2. Online Endorsements and Testimonials: What Companies and Their Employees Can and Cannot Tweet, Blog, or Say
Further, “consumers today are also reading more customer reviews in order to be confident in judging a product, 39 percent read eight or more reviews (as compared with 22 percent in 2007) and 12 percent read 16 or more reviews (as compared with 5 percent in 2007).”
Online reviews and endorsements can also improve rankings in organic search results, leading to improved discoverability, an increase in web traffic, and greater brand awareness. For these reasons, capturing and leveraging positive customer reviews to drive consumer demand and increase sales is a critical component of today’s marketing landscape. Nonetheless, online reviews and endorsements are not risk-free, and there are strict legal requirements with which businesses must comply to avoid liability.
Online reviews and endorsements are not risk-free, and there are strict legal requirements with which businesses must comply to avoid liability.
Online endorsements and testimonials are subject to guidelines established in 2009 by the Federal Trade Commission (FTC) that impose liability on companies for the false claims of their endorsers (even if such claims were never previously authorized, approved, or used by the company) and for the failure to make required disclosures that exist between online posters and the companies about which they are commenting.
Note
In 2009, the New York State Attorney General’s office charged Lifestyle Lift, a cosmetic surgery company, with astroturfing—that is, the illegal marketing practice of posting fake consumer reviews on the Internet, hiring third parties to post positive reviews, and/or creating online communities for “customers” that are actually under the company’s control.2 According to the AG’s office, Lifestyle Lift employees were instructed to create accounts with Internet message boards and pose as satisfied customers. The employees even created a website (MyFaceliftStory.com) designed to disseminate positive reviews appearing as if they were created by independent and satisfied customers. The AG’s investigation discovered emails specifically instructing employees to post on the Web. One such message directed an employee to “devote the day to doing more postings on the Web as a satisfied client.” Another email directed an employee to “Put your wig and skirt on and tell them about the great experience you had.” As part of its settlement, Lifestyle Lift was required to pay $300,000 in penalties and costs to New York State.
Fundamental Principles of Endorsements and Testimonials
The Guides Concerning the Use of Endorsements and Testimonials in Advertising (Endorsement Guides)3 incorporate three fundamental truth-in-advertising principles as they relate to social media posts:
• Endorsements must be truthful and not misleading;
• If the advertiser doesn’t have proof that the endorser’s experience represents what consumers will achieve by using the product, the ad must clearly and conspicuously disclose the generally expected results in the depicted circumstances; and
• If there’s a connection between the endorser and the marketer of the product that would reasonably affect how much weight a consumer places on the endorsement, such a connection must be clearly and conspicuously disclosed.
Obvious relationships that must be disclosed include the employment relationship between the endorser and the company and whether the endorser is being paid or receiving some quid pro quo for the product being endorsed. Failure to make the required disclosure may render not only the endorser liable, but the company as well, regardless of whether the communication was known.
Note
The Endorsement Guides are not limited to bloggers. In fact, these guides cover any advertising message on any social media site, including consumer testimonials or reviews, that other consumers are likely to believe reflects the opinions or beliefs of the endorser. According to the FTC, unlike with traditional reviews in newspapers, television or websites with similar content, “on a personal blog, a social networking page, or in similar media, the reader may not expect the reviewer to have a relationship with the company whose products are mentioned.”4 The FTC recommends including disclosure of the company you work for, and the products it sells, when discussing such products on social media sites, including an employee’s personal Facebook page.
Endorsement or Not?
Given the wide variety of consumer-generated media (CGM), distinguishing between communications that are considered endorsements and those that are not may sometimes be more of an art than a science. Under the Endorsement Guides, an endorsement is defined as any advertising message (for example, verbal statements, demonstrations, or depictions of the name, signature, likeness or other identifying personal characteristics of an individual or the name or seal of an organization) that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser. Therefore, a film critic’s review of a movie excerpted into an advertisement would be considered an endorsement, as would an advertisement for golf balls depicting a famous golfer, even if the golfer made no verbal statement in the advertisement.
