Blogs and Social Media Marketing: Complying with the FTC’s New Endorsement Guides
Mar 02, 2011 QuickCounsel Download PDF
By Brian Socolow
Endorsements and testimonials are regulated by federal and state advertising laws, and the Federal Trade Commission's (FTC) recently revised Guides Concerning the Use of Endorsements and Testimonials. The Guides are "advisory" in nature – not binding law – but the FTC uses them to evaluate whether an endorsement or testimonial violates Section 5 of the FTC Act, which prohibits unfair and deceptive or misleading practices.
Social media marketing, which includes creating a brand page or profile on a social media site, conducting a promotion or contest using a social media site, and creating a blog, has become an integral part of advertising and marketing of products, events, and services. Seventy-two percent of Internet users are part of at least one social network, and the most credible source for information about a brand on a social networking site comes from other consumers, according to one recent study. Another study found that consumers who engage with brands on social media sites like Twitter, Facebook and YouTube are 2.5 times more likely to search for those brands and click on those brands' search ads. AdAge reports that nearly 90% of ad agencies plan to use Facebook in upcoming campaigns.
According to the Guides, endorsements and testimonials must reflect the honest opinions, findings, beliefs, or experience of the endorser, and endorsements may not contain any representations that would be deceptive, or could not be substantiated, if made directly by the advertiser. For example, 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, the connection must be fully disclosed.
A good example of this is the FTC's recent enforcement action against a public relations firm hired by video game developers to promote their games. Employees of the public relations firm posed as ordinary consumers and posted game reviews on the iTunes website. The employees did not disclose their affiliation with the public relations firm or the video game developers. The FTC charged the company with engaging in unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act.
The Guides also apply to other types of social media campaigns. In its guidance on endorsements called "What People Are Asking," the FTC provided the following example of an athlete using Twitter to promote products: "A famous athlete has thousands of followers on Twitter and is well-known as a spokesperson for a particular product. Does he have to disclose that he's being paid every time he tweets about the product?" The FTC answered by saying it depends on whether his readers understand he's being paid to endorse that product. "If they know he's a paid endorser, no disclosure is needed. But if a significant number of his readers don't know that, a disclosure would be needed. Determining whether followers are aware of a relationship could be tricky in many cases, so a disclosure is recommended."
An important issue for advertisers is liability. If an advertiser requests that a blogger try a new product and write a review, the advertiser may be subject to liability for false or unsubstantiated statements made through the blogger's endorsement. The FTC recently said that it usually pursues the advertiser, not the blogger or endorser, when there is a concern about false or unsubstantiated statements. But plaintiffs' attorneys may go after the advertiser and an endorser. In January 2010, Power Balance, the maker of wristbands that were promoted as increasing athletic performance, admitted on its Australian website (at the urging of the Australian consumer protection agency) that there is no credible scientific evidence that the wristbands provide these benefits. A few weeks later a class action complaint was filed against Power Balance and endorsers Shaquille O'Neal and Lamar Odom. The complaint alleges that the endorsers "knew or should have known that Power Balance products are incapable of enhancing performance or increasing endurance, flexibility or strength, and that there is no scientific or other reasonable basis for claiming that they do."
The FTC suggests that advertisers provide guidance and training for its bloggers concerning the need to make disclosures and to ensure that statements bloggers make are truthful and substantiated. Memorializing this advice in a blogging or social media policy is a good idea. Last year, the FTC initiated an investigation into retailer Ann Taylor, which provided free gifts to bloggers that attended a fashion show featuring new merchandise. After conducting an investigation, the FTC decided not to initiate any enforcement action, in part because the company had in place a written policy prohibiting gifts to bloggers without first telling them to disclose gifts and because some of the bloggers who reviewed the fashion show did, in fact, disclose that they had received free gifts.
The FTC also suggests that advertisers monitor bloggers who are being paid to promote their products and take steps necessary to halt the continued publication of deceptive representations when they are discovered. How much an advertiser should monitor bloggers depends in part on whether physical injury or financial loss might occur as a result of an unsubstantiated claim. The FTC has specifically said that the scope of the monitoring program depends on the risk that deceptive practices by bloggers could cause consumer harm, such as physical injury or financial loss. The higher the risk of harm, the more active the advertiser should be in monitoring what its paid bloggers are saying and the more aggressive it should be in following up on questionable blog entries.
The laws governing social media marketing are still evolving. But the following are important reminders for advertisers who use social media marketing and blogs:
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