On October 5, the Federal Trade Commission issued new guidelines (large pdf) on advertising involving endorsements and testimonials. The guidelines, which are due to go into effect on Dec. 1, have caused a stir among bloggers, journalists, and new media types because they appear to place significant requirements and restrictions on blogs and social media. Most notably, they suggest that bloggers or other consumers who "endorse" a product or service online may be liable for civil penalties if they make false or unsubstantiated claims about a product or fail to disclose "material connections" between themselves and an advertiser.
(Although Richard Cleland, assistant director of the FTC's division of advertising practices, told Fast Company that the Commission will focus on warnings and cease-and-desist orders, rather than monetary fines.)
While the guidelines are complex and their application in marginal cases is uncertain, they appear to require bloggers who receive a free product or service in exchange for writing a favorable review to disclose the freebie or face the possibility of an FTC enforcement action.
Most surprisingly, the FTC appears to hold bloggers and social media to a different standard than the traditional press when it comes to "material connections": the guidelines expressly state that "bloggers may be subject to different disclosure requirements than reviewers in the traditional media." (Cleland expands on this in an interview with blogger Edward Champion.)
One chief goal of the FTC guidance is to regulate "buzz marketing" — in which "influencers" promote a brand through apparently noncommercial means, such as recommending a particular drink at a bar. These "influencers" can be paid in the traditional sense, or instead they can be offered special perks and benefits, or given free samples for their own use or to give away to others. The key is that the "influencers" do not reveal the arrangement, so that their use and interest in a product seems to be a genuine personal preference. This practice has grown since the late 1990s, and is now used in both person-to-person interactions, and in various forms of social media. (There's even a "Buzz Marketing with Blogs For Dummies" book.) This focus on "buzz marketing" may account for why online media finds itself in the FTC's cross-hairs while offline media does not.
The new guidelines are not technically rules. According to the FTC's press release, they are "administrative interpretations of the law intended to help advertisers comply with the Federal Trade Commission Act; they are not binding law themselves." Nevertheless, the guidelines will serve as the basis for FTC enforcement actions, and as a practical matter few online speakers would be wise to ignore them. So let's start with a look at the nuts-and-bolts.
As I previously noted when they were in draft form, the guidelines contain examples of how the FTC views certain hypothetical fact situations. In the final guidelines, five of these examples involve blogs and social media:
What's an "Endorsement"?
There's no disclosure requirement under the guidelines unless a statement or post qualifies as an "endorsement." In the general introductory provision (§ 255.0), the FTC gives an example with three factual variants in an attempt to clarify when a statement qualifies as an "endorsement":
Example 8: A consumer who regularly purchases a particular brand of dog food decides one day to purchase a new, more expensive brand made by the same manufacturer. She writes in her personal blog that the change in diet has made her dog’s fur noticeably softer and shinier, and that in her opinion, the new food definitely is worth the extra money. This posting would not be deemed an endorsement under the Guides.
Assume that rather than purchase the dog food with her own money, the consumer gets it for free because the store routinely tracks her purchases and its computer has generated a coupon for a free trial bag of this new brand. Again, her posting would not be deemed an endorsement under the Guides.
Assume now that the consumer joins a network marketing program under which she periodically receives various products about which she can write reviews if she wants to do so. If she receives a free bag of the new dog food through this program, her positive review would be considered an endorsement under the Guides.Federal Trade Commission, Guides Concerning the Use of Endorsements and Testimonials in Advertising (16 CFR Part 255), at 59-60.
This example suggests that there must be some sort of relatively formalized quid pro quo by which the blogger receives benefits for her reviews in order for an "endorsement" to take place. Conversely, if a blogger receives a benefit that is available to anyone and there is no quid pro quo (think of the computer coupon), then we don't have an endorsement and no disclosure requirements apply.
"False or Unsubstantiated Statements"
A second example appears under § 255.1(d) of the guidelines. This section says that both advertisers and endorsers may be held liable for "false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between themselves and their endorsers."
"Example 5" under this provision, rewritten slightly from the draft version, reads as follows:
Example 5: A skin care products advertiser participates in a blog advertising service. The service matches up advertisers with bloggers who will promote the advertiser’s products on their personal blogs. The advertiser requests that a blogger try a new body lotion and write a review of the product on her blog. Although the advertiser does not make any specific claims about the lotion’s ability to cure skin conditions and the blogger does not ask the advertiser whether there is substantiation for the claim, in her review the blogger writes that the lotion cures eczema and recommends the product to her blog readers who suffer from this condition. The advertiser is subject to liability for misleading or unsubstantiated representations made through the blogger’s endorsement.
