FTC Guidelines Fallout

The regulations that the Federal Trade Commission (“FTC”) recently promulgated on product endorsements could result in injunctions for bloggers and advertisers, who could be ordered to reimburse consumers for financial losses stemming from product reviews that are considered inappropriate under the new guidance. The fines can reach up to $11,000 per violation.

The FTC action is in response to blogging used to market products and services online, but unbeknown to consumers, companies may compensate blogger-reviewers for their write-ups. Traditional journalism outlets normally bar their writers ' full-time and part-time staffers, as well as freelance contributors ' from accepting such compensation on the assumption that payment from a news or other type of information source presents at least the appearance of a conflict of interest and taints the treasured objectivity and fairness for which most journalism enterprises strive to present and to establish, along with the concomitant credibility with readers, viewers and listeners that such balance has traditionally established and nurtured.

The Updated Guidelines Reach a Little Farther

Recently, the FTC published its final revisions to its Guides Concerning the Use of Endorsements and Testimonials in Advertising, which went into effect on Dec. 1. The guidelines address “endorsements, i.e., advertising messages which may be understood as the opinion of someone other than the sponsoring advertiser, from the perspective of consumers.” The FTC action generally addresses the use of endorsements and consumer testimonials on the Internet, and specifically focuses on bloggers.

The guidelines appear to be farther-reaching with respect to expanding the liability for deceptive trade practices. The guidelines make the endorsers and advertisers liable for both statements made in an endorsement and for a failure to disclose material connections between advertisers and endorsers.

The guidelines also appear to cover Internet entities that report endorsements as conveyed by bloggers or other “word-of-mouth” marketers. Wikipedia may arguably be considered as a blog for guideline purposes because it contains Internet articles that constitute commercial endorsements. Even those who operate and produce content for Wikipedia seem to understand that the site is used as a blog for certain commercial goods and service, sometimes known as “endorsement entries.” Currently, some of the Wikipedia endorsement entries have been labeled by the site as in need of “references that appear in reliable third-party publications” and deemed that the “primary sources or sources affiliated with the subject are generally not sufficient for a Wikipedia article.” Such notice may not provide sufficient liability protection from FTC scrutiny in the future. The guidelines may require Wikipedia to change its posting procedures to ensure that the new FTC regulations are satisfied, or possibly face sanctions.

One of the most prominent features of the guidelines deals with expressed support. Endorsements must reflect the honest opinions and true experience of the endorser. If paid actors are used, this fact must be disclosed. Endorsements may not be deceptive or unsubstantiated and are limited to representative results that a consumer can reasonably expect to achieve. Any claim made by the endorser must reflect the opinion or experience of a significant proportion of consumers.

The guidelines also limit the use of disclaimers. In particular, the guidelines prohibit the use of the previously accepted practice of allowing a safe-harbor statement. In the past, such a statement allowed advertisers to describe unusual results in a testimonial as long as they included a disclaimer, such as “results not typical.” Such disclaimers are no longer sufficient. Disclosure must be included in the content containing the expression of support. For example, all material associations between the advertiser and the endorser must be disclosed, unless such material associations are intuitively obvious to general users. All exchanges of free products or monetary compensation must be disclosed.

Internet and traditional content-distribution contracts normally contain common contract elements. However, the guidelines will likely require different treatments with respect to the implementation of special warranties. For example, Internet advertisement-distribution agreements for transactions after Nov. 30 of last year should address the guidelines by requesting that the advertisement content provider warrants that to the best of its knowledge, the content complies with the FTC's revised guidelines for the use of endorsements and testimonials in advertising.

(Editor's note: For more of our coverage of the new guidelines, see, “Recommendation Marketing Through Evolving Social Media Channels: A Rundown of the FTC's Proposed Endorsement Guides, in the October 2009 edition of e-Commerce Law & Strategy; subscribers, go to www.ljnonline.com/issues/ljn_ecommerce/26_6/news/152810-1.html; and “FTC Reassures Bloggers: Big Brother Isn't Watching” and “Revised FTC Guidelines: Bloggers Beware,” both in the November 2009 edition of e-Commerce Law & Strategy; subscribers, go to www.ljnonline.com/issues/ljn_ecommerce/26_6/news/152810-1.html and www.ljnonline.com/issues/ljn_ecommerce/26_7/news/152932-1.html, respectively. The FTC guidelines are available at www.ftc.gov/os/2009/10/091005endorsementguidesfnnotice.pdf.)

Some Guidelines of Our Own

The FTC's guidelines are novel, so it may be prudent for Internet advertisement-distribution agreements to specifically identify them. Internet-content agreements grant licenses for the use of content and are used for bloggers associated with commercialized goods or services. Typically, an Internet licensor may modify content to assume any form consistent with the “look and feel” of the content recipient's Internet site. However, that amount of modification may not be sufficient.

The guidelines, as promulgated, could require Internet-advertisement distributors to be allowed to add new and additional content to the Internet advertisements so as to be in substantial compliance.

Similarly, Internet content agreements typically address the delivery of content to blogs with commercial ties. Internet agreements usually have delivery technical specifications for both the content sender and recipient. For example, the content sender must deliver content by using a particular electronic format, such as .JPG, but the content recipient must provide compatible electronic-content storage and typically supplements the sender's content with specified hyperlinks.

Internet-advertisement distributors should make sure that their agreements include a clause that requires the advertiser's content to be delivered in a form suitable for accepting new and additional content, which will facilitate corrections or additions mandated by the guidelines.

Changes Will Restrict Blogging

While the guidelines had the stated intent of addressing changes in the way products are marketed compared with 30 years ago, if enforced as promulgated, enforcement action will restrict blogging. This governmental effort follows several lawsuits that have been filed against employers in recent years alleging that they unlawfully restricted employee blogging or allowed employees to defame others in blog postings. Last year, Cisco Systems was sued for defamation after one of its attorneys blogged about opposing counsel.

Because blogging is a relatively new phenomenon, there is little court guidance for governmental restrictions on blogging. The FTC guidelines' restriction of blogging is likely to become a matter of First Amendment litigation in the near future. In particular, the First Amendment protects an advertisement that uses truthful, “atypical” testimonials without a disclaimer as to the typical result, as long as the ad as it stands is not deceptive, but the guidelines, as promulgated, do not.