FTC Looks to Revise Media Advertising

The Federal Trade Commission is issuing a strong warning to advertisers: Learn how to self-regulate, or we’ll establish regulations for you.

The FTC is working to update its “Guide Concerning the Use of Endorsements and Testimonials in Advertising,” which hasn’t been revised in nearly 30 years and lags far behind marketing in the Internet age. The proposed new guidelines would encompass various forms of electronic and viral marketing, such as blogs and message boards, and impose new expectations for marketing in traditional media as well.

The public comment period for the proposals ended this spring; the FTC is now likely to ponder the matter over the summer and issue final guidelines sometime in the fall. And while the new guidelines aren’t independently enforceable, the FTC states that advertisers are subject to liability for false or unsubstantiated statements made through endorsements, “or for failing to disclose material connections between themselves and their endorser.”

That bit about material connections between company and endorser is what the FTC has decided to put under a microscope. Under the proposed revisions, the FTC prods advertisers to disclose any financial relationship that they have with their product endorsers that might constitute sponsored content.

Cohn

For example, if a blogger receives a free video game from a manufacturer to write a review, the blogger must disclose that relationship to consumers. Getting a free copy, after all, “would affect the weight or credibility the consumer would attach to the review,” says Thomas Cohn of the advertising and marketing practice group at law firm Venable.

The odds that the FTC will start prosecuting bloggers directly is “probably pretty small,” says Barry Reingold of the law firm Perkins Coie, and also a former FTC lawyer. But the revised guidelines could be a rude awakening for advertisers accustomed to offering free products and services in exchange for third-party reviews.

“That is going to be a real hurdle for some of our clients,” he says. “They’re not used to approaching the reviewers, the bloggers, that way … To find out that a practice that’s been done very informally is now being dragged into the legal arena is very confusing.”

“This proposal raises very serious First Amendment concerns, and we hope the FTC will reject this approach.”

— Dan Jaffe,

Vice President,

Association of National Advertisers

The FTC also gives a related example where a blogger claims a skin lotion can cure skin conditions, even though the advertiser did not make such a claim. In that case, the FTC warns that the advertiser and the blogger would be held jointly liable for false or unsubstantiated statements about the endorsement.

Some fear the new rules would discourage bloggers—particularly those who review goods or services—from participating in online marketing efforts. “Bloggers might be afraid to state their opinions or experiences if they believe they go against the grain of mainstream opinion, or are not supported by empirical evidence,” said John Bell, president of the Word of Mouth Marketing Association, in a comment letter to the FTC.

While providing Internet-specific examples is “helpful,” the proposed guidelines “raise more questions than answers,” agrees Cohn. He cites an example in which a blogger fails to disclose a relationship with a manufacturer, even after the advertiser instructs the blogger to do so. “These examples really are unclear as to the extent to which marketers are going to be held responsible for independent actions of these individuals,” he says.

Moreover, adds Cohn, the practice of offline experts receiving free products or services in return for a published review is a “long-standing and common practice,” he says. “It seems like the FTC is treating the online blogger differently.”

REVISED PRINCIPLES

The following excerpt is from the “FTC Staff Report: Self-Regulatory Principles for Online Behavioral Advertising:”

Based upon the staff’s analysis of the comments discussing the Principles as initially

proposed, and taking into account the key themes enumerated above, staff has revised the

Principles. For purposes of clarification, the new language is set forth below in bold and italics.

As noted above, these Principles are guidelines for self-regulation and do not affect the

obligation of any company (whether or not covered by the Principles) to comply with all

applicable federal and state laws

A. Definition

For purposes of the Principles, online behavioral advertising means the tracking of a

consumer’s online activities over time—including the searches the consumer has conducted, the web pages visited, and the content viewed—in order to deliver advertising targeted to the individual consumer’s interests. This definition is not intended to include “first party” advertising, where no data is shared with third parties, or contextual advertising, where an ad is based on a single visit to a web page or single search query.

B. Principles

1. Transparency and Consumer Control

Every website where data is collected for behavioral advertising should provide a clear,

concise, consumer-friendly, and prominent statement that (1) data about consumers’ activities online is being collected at the site for use in providing advertising about products and services tailored to individual consumers’ interests, and (2) consumers can choose whether or not to have their information collected for such purpose. The website should also provide consumers with a clear, easy-to-use, and accessible method for exercising this option. Where the data collection occurs outside the traditional website context, companies should develop alternative methods of disclosure and consumer choice that meet the standards described above (i.e., clear, prominent, easy-to-use, etc.)

