Digest Comment - Context for the Net: A Defense of the FTC’s New Blogging Guidelines

Editorial Policy 

The FTC’s new Guides Concerning the Use of Endorsements and Testimonials in Advertising (“the guidelines”), regulating blog postings that endorse products, take effect December 1, 2009. These guidelines represent the first time since 1980 that the FTC has updated its policies to adapt to new social media and the ever-growing presence of advertisement on the Internet. The guidelines seek to provide consumers with enough information to allow them to distinguish between an online reviewer’s personal opinion about a product and a reviewer’s opinion whose objectivity may be questionable. The guidelines require bloggers to disclose any material relationship they might have with a company whose product they are endorsing online. Failure to disclose could result in disciplinary action (probably a fine) not only for the blogger, but also for the advertiser or manufacturer whose product the blogger is rating. Though the guidelines also address celebrity endorsements, this Comment will focus on the guidelines’ effect on blogging and other online social media. The guidelines have received a lukewarm reception. Though some commentators have noted that the regulations are long overdue, bloggers and advertisers alike have voiced concerns and objections. This Comment evaluates the new guidelines by acknowledging their necessity, exploring their reach to determine whether they have gone beyond optimal regulation, and finally concluding that they have not.  Part I establishes consumers’ need for additional information when reading cyber reviews. By examining the language of the relevant guidelines and the illustrative examples provided by the FTC, Part II explores the guidelines, their breadth, and the parties affected. Part III analyzes the leading arguments against the guidelines and identifies additional arguments touching upon their regulatory efficiency. Part IV concludes, finding the guidelines a necessary and benign constraint given the lack of information available to online consumers.

I. Evaluating Advertising in a Contextual Vacuum

Online user-generated reviewing has increased dramatically over the past few years. Whether attributable to general theories of reciprocity or the reprisal shield provided by anonymity and pseudonymity, it is undeniable that the practice of reviewing and rating products has become ubiquitous online. Consumers have come to rely heavily on these online product reviews when making purchasing decisions, and studies suggest that seven out of ten online consumers consider these reviews to be an accurate reflection of a product’s overall quality. Advertisers are aware of the rising consumer confidence in online peer review and have exploited this practice by influencing users to generate positive reviews for their products and those of their clients.

The practice has become quite widespread. Michael Bayard, a representative of the global computer hardware manufacturer Belkin, was recently caught paying users to leave positive reviews for Belkin’s products on Amazon and Buy.com. The marketing division of a textbook company was also recently forced to cancel their strategy of giving $25 Amazon gift certificates to every user who rated their textbooks positively on the site. Interns of Reverb Communications, a PR firm representing many makers of applications for Apple’s iPhone, were caught rating its clients’ products positively on Apple’s Application Store. Other examples abound.

These product reviews occur in cyberspace’s contextual vacuum. It is almost impossible to contextualize online reviews and evaluate their veracity because of the anonymity or pseudonymity of the reviewer. Though anonymity and pseudonymity protect privacy, promote sociological benefits, prevent dignitary harms, and enable online users to express their honest opinions in a dissociative and relatively safe manner, they also make it exceedingly difficult for consumers to properly evaluate the source of the review.  It is virtually impossible for an online consumer to determine whether a reviewer is genuinely expressing his opinion of the product or is influenced by other motivations. A user confronting an anonymous, pseudonymous (“Qtee89”), or authored post (“Jane Sterling”) can make few contextual inferences about the honesty of the review because the online identity of the reviewer fails to provide often-material information about the reviewer. Consumers generally consider traditional advertisements with caution because consumers know that individuals featured in ads are likely paid, and that payment may or may not affect the reviewer’s true opinion of the product. Consumers, however, are less wary of online reviews, often assuming that reviewers are not paid. Compensation is material information the consumer would likely take into consideration when making an ultimate assessment of the review.

The inability to distinguish between an independently held opinion and a paid endorsement can have undesirable consequences. Uninformed consumers could rely blindly on false online reviews, which could decrease the overall value of online product ratings and reviews. The FTC Guides Concerning the Use of Endorsement and Testimonials in Advertising attempt to prevent these undesirable effects and provide the consumer with more context online.

II. Guides Concerning the Use of Endorsement and Testimonials in Advertising (16 CFR § 255) and Their Effect on Online Social Media

The FTC’s new guidelines seek to regulate endorsements pursuant to the Commerce and Trade Act. The guidelines define endorsement as “any advertisement message 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.” Product is also defined broadly to include “any product, service, company, or industry.”

