FTC Endorsement and Testimonials Guidelines Notes from SMX West

By Eric Goldman

Last month, I spoke at SMX West about the FTC Endorsement and Testimonial Guidelines. My talk notes:

Beatles fans routinely parsed the meaning of John Lennon’s lyrics, which irritated him. When Lennon released “I am the Walrus,” which was a compilation of three different song ideas each with nonsense lyrics, he reportedly said “Let the fuckers work that one out.” Every time I read the indecipherable FTC endorsement and testimonial guidelines, I imagine this is what the FTC staffers said to each other when the guidelines were issued. Every word in their guidelines is in English, but the collection of words is less than the sum of its parts.

Structural Problems

Let me identify five structural problems with the guidelines:

1) The FTC guidelines seek to effectuate a clearer division between advertising and editorial content, but this division has never made sense, and certainly makes no sense in the online context. For example, on the Internet, every “editorial” web page has significant SEO value as marketing. Indeed, the standard advice to marketers seeking to improve their search engine indexing is to create better content.

The subtext: the FTC has a misguided belief that the FTC can improve content authenticity in our ecosystem through the FTC’s regulatory oversight. That’s a losing battle.

2) The guidelines do not attempt to distinguish between the very different situations of paid celebrity endorsements in infomercials and online consumer reviews where the reviewer gets a free book. As a result, the guidelines actually undercut Point #1 by miscategorizing some editorial content (online consumer reviews) as advertising.

3) The guidelines make unsupported (unsupportable?) assumptions about consumer expectations. For example, the guidelines assume that consumers understand that offline product reviewers get free stuff but don’t understand that bloggers get free stuff:

In general, under usual circumstances, the Commission does not consider reviews published in traditional media (i.e., where a newspaper, magazine, or television or radio station with independent editorial responsibility assigns an employee to review various products or services as part of his or her official duties, and then publishes those reviews) to be sponsored advertising messages. Accordingly, such reviews are not “endorsements” within the meaning of the Guides. Under these circumstances, the Commission believes, knowing whether the media entity that published the review paid for the item in question would not affect the weight consumers give to the reviewer’s statements. Of course, this view could be different if the reviewer were receiving a benefit directly from the manufacturer (or its agent). In contrast, if a blogger’s statement on his personal blog or elsewhere (e.g., the site of an online retailer of electronic products) qualifies as an “endorsement” – i.e., as a sponsored message – due to the blogger’s relationship with the advertiser or the value of the merchandise he has received and has been asked to review by that advertiser, knowing these facts might affect the weight consumers give to his review.

Citations, please. Based on this undefended assumption, the guidelines conclude that “bloggers may be subject to different disclosure requirements than reviewers in traditional media.”

There are two subtexts here. First, the FTC is engaging in unabashed cyberspace exceptionalism, but it has not given any basis for the exceptionalism. When a regulator indulges in cyberspace exceptionalism without explaining why, chances are the offline/online distinctions are unsupportable.

Second, the FTC has repeatedly indicated that it is concerned about Internet lawlessness. This is another sign that the FTC believes it needs to clean up the Internet.

4) The FTC does not clarify what constitutes a disclosable conflict of interest. For example, if the post qualifies as an endorsement, “disclosure of the connection between the speaker and the advertiser will likely be warranted regardless of the monetary value of the free product provided by the advertiser.” The guidelines define an “endorsement” as “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.” This is a circular definition! Conflicts of interest become disclosable only when the content qualifies as an “advertising message,” but editorial content can become an advertising message based on the author’s conflicts of interest. Stuff like this makes my brain hurt.

5) The FTC misapprehended 47 USC 230 and took an unsupportably expansive view of advertiser liability. I explain this concern in more detail in this blog post.

UPDATE: Some of these critiques are explored in Recent Regulation: INTERNET LAW — ADVERTISING AND CONSUMER PROTECTION — FTC EXTENDS ENDORSEMENT AND TESTIMONIAL GUIDES TO COVER BLOGGERS. — 74 FED. REG. 53,124 (OCT. 15, 2009) (TO BECODIFIED AT 16 C.F.R. PT. 255), 123 Harvard Law Review 1540 (April 2010).

Practice Pointers

* Advertisers need to (1) require disclosure from any bloggers they support, and (2) monitor all sponsored posts for accuracy and disclosure. I think it’s bad form to offer consideration and then hope/encourage the blogger not to disclose. But efficacy of sponsored posts may be lower with visible disclosure than without (consumers overdiscount content labeled as “ads”). For some types of consumer goods, good products go viral, in which case marketing dollars are better spent on making product improvements than creating shill reviews.

* Under no circumstances is it appropriate for marketers to create fake reviews (positive for you or negative about a competitor). See the Lifestyle Lift settlement with the NYAG. Fake reviews/astroturfing seems like the most logical area for increased FTC enforcement. And if you don’t think the long arm of the law will reach you, don’t forget that competitors love to publicly “out” each other.

* Bloggers need to disclose any conflicts in the post itself; general disclosures elsewhere on the site may not suffice. However, it’s unclear how to make the appropriate disclosures in Twitter or a Facebook status report. Some folks think CMP.ly may be an answer. I believe the FTC would take the position that if you can’t fit the necessary disclosures in Twitter, then don’t post to Twitter.

* Bloggers should think twice about joining pay-to-play services. There is a high legal ambiguity about the practice’s legitimacy.