October 21, 2010

Violation of the Federal Trade Commission’s 16 CFR Part 255 Guides Concerning Use of Endorsements and Testimonials in Advertising

Internet Law Attorney Alert:  The deceptive advertising efforts of development representative for Belkin, Mike Bayard, may have subjected Belkin to liability for violation of the Federal Trade Commission’s (FTC) 16 CFR Part 255 Guides Concerning Use of Endorsements and Testimonials in Advertising.  The FTC’s Part 255 operates to require any person ‘reviewing’ a product or service to openly disclose what sort of connection (if any) they have to the product or service being reviewed.

In particular, Part 255 is used by the FTC to require bloggers, product reviewers, advertisers, and others posting reviews to disclose any financial incentives (if they were paid), gifts, accommodations, or otherwise benefits they may have received in return for posting a review.

Mechanical Turk is a business operated on the side by Amazon.com that allows people to register and then get paid to do tasks that computers cannot do. Mechanical Turk connects users with ‘requesters’ who offer to pay these users (usually between $.1 and $2 per task) for completing thousands of different tasks.

Arlen Parsa of The Daily Background was perusing this site and completing a few tasks when he came across the following request;

“Write a Positive 5/5 Review for Product on Website… Write as if you own the product and are using it… Mark any other negative reviews as “not helpful” once you post yours.”

These Mechanical Turk users are paid $.65 cents for every positive review they leave and the above is only one request out of dozens posted by Mike Bayard.

This is immediately problematic in light of the Federal Trade Commission’s 16 CFR Part 255.
• Examination of Bayard’s conduct in possible violation of 16 CFR Part 255 below.

Arlen Parsa also pointed out that the Mechanical Turk requests were for users to positively review a Belkin router, “which has consistently gotten bad reviews in the past from users who say that the product is “loaded with Bugs, goes on & off whenever it feels like, and comes at a hefty price.”

Parsa also provides a link to Mike Bayard’s LinkedIn profile, where Bayard is listed as the Business Development Representative at Belkin International in charge of “Sales of Belkin products to major .com accounts such as Amazon.com.” Parsa goes on to point out that;

“In other words, this guy is paying people to post fake good reviews of his own products which, according to most people who actually use them, suck (and ironically, he’s using Amazon’s own service to screw up their own review system).”

Apparently, Bayard has also been paying people to post fake reviews to Buy.com and Newegg.com.

Now, how does Bayard’s use of Mechanical Turk to request users to post fake positive reviews square off with applicable law under the FTC’s Part 255?

First, a proceeding brought to enforce the requirements of law as laid out in the FTC’s Guides can be brought under the FTC Act. In such a proceeding the FTC bears the burden of proof to show that a particular use of an endorsement or testimonial was deceptive.
• It will be up to the FTC to prove Bayard (or, in the alternative, Mechanical Turk users fulfilling Bayard’s ‘request’), violated the Guides.

Second, endorsements and testimonials mean any advertising message that consumers are likely to believe reflects the opinions, beliefs, findings, or experience of a party other than the sponsoring advertiser (which is Belkin via Bayard in this case). 16 C.F.R. §§ 255.0(a) and (b).
• ‘Endorsement and testimonials’ covers blogs, Amazon product reviews, and other reviews (ex: Buy.com and Newegg.com reviews).

Third, the FTC’s Guides require that any endorsement or testimonial must reflect the honest opinions, findings, beliefs, or experience of the endorser. 16 C.F.R. § 255.1(a).
• Mechanical Turk users posting positive reviews to the tune of 65 cents about products they have never used, likely cannot constitute honest opinions or findings of the endorser.

Fourth, the Guides do not allow endorsements to contain any representations that would deceive or could not be substantiated by the advertiser (reviewer). 16 C.F.R. § 255.1(a).
• Reviews made by users who have not used the product would likely deceive and definitely could not be substantiated by the reviewers.

Fifth, where there is not adequate substantiation that the endorser’s experience is representative, the advertisement should clearly and conspicuously disclose… the limited applicability of the endorser’s experience to what consumers may generally expect to achieve. 16 C.F.R. § 255.2(a).
• Nothing in Bayard’s ‘request’ instructs Mechanical Turk users to disclose that they have not actually used the product. Indeed, his instructions are the opposite, “Write as if you own the product and are using it.”

Sixth, advertisements presenting endorsements by what are represented to be “actual consumers” should utilize actual consumers, or clearly and conspicuously disclose that the persons are not actual consumers. 16 C.F.R. § 255.2(b).
• See comment to (Fifth)

Seventh, when there is a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience), such connection must be fully disclosed. 16 C.F.R. § 255.5.
• Nothing in Bayard’s ‘request’ instructs Mechanical Turk users to disclose that they are being paid 65 cents a review to author and post these fake positive reviews.

In sum, Belkin and Bayard are going to have a heck of a tough time trying to prove that use of Mechanical Turk to ‘request’ users to write fake positive reviews is conduct that is acceptable under the FTC’s 16 CFR Part 255.

For more information for Internet Lawyers on the FTC’s 16 CFR Part 255 and deceptive advertising;
• First use of FTCs Part 255 to bring charges of deceptive advertising
• FTC’s first investigation into a possible violation of 16 CFR Part 255
• Federal Trade Commission 16 C.F.R. Part 255 (pdf)
• FAQs for FTC newly adopted revised Endorsements Guide


What about a company that fraudulently uses non-existent endorsements to promote an illegal entity? I know of a company that does such a thing. They use the names of highly successful athletes and entertainers to prove they are legal to unsuspecting individuals that get scammed by them. What are the FTC penalties in such a situation?

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