User endorsements “must reflect the honest opinions, findings, beliefs, or experience of the endorser.”[1] If an endorser claims to have used the product, she must have in fact used it at or before the time of the endorsement.[2] Any “connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement... must be fully disclosed” clearly and conspicuously.[3] Under the guidelines not only is the endorser subject to liability, but the advertiser is also liable for “false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between [advertisers] and their endorsers.”[4]

Discussed below are examples provided by the Commission illuminating the application of the guidelines to blogs and other online social media:

Example 1:[5]

In the FTC’s first example, a dog owner purchases a new brand of dog food and describes on her blog the positive effects the food has had on her dog’s fur. She claims that the new food is definitely worth the extra money. The FTC says this is not an endorsement under the guidelines.

The FTC then changes the scenario so that the dog owner receives a coupon for a free trial bag of dog food from the retailer. Her positive review online, the FTC explains, would still not be considered an endorsement.

In the last alteration of the example, the dog owner receives the product from a network marketing program she has joined that routinely sends her free products to rate at her discretion. Under this set of facts, a positive review of the product would be considered an endorsement under the guidelines.

The first two versions of the example above demonstrate that merely reviewing a product positively online does not constitute an endorsement regulated by the FTC. Further, the mere fact the dog food purchaser received the product for free does not automatically deem her positive review an endorsement. The important distinction is that a third party, in this case a retailer, rather than an advertising or a marketing company, gives the product to the reviewer. Bloggers and online users are therefore not likely required to disclose that they received a product for free if it was provided by a third party. The last version of the example is an endorsement because the reviewer has a material connection with the advertiser. It is worth noting that although the reviewer is not required to review the product, let alone give it a positive review, if she chooses to review positively, she must disclose how she obtained the product if she gives it a positive review. The FTC is silent regarding negative reviews.

Example 2: [6]

In the FTC’s second example addressing online media, a service that matches up advertisers with bloggers to promote products pairs a skin care advertiser with a blogger. The advertiser requests the blogger to blog about the product. The advertiser makes no specific claims about the product to the blogger. The blogger, nevertheless, writes on her blog that the lotion cures eczema. This constitutes an endorsement, and both the blogger and the advertiser are liable for the blogger’s misleading or unsubstantiated claims. The FTC also suggests that in order to limit its liability, advertisers should educate bloggers and ensure that they make truthful and substantiated statements by monitoring their reviews.

Example 2 clearly expounds advertisers’ liability for any false or unsubstantiated claims online endorsers make, whether the advertiser instructed them to make such claims or not. The burden on advertisers, the FTC suggests, should motivate them to educate bloggers about the guidelines and ensure that endorsers are aware that they must make truthful statements by both monitoring endorsers’ posts and intervening to prevent false advertising.

Example 3:[7]

In example 3, a well-known professional tennis player whose last few months have been the best of her career touts the results of her laser vision correction surgery as having dramatically improved her game. She mentions the clinic by name on a social networking site that allows her fans to read about her life in real time. The athlete does not disclose that she has a contractual relationship with the clinic, according to which she is paid for speaking publicly about her surgery. Given the nature of social networking sites, consumers might not realize she is a paid endorser. Because that information might affect the weight consumers give her endorsement, her relationship with the clinic is material and should be disclosed.

Example 3 broadens the guidelines’ applicability from blogging to other types of online social media, in this case online social networks (“OSNs”). Though OSNs are not traditionally recognized as mediums for publishing endorsements, they are nonetheless subject to the Commission’s regulation. This example, however, does not make absolutely clear whether the need for disclosure derives itself solely from the relationship between the tennis player and the clinic or whether the tennis player’s celebrity status factors into the necessity to disclose.[8] Because the example focuses more on the impact of the tennis player’s comments rather than on her celebrity status, it would not be inconsistent to assume that any user on OSNs or other social media sites are subject to disclosure if their relationship with the advertiser or manufacturer could affect the weight consumers give to the statement.

Example 4: [9]

In the fourth example addressing online media, a college student with the reputation as a video game expert maintains a blog where he posts about his gaming experiences. Readers of his blog often visit to seek his opinion on a particular game or hardware. The manufacturer sends the student a free copy of its product to review. The student, after testing the system, writes a positive review on his blog. The FTC writes that “because his review is disseminated via a form of consumer-generated media in which his relationship to the advertiser is not inherently obvious,” online consumers are unlikely to know of his relationship and this would “materially affect the credibility they attach to the endorsement.” The FTC then states that the manufacturer, when giving the blogger the free system, should tell the blogger that he must disclose that he received the system for free and should later monitor his posts on the product.

