WOSML Chapter 3.A: Advertising & Consumer Protection – Endorsements and Disclosures

Chapter 3: Advertising & Consumer Protection

Contributors to This Page: Brian D. Wassom
Suggested Citation Form for This Page: Brian D. Wassom et al., Wassom on Social Media Law Chp. 3.A, available at <wassom.com/wosml-3c.html> (last edited Feb. 28, 2013)

A.  Endorsements and Disclosure Requirements

The Federal Lanham Act and 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.
1.  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.
a.  Endorsement Rules Apply to Blogs

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, said the FTC,  to educate bloggers and monitor their compliance.

b. 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.  Many companies invest heavily in “like-gated promotions”–in which consumers must “Like” a page in order to receive a certain benefit–in order to boost their numbers.
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.
2.  Disclosures
a.  What Disclosures Are Required?
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.
b.  Enforcing Disclosure Rules in Social Media
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, be aware that the buck stops with you!)
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.
3.  Astroturfing and Sock Puppetry
dansuarezA related area of concern is “astroturfing,” or fake grass roots marketing.  For example, a PR firm was punished for instructing its employees to pose as consumers and write reviews in Amazon and iTunes, and author R.J. Ellory was caught posting fake reviews of his and competitors’ books.
On October 13, 2012, I published an interview with New York Times bestselling author Daniel Suarez, whose novel Kill Decision explores (among other things) the idea of “sock puppetry” in social media.  This is the phenomenon of people behind the scenes using armies of thousands or even millions of fake social media accounts in order to create the false impression of public support behind any given subject.  In Mr. Suarez’s view, astroturfing and sock puppetry is not yet a widespread phenomenon, but will grow exponentially in the very near future:

Literally every organization uses social media for brand management, and news organizations track social media for what’s trending. That means even the perception of popularity can go viral. Thus, shortcuts will be taken to gain followers and positive mentions, creating the conditions for virality.

And doing so is cheap. It only costs about $80 per 5,000 fake Twitter followers (Facebook friends cost several times more – but followers and positive reviews can be purchased for just about every major site). Think about it: roughly $12,000 for a million online ‘people’ to add credibility to your cause. Aged accounts (those that have been around for years) will cost more. Automating discussion among those fake followers – aka ‘persona management’ — is what sells the illusion of a massive upwelling of popular support.

I think what’s been detected so far is just the tip of the iceberg when it comes to sock-puppetry. If a person or organization isn’t troubled by ethics, and they want to quickly influence public opinion – i.e., make people think something big is happening when it really isn’t – then they’re going to create armies of fictitious followers. It’s just too easy in an open, anonymous system like today’s Internet.

While this activity “might seem like a victimless crime,” he continued, ” in the aggregate, it undermines faith in all online discourse.”

4.  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 is 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.