Recommendation Marketing Through Evolving Social Media Channels

Marketing is occurring more often than ever virally, particularly through the Internet, mobile and other evolving media; and through word-of-mouth (“WOM”), including use of product sampling and consumer reviews, comments and recommendations.

Product sampling involves distributing products to influential users of new media with the hope that they will positively discuss the product with followers and friends. Such so-called recommendation marketing, which may or may not encompass sampling, is well suited for consumer-driven social media and can take many forms, ranging from paying or encouraging an influencer to write a blog, a post or a tweet on Twitter about a brand.

The goal is that the message will motivate consumers to initiate e-mails that send product listings or other information to friends with send-to-friend e-mail tools made available to consumers by online merchants or marketers (notwithstanding the FTC's recent guidance on send-to-friend campaigns, see, “FTC CAN SPAM FIND Rule,” 16 CFR Part 316, Federal Register, Vol. 73, No. 99, pp. 29654-29680 (May 21, 2008), this technique has spawned several recent lawsuits, one of which is being defended by the author and his firm).

These messages display a user's name or picture, or both, in connection with an ad directed to the user's friends on a social-networking site and, the interested parties to the products involved hope, will elicit product reviews on retail Web sites. This practice is among the types of social-media advertising that form the basis of a lawsuit filed against Facebook in California in August. See , Elisha Melkonian et al. vs. Facebook, Inc. , CA Superior Court, Orange County, Case No. 30-2009-00293755 (filed August 17, 2009).

In one of its more insidious forms, recommendation marketing can involve a marketer paying Internet users to post disingenuous positive product reviews at online retailers' sites, also called astroturfing, in which advertisers or their agents pretend to be unaffiliated consumers, and spread misleading or false information to advance the advertiser's objectives.

For example, last January, the media widely reported that the lead sales representative of networking-technology manufacturer Belkin was allegedly paying consumers covertly to post positive reviews on Amazon.com and Newegg.com, without regard to whether the posters used or liked the product, and to mark negative reviews posted by others as “not helpful.” Allegations included that the representative was counseling these posters on how to keep the connection to the company secret (see, Callari, “Top Ten Branded Social Media Nightmares,” at http://inventorspot.com/articles/top_ten_branded_social_media_nightmares_30874).

FTC Steps In

The Federal Trade Commission (“FTC”), which regulates online and traditional advertising, has been concerned with the growth of such activities, and recently proposed new rules to govern rouge marketers and marketers with good intentions working in evolving media. While well meaning, the FTC's proposals go too far in some respects, and need clarification of obligations and liability for advertisers and consumers engaged in these activities.

In January 1980, the FTC published its Guides Concerning Use of Endorsements and Testimonials in Advertising (“the Guides”). Although intended as self-regulation guidance, failure of marketers to comply with the Guides is grounds for the FTC to bring enforcement actions under its authority to regulate “unfair or deceptive acts or practices in or affecting commerce” under 15 U.S.C. 45(a)(1).

Fast-forward: In January 2007, the FTC began the process of reviewing and revising the Guides and, in November 2008, it published a proposed version of the new Guides (“Proposed Guides”). The Proposed Guides are in part a response to a growing trend among evolving-media marketers to get consumers more involved with brands and their promotion, including by means of social media. The FTC solicited public comment on the Proposed Guides. The comment deadline was extended, and it ended on March 2, 2009. Seventeen comments were submitted, most from major advertising-industry organizations. The FTC has not established a voting date on which the Commissioners will decide whether to approve the Proposed Guides. Several news reports speculated that the vote would be held this summer, which it was not, and some FTC watchers now suggest an early fall vote.

Responding to FTC Guidance

This article explores the potential changes to the Guides, with a focus on how the Proposed Guides will affect recommendation and social marketing in evolving-media channels. Online advertisers should enact policies and practices regarding social media that explain, and are in direct observance of, the principles of the Proposed Guides, monitor for compliance and, where possible, require corrective action for non-compliance. A myriad of other issues should also be incorporated into such policies and practices, but are beyond the scope of this article:

• Vicarious or contributory copyright or trademark infringement;
• Blurring of advertising and editorial;
• CAN-SPAM regulation of commercial e-mail;
• The Telephone Consumer Protection Act (“TCPA”) and the Mobile Marketing Association's (“MMA”) regulation of mobile marketing, privacy and data-security regulation;
• Constraints on marketing to children; and
• Sweepstakes and lottery laws.

(The MMA updated its U.S. Consumer Best Practices Guidelines on July 1.)

