How does the new FTC Regulation affect social networks and online communities?

In summary: What is the FTC regulation all about?

The Federal Trade Commission (FTC) of the US recently published an updated guide providing “administrative interpretations“ for laws concerning endorsements and testimonials in advertising. For the first time, the guide also specifically mentions social media, particularly bloggers, and what their responsibilities are when endorsing a brand or product online. Basically, anyone who gets paid or otherwise compensated for writing about a product or service, has to disclose this relationship. Claims made by an endorser may not be misleading. This has mainly been discussed for bloggers, but these guidelines should also be adhered to in social networks, microblogging services like Twitter and in online communities, groups and forums.

What’s an endorsement?
According to the FTC, “an endorsement means any advertising message […] that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser.””Endorsements must reflect the honest opinions, findings, beliefs, or experience of the endorser. Furthermore, an endorsement may not convey any express or implied representation that would be deceptive if made directly by the advertiser.”

The guide gives an example of a blogger who writes about dog food:

  • If she just decides to try a new brand, likes it, and writes about it: not an endorsement
  • If she gets a coupon from her supermarket for a free trial because the store „…routinely tracks her purchases and its computer has generated a coupon for a free trial bag…“ and writes about the food: not an endorsement
  • If she joins a network marketing program and receives products periodically, receives a free bag of dog food and writes about it: this would be an endorsement.

When is disclosure needed?
“When there exists a connection between the endorser and the seller or the advertised product that might materially affect the weight or credibility of the endorsement (i.e. the connection is not reasonably expected by the audience), such connection must be fully disclosed.”

For example, if a game expert receives a game console for free and reviews it: „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 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.“

What is the advertiser’s responsibility?
“The advertiser is subject to liability for misleading or unsubstantiated representations made through the blogger’s endorsement“

(Example: If an advertiser asks a blogger to test a body lotion and the blogger writes that the lotion can cure eczema, the advertiser is liable for this misleading claim – even if the advertiser has not made such claims). Advertisers must also make sure that any person that receives incentivization by them discloses this fact when writing or speaking about a product.

How can advertisers ensure compliance?
Advertisers should ensure that anyone who is speaking on their behalf or endorsing them knows about these rules beforehand. They should consider providing their endorsers with guidelines and suggestions on how to disclose the relationships. Additionally, advertisers must monitor for compliance and have the responsibility of halting publication of claims that could be considered deceptive.

What is the endorser’s responsibility?
While it is unlikely that the FTC will go after single bloggers, it states that „the blogger is also 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.

How does this affect brand engagement in social networking services?
Whilst these guidelines have been discussed in relation to bloggers, the guide clearly also targets any other form of social media. An important point is that according to the FTC, consumers might not realize that messages in social networks or on message boards are from paid endorsers. Anyone who has a relationship with a brand or product, whether it be by employment or any kind of payment or incentivization, should therefore disclose their relationship to the advertiser when speaking about this brand.

Employees of a brand can no longer go on message boards and praise their products without informing the community that they are working for this company.

How should disclaimers be made?
Disclaimers should be made “clearly and conspicuously.” There have been discussions about blanket disclaimers that would just appear on one page, for example a blogger’s „About“ page. This will probably not be considered conspicuous enough. To be on the safe side, it is probably best to include a disclaimer within a blog post or discussion post, where any reader can be expected to see it.

What happens if a brand or an endorser does not comply with these guidelines?
Violations – and this concerns the brand as well as the endorser – are punishable by civil penalties of up to $11,000 per violation. That fine is probably a smaller part of the damage though – considering how fast word travels in social media, the damage to a brand or endorser’s image could be much higher than that.

What is Linqia’s view about these guidelines?
We fully support the principals behind these guidelines. We encourage brands to engage in conversations and we believe this should always happen in a transparent and open way. The key driver to engaging successfully in conversations is to be authentic – and this includes disclosing who you are and who you are speaking on behalf. We will be actively encouraging and educating brands we work with to disclose such information and inform endorsers to do the same.

Further Reading

Guides Concerning the Use of Endorsements and Testimonials in Advertising (the original text by the FTC)

New FTC Marketing Guidelines – The Five Things You Must Know

1 comment
  1. Mike said:

    Have you heard of Shortbord – we're new but hoping to get our endorsement badges (which are authentic and transparent – no running afoul of FTC guidelines) everywhere a person posts user-generated content.

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