Consumer Protection in Social Media

At this week’s New Media Expo / BusinessNext (formerly BlogWorld) conference in Las Vegas, I spoke on a panel called “Social Media and the Law: Emerging Legal Issues and Obligations.” My portion of the talk  was dedicated to consumer protection issues.  For those who couldn’t be there, here’s a summary of what I discussed.

nmxConsumer Protection in Social Media

The Federal Lanham Act & related laws govern commercial speech, and are designed to protect consumers from being deceived or misled.  Causes of action under these statutes include False/Deceptive Advertising, Unfair Competition, and Trademark Infringement.

The Federal Trade Commission, or FTC, is the govt agency charged with enforcing these laws.  It can launch investigations of potentially deceptive activity or respond to requests.  Then it can bring an action in federal court to enforce.  It often ends up with settlements that make examples for the rest of the industry.
Competitors can bring private lawsuits against each other for unfair competition.  Increasingly they are also going to private arbitration forums like National Advertising Division, or NAD, a division of the Better Business Bureau.

Endorsements

One primary way that consumers can be deceived is through endorsements.  ”Endorsement” is defined as any advertising message that consumers are likely to believe reflects the opinions or experience of someone other than the advertiser.  This definition creates two types of speakers: endorsers and advertisers.

Endorsements must be honest. They can’t express or imply representations that would be deceptive if made by the advertiser.
In 2009, FTC made clear that these rules applied to bloggers.  Bloggers can be liable when they say something false or misleading about a product or service.   This announcement set off a panic in blogosphere that everyone was going to be subjected to the maximum $11,000 fine.  But the FTC made clear that even in the worst-case scenario, the first-time punishment would be a warning–and that their targets are not small-time bloggers, but the advertisers they endorse.  Advertisers have a duty, sid the FTC,  to educate bloggers and monitor their compliance.

     Facebook Likes

More recently, these rules have been applied to Facebook Likes.  Case law on Likes is in flux.  For example, there is conflicting case law on whether Likes are First Amendment-protected speech.
The NAD recently ruled that a Like is a “general social endorsement” of the advertiser by consumers, so advertisers have a duty to solicit and discuss them fairly.  This is a big business.  At one point, Target had 1.8 million Likes total, and had received approximately 1 million of them by giving away free beauty bags in exchange for Likes (a “like-gated promotion”).
Using deceptive means to inflate the number of your Likes can be punished.  Coastal Contacts was dinged for its “like-gated promotion,” which offered a free product but didn’t disclose everything consumer needed to do to get the product until after they Liked.  Coastal Contacts also promoted a higher number of Likes in its ads than it actually had on any one page.  It touted the aggregate of all the Likes on its international pages as well.  NAD found this misleading.

Disclosures

Another means of deception is failing to disclose “material relationships” between the endorser and advertiser–influences that could bias the endorser who might otherwise come off as independent, such as payments or free product.  For example, there was a couple who blogged about McDonalds’ Monopoly game until it turned out they were being paid by McDonalds.
This also caused a stir in the blogosphere in 2009.  Again, the fears of small-time bloggers did not come to pass.  But the FTC has been serious about going after advertisers.  It has settled with several advertisers for not disclosing relationships.  All agreed to injunctions; one had to pay $250,000.
In 2010, the FTC investigated Ann Taylor for giving gift bags and sweepstakes entries to bloggers and not disclosing it.  In 2011, it investigated Hyundai for giving undisclosed gift cards to bloggers in exchange for links.  In both cases, the FTC decided not to take action because the company had a clear social media policy that prohibited the behavior, it was done by a “rogue” PR employee, and companies took steps to rectify once they discovered it.  (So if you’re the PR guy, beware getting thrown under the bus!)
In 2012, NAD heard case against Nutrisystem about its Pinterest campaign.  They were pinning customer success stories to their boards.  NAD said they needed to include full disclosures like you’d see in normal ads, such as “These results are not typical.”  And needed to be in the pin, not just the linked page.
Another concern area is Astroturfing, or fake grass roots marketing.  A PR firm was punished for instructing its employees to pose as consumers and write reviews in Amazon and iTunes.  Famous authors have been caught doing this lately too.

Compliance Strategies

The experience of Ann Taylor and Hyundai suggests that having a clear policy in place can insulate companies from liability, even if it is not always followed.  Policies can certainly help.  But they are not always foolproof, if the FTC determines that the policy is regularly ignored.
If you’re a blogger, remember it’s your duty to disclose.  A good rule of thumb is to put yourself in customer’s shoes.  What would you want to know?  Don’t pretend to be someone you’re not.  Consider signing posts with author’s initials if it’s a feed with multiple authors.
FTC has expressly said that it’s not sympathetic to the lack of space for disclosures on Twitter, and that you can fit a disclosure into 140 characters.  Many who try to comply with this duty use hashtags, like #paid or #sponsored.  Cmp.ly also offers short URLs that link to lengthier disclosure explanations.
Well-known blogger Michael Hyatt posted his experience with various approaches.  Cmp.ly has a standardized set of badges for blog disclosures.  He also tried affiliate links.  But Hyatt found these too intrusive and cumbersome for his tastes.  He settled on six different template texts that he puts at bottom of each post, depending on the disclosure required.  Ultimately, the method you choose depends on your preferences and the specific context.
But however you choose to do it, make sure that you do comply with these regulations.  Consumer protection is a serious and important part of keeping social media a useful and reliable place to do business.
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