The Proposed Guides

Sections 255.0 and 255.1:
Purpose and General Considerations

A significant proposed revision to the introductory sections of the Guides is the addition of '255.1(d), which the FTC notes was added to:

explicitly recogniz[e] two principles that the FTC's law enforcement activities have already made clear. The first is that advertisers are subject to liability for false or unsubstantiated statements made through endorsements, or for failing for disclose material connections between themselves and their endorsers. The second is that endorsers may also be subject to liability for their statements.

The Commission added a New Example 5, specifically to illustrate the application of these enforcement principles to evolving media. It involves an advertiser that participates in a blog-promotion service. The service matches up its customers' products with bloggers who write about the products on their personal sites. The advertiser gives a blogger a new body lotion, say, and asks her to write about it on her blog. This minimal connection is seen by the FTC as enough to create advertiser responsibility for the blogger's posts, as the FTC illustrates:

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 [readers]. Because of this posting “the advertiser is subject to liability for false or unsubstantiated statements made through the blogger's endorsement. The blogger is also subject to liability for 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.”

This example should greatly concern any e-tailer engaging in sampling that is not tightly controlled. New Example 5 suggests some ways sampling and engagement of consumers via evolving-media channels should, in the FTC's opinion, be conducted:

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.

It is not clear from the Proposed Guides, however, whether that epilogue is a safe harbor for advertisers that implement education and monitoring programs, or is simply a suggested best practice. Also, no mention of the material-disclosure obligation is made in the discussion of education and monitoring. The Commission does note in another introductory part, '255.0, that “[w]hether a particular endorsement or testimonial is deceptive will depend on the specific factual circumstances of the advertisement at issue,” suggesting that reasonable efforts and Netiquette will shape enforcement decisions.

Section 255.2: Consumer Endorsements

The section on consumer endorsements and testimonials is the most heavily amended section in the Proposed Guides. The FTC proposes to require advertisers employing consumer endorsers to “possess and rely upon adequate substantiation to support efficacy claims made through endorsements, just as the advertiser would be required to do if it had made the representation itself.”

The proposal specifies that “anecdotal evidence about the individual experience of consumers is not sufficient to substantiate claims requiring scientific evidence.”

This section and its examples are primarily concerned with products whose general efficacy is capable of being discerned, e.g., weight-loss and hair-treatment drugs, or an energy-saving device. The last example proposed for this section involves an advertisement showing on-the-spot assessments of a movie from viewers leaving theatres. That example makes clear that products of which “results” are incapable of scientific generalization are exempt from the substantiation requirement because the “advertisement is not likely to convey a typicality message.” Accordingly, honestly held subjective opinions not likely to be understood as objective or scientific claims by consumers are acceptable.

The Proposed Guides would also do away with the safe harbor provided by disclaimers of typicality. The Guides now allow advertisers that use non-representative consumer testimonials to “clearly and conspicuously disclose the limited applicability of the endorser's experience to what consumers may generally expect to achieve.” That is, a clear and conspicuous disclosure that “results are not typical” should shelter the advertiser from liability. The Proposed Guides would require that when a testimonial conveys that the endorser's results are what consumers can generally expect to achieve and the advertiser does not possess adequate substantiation for that claim, the advertiser must “clearly and conspicuously disclose the generally expected performance in the depicted circumstances.”

These requirements can be met by an advertiser that is selecting and publishing consumer endorsements. However, evolving media gives advertisers a plethora of new ways to harness consumer reviews and endorsements, regardless of whether they were originally procured or solicited by the advertiser, such as posting or linking to the results of a Twitter public-feed search or a Facebook fan-page message feed on the advertiser's Web site, each of which Wm. Wrigley Jr. Co. has done with Skittles.com. When the advertiser is posting or linking to such consumer comments on third-party sites, as opposed to editorially selecting individual consumer comments to publish, the advertiser may lack the ability to control the consumer posts, making compliance in such circumstances practically impossible.

Even when the advertiser is paying or otherwise motivating consumers to blog, tweet, e-mail or text, it lacks the ability to review the substance prior to publication and in many instances will not even have the ability to see what was published. Nonetheless, such comments, when pointed to and encouraged or facilitated by an advertiser, can easily be deemed endorsements, defined as “any advertising message ' that consumers are likely to believe reflect the opinions, beliefs, findings or experiences of a party other than the sponsoring advertiser.”

And, as the New Example 5 in '255.1(d) above points out, the FTC seeks to hold the advertiser and the consumer liable for such claims, particularly if the advertiser did not exercise best efforts to control, prevent and rectify the consumer's misleading or otherwise legally insufficient statements.

