—Paul W. Mussell, Senior Counsel in Intellectual Property Group, Wells Fargo

The FTC recently completed its first investigation under the “Guides Concerning the Use of Endorsements and Testimonials in Advertising” See guidelines here. The guidelines, which officially went into effect on December 1, 2009, call for online publishers to disclose "material connections" they have with a company whose products or services they "endorse." Bloggers and social media users must disclose their relationship with a company when they are being paid or otherwise compensated by the company to comment favorably on its products or services. The guidelines also state that bloggers may be held individually liable for making misleading or unsubstantiated claims about a product or service. 

To promote the launch of its summer collection, Ann Taylor LOFT invited bloggers to attend an exclusive preview of its 2010 summer collection. "Bloggers who attend will receive a special gift," the invitation read, "and those who post coverage from the event will be entered in a mystery gift card drawing where you can win up to $500 at LOFT!" 

Of course, the details were in the small print: "Please note all bloggers must post coverage from our event to their blog within 24 hours in order to be eligible. Links to post must be sent to [e-mail address], along with the code on the back of your gift card distributed to you at the event. You will be notified of your gift card amount by February 2. Gift card amounts will vary from $10 to $500." 

The event and the invitation to bloggers to post reviews for a prize caught the eye of the FTC. “We were concerned that bloggers who attended a preview on January 26, 2010 failed to disclose that they received gifts for posting blog content about that event,” Mary Engle, the FTC’s associate director-advertising practices, wrote in a letter dated April 20 to Ann Taylor’s legal representation.

According to the letter, the FTC decided not to recommend enforcement action at this time. It based its decision on several factors, including that the event was the first and only preview event to date, only a small number of bloggers participated (and some disclosed), a sign was posted at the preview telling bloggers that they should disclose the gifts, and Ann Taylor subsequently adopted a written policy for blogger outreach. Notably, the letter qualified the last factor by emphasizing that the "FTC staff expects that LOFT will both honor that written policy and take reasonable steps to monitor bloggers’ compliance with the obligation to disclose gifts they receive from LOFT." An uncooperative Ann Taylor might have resulted in a different outcome.

Although the FTC took no action against Ann Taylor or the bloggers who covered the event, it is clear that the FTC is keeping an eye out for blatant offers to bloggers and other social media users in exchange for coverage.  The letter makes one wonder whether the FTC has other companies in its sights and how many other blog-related investigations are pending.

For those who post on blogs and other social media on behalf of companies, it is important to be familiar with the rules and to be careful to disclose any product or service, including discounts, they receive in return for writing about that product or service. Think twice about working with companies that don’t inform you of the need to disclose. Push back if you aren’t getting the information or support you need. When in doubt, disclose.

The lion’s share of the burden is clearly on companies. The FTC’s inquiry into the Ann Taylor preview is consistent with the FTC’s stated position since before the guidelines were formally adopted. Its focus would be on advertisers, not individual bloggers, and the initial investigations would likely result in warnings, not indictments. Even after adopting the guidelines, the FTC assured bloggers and social media contributors that it was not likely to pursue them for not following the disclosure guidelines.  Instead, it intended to target the advertisers who incentivize bloggers to comment on their products or services. The FTC expects the advertiser to provide guidance about the requirements to its buzz agents. In the case of the Ann Taylor preview, there was little to no guidance.

The lesson for companies:

  • Keep blogger outreach programs simple and easy to understand.

  • Provide guidance and training to your word-of-mouth agents and your employees, especially the ones charged with developing and executing social media engagements.

  • Ensure that advertising agencies provide guidance and training to its bloggers concerning the need to disclose and to ensure that statements they make are truthful, and make them show you what steps they undertake to do this.

  • Monitor bloggers…and take steps necessary to halt continued publication of deceptive representations when they are discovered.

  • Understand that you are liable for their actions

  • Get an indemnity, where possible, and have your own coverage, because the indemnity may not be worth much

  • Make bloggers aware that they may be liable too

  • Implement written policies advising your employees and agents of the obligations under the guides.

  • Keep in mind that best practices may dictate disclosure even where the endorsement guidelines do not.

  • Don’t be misled into believing there is a de minimums exclusion – a gift of as little as $10 is apparently sufficient to trigger a disclosure obligation.

  • Don’t mistake the FTC’s leniency in the Anny Taylor case as a free pass for all first time offenders.

We can expect further guidance from the FTC as additional investigations are announced. For now, advertisers and bloggers alike should continue to monitor developments in this area.

Should the FTC recommend enforcement action in future cases, the agency could have to face one of the central criticisms of the guides – that gifts to bloggers are treated differently than gifts to writers and other reviewers in mainstream media outlets. The simple fact is that many reporters and critics at newspapers and magazines accept freebies from advertisers without making disclosures. The FTC’s decision to monitor and investigate marketers for giving freebies to bloggers doesn’t seem to make sense. Or does it?

While consumers know (or should know) that mainstream reviewers receive free products, the same does not appear to hold true for online consumers, at least not according to the FTC. Blogs and social media platforms enable individuals to share their insights, express their opinions, and share information within the context of a globally distributed conversation, where transparency and honesty are valued. Studies suggest that people who engage in social networks and communities tend to put more trust in people with whom they interact online than in traditional media sources. If that’s true, the FTC may have a point. It’s not that bloggers are less ethical than mainstream media. It’s that consumers are less skeptical of and more apt to be “influenced” by online content about companies and their products and services. In this regard, it is telling that at a CLE conference on social media last month in San Francisco, a FTC advertising division attorney who spoke at the event mentioned that the FTC is looking at these online relationships not from the perspective of sophisticated users but rather through the lens of the 15-20% who don’t use (or are new to) the internet.

It’s hard to imagine that any company would offer journalists of a major news organization gift cards in exchange for coverage, which suggests that bloggers do not merit the same treatment as their old media counterparts, even though their readerships and influence may be as great.