The Federal Trade Commission recently issued a factsheet in response to questions it received about its revised guidelines requiring disclosure of compensated endorsements.
As I've explained in detail in prior posts, the Commission revised the guidelines last year for the first time since 1980, with a particular emphasis on endorsements by bloggers and other online citizen journalists who do not disclose that the products or services they review were provided to them for free or at a discount. Despite a number of questionable incidents since the FTC issued its revised guidelines, it has taken only one public action under the revised rules: sending a letter in April to Ann Taylor Loft raising concerns about a promotion the clothing company ran for bloggers and warning the company not to undertake any similar campaigns.
The FTC's new factsheet states that "since the FTC issued the revised Guides, advertisers, ad agencies, bloggers, and others have sent questions to firstname.lastname@example.org," and offers what it says are "answers to some of the most frequently asked questions." But the factsheet also seems to be responding to criticims of the rules, by myself and others.
In response to the question, "Why did the FTC revise its Endorsement Guides to include social media?," the factsheet explains that "[t]he FTC revised the Guides because truth in advertising is important in all media – including blogs and social networking sites. ... The FTC revised the examples to show how these standards apply in today’s marketing world."
Responding to another question, the FTC asserts that "the financial arrangements between some bloggers and advertisers may be apparent to industry insiders, but not to everyone else who reads a blog. Under the law, an act or practice is deceptive if it misleads 'a significant minority' of consumers. So even if some readers are aware of these deals, many readers aren’t. That’s why disclosure is important."
Different Rules Online and Offline?
The Commission also denied that the revised guidelines hold online reviewers to a higher standard than reviewers for paper-and-ink publications. "The Guides apply across the board," the factsheet states in response to a question on this point.
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. For a review in a newspaper, on TV, or on a website with similar content, it’s usually clear to the audience that the reviewer didn’t buy the product being reviewed. It’s the reviewer’s job to write his or her opinion and no one thinks they bought the product – for example, a book or movie ticket – themselves. But 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.
This is a bit of a change from the FTC's prior justification for creating different rules regarding the "material connections" disclosure requirement, which were based on the assumption that traditional media exercises "independent editorial responsibility" in writing reviews and that bloggers and social media users may not, and that freebies for traditional news reporters are "reasonably expected by the audience."
Fines for Bloggers?
The factsheet also responds to concerns that bloggers could be fined for violating the guides.
I’ve read that bloggers who don’t comply with the Guides can be fined $11,000? Is that true?
No. The press reports that said that were wrong. There is no fine for not complying with an FTC guide.
Are you monitoring bloggers?
We’re not monitoring bloggers and we have no plans to. If concerns about possible violations of the FTC Act come to our attention, we’ll evaluate them case by case. If law enforcement becomes necessary, our focus will be advertisers, not endorsers – just as it’s always been.
This is a continuation of previous efforts by FTC officials to downplay the risks to bloggers and other users of social media.
Richard Cleland, assistant director of the FTC's advertising practices division, told Fast Company that bloggers would not, as a practical matter, be fined:
That $11,000 fine is not true. Worst-case scenario, someone receives a warning, refuses to comply, followed by a serious product defect; we would institute a proceeding with a cease-and-desist order and mandate compliance with the law. To the extent that I have seen and heard, people are not objecting to the disclosure requirements but to the fear of penalty if they inadvertently make a mistake. That's the thing I don't think people need to be concerned about. There's no monetary penalty, in terms of the first violation, even in the worst case. Our approach is going to be educational, particularly with bloggers. We're focusing on the advertisers: What kind of education are you providing them, are you monitoring the bloggers and whether what they're saying is true?
The guides were issued under the authority of 15 U.S.C. § 45, which outlaws "unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce," and authorizes the FTC to enforce this prohibition by the adoption of rules and byissuing orders to cease and desist against violators.
The statute provides that the primary form of enforcement is orders issued by the Commission after hearings, 15 U.S.C. § 45(b), with opportunities for appeal, both within the agency and in the courts. 15 U.S.C. § 45(c).
Continued violations of final FTC orders can, indeed, be penalized up to $16,000, by a civil enforcement action brought by the FTC in federal court. 15 U.S.C. § 45(l),(m) . (Note that while § 45(l) sets the penalty at $10,000, the Federal Civil Penalties Inflation Adjustment Act of 1990, Pub. L. 101-410 (Oct. 5, 1990), as amended by Pub. L. 104-134, title III, Sec. 31001(s)(1) (Apr. 26, 1996), allows the agency to raise the penalties to account for inflation. The FTC raised the relevant fines to $11,000 in 2000. See 65 Fed. Reg. 69666 (Nov. 20, 2000) (modifying 16 C.F.R. § 1.98). In 2009, the FTC raised them to $16,000. See 74 Fed. Reg. 857 (Jan. 9, 2009) (further modifying 16 C.F.R. § 1.98).
It is true that such "competition" enforcement actions are rare; the current FTC report, dated March 31, 2010, states (on p. 102, p. 104 of the pdf) that no such cases are pending. And Cleland and the FTC factsheet are correct in pointing out that a single violation of the guides will not result in a monetary penalty. And the FTC has made it clear that it will use its discretion in enforcing the rules, focusing on warnings to bloggers while reserving more serious enforcement actions to advertisers. But there is still the possibility, however remote, that a blogger can, after repeated warnings for violations of the guides, be sued in federal court and possibly fined.
More Examples, and Suggested Disclosures
Aside from the justifications for the rules, much of the FTC factsheet is devoted to answering questions related to specific situations and scenarios. The gist of these answers, like the examples provided in the guides themselves, is that "buzz marketing"— in which compensated "influencers" promote a brand through apparently noncommercial means -- must be disclosed.
The factsheet also includes a series of "answers" on how bloggers and others should disclose material connections. The problem is that the FTC statements on this issue continue to be vague: there's no special language to use, they say, but a single disclosure on a page or via a link is probably not adequate.
Finally, the factsheet addresses how the endorsement guides apply to affiliate and network marketing programs.
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As we've said before, bloggers and other posters on social media should be familiar with the guides, and can comply with them by acting within the journalistic standards and prinicples of independence and transparency.
But it's also interesting that the agency has felt the need to respond, in the factsheet and elsewhere, to concerns raised by bloggers, lawyers and commenters about the rules, and their application to the online world.