Wednesday, April 8, 2009

Proposed FTC Regulations Regarding Marketing

Back in December of 2008, the Federal Trade Commission (“FTC”) issued proposed rule changes to regulations related to endorsements.  The proposed rule change summary from the FTC is here.  What has changed in the last few years is that the internet and social media have provided new forums in which company advertisers can make representations and present to consumers testimonials and endorsements of their products or services.  However, because social media has created a forum in which smaller business can engage in marketing to general consumers, the effects of these proposed rule changes create implications that both larger and smaller businesses should take into account as they engage in marketing over social media tools.


As a foundation, businesses need to keep in mind that the FTC is Shield (small) charged with protecting consumers.  Certainly, we want to prevent businesses from misleading consumers into purchasing goods or services based on false assertions regarding the qualities of the products being sold.  A good example used by the FTC in its rule summary is assertions by weight loss programs that the diet plan being sold will result in weight loss of a certain amount within a certain amount of time.  If the assertion is substantiated with studies, there is no problem.  But if the assertion is misleading and used to suggest some kind of miracle product, there is a problem.

Representations in Marketing in General

As a first issue then, every business who is now engaged in making representations about their goods or services over social media needs to keep in mind that they should be accurate about their representations.  In short, don’t be a snake oil salesman.  But in addition, because more businesses are starting to use social media as a means of getting their message out, businesses that operated under the radar before, need to give consideration to how their representations might be examined by a regulatory agency like the FTC.

For example, the FTC is concerned about representations by a company that indicate that certain results are typical.  That is, a result can be generally expected.  And if the FTC is concerned that such a result being communicated is atypical, they may want investigate and obtain the empirical basis for the claims, i.e., a legitimate study that shows the results are typical.  If there is no such basis, and the average consumer hearing the message could be mislead, the FTC may take action.

States (small) Part of what makes this interesting is that before social media, most businesses operated locally within their state jurisdiction.  So marketing statements did not cross state lines.  However, with social media such as Twitter, a statement made on the media can be viewed by users around the world, let alone across state lines.  And as soon as such representations cross state lines, the marketing communication is interstate and FTC regulatory authority is likely triggered.


In addition to the possibility that smaller businesses need to start paying attention to FTC regulations about advertising given the advent of social media, the changes in the regulation also focus on endorsements.  What the FTC is apparently trying to do is prevent companies from using third-parties to do what they were unable to do themselves. 

Specifically, the FTC wants to make it clear that businesses cannot hire others to falsely assert the efficacy of their products or services and avoid responsibility.  So the FTC is also proposing that the rules be changed to allow it to address when a business provides an otherwise disassociated person with compensation so they are inclined to make favorable comments the business could not otherwise make.

Traditionally, the way this has been addressed is that the business or hired person must properly disclose the association as in the fine print in a commercial stating that the person making the testimonial is a hired actor.  And when there is no compensation, the testimonial must be unaltered by the business so it is clear to consumers that the endorsement is independent and the opinion of the one making the statement. 

The concern that rises in social media contexts is whether someone will come under suspicion when no such disclosure is made. 

The easiest way to deal with this situation is to make sure that Take Money (small) businesses are clear about what is going on when they make statements in social media or use endorsements.  If there is a possibility that there is some kind of compensation taking place with sample goods or free services, this should be noted.  Also, businesses should not alter the statements made by endorsers.

Average users, on the other hand, are unlikely to come under suspicion unless there is some activity going on that suggests a connection.  Regardless, users who are on social media and endorse others may want to phrase their endorsements clearly, whether by context or language, as opinions, beliefs, personal experiences, and advice.


Audience (small) In summary, the capacity of social media to augment the breadth and scope of representations made by business owners and users means the impact is greater.  As a result, more people are paying attention, including potentially governmental regulatory agencies, and users need to be careful to be responsible, honest, and truthful as they would with any large audience. 

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