsers.”

While the FTC specifically addresses celebrity endorsers, MarketingVox raises the point of the definition of celebrity. Online there are any number of microcelebrities who are famous within a select community but largely unknown outside of them. Are they considered celebrities?

Fast Company poses several questions from prominent bloggers to the FTC’s Richard Cleland:

About that $11,000 fine:

“That $11,000 fine is not true. Worst-case scenario, someone receives a warning, refuses to comply, followed by a serious product defect; we would institute a proceeding with a cease-and-desist order and mandate compliance with the law. To the extent that I have seen and heard, people are not objecting to the disclosure requirements but to the fear of penalty if they inadvertently make a mistake. That’s the thing I don’t think people need to be concerned about. There’s no monetary penalty, in terms of the first violation, even in the worst case. Our approach is going to be educational, particularly with bloggers. We’re focusing on the advertisers: What kind of education are you providing them, are you monitoring the bloggers and whether what they’re saying is true?”

How to disclose:

The bloggers have to look at how they do their blogging, their business practice, and figure out the way that consumers will best get the message that this is a sponsored post. In terms of clear and conspicuous, the criteria there is that the consumers will notice the disclosure. Disclosures can be made in different ways, whether you make it outside of the text but in proximity to blog, or incorporate it into the blog discussion itself–those are the issues that bloggers will have discretion about.”

• New York Times: Soon, Bloggers Must Give Full Disclosure
• ReadWriteWeb: FTC To Bloggers: Disclose Freebies or Face $11,000 Fine
• Mashable: FTC to Fine Bloggers up to $11,000 for Not Disclosing Payments

Guides Concerning the Use of Endorsements and Testimonials in Advertising