FTC’s 16 CFR Part 255 Used for First Time to Bring Charges of Deceptive Advertising
On August 26th, the Federal Trade Commission (FTC) released a statement to the public that the California marketing company, known as Reverb Communications, had settled charges that it had engaged in the practice of deceptive advertising.
It was originally alleged that the Reverb Communications employees were paid to author and post positive reviews of clients’ games featured in the Apple iTunes Store, from November 2008 to May 2009, without disclaiming that they were being paid to do so.
This settlement was first reported on NYTimes.com in the article, Charges Settled Over Fake Reviews on iTunes, where the reviews were described;
The reviews typically gave the games four or five stars and included comments like “Amazing new game” and “One of the best apps just got better.”
Unlike the FTC’s first investigation into abuse of its CFR Part 255 Guidelines, in this investigation into Reverb Communications and Tracie Snitker (acting as one of Reverb’s executives), the FTC determined that bringing charges against the marketing company was warranted due to violation of the CFR Part 255 Guidelines.
The FTC’s Guidelines provide that;
“Any connection which “might materially affect the weight or credibility of the endorsement” must be disclosed where the connection is “not reasonably expected by the audience.”
The terms of the settlement provide that; Reverb Communications and Snitker have both agreed to remove all iTunes reviews that misleadingly posted to appear to be written by ordinary people but were actually written by Reverb employees.
Additionally, the settlement provides that Reverb and Snitker are barred from making other misleading endorsements of any product or service without first disclosing any relevant connections between the writer and product/service (connections can include things like being paid to write the post, free hotel stay, free use of product, writer got a free meal, writer got a toy, writer got (anything really)).
Importantly, the settlement did not provide for any sort of monetary action or penalty against either Reverb or Snitker.
Despite reaching a settlement, it appears that negotiations between the FTC and the two accused parties were not exactly amicable, speaking about discussions with the FTC, Snitker stated;
“It became apparent that we would never agree on the facts of the situation.”
And while noting that the settlement did not involve any admission of lawbreaking by either Snitker or Reverb, she elaborated that;
“Rather than continuing to spend time and money arguing, and laying off employees to fight what we believed was a frivolous matter, we settled this case and ended the discussion.”
One Harvard Law Professor stated that the FTC’s first endorsement action under the new Guidelines should be seen as good news to those concerned with advertising in the Web sphere, Jonathan Zittrain stated;
“This case sort of shows that what they have in mind is not the individual blogger or Twitterer, but rather a professional endorser.”
Further expounding on the positive impact the FTC’s Guideline can have, Zittrain said;
“When a client says ‘Where are my good reviews? I am paying for them,’ you can say, ‘We can’t do it because it is illegal."
Also commenting on the impact of this FTC Guidelines settlement, Stacey Furguson, a lawyer with the FTC’s Bureau on Consumer Protection, stated;
“We hope that this case will show advertisers that they have to be transparent in their practices and help guide other ad agencies.”
Internet Lawyer and intellectual property specialist Eric Goldman, commented that fake product reviews were, “a pervasive problem on the Internet.”
Goldman went on to state that;
“It is a problem that every review site has to grapple with.”
And;
“Many sites don’t have rigorous policing mechanisms, so it is very hard to verify the trustworthiness of reviews.”
Internet law firm attorneys and intellectual property specialists should take note of this first settlement under the FTC’s Guidelines. In this FTC Act enforcement action, the FTC targeted a company (not individual bloggers) which instructed its employees to post positive reviews of clients’ iTunes game apps, in an anonymous fashion trying to pass as ordinary consumers and without claiming they were being endorsed in the form of monetary payment.
For more information on the Federal Trade Commission, the new Guidelines and 16 CFR Part 255, follow any of these links;
- 16 CFR Part 255
- Federal trade commission’s Red Flag Rule
- Compliance with CFR Part 255 Guidelines
- The CAN-SPAM Act: Requirements for Commercial Emailers
- Results of the FTCs First Investigation into a Possible Violation of its New 'Guides Concerning the Use of Endorsements in Advertisements' 16 CFR Part 255
- FTC Publishes Final Guides Governing Endorsements, Testimonials
- FTC Issues New Endorsements Guidelines Under 16 CFR Part 255 - "Word of Mouth Marketing"
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