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Apr 30, 2010

FTC Endorsement Rules Get Their First Workout

(cross posted at the Citizen Media Law Project)
The Federal Trade Commission has announced that it has completed its first investigation under the "blog-ola" rules it adopted last year, which require bloggers and other social media posters who receive a free or discounted product or service to disclose the freebie in their reviews or commentary about the product or service, or face the possibility of an FTC enforcement action.  See "Guides Concerning the Use of Endorsements and Testimonials in Advertising," 16 CFR Part 255 (2010) (html) (pdf).


In the end, the FTC decided not to take any action against Ann Taylor (decision letter), whose Loft division (formerly Ann Taylor Loft) offered gifts to bloggers who attended a January 26 "exclusive blogger preview" of the chain's summer 2010 line.  

"Bloggers who attend will receive a special gift," the invitation to the event read, "and those who post coverage from the event will be entered in a mystery gift card drawing where you can win up to $500 at LOFT!" 

The details were in smaller print: "Please note all bloggers must post coverage from our event to their blog within 24 hours in order to be eligible. Links to post must be sent to [e-mail address], along with the code on the back of your gift card distributed to you at the event. You will be notified of your gift card amount by February 2. Gift card amounts will vary from $10 to $500."  The invitation is available here.

The FTC guidelines are complex, but fundamentally they require bloggers (and those who post on other social media, such as Twitter and Facebook) who receive a free or discounted product or service in exchange for writing a review to disclose the freebie or face the possibility of an FTC enforcement action. 

So, under the FTC guidelines, bloggers who received the gift cards and wrote about the event were obliged to disclose the freebies.

A number of bloggers covered the event, including here, here, here, here, here, here, and here. Some disclosed the gifts, some said that they hadn't received them, and some didn't comment on the issue.  But some commentators criticized Ann Taylor for even making the offer, including here and here

This also wasn't the first time that Loft offered prizes to bloggers.  In December, Loft held a "Blog Wars" poll, in which fashion bloggers asked their readers to visit Loft's Facebook page and vote for their favorite blog.  The winning blogger received a $500 gift card.

As noted in CMLP's legal guide, after adopting the rule the FTC assured bloggers and social media contributors that it was not likely to pursue them for not following the disclosure guidelines.  Instead, the Commission said that it would target the advertisers who offer the freebies (PRNewser; Dow Jones Newswires).

While I pointed out some questionable incidents earlier this year, the Commission's inquiry into Loft's 2010 Summer Preview is apparently the first investigation that the FTC has undertaken under the endorsement rules.

In a letter to Loft's attorney announcing that it was taking no action in the matter, the FTC stated that
Upon careful review of this matter, we have determined not to recommend enforcement action at this time. We considered a number of factors in reaching this decision. First, according to LOFT, the January 26, 2010 preview was the first (and, to date, only) such preview event. Second, only a very small number of bloggers posted content about the preview, and several of those bloggers disclosed that LOFT had provided them gifts at the preview. Third, LOFT adopted a written policy in February 2010 stating that LOFT will not issue any gift to any blogger without first telling the blogger that the blogger must disclose the gift in his or her blog.  The FTC staff expects that LOFT will both honor that written policy and take reasonable steps to monitor bloggers' compliance with the obligation to disclose gifts they receive from LOFT.
The FTC letter also noted that LOFT posted a sign at the preview telling bloggers that they should disclose the gifts, but noted that "[i]t is not clear, however, how many bloggers actually saw that sign."

In past, I've criticized the FTC rules for assuming that all offline media are more ethical than online media, and for imposing by regulation what should be a matter of blogger ethics.

But while the FTC took no action against Loft or the bloggers who covered the event, it is clear that the Commission is keeping an eye out for blatant offers to bloggers and other social media posters in return for coverage.  For those who post on blogs and other social media, this means that its important to be familiar with the rules — the Legal Guide is a great start — and to be careful to disclose any product or service, including discounts, they receive in return for writing about that product or service.

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