Violation of FTC Part 255 Endorsement Guidelines Leads to $250,000 Payment

When the guidelines relating to the use of endorsements and testimonials took effect in late 2009, many online marketers and advertisers were left to wonder what the practical effects would be.  Would the guidelines be enforced by the FTC?  Would a slap on the wrist be the worst case scenario for online marketers not in the brick-and-mortar arena?  Could online marketers claim ignorance or ask for forgiveness to avoid monetary penalties?

A recent Federal Trade Commission (FTC) announcement revealed that an online marketer has agreed to pay $250,000 for its deceptive representation that the endorsements, which were made by affiliates, were "independent" reviews of ordinary customers.  The FTC's investigation found that the endorsements were in fact made by affiliates earning commissions with each click and subsequent purchase of the online marketers' goods.

Online marketers should take notice of this and ensure that the FTC Part 255 guidelines are followed, proper monitoring is performed, and clear and conspicuous disclosures are made where necessary.  Traverse Legal's internet law attorneys can provide the advice necessary.

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.

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.

FAQs for the FTCs Newly Adopted Revised Endorsement Guides

The FTC’s revised Guides emphasize a focus on social media and in particular the relationship between advertisers and the products being advertised;

“The issue is – and always has been – whether the audience understands the reviewer’s relationship to the company whose products are being reviewed. If the audience gets the relationship, a disclosure isn’t needed.”

The FTC Guides retain a core purpose of protecting consumers from misleading or inaccurate advertisements and while the connection between Subway and Jared may have been readily apparent, “on a personal blog, a social networking page, or in similar media, the reader may not expect the reviewer to have a relationship with the company whose products are mentioned. Disclosure of that relationship helps readers decide how much weight to give the review.”

The FTC recently addressed consumers’ questions regarding its newly adopted Revised Endorsement Guides on its FAQ’s page. This FAQ page can be found here.

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

Importantly to any internet lawyer; in last October the Federal Trade Commission published a press release announcing that they had revised the old Guide Concerning the Use of Endorsements in Advertisements and Testimonials which was last updated in 1980.

The revised Guides have eliminated the “safe harbor” provision, made explicit that celebrity endorsers will be liable for false or unsubstantiated claims made in connection with an endorsement and the need to disclaim material connections to products that a celebrity is substantively discussing where the connection would otherwise not readily be apparent, and importantly, this material connection provision also extends to apply to bloggers who are now required to disclose any material connections between themselves and advertisers in connection with anything they are endorsing.

The “safe harbor” provision had enabled advertisers to use consumer testimonials which were unusual or exaggerated compared to common consumer experiences of the same products so long as the advertiser included a “results not typical” provision somewhere in the advertisement. 

In the words of the FTC, 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.”

Any material connection between an advertiser and an endorser may come in the form a ‘gift’, or other compensation or incentive for the blogger to write or otherwise advertise word-of-mouth to consumers on behalf of the advertiser. Also, the blogger must disclose any other material connections that she may have with the manufacturer of the product being advertised.

This material connection between advertisers and bloggers was recently tested in an investigation by the FTC for the first time since its release of the revised Guides and this also marks the first enforcement action by the FTC on behalf of its revised guides.

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.

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.

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Our internet law attorneys understand the Internet and technology. In fact, we represent some of the largest players in the Internet space concerning legal issues arising in the on-line world. Because we are a niche law firm, we know how to move the ball down the field in an efficient, cost-effective manner.

Founding Attorney Enrico Schaefer:  "Attorneys who specialize Internet law, software and back-end technology.  If you are a technology company, affiliate marketing player, e-commerce company, software developer or web site manager, contact one of our internet law attorneys today or give us at (866) 936-7447.

Traverse Legal attorneys can help your company, in-house counsel or trusted out-side firm navigate the challenging issues presented by an increasingly complex on-line world. From end user agreements, privacy agreements and e-commerce/affiliate contracts, we have you covered.

Our internet attorneys handle a variety of complex litigation and cyber-law issues in the following niche areas, including:

Technology & Web Services Contracts  -  Uniform Domain Name Dispute Resolution Policy
On-Line Retailer Representation  -  Internet Defamation, Censorship & Free Speech
E-Commerce Negotiation & Disputes  -  Web Site & Blog Copyright & Fair Use
Affiliate, Reseller and Retail Agreements -  Domain Portfolio Analysis & Monetization
ISP, Host and Content Provider Contracts -  Gripe Site & Cybersquatting Issues
Web site, End-User and IP Licensing Contracts -  Internet Business Formation & Financing
Trademark Registration, Monitoring & Enforcement -  Piracy and Brand Counterfeiting
Internet Content Licensing & Copyrights - Hacking, Spam & Phishing Attacks
Anti-Cybersquatting Protection Act - Data Privacy and Security
Digital Millennium Copyright Act -  User Generated Content (UGC)