Advertisers, in response to consumers using the Internet as their main tool to research new products and services, have created innovative ways of marketing to consumers beyond the traditional print and television mediums. For instance, consumers can now read product reviews from message board users and well-known bloggers without having any idea that those reviewers were employed by the product’s manufacturer or received the product free-of-charge in exchange for their review. Consumer protection groups and the Federal Trade Commission (FTC) have recognized that these arrangements may diminish the impartiality of these reviews and misinform potential consumers. To enable consumers to evaluate postings and reviews written by bloggers, the FTC is revising its Guides Concerning the Use of Testimonials and Endorsements in Advertising (the Guides). 

The proposed changes will regulate both (i) bloggers who are paid compensation or given other incentives such as complimentary products in exchange for posting a review or comments about a product, and (ii) bloggers who have other material connections with the manufacturer of a product. Under the proposed changes, bloggers must disclose that they received payment or other compensation in exchange for the review or that they received the product free of charge. For example, a college student who earned a reputation as an “expert” based on his online reviews of game hardware and software must disclose the retail price of the item and that it was provided at no cost in his review. The FTC, in drafting the revisions, reasons that the receipt of a free product influenced his review of the product. An individual who writes and posts favorable reviews of her employer’s MP3 players on online message boards must also disclose her relationship with the product’s manufacturer because her employment affects her credibility. Finally, the proposed changes would require that advertisers who provide incentives to word-of-mouth “street teams” take steps to ensure that disclosures are being provided to consumers informing them about the receipt of incentives.

If the proposed Guides are adopted, bloggers and other online reviewers must be careful to disclose if they are employed by the company or received any free items or incentives relating to the review. Due to the Guides’ vague language, disclosures of complimentary products or employment-based connections may need to be provided in forums ranging from social networking Web Sites and blogging/journaling interfaces to message boards.  Additionally, disclosures may also be required if the product was received via a trade show or a third-party Web Site, or even if coupons were provided to allow the reviewer to purchase the product at a reduced cost.

The proposed FTC Guides could also be a minefield for unwary advertisers. Companies and marketers are left uncertain as to how to discover and control the form and content of an independent blog, and are equally clueless about how to police their employees’ private endorsements of the company’s products. A disclosure is required in both cases, but a company has little means to control independent actors. It also remains uncertain how liability may be imputed to the company, leaving serious questions about how a company may gain knowledge of the favorable review and enforce a disclosure policy. These changes also make it undesirable for a company to seek out these favorable reviews because the proposed changes also do not distinguish between employees paid to favorably review a company’s products on message boards versus employees who do so independently in their free time. Advertisers engaged in non-traditional and word-of-mouth advertising may also be subject to liability if their in-person or online “street teams” do not disclose that they receive prizes and other incentives for endorsing the advertiser’s products. 

While the proposed changes to the Guides advise that advertisers should take steps to promote disclosures, the FTC Guides do not detail what types of training or notification might be required to prevent liability. Because of the independent and relatively unregulated nature of such marketing, the scope of liability could be expansive.

The FTC is continuing to review its Guides’ “material connection” disclosure requirements and it is expected that the changes will be finalized by late summer or early fall. Today’s evolving regulatory policies make it prudent to seek legal counsel before engaging in free-to-review, online, or incentivized marketing.

Arent Fox is currently monitoring developments in this area. For further information, please contact:

Anthony V. Lupo
lupo.anthony@arentfox.com
202.857.6353

Matthew R. Mills
mills.matthew@arentfox.com
202.715.8582