2. Reasonable Security, and Limited Data Retention, for Consumer Data

Any company that collects and/or stores consumer data for behavioral advertising should

provide reasonable security for that data. Consistent with data security laws and the FTC’s data security enforcement actions, such protections should be based on the sensitivity of the data, the nature of a company’s business operations, the types of risks a company faces, and the reasonable protections available to a company. Companies should also retain data only as long as is necessary to fulfill a legitimate business or law enforcement need.

3. Affirmative Express Consent for Material Changes to Existing Privacy

Promises

As the FTC has made clear in its enforcement and outreach efforts, a company must keep

any promises that it makes with respect to how it will handle or protect consumer data, even if it decides to change its policies at a later date. Therefore, before a company can use previously collected data in a manner materially different from promises the company made when it collected the data, it should obtain affirmative express consent from affected consumers. This principle would apply in a corporate merger situation to the extent that the merger creates material changes in the way the companies collect, use, and share data.

4. Affirmative Express Consent to (or Prohibition Against) Using Sensitive

Data for Behavioral Advertising

Companies should collect sensitive data for behavioral advertising only after they obtain

affirmative express consent from the consumer to receive such advertising.

V. CONCLUSION

The revised Principles set forth in this Report constitute the next step in an ongoing

process, and staff intends to continue the dialogue with all stakeholders in the behavioral

advertising arena. Staff is encouraged by recent steps by certain industry members, but believes that significant work remains. Staff calls upon industry to redouble its efforts in developing self-regulatory programs, and also to ensure that any such programs include meaningful enforcement mechanisms. Self-regulation can work only if concerned industry members actively monitor compliance and ensure that violations have consequences.

Looking forward, the Commission will continue to monitor the marketplace closely so

that it can take appropriate action to protect consumers. During the next year, Commission staff will evaluate the development of self-regulatory programs and the extent to which they serve the essential goals set out in the Principles; conduct investigations, where appropriate, of practices in the industry to determine if they violate Section 5 of the FTC Act or other laws; meet with companies, consumer groups, trade associations, and other stakeholders to keep pace with changes; and look for opportunities to use the Commission’s research tools to study developments in this area.

The Commission is committed to protecting consumers’ privacy and will continue to

address the issues raised by online behavioral advertising.

Source

Principles for Online Behavioral Advertising (February 2009).

Reingold recommends that advertisers keep a close eye on those bloggers reviewing their products. If a blogger says something on his or her Website that is not true, “You’re going to have to think long and hard about how you want to approach those people,” he says.

Traditional Media

The FTC is not just addressing online media. Across all types of media, from newsprint to radio to television and online, advertisers will no longer be able to qualify product endorsements simply by telling consumers that “results may vary” or “results not typical.” Instead, advertisers will be required to provide information about the product’s generally expected performance.

Reingold

For the traditional industry people, this particular revision to FTC advertising guidelines is a “life or death issue,” because so many factors cannot be precisely measured when you’re talking about certain products, Reingold says.

Several advertising associations expressed similar concerns. In a comment letter to the FTC, Dan Jaffe of the Association of National Advertisers, stated: “This proposal raises very serious First Amendment concerns, and we hope the FTC will reject this approach. As a practical matter, showing typicality for certain products and services cannot be measured, because results are based upon subjective variables associated with individual consumers.”

The American Association of Advertising Agencies and the American Advertising Federation also disagreed with the proposal, citing the potential economic burdens on advertisers as another problem. “[S]uch determinations would likely require comprehensive studies (e.g., calculating average performance across a diverse customer base), which for most advertisers would be a costly endeavor,” their comment letter stated. The AAAA and AAF went on to say that the current advertising guidelines “have been quite effective in facilitating truthful and non-deceptive endorsements and testimonials.”

But not all disagree with the proposed revisions. In another public comment letter, the attorneys general of several states declared: “Based on the studies’ findings, the most direct, and likely most effective, approach to reducing deceptive endorsements would be to require that endorsements actually reflect the typical experience of users of the advertised product or service. If an endorsement does not reflect that typical experience, it can be expected to mislead a significant percentage of the public, regardless of the presence of disclaimers, and it should be prohibited.”

The attorneys general went on to recommend that the FTC add an additional provision that requires advertisers to “clearly and conspicuously disclose” when they have paid—whether in whole or in part—for a study that they rely upon in an endorsement advertisement to lend support or substantiation to the claims made in the advertisement.

As a result of the many discrepancies in the proposed guidance, several respondents have requested that the FTC consider clarifications to identify those circumstances and contexts where liability against advertisers cannot be triggered.