Advertising and Social Media

Have you ever given your product to a friend and been thrilled when she raved about it on her Facebook page? Have you ever picked a restaurant based on Yelp.com or Chowhound reviews, or scoured online review sites before buying your next laptop, car, or mobile phone? Did you ever wonder whether the authors were impartial when they crafted their reviews? Even if you’ve never wondered, the federal government has.

For many years, the Federal Trade Commission (“FTC”) has enforced laws aimed at preventing advertisers from utilizing deceptive business practices when using endorsements and testimonials in their advertisements. In order to make these laws more user-friendly, the FTC also publishes interpretive guides that provide examples of acceptable and unacceptable endorsements and testimonials. When an advertiser employs unacceptable tactics, it is liable for deceptive advertising under Section 5 of the FTC Act (15 U.S.C. §45).

Until recently, the FTC’s interpretation of its advertising laws focused on traditional advertising venues. Imagine the standard weight loss commercial depicting the slender woman stating that she lost 80 pounds using the newest weight loss diet or supplement. These laws are what required the advertiser to make the reluctant disclosure “these results are not typical” somewhere in the commercial.

With the public increasingly relying on user generated content in blog entries, message boards or social networking websites, on December 1, 2009, the FTC revised its interpretation of these advertising laws to clarify that the laws apply to information circulated even in the informal media of blogs and other social media. While the underlying law did not change, the impact of the new interpretation is sweeping. Understanding these deceptive advertising laws is now crucial not only to the conventional advertiser, but also to any company or person who uses the internet to promote their particular product or service and even to casual bloggers whose enthusiasm for particular products may make them unwittingly subject to liability. In such a case, both the producer of the product and the person actually making the statement may be liable.

Will You Be Liable?

When determining whether consumer generated content about a product is an “endorsement” and therefore subject to FTC regulation, ask yourself the following question: when posting positive statements about a product or service, is the speaker: (1) acting solely independently or (2) acting on another’s behalf? If the speaker is acting independently, then there is no endorsement and no liability. However, how the FTC determines whether the speaker is acting independently may surprise you.

Among other things, the FTC will ask the following questions when making a determination: Is the person paid by the company? Did the person receive the product for free? Has the person previously received products from the same or similar company? More importantly, it does not matter whether the company has control over whether the person’s review is positive or negative. Even if the company has no control, if the person is not acting independently in the eyes of the FTC, then the FTC Act applies and any endorsement must disclose all material connections between the speaker or author and the company in question.

What is a Material Connection?

A material connection is anything that connects the reviewer and the maker of the product and would influence how a consumer views the endorsement and evaluates the reviewer’s statements about the company’s product. In every instance where a material connection is not obvious to the audience, it must be disclosed. For example, viewers expect that celebrities are paid to appear in a commercial, so a celebrity’s endorsement in a television commercial does not require a disclaimer explaining his or her incentive for making the endorsement.

Blogs and other social media, on the other hand, are informal and often appear to be more personal. When a celebrity makes the same comment in his or her blog, the fact that the celebrity is being compensated for the endorsement is not as obvious to the consumer. Since this knowledge would affect the credibility a consumer places on the celebrity’s endorsement, if the compensation arrangement is not disclosed, the blog entry is deceptive and violates the FTC Act.

Material connections encompass more than just compensation. They can include a person’s relationship to the company through employment or a financial interest in the company. In addition, if a product is provided to a person free of charge with the hope that the person will review the product, the fact that the person received the product for free is a material connection that must be disclosed. Thus, if a restaurant comps the meal of a person it recognizes as an active blogger with the idea that a positive review would soon be posted on the internet, both that individual and the restaurant are liable if adequate disclosures are not made.

Substantiating Claims

Another important rule that applies to this expanding world of social media endorsements is that the company must have adequate substantiation of the results depicted in a person’s statement. Adequate substantiation is proof that the results are generally representative of what any customer can expect. This point is illustrated in the following example that is taken directly from the FTC’s new interpretation of the law:

The advertiser requests that a blogger try a new body lotion and write a review of the product on her blog. 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 blog readers who suffer from this condition. The advertiser is subject to liability for misleading or unsubstantiated representations made through the blogger’s endorsement. The blogger also is 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. 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 important to understand that the liability of the advertiser and the blogger above would be exactly the same if all the advertiser did was provide the product to the blogger for free with the intention that the blogger would review the product. Actual money (compensation) does not need to change hands.

The fact that people who disseminate information through the internet may be categorized as endorsers under the FTC Act puts a company who makes use of this inexpensive avenue for promotion of its product at greater risk of being liable for deceptive advertising.

Best Practices:

For Advertisers:

• Monitor third party reviews that are easily searchable (Yelp, Amazon, industry-specific sites) to determine whether there are any credible and misleading statements being made. While you are not liable for deceptive reviews by individuals with whom you have no material connection, evaluate whether any of the reviews are concerning and warrant action on your part to distance your business from any suspicion of connection.
• Take affirmative steps to correct deceptive statements, such as asking bloggers to amend their reviews. Ensure that your employees, their immediate families and others with material connections to you know that they should not make endorsements without disclosing their connection to you.
• Evaluate any company policies regarding providing any free goods to those from whom you are seeking positive reviews, and consider whether you are willing to accept the disclosure as the price of that review.

For Reviewers:

• Disclose your connections wherever there is a possibility that it could influence a reader’s perception of your review, including your past or present employment with a company, receipt of complimentary goods, banner advertising on your blog site, or any other benefits.
• Avoid making unsubstantiated claims about products, unless those claims are so obviously humorous that no reader is likely to be deceived.

The underlying principle to remember is the question of whether knowledge of undisclosed information would affect the weight or credibility a consumer gives to the person’s statement. If the answer to that question is yes, then both the company and the person making the statement have an affirmative duty to make accurate statements and to make the required disclosures.

For more information regarding the revised FTC interpretations, including information on why “Results Not Typical” may no longer be a sufficient disclaimer in traditional advertising, access the revised Guides Concerning the Use of Endorsements and Testimonials in Advertising. (16 C.F.R. Part 255).