Hyundai Gets a Pass from the FTC on Endorsement Issues, in Part Due to Its Social Media Policy

[Post by Venkat Balasubramani with updated comments from Eric]

In re Hyundai Motor America, FTC File No. 112-3110 (Nov. 16, 2011) [.pdf]

We’ve posted on the FTC endorsement guidelines, which broadly require disclosure of relationships, and incentives provided to those who endorse products or companies. (“FTC Dings PR Firm for Fake Reviews — In re Reverb Communications“; “FTC Drops Investigation of Advertiser Who Gave Gifts to Bloggers“; “FTC Online Endorsement Guidelines Strike Again – FTC Dings Legacy Learning Over Allegedly Misleading Affiliate Reviews.”) The FTC recently closed an investigation on Hyundai, whose marketing agency gave bloggers gift certificates as an incentive to “include links to Hyundai videos in their posts and/or to comment on . . . forthcoming Super Bowl ads.” You can access a copy of the FTC’s closing letter here [.pdf].

The FTC provided two reasons for why it closed the investigation into Hyundai’s promotions:

- Hyundai did not know in advance about the incentives, which were offered by an employee of Hyundai’s marketing agency.

- offering an incentive to post about or endorse a Hyundai product was contrary to the social media policies of both Hyundai and its marketing agency.

It was challenging to me to make sense of the FTC’s decisions under its endorsement guidelines. Thus far, the FTC has taken action against entities who directly violate the rules (Reverb), or those who have an active role in encouraging reviews or endorsements which violate the endorsement guidelines (Legacy Learning). It seems that entities that haplessly dole out gifts with the unarticulated expectation of reciprocation in the form of an endorsement have yet to come under the FTC’s knife (see this investigation and Ann Taylor). Meanwhile, the FTC seems to have given celebrities–who reportedly shill for products and companies on a regular basis without accompanying disclosures–a free pass.

The FTC’s reliance on the social media policies of Hyundai and its marketing agency is interesting and yet another data point in favor of adopting a social media policy. Query as to whether the FTC’s reliance on these policies is inconsistent? The FTC doesn’t seem to accept affiliate agreements at face value for the proposition that companies are policing their affiliates. It’s odd for the FTC to accept a social media policy for the same purpose.

Update: The FTC’s Business Center blog has a nice explanation for the FTC’s rationale in this matter. (“Using social media in your marketing? Staff closing letter is worth a read.”) The FTC recommends following the M.M.M. approach:

1) Mandate a disclosure policy that complies with the law;
2) Make sure people who work for you or with you know what the rules are; and
3) Monitor what they’re doing on your behalf.

Other coverage:

FTC Closes an Investigation Into a Blogging Promotion

Related posts:

FTC Dings PR Firm for Fake Reviews — In re Reverb Communications

FTC Drops Investigation of Advertiser Who Gave Gifts to Bloggers

FTC Online Endorsement Guidelines Strike Again – FTC Dings Legacy Learning Over Allegedly Misleading Affiliate Reviews

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Eric’s Updated Comments

1) The FTC Endorsement and Testimonial Guidelines are confusing to everyone, even the FTC. Recall the public discord they had over whether Ashton Kutcher broke the rules. I remain skeptical that the FTC understands what it said in its own rules.

2) Regardless of what they said, the FTC’s goals are clear: they hate inauthentic content online, and that includes content that might be financially motivated without sufficient disclosure to the reader/viewer. If they could wave their magic wand and eliminate all that content from the Internet deus ex machina, they would.

3) Unfortunately for the FTC, they can’t wave their magic wand, so they have to bring enforcement actions. But they have made it 100% clear that they really do not want to go after individual bloggers–even though the bloggers are the ones who the FTC thinks are actually violating the Endorsement and Testimonial Guidelines. It makes sense that the FTC doesn’t want to chase individual bloggers, who are multitudinous and often legally unsophisticated, but it means the FTC refuses to go after the most responsible individuals.

4) Because the FTC won’t go after the direct violators, they are casting a net for other folks to hold responsible. I’ve previously raised the concern that such trawling for secondary violators is impermissible under 47 USC 230, a statute the FTC wishes didn’t exist. Because they are going after the secondary players with a weak theoretical justification for holding the secondary players responsible while not simultaneously enforcing the rules against the principal players, the FTC is effectively developing its rules on the fly. Not surprisingly, such an ad hoc development of rules can be hard to keep consistent.

5) Because the FTC doesn’t want to unfairly impose liability on secondary players for actions they can’t necessarily control, the FTC has made it quite clear that it expects advertisers playing in the financially-motivated online content space to do the following:

* tell bloggers not to break the law

* tell their agents not to break the law

* double-check after-the-fact to see if anyone has broken the law and undertake efforts to remediate those violations

This may seem a little silly and formalistic as a way of complying with the Endorsement and Testimonial Guidelines, but it appears like it’s enough to satisfy the FTC.

6) As Venkat points out, the FTC’s position here may be harder to reconcile with the FTC’s position about other forms of liability based on affiliate actions, where the FTC may not be OK with simply including “comply with the law” provisions in the contracts and doing after-the-fact spot checking. If the FTC is going to hold advertisers liable for third party actions–a paradigm I think they should categorically abandon, especially in light of 47 USC 230–then it would be great if the FTC would publicly reconcile these different attitudes towards third party liability. Given the FTC’s steadfast refusal to provide bright-line rules that might limit its future discretion, I wouldn’t hold my breath waiting for such clarification.