Will All Affiliates Be Affected by New FTC's Rules?

An excellent question was posed by Eric Alexander earlier this morning:

Does it [the passing of the new Federal Trade Commission’s disclosure rules for “endorsements and testimonials”] only affect product or service endorsements or even all affiliate links, banners, etc that a website may publish?

I’ve just given the Guides a second (or really third or fourth) look. They state that the Federal Trade Commission was specifically looking to address issues connected with “the messages conveyed by consumer endorsements” and particularly with “the use of so-called “disclaimers of typicality” accompanying testimonials that do not represent experiences that consumers generally achieve with the advertised product of service” (p. 2). Upon receiving feedback on the 1980 version of the Guides, some of which argued that “the proposed revisions to the Guides could have a negative affect on emerging media channels and impede the ability of businesses to communicate with consumers through legitimate testimonials and endorsements”, the Commission has still decided to proceed with the new Guides. The purpose of the newly introduced rules was not to interfere with legitimate reviews and testimonials, but rather: to address the so-called “non-typical testimonials” (pp. 3-4). What exactly is the FTC trying to address, and who exactly is affected? Reading on, we see the following paragraph:

The Commission does not believe that all uses of new consumer-generated media to discuss product attributes or consumer experiences should be deemed “endorsements” within the meaning of the Guides. Rather, in analyzing statements made via these new media, the fundamental question is whether, viewed objectively, the relationship between the advertiser and the speaker is such that the speaker’s statement can be considered “sponsored” by the advertiser and therefore an “advertising message.” In other words, in disseminating positive statements about a product or service, is the speaker: (1) acting solely independently, in which case there is no endorsement, or (2) acting on behalf of the advertiser or its agent, such that the speaker’s statement is an “endorsement” that is part of an overall marketing campaign? The facts and circumstances that will determine the answer to this question are extremely varied and cannot be enumerated here, but would include: whether the speaker is compensated by the advertiser or its agent; whether the product or service in question was provided for free by the advertiser; the terms of any agreement; the length of the relationship; the previous receipt of products or services from the same or similar advertisers, or the likelihood of future receipt of such products or services; and the value of the items or services received. An advertiser’s lack of control over the specific statement made via these new forms of consumer-generated media would not automatically disqualify that statement from being deemed an “endorsement” within the meaning of the Guides. Again, the issue is whether the consumer-generated statement can be considered “sponsored”. (pp 8-9)

The FTC’s concern is clear: are the “positive statements” (note the adjective here!) influenced by the prospect of earning money, or are they posted without any monetary motivation attached?

So:

• The FTC is concerned with consumer-generated media — specifically with product/service endorsements/reviews/testimonials.
• The main question is whether there is a sponsorship relationship present between the website owner (or producer of the content), and the advertiser, or not.
• The goal is to provide a transparent environment where if a sponsor-endorser relationship exists the end-user/consumer/reader must be notified of it through a proper disclosure of the relationship

Additionally, since the above text talks specifically about “positive” reviews and endorsements, the question of whether a negative review with a merchant’s ad on the site be deemed an “advertising message” remains open. Knowing that negative reviews also increase sales, it would only be just to presuppose so. However, this (just as anything that is written in this post) remains to be my personal presupposition.

Another question related to the consumer-generated media would be this: what if someone starts a forum which offers its readers a platform for their reviews (non-biased, subjective yet not sponsored in any way), and decides to monetize it by adding ads to it (be they text links from within the people’s reviews, or rotating banners, or even a directory of the services that are being reviewed where every link is being compensated in some form)? Would the obvious monetary interest of the forum’s owner affect the trustworthiness of the reviews posted by independent reviewers? Unlikely. Can the FTC get concerned? Most probably so.

And finally, let’s briefly look at other websites that have an obvious monetary interest in promoting merchants, but are not producing reviews/endorsements as such.

Example 1

Comparison shopping engine (with or without a “review product” function) which provides consumers with an option of searching products across different advertisers, sorting them by price, popularity (either based on a review rating, or on the “most frequently viewed” stats), alphabetically, etc. Would it be necessary for such a website to disclose the monetary connections with the “sponsors”? Obviously, this includes not only affiliate websites with a comparison shopping function, but also such giants of the comparison shopping vertical as Shopping.com and Epinions.com, Shop.com, NexTag.com, PriceGrabber.com, mySimon.com, Shopzilla.com, and multiple others.

Example 2

A fishing (or any other topic) blog where the author is post his fishing tips and pictures, and has either banners, widgets, or other types of affiliate links “on the side”, but offers no reviews as such? Would this website be required to disclosure the blogger’s financial interest in his readers purchasing from the advertisers he/she promotes?

Example 3

A cashback affiliate (e.g.: FatWallet.com), or a coupon affiliate (e.g.: CouponCabin.com).

Example 4

A paid search affiliate (whether they link their PPC ads directly to the merchant, or route them via a website of their own, but provide no merchant reviews on the latter).

The list of examples could go on and on. The primary question is what we started this post with or Does a publisher that is not explicitly involved in reviewing their advertisers’ products or services have to provide disclosures of monetary connections? I don’t see anything that would imply this in the FTC’s guides. The Commission’s concern seems to be specifically with the objectivity of the “speaker’s statement” when endorsing a product/service. It is being stated that all “endorsements must reflect the honest opinions, findings, beliefs, or experience of the endorser” (p. 60) and when there is a material connection between the endorser and the vendor, it must be clearly disclosed. If there is no such connection, there seems to be nothing to disclose. If there is no sponsored endorsement, there seems to be nothing to disclose either.

Don’t treat any of the above as a legal advice. These are just my personal speculations based what I’m reading in the Guides.

As always, feel free to chime in with your thoughts on the subject by posting them in the “Comments” area below.