October 13, 2009
In recognition of the increasing influence of social media online, the Federal Trade Commission (FTC) on October 5, 2009, for the first time since 1980, issued new regulations governing online testimonials and endorsements by bloggers.
If you operate a blog site, your exposure to legal liability may have increased exponentially. Violators could be fined up to $11,000. And you face new liability associated with statements made by your endorsers, such as affiliates.
It’s critical that you understand how these regulations affect your website business.
A Quick Summary
In a nutshell, the new regulations are aimed at protection of online consumers. The FTC wants to regulate blogs to see if they’re trading testimonials and favorable reviews for some kind of financial reward. That’s a good thing.
The not-so-good-thing is that the new regulations may be overbroad and even in conflict with existing legal precedent. As a result, they may subject harmless, every-day activities to potential liability. Serious liability.
A good way to see how the regulations affect you is to consider 3 basic questions discussed below.
No. 1 – Threshold Question: Are You Even Covered By The New Regulations?
If you have a blog on your site, or if a blog is essentially your site, and all you do is publish creative content about your areas of interest, you’re not even covered by the new regulations.
No. 2 – Are You Promoting Someone Else’s Products or Services?
If you promote or pitch someone else’s products or services on your blog, there are 2 key requirements under the new regulations:
- disclose “material connections” — you must disclose all incentives you receive — cash, gifts, benefits, etc. – for promoting or pitching the product or service, and
- disclose typical results — you can’t get away any more with small print disclaimers such as “results not typical”; you’re now required to provide a more complete and forthright picture of what can be reasonably expected from a product or service.
If you’re a violator, you could be fined up to $11,000. In addition, you could be held liable for false, misleading, and unsubstantiated statements.
This all sounds like a great win for consumers; however, It doesn’t take much creativity to imagine horror stories with the “material connections” requirement.
Example: suppose you’re a book reviewer. Book publishers routinely send you free books to review. If you fail to disclose that the book was free in your review, will you be fined $11,000? Technically, your failure to disclose the free book would be a violation, but would you be fined? That’s anyone’s guess. If you’re not fined, and someone else in a similar position is fined, is that selective enforcement? As you can see, there’re a lot of potential problems with well-intentioned, but overbroad regulation.
No. 3 – Do You Recruit Other Bloggers To Pitch Your Products or Services?
If you recruit other bloggers to pitch your products or services, such as affiliates, you’re an “advertiser” under the regulations. As an advertiser that sponsors endorsers, under the new regulations you’re required to:
- provide guidance and training to ensure that statements made by your affiliate-bloggers are truthful, not misleading, and substantiated, and
- monitor your affiliate-bloggers and take steps necessary to stop the publication of deceptive representations when they are discovered.
The new regulations apparently embody the concept that advertisers can be held liable for the endorsement-related sins of their affiliate-bloggers. The FTC stated: “It is foreseeable that an endorser may exaggerate the benefits of a free product or fail to disclose a material relationship where one exists. In employing this means of marketing, the advertiser has assumed the risk that an endorser may fail to disclose a material connection or misrepresent a product, and the potential liability that accompanies that risk”.
Legal scholars are now debating whether this new liability exposure for advertisers is in conflict with a well-established legal defense provided by a federal statute (47 USC 230(c)(1)), which reads: “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” In simple terms, this statute has been interpreted to mean that Party A is not liable for Party B’s online content.
Has the FTC overlooked 47 USC 230 in its haste to regulate? The courts will have to sort this out. Only time will tell.
The FTC was well-intentioned in its new blog-related regulations. Protection of online consumers is a worthy undertaking.
However, overbroad regulations, particularly if they are in part contrary to well established legal precedent may create as many problems as they solve.
One thing is clear, however — if you fall under No.s 2 or 3 above, protecting yourself from unexpected legal liability should be a high priority.
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