The blogger also is subject to liability for misleading or unsubstantiated representations made in the course of her endorsement. The blogger is also liable if she fails to disclose clearly and conspicuously that she is being paid for her services.
In order to limit its potential liability, the advertiser should ensure that the advertising service provides guidance and training to its bloggers concerning the need to ensure that statements they make are truthful and substantiated. The advertiser should also monitor bloggers who are being paid to promote its products and take steps necessary to halt the continued publication of deceptive representations when they are discovered.Federal Trade Commission, Guides Concerning the Use of Endorsements and Testimonials in Advertising (16 CFR Part 255), at 63-64 (emphasis added).
Common sense suggests that it's a bad idea to make unsubstantiated claims about a product or service in the course of paid endorsement of the product. But what was once an issue of a blogger's ethics could, under the new rules, be the basis of an FTC enforcement action against the blogger. From the perspective of the advertiser, Eric Goldman points out that liability might run afoul of Section 230, but this would be limited to situations where the advertiser qualifies as a "provider or user of an interactive computer service" with respect to the blogger's content. 47 U.S.C. § 230(c)(1). Also, note the formality of the relationship between the blogger and the advertiser in this example, coming as it does through a "blog advertising service."
Disclosure of "Material Connections"
Three other examples appear under § 255.5, which requires disclosure of "material connections." One of these examples — slightly edited from the draft version — involves a video game blogger:
Example 7: A college student who has earned a reputation as a video game expert maintains a personal weblog or “blog” where he posts entries about his gaming experiences. Readers of his blog frequently seek his opinions about video game hardware and software. As it has done in the past, the manufacturer of a newly released video game system sends the student a free copy of the system and asks him to write about it on his blog. He tests the new gaming system and writes a favorable review. Because his review is disseminated via a form of consumer-generated media in which his relationship to the advertiser is not inherently obvious, readers are unlikely to know that he has received the video game system free of charge in exchange for his review of the product, and given the value of the video game system, this fact likely would materially affect the credibility they attach to his endorsement. Accordingly, the blogger should clearly and conspicuously disclose that he received the gaming system free of charge. The manufacturer should advise him at the time it provides the gaming system that this connection should be disclosed, and it should have procedures in place to try to monitor his postings for compliance.Federal Trade Commission, Guides Concerning the Use of Endorsements and Testimonials in Advertising (16 CFR Part 255), at 79-80 (emphasis added).
Here, the relationship between the blogger and the advertiser is more tenuous than above, and the compensation is more casual and arguably necessary in order to write the review. But note that there is some established relationship between the parties. The FTC tells us that the advertiser has done the same thing in the past, suggesting a more stable quid pro quo relationship.
Another example involves a bulletin board poster touting his employer's products:
Example 8: An online message board designated for discussions of new music download technology is frequented by MP3 player enthusiasts. They exchange information about new products, utilities, and the functionality of numerous playback devices. Unbeknownst to the message board community, an employee of a leading playback device manufacturer has been posting messages on the discussion board promoting the manufacturer’s product. Knowledge of this poster’s employment likely would affect the weight or credibility of her endorsement. Therefore, the poster should clearly and conspicuously disclose her relationship to the manufacturer to members and readers of the message board.Federal Trade Commission, Guides Concerning the Use of Endorsements and Testimonials in Advertising (16 CFR Part 255), at 80 (emphasis added).
Another example under § 255.5 deals with social media like Twitter. Example 3 under this provision discussed a hypothetical "well-known professional tennis player" appearing on a television talk show and attributing the recent improvement in her performance to "the fact that she is seeing the ball better than she used to, ever since having laser vision correction surgery at a clinic that she identifies [and later in the interview laudes] by name." Example 3 states that the player must disclose that she is paid for speaking publicly about her surgery when she can do so. The example also states that the clinic (the "advertiser") must be able to substantiate the athlete's claims as a typical result.
The example continues:
Assume that instead of speaking about the clinic in a television interview, the tennis player touts the results of her surgery – mentioning the clinic by name – on a social networking site that allows her fans to read in real time what is happening in her life. Given the nature of the medium in which her endorsement is disseminated, consumers might not realize that she is a paid endorser. Because that information might affect the weight consumers give to her endorsement, her relationship with the clinic should be disclosed.Federal Trade Commission, Guides Concerning the Use of Endorsements and Testimonials in Advertising (16 CFR Part 255), at 77 (emphasis added).