Section 255.5: Disclosure of Material Connections

This rule requires that material connections between the endorser and the seller of a promoted product be disclosed when they “might materially affect the weight and credibility of the endorsement (i.e., the connection is not reasonably expected by the audience).” While the substance of this section remains unchanged, the Proposed Guides seek to add three new examples to clarify the scope of the rule, including application to sampling, and otherwise engaging consumers via social and other evolving media. In its commentary, the Commission solicited comments about these examples, particularly regarding “the expectations held by consumers as to the relationships that exist between advertisers and endorsers and these new marketing contexts.”

New Example 7, for example, imagines a college student who makes a minor name for himself as a video-game expert and blogs about his gaming experiences. The manufacturer of a new video-game system sends the blogger a free product and asks him to review it on his blog. He does. Because, the FTC supposes, consumers would not expect that this blogger was given the product for free, he must “clearly and conspicuously disclose” his connection to the manufacturer. This is similar to the blogger in New Example 5 above, where providing a consumer blogger a free bottle of body lotion is deemed requiring disclosure. No guidance is given as to what level of detail regarding the value received by the consumer is required, leaving, as noted above, open the issue of what would be relevant information that might affect consumer decisions.

Also not discussed is a common practice by bloggers who do disclose that they received product or consideration but fail to disclose that they do not post reviews when they do not have favorable things to say about a product but that the information is something that consumers may want to know.

In New Example 8, an employee of a company that manufactures MP3 players posts messages online at a message board designed for discussion among MP3 players. The employee's posts promote her employer's products, but she does not reveal that she is employed by the manufacturer. Because “knowledge of this poster's employment likely would affect the weight or credibility of her endorsement,” she must clearly and conspicuously disclose her relationship to the manufacturer. This example is far less controversial than the other two given that suggest the employee is capable of being directed and controlled by the advertiser.

In New Example 9, a member of a “street team” is awarded points every time he talks to his friends about the street-team organizer's products. He can then exchange those points for prizes. To the FTC, this incentive would materially affect the weight or credibility of the endorsements, so the team member must also clearly and conspicuously disclose his relationship to the advertiser. Notably, unlike the other two examples, Example 9 explicitly states that “the advertiser should take steps to ensure that these disclosures are being provided.” This example, however, does not indicate how specific the street-team member needs to be in disclosing his relationship. It is unclear whether the simple disclosure that he is a member of advertiser's street team or is an advertiser “Brand Ambassador” will suffice, or whether the compensation or reward structure must be explained.

These proposed additions include uncertainty regarding liability. The section is silent about which party bears liability for failure to disclose the connection, except that New Example 9 indicates the advertiser is at least required to make efforts to ensure that disclosures are made. Section 255.1's New Example 5 indicates the consumer will be responsible for a failure to disclose a material connection. Accordingly, the consumer and the advertiser are potentially liable, given the circumstances and consumer expectations.

A common way employed in connection with posts, particularly where cash compensation has been paid, is to add the text “Sponsored Post.” On Twitter posts, which are limited to 140 characters, the mere “[SP]” designation is starting to appear. Whether these notices will meet the FTC's long-established requirements that material disclosures be clearly and conspicuously made is questionable.

But the FTC may not provide specific guidance for evolving media. Richard Cleland, an FTC assistant director, has been quoted as saying that “the FTC would likely not spell out the disclosure requirements” (see, “Approval by a Blogger May Please a Sponsor,” in the July 13, 2009, edition of The New York Times).

Comments and Concerns
On Social Media Regulations

The vast majority of the 17 public comments submitted came directly from, or on behalf of, major consortiums or trade organizations within the online advertising and marketing industry. Perhaps not surprisingly, given the parties' similar situations, many comments echoed the same concerns. Many groups, including the Word-of-Mouth Marketing Association (“WOMMA”), the Association of National Advertisers (“ANA”), the American Association of Advertising Agencies (“4As”), and the Direct Marketing Association (“DMA”) expressed concern that the new-media examples added to ”255.1 and 255.5 create substantial uncertainty as to advertiser liability.

The 4As and the ANA were especially concerned that the new examples created liability for advertisers and endorsers in situations where either one or both lacked final editorial control over the endorsement, as noted in the example of Skittle's Twitter search feed mentioned above. The ANA was also especially vocal in exploring when an advertiser potentially incurred liability for blogger comments stemming from samples that the advertiser had freely distributed.