Example 4 further highlights that even nonprofessional reviewers maintaining their own blogs are subject to the Commission’s guidelines and must disclose their relationship with the advertiser, whether it influences the opinions they disclose on their blog or not. The FTC argues in the example above that of crucial importance is the fact that the endorsement is delivered in a format in which the endorser’s relationship with the manufacturer is not obvious.  Disclosure is therefore necessary. This example also reiterates the manufacturer’s responsibility to monitor the blogger’s posting activities and compliance with the guidelines.

Example 5: [10]

On an online discussion board about music technology, an employee of a music playback device manufacturer posts anonymous positive messages about his employer’s product. The FTC states that because knowledge of his employment would likely materially affect his credibility amongst readers, the relationship should be clearly and conspicuously disclosed.

This last example makes it clear that endorsers not only have to disclose relationships with the manufacturer in which they have received the product they are rating for free but also any other material relationship they might have with the manufacturer. An employment relationship, for example, is sufficiently material to warrant disclosure.

Overall, the guidelines and examples establish four important duties: 1) a duty on behalf of the advertiser to educate blogging endorsers regarding the guidelines, 2) a duty of the endorser to write an honest review, 3) a duty of the endorser to disclose any material relationship between him and the advertiser, and 4) a duty of the advertiser to monitor the endorser’s blogs and online outlets to ensure they are not deceptive to consumers.

III. Criticism Faced by the New Guidelines

The guidelines have generated much comment in the media. Complaints stem from claimed violations of free speech, impracticability of the guidelines, the apparent disparity of the FTC’s regulation of online content versus other forms of media, the difficulty of enforcement, and the enormous burden placed on product manufacturers and advertisers to monitor bloggers. In addition, this Comment questions how the guidelines would apply to the practice of rating rather than reviewing products online, the definitional extent of a material relationship with the company, and whether free market conditions are already equipped to adequately regulate online social media endorsements.

A) Prevailing Criticisms

1. Chilling Speech

Most of the criticisms against the guidelines focus on free speech. The guidelines, the critics insist, would chill the speech of both advertisers and online social media commentators.[11] Bloggers and online commentators would be discouraged from expressing their beliefs about a particular product for fear of being sanctioned should the FTC determine their claims were not adequately substantiated. [12] Advertisers similarly would steer away from using testimonials to avoid an FTC challenge. The Commission responds to these attacks by reiterating that testimonials are regulated only when a blogger purports to be representative of all product users and when the advertiser cannot substantiate the blogger’s claims.[13]

The First Amendment protects the expression of opinions, ideas, and beliefs. If one bought a product, say the Spaceheater2000, and genuinely believed it to be a horrible space heater, because when purchased it made an obscene amount of noise, constantly woke up the cat, and failed to heat the house, one has a right to say and post that online. This still holds true under the FTC guidelines. The same would apply if one were absolutely fascinated by the Spaceheater2000’s efficiency even if one were compensated for the review. So long as the opinion reflects the genuine belief and observation of the reviewer and is limited to the reviewer’s experience, it is protected by free speech. It is only when bloggers engage in misleading claims that their speech is subject to enforcement. Though the Commission could argue that a compensated reviewer and compensating advertiser are only subject to the higher standard they have implicitly elected to impose on each other, the better argument lies in the less sacred treatment of commercial speech.

The Supreme Court has held that it is not against the First Amendment to regulate commercial speech that is misleading. The Court, in Central Hudson Gas & Electric Corp. v. Public Service Commission, developed a four-prong analysis that allows the government to regulate speech if it is misleading, if such regulation furthers a substantial government interest, and if the regulation is no more extensive than necessary. Though the FTC argues that the guidelines do not chill free speech, the guidelines would nonetheless be upheld because they advance the government’s substantial interest in curtailing deceptive advertisement practices in a permissibly narrow fashion.[14]

2. Double Standard

Another widespread criticism is that the new guidelines impose more restrictions on online social media than on traditional types of media, such as newspapers and magazines. The FTC has responded by stating that the guidelines merely attempt to “distinguish between who receives the compensation and who does the review.” The relationship between reviewers and product manufacturers in newspapers and magazines is different, according to an FTC representative, because it is the newspaper or magazine that obtains the item gratuitously rather than the individual reviewer, and often the product is returned after review. Furthermore, the representative argued, when consumers read a magazine or newspaper, they presume the reviewer got paid to do his job, whereas when reading a blog or a post on an OSN, consumers are generally not as attuned to that possibility. Though the distinction may not be as obvious as the FTC claims, the guidelines seem to also apply to the individual reviewer working for traditional media who directly receives a product or any compensation from a manufacturer. The guidelines do not apply to critics writing for traditional media who are paid by their employer for reviewing various products, because the critics are expected to review products honestly. Otherwise the public will abandon the critic’s column. Thus, the compensation of a traditional media critic’s review is not contingent upon any consideration from the product manufacturer or his agent, but rather upon the honesty of his review.[15]

It would appear, then, that if our dog food purchaser from Example 1 chose to publish an editorial in a newspaper instead of writing a blog she would still be subject to the guidelines and forced to disclose that she received the dog food for free. Although the advertiser/endorser relationship model occurs more frequently online, the guidelines do not impose harsher constraints on online social media than on traditional media.