When a connection exists between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement, such a connection must be fully disclosed. The dividing line between a material connection (requiring disclosure) and a connection that is not material is often difficult to gauge. The following examples illustrate how fine the line may be:
• An advertiser sends a video-game blogger its products for the blogger to use free of charge. The blogger then posts a review of the products on his personal blog. Disclosure is required.5
• A customer receives a coupon from her local store for a free bag of dog food for a brand which is more expensive than what she typically buys. She writes in her personal blog that the change in diet has made her dog’s fur softer and shinier, and that in her opinion, the new food is definitely worth the extra money. Disclosure is not required. 6
• An online message board designated for discussions of new music download technology is frequented by MP3 player enthusiasts, who exchange information about new products. Unbeknownst to the message board community, an employee of a leading playback device manufacturer has been posting messages on the discussion board promoting the manufacturer’s product. Disclosure is required. 7
• An advertiser sends a blogger a free sample of new body lotion and requests that she write a review of the product on her personal blog. Disclosure is required.8
• While attending an industry trade show, bloggers are given SWAG (“stuff we all get”) from an advertiser. A blogger who attended the event writes about the free SWAG product he received. Disclosure is (most likely) not required.9
Are Facebook or YouTube likes or Twitter re-tweets endorsements subject to the FTC Act? When a Facebook user likes a company’s page, for example, his or her name and profile picture are displayed on the page for others to see, as well as on news feeds of the user’s friends. In other words, users can express their affinity for or make a connection with particular content (be it a company or a company’s product) by clicking the Like button. Although no court has yet decided the issue (at least at the time of this writing), prudence dictates that a party should disclose his/her relationship to the product or company being liked to avoid violating the FTC Act.
As can be seen from the above examples, there is no bright-line test as to which uses of CGM constitutes an endorsement. Rather, the fundamental question is whether 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.
Critically, an advertiser’s lack of control over the specific CGM statement made would not automatically disqualify that statement from being deemed an endorsement within the meaning of the Endorsement Guides. Again, the issue is whether the consumer-generated statement can be considered sponsored. Relevant factors to consider in determining whether a statement constitutes an endorsement include the following:
• Whether the speaker is compensated by the advertiser
• Whether the product was provided for free by the advertiser
• The terms of any agreement, and the length of the relationship between the speaker and the advertiser
• Whether the speaker previously received (or is likely to receive in the future) products from the advertiser
• The value of the products received
Even remote affiliate marketers, bloggers, and other social media users might be deemed sponsored by an advertiser. The advertiser’s lack of control over these remote social media users does not absolve the advertiser of responsibility for an endorser’s failure to make the requisite disclosures.
For the FTC, if the advertiser initiated the process that led to these endorsements being made—for example, by providing products to well-known bloggers or to endorsers enrolled in word-of-mouth marketing programs—the advertiser is potentially liable for misleading statements made by those parties.10
Determining Liability
Whether an advertiser will be held responsible for a third party’s social media communications hinges on whether the advertiser chose to sponsor the consumer-generated content and, therefore, established an endorser-sponsor relationship. In making this determination, the FTC considers the following factors:
• The advertiser’s efforts to advise endorsers of their responsibilities (for example, by adoption of a blogger endorsements policy)
• The advertiser’s efforts to monitor endorsers’ online behavior
• The advertisers efforts to take corrective action against rogue endorsers (for example, ceasing to provide free products to noncompliant bloggers)
To avoid liability, advertisers who sponsor endorsers (either by providing free products or otherwise) to generate positive word of mouth buzz and spur sales should establish procedures to advise endorsers of their disclosure obligations. Advertisers should also monitor the conduct of those endorsers to ensure that they comply with their disclosure obligations. An advertiser’s ability to avoid liability due to an endorser’s failure to disclose will primarily depend upon the quality of the advertiser’s policies and policing efforts. A written policy addressing these issues signed by the endorser is the best protection.
