FTC Establishes Endorsement Rules, Penalties for Bloggers

Published December 2, 2009

The Federal Trade Commission has instituted new rules, effective December 1, requiring all bloggers to reveal any ties they have to products they review in a “clear and conspicuous” manner or face fines of up to $11,000 per offense.

The rules, enacted by a unanimous 4-0 vote in early October, extend to anyone who reviews, promotes, or expresses an opinion on a product or service on the Web.

Even people who “tweet” their opinions on the social networking site Twitter–which limits comments to just 140 characters–fall under the new 81-page guidelines released by the Federal Trade Commission.

“Does the FTC really intend to probe America’s opinion-mongering apparatus this closely?” asked Randall Rothenberg, president and chief executive officer of the New York City-based Interactive Advertising Bureau in an open letter to the FTC in October. “Do you have a team of Freuds and Jungs able to examine ‘the weight’ consumers give such opinion–and the way they weigh that weight?”

Readers Ignorant, FTC Says

Rich Cleland, assistant director of the FTC’s advertising practices division, said the rules are necessary because many bloggers who give a positive review of a product are paid by the manufacturer to endorse that product, or get it as a “freebie.”

The document outlining the new FTC guidelines gives an example of potential harm.

“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,” say the new guidelines. “Readers of his blog frequently seek his opinions about video game hardware and software.

“As it has done in the past, the manufacturer of a newly released video game system sends 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,” the guidelines continue. “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,” the FTC document argues. “Accordingly, the blogger should clearly and conspicuously disclose that he received the gaming system free of charge.”

‘Mainstream’ Exempt

The new rules raise several free speech issues, however. Newspapers, for instance, routinely review books and music without disclosing openly that a company provided the materials gratis to the reviewer.

Technically, the newspaper is supposed to destroy the materials, or the reviewer is supposed to claim the review materials–if he or she keeps them–as nonmonetary compensation. But this is rarely done.

The new FTC guidelines apply only to bloggers. People working for mainstream publications are not subject to the “conspicuous” disclosure requirements of the rule.

A ‘Gotcha Regulation’

Carl Gipson, director for small business, technology, and telecommunications at the Washington Policy Center in Seattle, said this is a perfect example of “gotcha regulation.”

“Not only does it hamper the free speech rights of individuals, it may force bloggers–who are usually consumers who care about a particular product or industry–to shy away from contributing any further opinions about a product or service for fear of retribution or litigation,” Gipson said. “It is up to consumers to act in a responsible manner and check a variety of sources and conduct their own research prior to making a purchase.

“Relying on one product reviewer, particularly a blogger, is like putting all their eggs in one basket,” Gipson said.

FTC Backing Off

Responding to criticism, Cleland stressed the imposition of an $11,000 fine to offenders was “not true”–although the fine may befall a blogger who moves past a “first violation.”

“Worst-case scenario: Someone receives a warning, refuses to comply, followed by a serious product defect,” Cleland said. “We would institute a proceeding with a cease-and-desist order and mandate compliance with the law. There’s no monetary penalty, in terms of the first violation, even in the worst case.

“Our approach is going to be educational, particularly with bloggers,” Cleland said. “We’re focusing on the advertisers: What kind of education are you providing them; are you monitoring the bloggers and whether what they’re saying is true?”

Chilling Effect Predicted

Jim Harper, director of Information Policy Studies at the Washington, DC-based Cato Institute, doesn’t buy Cleland’s explanation. He stresses even the threat of a fine has a chilling effect.

“The FTC’s guidance document shows how speech regulations of the past don’t survive the media convergence we are seeing today,” Harper said. “The FTC should withdraw the regulation entirely because it chills free speech by bloggers and others.

“State antifraud laws can take care of real deception. There’s no reason to have a federal agency controlling advertising at all,” Harper added. “‘Caveat emptor’–buyer beware–is the rule that protects consumers best by requiring them to be informed and aware.”

James G. Lakely ([email protected]) is managing editor of InfoTech & Telecom News and co-director of The Heartland Institute’s Center on the Digital Economy.

For more information …

“Guides Concerning the Use of Endorsements and Testimonials in Advertising,” Federal Trade Commission, October 2009: http://www.heartland.org/policybot/results/26392/