Assuming for argument’s sake, however, that online social media is subject to a higher standard, there might be a reason for a higher bar. Recent studies have demonstrated that consumers rely heavily on product recommendations from their online networks. In fact, one study found that online consumers overwhelming trust the reviews of other users over those of professional critics. If users within their network engage in deceptive practices, consumers are more likely to be injured as a result and it is therefore in the public interest to intervene and regulate the industry.

3. Unfeasible Enforcement

The FTC will have a difficult time enforcing the guidelines. It is virtually impossible, for the Commission to monitor every blog, discussion board, forum, OSN page, and Tweet in cyberspace. The Commission has, therefore, imposed unenforceable, illusory guidelines. FTC spokespeople in various interviews have recognized this fact.

According to the FTC, the main purpose of the guidelines is not to police the Internet and prosecute bloggers who have violated the guidelines, but rather to educate bloggers as to proper practices and their ethical obligations when endorsing products online. Further, the FTC has insinuated that they are more likely to go after advertisers rather than bloggers for violations of the guidelines. Despite the FTC’s admitted inability to effectively police and enforce the guidelines, the expectation of the Commission is that bloggers now aware of the guidelines will modify their behavior and err on the side of disclosure to ensure fairer commercial practices.

4. Unfair amount of responsibility on advertisers.

Critics have also observed that the guidelines impose a large amount of responsibility on advertisers and product manufacturers who give any kind of compensation to bloggers in exchange for the possibility of a review. Under the guidelines, advertisers are liable for bloggers’ fraudulent claims and failures to disclose any affiliations they have with the advertiser.[16] While this is a much needed motivation for the advertiser to educate the blogger of the law, the FTC’s own recognition of the difficulties involved in policing bloggers suggests that the Commission should treat advertisers with some kind of leniency. It is simple enough if the advertiser or manufacturer knows the specific medium the blogger will use (i.e. her personal blog or OSN page), but there is an infinite number of fora available online for the endorsements, and it is unrealistic to expect the advertiser to be on the eternal look-out. This burden is exacerbated by the use of pseudonyms on the net. While it may be theoretically possible for Dentaplus Toothpaste to monitor the posts of Maggie Cooper online, it is impossible for Dentaplus to monitor ballerina425, tmnt87, and all of her other possible pseudonyms.

Say, for argument’s sake, however, that Dentaplus is able to monitor Ms. Cooper’s posts and Dentaplus discovers she has posted on her Facebook page that Dentaplus’s new toothpaste cures all cavities without disclosing that the company gave her free samples of its new toothpaste. Dentaplus, aware of the guidelines, now demands she take the post down. Ms. Cooper, however, refuses. Dentaplus has no other available action to take and is still, as the guidelines stand, on the liability hook.

Perhaps the only way for advertisers to circumvent liability would be through contract. The contract would incorporate the FTC’s new guidelines into the terms of free giveaways and transfer all liability under the FTC guidelines to the blogger. The contract could further require the blogger to remove any posted content at the request of the advertiser if said content is thought to be in violation of the guidelines. Though a possible solution, contracting increases the transaction costs for advertisers. The more practical solution would be for the FTC to only require a good faith effort on behalf of the advertiser to ensure that endorsers comply with the guidelines.[17]

B) Additional Concerns

The guidelines also raise a few more potentially troubling issues. For example, what if, as in the Belkin case described above, an endorser is merely rating, rather than reviewing a product, and there is no text box on a website that allows her to disclose any material relationship she might have with the product’s manufacturer? Is this person then barred from speaking positively about the product on this particular site because she cannot disclose the relationship? Would that not potentially violate her free speech? To address this issue, the FTC could require Internet service providers to include a text box allowing users to either disclose relevant information pursuant to the guidelines or focus solely on text based reviews in order to avoid the issue.