In their current form, the Proposed Guides are ambiguous regarding when, and on whom, liability can be imposed for product-related statements made on blogs, social-networking sites and other emerging communication channels. Given that these new venues and tools eschew much of the editorial control associated with traditional advertising, it seems unwise and unjust to subject either advertisers or consumers to liability for the other's actions, unless the consumer is materially compensated or the advertiser actively encouraged or knowingly permitted the bad act, such as was alleged in the Belkin example above.

In traditional forums, testimonials used by advertisers could be carefully vetted to ensure the endorser's truthfulness. Also, the content of advertisements could be edited for compliance with the FTC's regulations, including claims substantiation, efficacy and typicality requirements. In short, the advertiser had substantial control over the speaker's message. Viral and social-marketing channels are premised largely on a lack of that very control.

Accordingly, the Proposed Guides should be revised to make liability contingent on crossing well-articulated thresholds. The original Guides were enacted, it seems at least in part, to prevent advertisers from using endorsers to make false claims the advertiser would be prohibited from making directly. That concern for public deception may remain when the advertiser instead employs a staff blogger or has a substantial relationship with a freelance blogger. That concern vanishes, however, in the context of a consumer blogger who writes about a free bottle of lotion she was given and is free to express her opinions about ' favorable or not. The FTC should provide that advertiser liability for a blogger's or other consumer's online comments cannot be triggered unless the advertiser provided cash payment or a gift of substantial value, which would justify placing responsibility on the advertiser in the same way it is responsible for its employees and advertising agencies.

With respect to disclosures, while the current rule requires only disclosure of a “material connection,” the examples in the Proposed Guides appear to have lost sight of the materiality standard. Even if consumers might reasonably want to know of minor connections, such as sampling of low-cost goods, the FTC should provide a clear safe harbor for the advertiser if it has policies and practices that make good-faith efforts to get consumers to disclose the connection. While consumers may be reasonably subject to liability for failure to follow an advertiser's disclosure instructions, a consumer using social media should not incur liability under '255.2's disclosure requirement for generally expected results, unless his or her connection to the manufacturer is so material that he or she is effectively speaking on its behalf and should be held to that relatively complex disclosure standard ' as would be the case with more-than-trivial compensation.

Need for Policies,
Following Best Practices

Notwithstanding the FTC's need to make some clarifications and modifications to the Proposed Guides, every e-commerce company that advertises should have, and enforce, policies and practices for its own use of social and other evolving media, as well as use by its employees and agents, including how consumers are engaged, educated, monitored and handled. Until the FTC imposes these Proposed Guides, the 1980 Guides continue to provide the accepted guidance for the use of endorsements and testimonials in advertising, with the caveat that the Proposed Guides indicate what the FTC sees as also required, based on its interpretation of its enforcement-principles precedent and authority.

Self-regulatory bodies such as the National Advertising Division (“NAD”) will also apply FTC principles to new media. In Opinion in NAD vs. Herbal Groups, Inc., Case #5005R (July 20, 2009), a supposedly general-interest blog created by an advertiser without clear and conspicuous disclosure that it was a sponsored advertisement promoting a product was ruled to violate long-standing FTC prohibitions on blurring of advertising and editorial, and was misleading and deceptive.

In fact, best practices reflecting the FTC's Proposed Guides are emerging. In May, IZEA, a blog-advertising firm that pairs advertisers' products with relevant bloggers, began providing its advertiser clients with reports tracking whether its bloggers were disclosing compensation arrangements.

Companies can also look to industry best practices to guide them in developing their own policy. The WOMMA Ethics Code of Conduct, which the FTC specifically pointed to in its commentary on the Proposed Guides as an “important step” to ensuring “transparency for marketers who engage in new forms of marketing,” was updated on August 10. WOMMA requires disclosure, veracity and transparency, and prohibits cash payments to consumers for their support (see, www.WOMMA.org/ethics). The Interactive Advertising Bureau (“IAB”) published its Social Media Advertising Best Practices in May (see, www.iab.net/so cialads).

Also, recent reports say that the Children's Advertising Review Unit (“CARU”), a self-regulatory body that addresses marketing to children younger than 12, is examining use of social media for sell-messaging as part of soon-to-be-announced guidelines on blurring, which counsel for a more conservative approach regarding children and teens. On the government-regulatory front, a new Maine statute that was scheduled to take effect on September 12 would severely limit online marketing to Maine residents under 18 (see, Sec. 1.10 MSRA ch. 1055 ”9551-9554 (SPO431; LD 1183)).

Conclusion

The various industry best practices are a good starting place for a e-commerce companies to develop policies and practices under the guidance of experienced legal counsel. Such policies and practices, along with ongoing training and compliance review, will help marketing departments navigate the complexity of this developing field and reduce potential liability and negative consumer backlash.