Here, the important point seems to be that the move to non-traditional forms of media may obscure the otherwise obvious paid relationship between the celebrity and the advertiser, and therefore disclosure is required.
It's hard to generalize too much from these examples, but they suggest that the FTC is mostly concerned about situations where the online speaker is not acting independently from the advertiser, but rather writing positive content as part of somewhat formalized quid pro quo relationship. Whether or not a post constitutes an "endorsement" will no doubt be central. The FTC's commentary gives us some more insight on this critical point:
The Commission does not believe that all uses of new consumer-generated media to discuss product attributes or consumer experiences should be deemed “endorsements” within the meaning of the Guides. Rather, in analyzing statements made via these new media, the fundamental question is whether, viewed objectively, the relationship between the advertiser and the speaker is such that the speaker’s statement can be considered “sponsored” by the advertiser and therefore an “advertising message.” In other words, in disseminating positive statements about a product or service, is the speaker: (1) acting solely independently, in which case there is no endorsement, or (2) acting on behalf of the advertiser or its agent, such that the speaker’s statement is an “endorsement” that is part of an overall marketing campaign? The facts and circumstances that will determine the answer to this question are extremely varied and cannot be fully enumerated here, but would include: whether the speaker is compensated by the advertiser or its agent; whether the product or service in question was provided for free by the advertiser; the terms of any agreement; the length of the relationship; the previous receipt of products or services from the same or similar advertisers, or the likelihood of future receipt of such products or services; and the value of the items or services received. An advertiser’s lack of control over the specific statement made via these new forms of consumer-generated media would not automatically disqualify that statement from being deemed an “endorsement” within the meaning of the Guides. Again, the issue is whether the consumer-generated statement can be considered “sponsored.”Federal Trade Commission, Guides Concerning the Use of Endorsements and Testimonials in Advertising (16 CFR Part 255), at 8-9 (emphasis added).
Rules Only Apply to Social Media
As noted above, a particularly remarkable feature of the "material connections" disclosure requirement is that it apparently does not apply to traditional media to the same extent that it does to online media.
The FTC's justifications for this distinction are not entirely clear, but they appear to rely on two assumptions. First, the FTC assumes that traditional media exercises "independent editorial responsibility" in writing reviews and that bloggers and social media users may not. The FTC even suggests that reviews published on "an Internet news website with independent editorial responsibility" would be treated like those published in a traditional brick-and-mortar periodical. Guides, at 47 n.101 (emphasis added). Second, the FTC seems to assume that freebies for traditional news reporters are "reasonably expected by the audience," whereas freebies for bloggers and influential Twitterers are not. These assumptions may be justified when the comparison is between sleazy buzz marketers and much of the traditional press, but they're less convincing when the comparison is between serious online commentators and the offline press.
First Amendment Concerns
While commercial speech can be subject to more regulation than other forms of speech, see Va. State Bd. of Pharmacy v. Va. Consumer Council, 425 U.S. 748 (1976), such regulations must directly advance a substantial government interest and may not be more extensive than necessary to serve that interest. See Central Hudson Gas & Electric Corp. v. Public Svc. Comm'n, 447 U.S. 557 (1980). Even if the government interests here are substantial, can the new rules directly advance these interests when they rest on suspect assumptions and faulty generalizations about speech online? Moreover, the difficulty in drawing the line between what does or does not constitute an "endorsement" may mean that the regulations regulate or (at the very least) chill noncommercial speech, which is entitled to full First Amendment protection. Both Dan Gillmor and Jeff Jarvis convincingly argue that the new FTC guidelines misunderstand the conversational character of online speech. It may prove very difficult to determine which of these conversations are noncommercial expressive speech and which are simply buzz marketing.
Killing the Buzz?
So, will these new guidelines about endorsements and disclosures of payments fly? While there's been a fair amount of handwringing over the new rules, so far no one's stepped up to challenge them in court. This is not surprising because it's only been a few days since the final guidelines were released. But, it seems that too many vested interests and established practices are at stake for someone not to take a swing at the new rules in court. (It wouldn't be the first time that FTC rules have been challenged.)
It may be that, by trying to eliminate the buzz in marketing — both online and off — the FTC may have stirred up a hornets' nest.