Legal Insight
In general, a company that provides products to a blogger for purposes of a product review should never tell the blogger what to say in the review or ask to edit (save for minor grammatical errors) the review prior to posting. In the event of a negative review, the company may choose not to provide products to the blogger for future reviews.
Because FTC Endorsement Guides state that a company may be liable for claims made by a blogger, the company should carefully monitor product reviews made by bloggers to ensure that the claims are truthful and can be substantiated. A number of social media monitoring vendors provide solutions for tracking and monitoring mentions of your business or brand on the Web and in social media channels. (A list of free and paid social media monitoring vendors is provided on the following wiki: http://wiki.kenburbary.com/social-meda-monitoring-wiki.) These services simplify the critical task of keeping tabs on the reputation of your company’s name and products.
Finally, on a separate (yet related) note, companies should also prohibit their employees from engaging in inflammatory disputes with bloggers (flaming) on any blogs, which may be considered illegal harassment.
Because the FTC knows businesses cannot realistically oversee all the social media posts by its employees to ensure compliance with the Endorsement Guides, it has stated that the employer should not be held liable in this situation under the following scenario:
• The employer has a social media policy concerning the social media participation of its employees.
• The established company policy adequately covered the employee conduct at issue.
• The employer has established procedures to monitor compliance with its social media policy.11 Thus, the company can show that, despite its best efforts, the employee violated the Endorsement Guides and that the company should not be held liable for the employee’s unauthorized acts.
One rogue blogger will not likely trigger law enforcement action if your company has a reasonable training and monitoring program in place.
Note
Although it is unrealistic to require employers to be aware of every single statement made by their employees or agents, they are still required to make reasonable efforts to know what is being said by their people about their products. That said, one rogue blogger will not likely trigger law enforcement action if your company has a reasonable training and monitoring program in place. As noted by the FTC’s Bureau of Consumer Protection, “The scope of the program depends on the risk that deceptive practices by network participants could cause consumer harm—either physical injury or financial loss. For example, a network devoted to the sale of health products may require more supervision than a network promoting, say, a new line of handbags.”12
Making Necessary Disclosures
Given the ever-evolving nature of social media platforms, not all disclosures are created equal. In 2000, the FTC adopted a clear and conspicuous standard to online advertising disclosures and set forth four key factors to determine whether the advertising is deceptive or misleading:
• Prominence
• Presentation
• Proximity
That is, disclosures must be large enough for consumers to notice and read, in easy-to-understand wording and format, in a location where consumers are likely to look, and in close proximity to the claims they qualify. Whether a disclosure is sufficiently clear and conspicuous is measured by its performance; i.e., how consumers actually perceive and understand the disclosure within the context of the entire ad. The dispositive factor is the overall net impression of the ad—that is, whether the claims consumers take from the ad are truthful and substantiated.
To make a disclosure clear and conspicuous, the FTC, in its 2000 “Dot Com Disclosures” guide,13 recommends that advertisers:
• Place disclosures near, and whenever possible, on the same screen as the ad containing the claim (the “triggering claim”).
• Use text or visual cues to encourage consumers to scroll down a Web page when it is necessary to view a disclosure.
In Figure 2.1, for example, the presence of the blue line helps alert consumers to the fact that there is additional information (here, a paid advertisement disclaimer) below the screen.
Figure 2.1 Visual clues alert consumer to disclaimer.
However, in Figure 2.2, there are insufficient visual clues prompting the consumer to continue scrolling. The consumer may altogether miss the disclaimer on the bottom of the page.
Figure 2.2 Here, the important disclaimer regarding the diamond’s weight would likely be missed by the consumer.
Hyperlinked Disclosures
When hyperlinking a disclosure:
• Make the link obvious.
• Label the hyperlink appropriately to convey the importance, nature and relevance of the information it leads to.
• Use hyperlink styles consistently so that consumers know when a link is available.
• Place the hyperlink near relevant information and make it noticeable.