Second, the guidelines do not clearly define a relationship that would materially affect the consumer’s perception of an endorsement. It is clear the Commission believes obtaining a product for free and being employed by the manufacturer are relationships that must be disclosed, but what if the reviewer is a stockholder? What if the reviewer owns a mutual fund that has a small amount of stock in the company? What if the reviewer’s cousin works for the company? The FTC does not indicate how it will determine those relationships that materially effect the credibility of the post for a consumer. The inquiry seems subjective. The Commission, however, could avoid the problem of over-regulating pursuant to a broad definition of “material relationships” by investigating only those relationships specified in the guidelines.

Lastly, are the guidelines necessary or do market conditions sufficiently regulate bloggers? Bloggers have a reputation to maintain. Similar to the newspaper critic described above, a blogger could lose his audience if he gives positive reviews to bad products. The video game blogger in Example 4 that receives a bad video game free would likely lose his readership if he gave the game a positive review. If the blogger loses his following, his opinion becomes worthless to future advertisers, and he will cease to receive free products to review or a popularly followed blog. It is therefore in the blogger’s best interest not to let temporary financial perks influence his reviews.

The problem, however, is that not all bloggers have a reputation to maintain. Many will only sporadically write about a product on their OSN or blog, and some might limit their reviews to commercial sites where they remain either anonymous or pseudonymous. Additionally, the FTC’s general purpose for imposing the new guidelines is to protect consumers from deceptive advertisement; the Commission argues that the distinction between new online social media and traditional media is that consumers do not expect blogs and OSNs to be fora for endorsements, whereas they likely expect such endorsements when watching television commercials. As online endorsements become more commonplace, however, consumers will likely grow to expect or at least question the authenticity of blog posts and other comments online.

However, the question to be asked is whether such consumer distrust is optimal? The answer here is no. Yes, free market conditions could eventually limit the problem, but the guidelines provide a more immediate solution.

IV. Conclusion

Many a small thing has been made large by the right kind of advertising.

-Mark Twain

The FTC guidelines are not law. Rather they are used to determine whether to investigate a party and adjudicate a claim. The FTC will likely only invest resources in investigating and prosecuting egregious cases. Though there are significant justifications for many of the arguments raised against the guidelines, there are certain gray areas that, if pushed and pursued by the FTC in practice, could have questionable effects. These effects include deterring bloggers from rating a product online if there is no text box and fining advertisers who have made a good faith effort to ensure that the guidelines are followed by their endorsers. Considering, however, that the Commission has stated that it is interested in the “black and white” cases and is “not interested in playing gotcha in the gray areas,” the guidelines are really not as controversial as popular media has recently made them out to be.

The new FTC guidelines address the current contextual void facing online advertising presented by associative anonymity. Consumers are often unable to determine whether they are encountering the honest opinion of a satisfied customer or a paid advertisement. The guidelines appear to effectively minimize deception by insisting upon disclosure and providing additional context. Only time will tell, however, if the expenses imposed by the guidelines are acceptable.

* J.D. Candidate at Harvard Law School. A special thank you to Prof. Patricia Sánchez Abril at the University of Miami School of Business for her comments and suggestions on an earlier draft of this Comment.

[1] 16 C.F.R. § 255.1(a)

[2] 16 C.F.R. § 255.1(c)

[3] 16 C.F.R. § 255.5

[4] 16 C.F.R. § 255.1(d)

[5] 16 C.F.R. § 255, Example 8 (Herein labeled Example 1 for purposes of chronological clarity and uniformity).

[6] 16 C.F.R. § 255.1, Example 5 (Herein labeled Example 2 for purposes of chronological clarity and uniformity).

[7] 16 C.F.R. § 255.5 (2009), Example 3.

[8] The guidelines focus heavily on the use of celebrity endorsements in parts of the release not discussed in this Comment.

[9] 16 C.F.R. § 255.5, Example 7 (Herein labeled Example 4 for purposes of chronological clarity and uniformity).

[10] 16 C.F.R. § 255.5, Example 8 (Herein labeled Example 5 for purposes of chronological clarity and uniformity).

[11] Id.

[12] FTC Notice of Adoption of Revised Guides, 16 C.F.R. § 255, Billing Code: 6750-01SP, available at www.ftc.gov/os/2009/10/091005endorsementguidesguidesfnnotice.pdf, at 28.

[13] Id.

[14] FTC Notice of Adoption, supra note 13, at 28.

[15] FTC Notice of Adoption, supra note 13, at 45.

[16] 16 C.F.R. § 255.1(d).

[17] Indeed, the Commission responded in its report that a company with instituted policies on the use of social media by its employees would probably not be liable if a sole employee violated that policy. See FTC Notice of Adoption, supra note 13, at 48.