What new FTC rules for ‘word-of-mouth’ marketing may mean to your business

Many new media-savvy companies have embraced consumer-generated content as an effective way to reach their target audiences. These companies often provide free products, coupons or discounts to individuals in exchange for favorable postings on blogs or message boards. Concerned that consumers may not understand the connections between advertisers and these compensated bloggers and posters, the Federal Trade Commission has released revised “Guidelines Concerning the Use of Endorsements and Testimonials in Advertising,” for companies using word-of-mouth marketing, particularly in new media settings, which are effective Dec. 1, 2009.

Click here to see a Nov. 23, 2009, SNEWS® news story about the guidelines’ implementation, “FTC cracks down on web endorsements.” As a companion to that story, Attorney Andrea Anderson, a partner with the law firm Holland & Hart who focuses on trademark and advertising law, discusses the implications for your business, the technicalities of the guidelines, and some strategies of which to be aware.

While the guidelines do not have the force and effect of law, violation of the guidelines could constitute persuasive evidence of deceptive advertising in lawsuits brought by the FTC, the state Attorneys General, class action plaintiffs or competitors.

Disclosure of connections between “endorsers,” “advertisers” key

The guidelines are not intended to cover every instance where a company provides free product to bloggers. Rather, the general rule of thumb is that the greater and more frequent the compensation (including product) the blogger receives from a company, the more likely it is that the blogger will be considered an “endorser” to whom the guidelines apply. Take a look at these scenarios:

One-time giftvs. a steady stream — For example, a retail employee who receives a one-time gift of sunscreen from a sales representative probably does not have to disclose that the sunscreen was a gift if he chooses to blog about it. In contrast, a popular climber blogger who receives a free or heavily discounted sleeping bag from an outdoor company would definitely need to disclose the gift if he reviews it in his blog. Even a steady stream of lower value gifts like quick draws, gloves and chalk bags would probably trigger the obligation to disclose, depending on the frequency with which the outdoor company sends them.

Incorrect information — In addition, the new guidelines clarify that advertisers can be liable for false advertising if their compensated bloggers, posters or tweeters make false or misleading statements about their product.

So, for example, assume that our climber blogger raves in his blog that the new sleeping bag “will keep you toasty down to zero degrees.” If the bag is designed only for warmer weather use, the blogger may be liable for deceptive advertising. But the liability doesn’t stop with the blogger. Under the new guidelines, the outdoor company is also liable for false advertising, even though it had no control over the blogger’s postings or prior knowledge that he would make this inaccurate claim.

Employee postings — Another potential hotspot is the employee blogger/reviewer. If employees are promoting or talking up their company’s products on blogs and message boards, they should disclose the employment relationship. Obviously, knowledge that a reviewer is employed by the company whose product he is reviewing would probably affect the weight that a consumer gives to the review.

Celebrity/sponsored athlete endorsements — In addition to endorsements made through consumer-generated content, the guidelines address the use of celebrity endorsements. As with consumer bloggers, celebrities who endorse products through social media must disclose that they are compensated. For example, a Tour de France winner who tweets about his cool new cycling shorts and mentions the brand name must now disclose that the brand is his sponsor. The same rule applies to a celebrity’s comments made in any public forum — a press conference, a talk show or an interview for a publication. 

However, where an endorsement is not expressed, a celebrity need not disclose the relationship. For example, when a sponsored athlete wears the branded apparel of his sponsor, Big Sports, in a talk show appearance, he need not disclose the sponsorship relationship. But if the athlete comments in an interview that he is playing at the top of his game, due in part to his new Big Sports shoes, he must disclose the relationship and the fact that he is compensated by Big Sports. 

How companies can comply

Companies who provide free product to consumer reviewers and bloggers as a part of their word-of-mouth marketing campaigns should consider taking the following measures to help ensure that their word-of-mouth marketing programs comply with the guidelines:

>> When providing free products to consumer bloggers and reviewers, notify themin writing of their obligation to disclose to their readers that they received the product for free if they choose to review it. The notice should also explain that, while the reviewers are free to express their opinion or share their experience with the product, they should not make false or unsubstantiated statements about the product.

>> Monitor the websites of bloggers/reviewers with whom you work to ensure that they are not making false or inaccurate claims about your products. If these partner bloggers/reviewers do make inaccurate statements, take steps to have the statements corrected and consider dropping these bloggers from your program.

>> If you work with an advertising agency or PR firm that matches your products with consumer bloggers and influencers, you should ensure that the agency provides proper training to its consumer reviewers. (See 1 and 2 above.)

>> Explain to your sponsored athletes and adventurers (in writing and preferably as part of their contracts) that when they mention your company and products in any public setting, they must disclose that you sponsor them. 

>> Develop a written social media policy for employees. The policy should explain that if employees participate in social media on topics relevant to the company, they should disclose the employment relationship.

For more information on the new rules governing endorsements, check out the complete text of the FTC’s “Guidelines Concerning the Use of Endorsements and Testimonials in Advertising,” which offers several helpful examples. The Guidelines are available at http://www.ftc.gov/os/2009/10/091005endorsementguidesfnnotice.pdf

–Andrea Anderson

Andrea Anderson, a partner in the law firm Holland & Hart, provides a full complement of trademark-related services to an international clientele with an emphasis on strategic counseling and dispute resolution. She assists her clients in every stage of the creation, maintenance and protection of their trademark rights, and advises clients with respect to the legal implications of their marketing strategies and advertising claims. Anderson represents clients in several diverse industries, including outdoor gear and apparel, sporting goods, and organic and natural products. She can be reached at: aanderson@hollandhart.com or 303-473-2861.