• Take consumers directly to the disclosure on the click-through page.
• Assess the effectiveness of the hyperlink by monitoring click-through rates and the amount of time visitors spend on a certain page.
In Figure 2.3, for example, simple creating a hyperlink to the disclaimer is inadequate. The ad must do more to disclose the fact that this is a paid endorsement.
Figure 2.3 The hyperlink fails to adequately alert the consumer that this is a paid-for endorsement.
General Rules for Disclosures
Following are some general rules to follow when making disclosures:
• Recognize and respond to any technological limitations of making disclosures, such as frames or pop-up windows, to ensure that disclosures are visible and read. For example, requiring the consumer to take some affirmative step to proceed past the pop-up by clicking on a “continue” button is recommended.
• Display disclosures prior to purchase—that is, before clicking an “order now” button or a link that says “add to shopping cart.” Recognize, however, that placements limited only to the order page may not always work as disclosures might be required in close proximity to the particular claim or product.
• Incorporate disclosures in banner ads themselves or disclose them clearly and conspicuously on the web page to which the banner ad links.
• Display disclosures prominently so they are noticeable to consumers, and evaluate the size, color and graphic treatment of the disclosure in relation to other parts of the Web page. The disclosure should not be buried in a long paragraph of unrelated text. In Figure 2.4, for example, a consumer would likely miss the fact that the endorser was paid for his endorsement.
Figure 2.4 This disclosure is too hidden to be effective.
• Ensure that other elements of the ad—such as text, graphics, hyperlinks, or sound—do not distract consumers’ attention from the disclosure.
• Repeat disclosures on lengthy web sites and in connection with repeated claims, both as needed.
• Use audio disclosures when making audio claims, and present them in a volume and cadence so that consumers can hear and understand them.
• Display visual disclosures for a duration sufficient for consumers to notice, read and understand them.
• Use clear language and syntax so that consumers understand the disclosures.
Disclosures in Social Media
These disclosure guidelines work well enough for traditional online marketing and advertising, but what about social media platforms, such as Twitter, where strict compliance with these disclosure requirements is practically impossible? To address these concerns, the FTC requested, in May 2011, formal public comments about how its guidance and regulations should be modified to reflect the realities of social media platforms. Public comments were accepted until August 10, 2011. The FTC identified the following areas of particular concern:
• What issues have been raised by new online technologies (for example, smartphones and tablets) and new Internet activities (for example, social networking and user-generated content)?
• What issues have been raised by new laws or regulations since 2000 (for example laws regarding privacy)?
• What research or other information regarding the online marketplace, online advertising techniques, consumer online behavior, or the effectiveness of online disclosures should be considered in a revised guidance document?
• What guidance in the original Dot Com Disclosures is outdated or unnecessary?
• What issues relating to disclosures have arisen from multi-party selling arrangements in Internet commerce, such as:
• Established online sellers providing a platform for other firms to market and sell their products online
• Website operators being compensated for referring consumers to other Internet sites that offer products and services
• Other online affiliate marketing arrangements?
Although no revisions have yet been made to the Dot Com Disclosures (as of the date of publication), it is anticipated that any changes will keep intact the FTC’s fundamental values of transparency and accuracy (to allow consumers to make intelligent decisions), while relaxing the rules and making them more flexible in light of the practical constraints of social media platforms.
The FTC recognizes that it is difficult to make the required disclosures in a 140-character tweet, so it recommends using hashtags such as #paid-ad. For blogs, microblogs, online comments, social networks, video/photo sharing websites and podcasts, some recommend posting a link on the profile page directing people to a full “Disclosure and Relationships Statement.” This statement should disclose how you work with companies in accepting and reviewing products and list any conflicts of interest that might affect the credibility of your sponsored or paid reviews.14 The FTC’s initiative to update its guidance or regulations concerning online advertising should clarify the appropriateness of such practices.
