FTC Disclosure Rules & Affiliate Marketing Implications

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Edit: 2 follow-up posts: (i) FTC Says the $11000 Fine “is Not True”, (ii) How to Word Disclosures & Agreements to Meet FTC Rules
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On 1 December 2009 the new Federal Trade Commission’s endorsements/testimonials rules are coming into force. I am referring to the “Guides Concerning the Use of Endorsements and Testimonials in Advertising” the text of which was announced by FTC yesterday. Changes will affect “testimonial advertisements, bloggers, celebrity endorsements” and affiliate marketers employing any such techniques. FTC stressed that regardless of the undertone of a blog post, “the post of a blogger who receives cash or in-kind payment to review a product” will be  “considered an endorsement”. Therefore “bloggers who make an endorsement must disclose the material connections they share with the seller of the product or service.” [more here]

The full 81-pages long FTC’s Guides document may be downloaded in PDF here. Below I am quoting just a few of the excerpts that affiliates and affiliate program managers should pay attention to.

Imposing liability… hinges on the determination that the advertiser chose to sponsor the consumer-generated content such that it has established an endorser-sponsor relationship. It is foreseeable that an endorser may exaggerate the benefits of a free product or fail to disclose a material relationship where one exists. (p. 15)

Shift of responsibility from advertiser to publisher:

When the Commission adopted the Guides in 1980, endorsements were disseminated by advertisers… through such traditional media as television, commercials and print advertisements. With such media, the duty to disclose material connections between the advertiser and the endorser naturally fell on the advertiser.

The recent creation of consumer-generated media means that in many instances, endorsements are not disseminated by the endorser, rather than by the sponsoring advertiser. In these contexts, the Commission believes that the endorser is the party primarily responsible for disclosing material connections with the advertiser. However, advertisers who sponsor these endorsers (either by providing free products — directly or through a middleman — or otherwise) in order to generate positive word of mouth and spur sales should establish procedures to advise endorsers that they should make the necessary disclosures and to monitor the conduct of those endorsers. (pp. 38-39)

So, while the disclosure responsibility has  shifted from advertisers to publishers, advertisers should have both a policy for endorsers to follow, and policing procedures in place.

The Commission does not believe, however, that it needs to spell out the procedures that companies should put in place to monitor compliance with the principles set forth in the Guides; these are appropriate subjects for advertisers to determine for themselves, because they have the best knowledge of their business practices, and thus of the processes that would best fulfill their responsibilities. (p. 49)

It is also important to understand that:

Advertisers are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between themselves and their endorsers. Endorsers also may be liable for statements made in the course of their endorsements. (p. 61)

Connections must be clearly disclosed:

When there exists a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement … such connection must be fully disclosed. (p. 75)

And a helpful example:

A college student who has earned a reputation as a video game expert maintains a personal weblog or “blog” where he posts entries about his gaming experiences. Readers of his blog frequently seek his opinions about video game hardware and software. Ad it has done in the past, the manufacturer of a newly released video game system send the student a free copy of the system and asks him to write about it on his blog. He tests the new gaming system and writes a favorable review. Because his review is disseminated via a form of consumer-generated media in which his relationship to the advertiser is not inherently obvious, readers are unlikely to know that he has received the video game system free of charge in exchange for his review of the product, and given the value of the video game system, this fact likely would materially affect the credibility they attach to his endorsement. Accordingly, the blogger should clearly and conspicuously disclose that he received the gaming system free of charge. The manufacturer should advise him at the time it provides the gaming system that this connection should be disclosed, that it should have procedures in place to try to monitor his postings for compliance. (pp. 79-80)

The whole document is chock-full of examples, and while it is not a quick read, it is a document every affiliate and affiliate program manager should study to arrive at their further course of action.

Shawn Collins concluded that affiliate program managers “should get acquainted with this issue fast and update their terms and conditions accordingly” — the sooner, the better. Affiliates, in their turn, should also review the full text of the above-quoted Guides Concerning the Use of Endorsements and Testimonials in Advertising and, regardless of whether the merchants advise them on this question or not, disclose of the fact that they are acting in partnership with the merchants that they are promoting. I do not believe this should have any negative effect on affiliates that are really adding value for the end user. To provide a simple example, if a blog with a built-in shopping comparison engine (run by an affiliate) that receives commission of every sale they refer to merchants offers a helpful tool for shoppers to compare products across several different merchants, and blogs about them and their products daily, discloses its relationship with these merchants, it will only spell out their honesty and add more credibility to the affiliate’s website.

The new FTC’s rules do raise many questions (e.g.: how do you disclose when you only have 140 characters?, how exactly do you word the disclosure policy? etc), leaving plenty of food for thought. While there are still many things to clarify, overall, I believe this to be a positive development. It helps us all move on to a more transparent online environment, and that is good. I am sure much more will be written on the subject in the coming days and months, but for the time being everyone who is involved in affiliate marketing (on both the affiliate and the merchant sides) must make the necessary adjustments to their strategies. After all, $11,000 is indeed “a steep price to pay” for violations of the new rules and guides.

More to read on the subject:

• FTC Publishes Final Guides Governing Endorsements, Testimonials – official press release
• Soon, Bloggers Must Give Full Disclosure by Tim Arango /The New York Times/
• FTC Sets Endorsement Rules for Blogs by Cecilia Kang /The Washington Post/
• FTC: Bloggers, Testimonials Need Better Disclosure by Deborah Yao /Associated Press/
• FTC Values Sponsored Conversations at $11,000 Apiece by Brian Solis /TechCrunch/
• The FTC and Affiliate Disclosure by Scott Jangro
• New FTC Thing Is A Bigger Deal Than You Might Think by Frank Kern