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FTC Compliance - What You Didn’t Know About Online Endorsements

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FTC 101

The Federal Trade Commission aims to prevent business practices that are anticompetitive, deceptive or unfair to consumers and its regulations affect businesses trading in every industry. One of its most sweeping regulations is Section 5 of the Federal Trade Act, which addresses appropriate commercial speech to help put an end to deceptive advertising. The FTC has evolved its rules under the act to apply to the ever-evolving world of online advertising. What many companies, review sites, bloggers, and celebrities don’t realize is that if they share content with commercial messages that convey personal enjoyment of a product/service with followers and get compensated for it, their actions are considered endorsements. These endorsements require clear disclosures of the relationship with the product/service provider. To provide guidance on complying with these rules, The FTC released the Guides Concerning the Use of Endorsements and Testimonials in Advertising to serve as a framework for complying with the relevant FTC regulations. Here is an overview of some expectations:
  1. Endorsements apply to social media and new technology as it evolves. For Twitter, with a 140 character count limit, the use of hashtags #ad #paidad can be sufficient.
  2. Disclosures for videos are not sufficient in the video descriptions or only at the beginning of the video. Disclosures must be displayed throughout the video for all to see at any point they tune in.
  3. Social media contests that require entrants to tweet or share for a chance to win must incorporate disclosures as part of the contest share messaging and contest terms.
  4. Free products given to customers for online reviews (positive or negative) are considered endorsements. This should be mentioned on review pages.

Consequences of Non-Compliance

While these guides are not considered formal regulations, the FTC has warned that it will be leading investigations and taking immediate action for practices that fall outside of the guidelines in a way that violates the rules in the Federal Trade Act. Penalties for non-compliance can range from a written warning letter to a fine of $11,000 per incident. In other cases, these fines have been much higher; as in the case of Legacy Learning Systems, a popular provider of guitar-lesson DVDs, charged with $250,000 for advertising products through paid online affiliate marketers, and having them falsely pose as objective customers. Machinima also settled similar charges with the FTC for paying YouTube video creators up to $30,000 for their video reviews without disclosing so.

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