Note
Note that the Endorsement Guides are administrative interpretations of the law designed to help advertisers and endorsers comply with the Federal Trade Commission Act (FTC Act).15 These guidelines are not binding law themselves. In any law enforcement action challenging the allegedly deceptive use of testimonials or endorsements, the FTC has the burden of proving that the challenged conduct violates the FTC Act, which prohibits, among other things, “unfair methods of competition” and “unfair or deceptive acts or practices in or affecting commerce.”16 Whether a specific practice falls within the scope of conduct declared unlawful by the FTC Act must be decided on a case-by-case basis.
Lessons Learned from FTC Investigative and Enforcement Actions
The FTC’s first “blogger-advertiser disclosure” investigation took place in April 2010, and targeted women’s retailer Ann Taylor. According to the FTC, Ann Taylor violated the FTC’s disclosure rules, by promising “special gifts” and entry into a “mystery gift-card drawing” to bloggers who the company expected would write positive reviews about its LOFT brand. The FTC expressed concern that bloggers who attended previews of LOFT’s Summer 2010 collection failed to disclose that they had received gifts for posting blogs about the event.
Although an advertiser’s provision of a gift to a blogger for posting blog content about an event would generally constitute a “material connection” (and hence trigger the need for disclosure), the FTC elected not to take action against Ann Taylor in part because:
• The event where bloggers were provided with gifts was a one-time occurrence; and
• The company subsequently adopted a written policy stating that it will not issue any gift to any blogger without first requiring bloggers to disclose receipt of any incentives.17
Similarly, later that year, the FTC brought charges against Reverb Communications, Inc., and its owner, for violating the FTC’s disclosure rules.18 In this case, the public relations agency, which was hired by video game developers, was accused of engaging in deceptive advertising by having employees pose as ordinary consumers posting game reviews at the online iTunes store, and not disclosing that the reviews came from paid employees working on behalf of the developers. (A sampling of the fraudulent reviews: “Amazing new game,” “One of the best apps just got better,” and “ONE of the BEST.”)
Under the terms of the settlement, Reverb and its owner agreed to remove all endorsements that misrepresented the reviewer as an independent consumer, and agreed not to post any similar items without proper disclosures in the future. Notably, the company did not have to pay a fine nor admit any wrongdoing.
In November, 2011, the FTC also decided not to pursue enforcement action against Hyundai Motor America in connection with a campaign launched by a PR firm hired on its behalf to spark interest in Hyundai’s Super Bowl XLV ads.19 According to the FTC, bloggers were given gift certificates in exchange for linking to the car manufacturer’s Web site in their blogs and/or commenting about the ads. The FTC further alleged that there was no disclosure that the bloggers received something in exchange for the promotion, as is required.
Following its initial investigation, the FTC eventually chose not to pursue enforcement action against Hyundai, citing several reasons:
• First, the car manufacturer did not appear to initially know about these incentives, only a small number of bloggers received the gift certificates, and some of them did, in fact, disclose this information.
• Second, the challenged actions were taken not by Hyundai employees, but by an employee of the media firm hired to conduct the blogging campaign. Notably, this individual’s actions were in direct violation of Hyundai’s established social media policy, which called for bloggers to disclose their receipt of compensation, and the policies of the media firm.
• Third, the media firm promptly took action to halt the alleged misconduct upon learning of it.
Note
It should be emphasized that the Hyundai decision is an apparent departure from the FTC’s long-standing position of holding advertisers responsible for the conduct of their ad agencies and media firms. Companies should not expect to be automatically shielded from liability simply because it is the employees of the ad agencies they hire—and not employees of the companies themselves—that fail to make the proper disclosures required by the FTC Guidelines. Penalties for noncompliance can result in a $11,000 civil fine—per incident!
Other companies have not gotten off as easy. In March 2011, for example, a Tennessee company called Legacy Learning Systems, Inc.—and its owner, individually—were fined $250,000 for hiring affiliate marketers to pose as ordinary consumers and sing the praises of the company’s guitar-lesson DVD series by writing glowing online reviews.20 According to the FTC, such endorsements generated more than $5 million in sales of Legacy’s courses. Because those affiliates failed to disclose they were getting paid substantial commissions for these endorsements, the FTC said the ads were deceptive and illegal.
