October 06, 2009

FTC Issues New Endorsements Guidelines Under 16 CFR Part 255 - "Word of Mouth Marketing"

 

Internet Law Alert: 16 C.F.R. Part 255: Guides Concerning the Use of Endorsements and Testimonials in Advertising: Notice Announcing Adoption of Revised Guides.

1ese1 Current Regulations - 16 C.F.R. Part 255

Our experienced internet lawyers can help you achieve compliance with Part 255. If you have a question about the application of Part 255 to your business, blog or product, contact an internet lawyer today, or call toll free 866.936.7447.

The Federal Trade Commission (“FTC” or “Commission”) is adopting revised Guides Concerning the Use of Endorsements and Testimonials in Advertising with an effective date of December 1, 2009.

A requirement that “bloggers who make an endorsement must disclose the material connections they share with the seller of the product or service.” Fines for violating the new rule will run up to $11,000 per post.

Under the revised Guides, advertisements that feature a consumer and convey his or her experience with a product or service will be required to clearly disclose the results that consumers can generally expect.  The revised Guides also add new examples to illustrate that “material connections” (sometimes payments or free products) between advertisers and endorsers – connections that consumers would not expect – must be disclosed. 

Thus, bloggers who make an endorsement may have to disclose the material connections they share with the seller of the product or service. Paid endorsements – like any other advertisements – are considered deceptive if it makes false or misleading claims.

As proposed by the Commission in its November 2008 Federal Register notice, Section 255.0(b) of the Guides would state in part that:

[A]n endorsement means any advertising message (including verbal statements, demonstrations, or depictions of the name, signature, likeness or other identifying personal characteristics of an individual or the name or seal of an organization) that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser.

Obligation to Disclose Material Connections in Endorsements Conveyed Through New Consumer-Generated Media:   

Bloggers may be subject to different disclosure requirements than reviewers in traditional media. In general, under usual circumstances, the Commission does not consider reviews published in traditional media (i.e., where a newspaper, magazine, or television or radio station with independent editorial responsibility assigns an employee to review various products or services as part of his or her official duties, and then publishes those reviews) to be sponsored advertising messages. Accordingly, such reviews are not “endorsements” within the meaning of the Guides.

Not all consumer-generated media discussing product attributes or consumer experiences may be deemed “endorsements”. Endorsements made through new media (web sites , blogs, on-line video, etc), will be examined to see whether, viewed objectively, the relationship between the advertiser and the speaker is such that the speaker’s statement can be considered “sponsored” by the advertiser and therefore an “advertising message.” 

The FTC will examine whether, in disseminating positive statements about a product or service, the speaker: (1) acting solely independently, in which case there is no endorsement, or (2) acting on behalf of the advertiser or its agent, such that the speaker’s statement is an “endorsement” that is part of an overall marketing campaign? The facts and circumstances that will determine the answer to this question are extremely varied and cannot be fully enumerated here, but would include: 

  1. whether the speaker is compensated by the advertiser or its agent; 
  2. whether the product or service in question was provided for free by the advertiser; 
  3. the terms of any agreement; the length of the relationship; 
  4. 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 
  5. the value of the items or services received. 

By way of simplistic example, a consumer who purchases a product with his or her own money and praises it on a personal blog or on an electronic message board will not be deemed to be providing an endorsement. In contrast, postings by a blogger who is paid to speak about an advertiser’s product may be covered by the Guides, regardless of whether the blogger is paid directly by the marketer itself or by a third party on behalf of the marketer.

Advertisers & Manufacturers Can Be Liable as Well As the Endorser:  

If the advertiser initiated the process that led to these endorsements being made – e.g., by providing products to well-known bloggers or to endorsers enrolled in word of mouth marketing programs – it potentially is liable for misleading statements made by those consumers. Although the blogger has primary responsibility for disclosing that he received the video game system for free, the manufacturer has an obligation to advise the blogger at the time it provides the gaming system that he should make the disclosure in any positive reviews of the system. The manufacturer also should have procedures in place to attempt to monitor the blogger’s statements about the system to ensure that the proper disclosures are being made and take appropriate steps if they are not (e.g., cease providing free product to that individual).

Celebrities Can Be Liable as Endorsers:

The revised language in Section 255.2 covering celebrity endorsements  would come into play only if a truthful testimonial: (1) conveys to consumers that the testimonialist’s results are “representative of what consumers will generally achieve with the advertised product or service in actual, albeit variable, conditions of use”; and (2) the advertiser does not have adequate substantiation for that claim. In other words, the Guides call for a  disclosure only if the ad is misleading (and thus not protected by the First Amendment) without a disclosure.

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.

Companies Can be Liable for Activities of its Employees - If an employee endorses a product without adequate disclosures, the Company itself may be liable if it has not put in place adequate procedures. 

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Our experienced internet lawyers can help you achieve compliance with Part 255. If you have a question about the application of Part 255 to your business, blog or product, contact us today, or call toll free 866.936.7447.

COMMENTS

I agree with your post, the blogger has a primary responsibility for disclosing that he received the video game system for free, the manufacturer has an obligation to advise the blogger at the time it provides the gaming system that he should make the disclosure in any positive reviews of the system.

Thank you for this article!

As a blogger/web developer, consumer, and (nonpracticing) lawyer, the revised Guides intrigue me.

It's good to know that there are experts out there who can answer compliance questions.

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