The FTC’s actions underscore the importance of companies establishing effective policies and compliance programs for their employees, and for the agencies and media firms they retain. At a minimum, companies should require—and vigilantly monitor and enforce—that all endorsers honor their obligation to properly disclose any incentives they receive to promote the company’s products or services. This requirement should govern not just the conduct of the company’s internal personnel, but that of outside agencies hired by the company as well.
Bottom line: Don’t ignore the legal and ethical complexities of social media endorsements and testimonials; familiarizing yourself with the fundamentals—as summarized in Figure 2.5—will pay dividends for you and your brand.
Figure 2.5 Social Media Legal Tips for Endorsements and Testimonials.
Chapter 2 Endnotes
1 E-tailing group/PowerReviews 2010 Social Shopping Study, available at http://www.e-tailing.com/content/?p=1193
2 http://www.ag.ny.gov/media_center/2009/july/july14b_09.html
3 16 C.F.R. Part 255, available at http://www.ftc.gov/os/2009/10/091005endorsementguidesfnnotice.pdf
4 See FTC Facts for Business: The FTC’s Revised Endorsement Guides: What People Are Asking, June 2010, available at http://www.ftc.gov/bcp/edu/pubs/business/adv/bus71.pdf
5 16 C.F.R. § 255.5 (Example 7)
6 16 C.F.R. § 255.0 (Example 8)
7 16 C.F.R. § 255.5 (Example 8)
8 16 C.F.R. § 255.1 (Example 5)
9 Mary Engle, the FTC’s Associate Director for Advertising Practices, reportedly told attendees at a 2010 blogging conference that disclosure of SWAG is not required if it is given to all members of a group, rather than to targeted individuals. In the former case, there is no special relationship between the advertisier and a blogger who got the SWAG. See http://getgood.com/roadmaps/2010/06/29/travel-blogs-ethics-and-the-ftc-endorsement-guidelines/.
10 74 FR 53124, at 53127 (Oct. 15, 2009)
11 74 FR 53124, at 53136 (Oct. 15, 2009)
12 See “The FTC’s Revised Endorsement Guides: What People Are Asking” (June 23, 2010), available at http://business.ftc.gov/documents/bus71-ftcs-revised-endorsement-guideswhat-people-are-asking
13 See “FTC’s Dot Com Disclosures: Information about Online Advertising” (May 3, 2000), available at http://www.ftc.gov/os/2000/05/0005dotcomstaffreport.pdf
14 See, for example, The Word of Mouth Marketing Association Guide to Disclosure in Social Media Marketing (2010), available at http://womma.org/ethics/disclosure/
15 15 U.S.C §§ 41-58 (as amended)
16 15 U.S.C § 45
17 See FTC’s 4/20/10 Closing Letter to Kenneth A. Plevan, Esq., Counsel for AnnTaylor Stores Corporation in case of AnnTaylor Stores Corporation (File No. 102 3147) available at http://www.ftc.gov/os/closings/100420anntaylorclosingletter.pdf.
18 In the Matter of Reverb Communications, Inc. et al., FTC File No. 092 3199 (Nov. 26, 2010). A copy of Complaint is available at http://www.ftc.gov/os/caselist/0923199/101126reverbcmpt.pdf.
19 See FTC’s 11/16/11 Closing Letter to Christopher Smith, Esq., Counsel for Hyundai Motor America Hyundai in case of Hyundai Motor America (File No. 112 3110) available at http://www.ftc.gov/os/closings/111116hyundaimotorletter.pdf.
20 In the Matter of Legacy Learning Systems, Inc., et al., FTC File No. 102 3055 (Jun. 10, 2011). A copy of the Decision and Order is available at http://www.ftc.gov/os/caselist/1023055/110610legacylearningdo.pdf.