Last week, the Federal Trade Commission (FTC) issued Guides Concerning the Use of Endorsements and Testimonials in Advertising (PDF). The Guides were issued pursuant to the FTCs authority, as granted by Congress in Section 5 of the FTC Act, 15 U.S.C. 45, to protect consumers from deceptive trade practices with regard to endorsements and testimonials in advertising.

The Guides, which take effect on December 1, 2009, are the first updates to the advertising guidelines since 1980. This post provides an overview of the Guides and what they mean for small and independent bloggers and business owners. While I am an attorney, this summary does not provide legal advice for your specific situation. If you need a legal opinion about how the Guides apply to your business, please consult an attorney. (I can help you find one if needed.) The Guides consist of 81 pages, and this post was produced after one reading. It may contain errors, and if and when any are found, I will update the post. If you want to skip my introductory commentary and go straight to the Guides, then scroll down to “What The Guides Say.” If all you want is “The Quick And Dirty,” then scroll down to that heading.

Background: Your New Career As Publisher

Last year, I published a post entitled, “Your New Career: Publisher.” In it, I said:

To succeed in business today, …you have to use the Internet to connect with people. You have to be heard above the noise by creating genuine opportunities for your customers to interact with you and with each other. Thanks to technology, this is neither difficult nor expensive. You have to be your own media outlet, providing your target audience with the kind of interesting content that draws them in and connects them to you.

The year before that, in a post about how to pitch your products to bloggers, I said this:

If you pay a blogger to review your product, that’s an advertisement, not a product review. Reputable product reviewers almost always post an editorial policy at their site so you can see whether they require or accept payment before they post a product review. Readers are savvy enough to know that if money changes hands, they are not getting an objective product review. For maximum credibility, check the blogger’s site to see if they tell their readers that they do not accept payment in exchange for reviews.

The promulgation by the FTC of the new Guides formally merge the concepts in my posts by recognizing that today, everyone is a potentially profitable media outlet and, as such, has a responsibility to exercise their influence in ways that are honest and transparent. Because of the Internet and other new technologies, you and I have the power to compete in meaningful ways for the attention of people who were once a captive audience for large, multi-national corporations.

It is not now, nor has it ever been, legal for anyone to lie in order to sell a product. That’s nothing new. What is new (well, not that new — see below) is that today, there’s a whole new cast of characters when it comes to advertising. In years past, when companies wanted to spread the word about their products, they purchased an ad.

Businesses competed to purchase eyes and ears in the form of radio listeners, television viewers and magazine and newspaper readers. Those willing to part with enough money enjoyed a certain amount of time to advertise products and services to a certain number of eyes and ears. That’s how traditional advertising works.

The Media Is You! Today, eyes and ears are no longer glued to traditional television shows, radio programs, print magazines and newspapers. Instead, they are everywhere, including on my blog and yours, and on my radio show and yours, and on my YouTube pagee and yours, and on my Twitter page and yours, and on my newsletter and yours. Since eyes and ears are a moving target these days, traditional advertising no longer cuts the mustard as it once did.

Today, the potential for deception exists not only in regard to traditional advertising, wherever it may appear, but also in regard to endorsements that appear in our blogs, newsletters, Twitter pages, social networks, etc. The newly issued Guides expand what most of us think of as “the media” to include blogs that are owned by your average, everyday consumer. They also expand what most of us think of as “advertising” to include paid testimonials and celebrity endorsements that appear in blogs that are also managed by regular folks.

The law has not changed, but the group of people who fall within the purview of it has expanded to include a type of media outlet that was not contemplated when the law was enacted. Now, bloggers, social networkers and newsletter publishers like you and me are specifically covered by the FTC’s false and deceptive trade practice laws. Interestingly, the new Guides are designed to protect us as consumers, and simultaneously regulate us as bloggers.

However awkward and ironic that may be, bloggers like you and me really aren’t so “new.” I’ve been reviewing consumer products since the publication of my first online newsletter on January 16, 2000, when I reviewed candles, handmade soap and men’s facial toning spray. These products were given to me for review by members of IBN. (Oooops! Didn’t disclose that …) Over the years, I’ve published thousands of product reviews in my newsletter, at my blogs and on various social networks including IBN’s. I bet many of you have too!

What The Guides Say This section provides a high level overview of what the Guides say about how particular content will be treated when it amounts to an endorsement at your blog, social network or other online New Media outlet. If it is an endorsement, certain disclosure requirements apply. If it is not an endorsement, the disclosure requirements do not apply.

The Kind of Content Covered: “Endorsements” Rather than look at “who” is covered by these Guides, it’s best to look “what” is covered by the Guides. The central issue is what kind of content is covered. This is so because, no matter who you are, if the content you produce fits a certain description, it is an endorsement and the Guides apply. And they apply with equal force whether you are Suzy Homemaker or Oprah Winfrey. If you manage a New Media outlet, your first question will be whether particular content in your publication is covered by the Guides. Here’s the answer. If it is an endorsement, it’s covered by the Guides and must comply with them. If it is not an endorsement, it is not covered by the Guides. The Guides define an endorsement as:

… [a]n advertising message (including verbal statements, demonstrations, or depictions of the name, signature, likeness or other identifying personal characteristics of an individual or the name or seal of an organization) 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. The party whose opinions, beliefs, findings, or experience the message appears to reflect will be called the endorser and may be an individual, group, or institution.

This is a fancy definition, I know. But we all pretty much know an ad or an endorsement when we see one. In essence, it boils down to the following:

if you were paid to publish the content, (either in cash or in the form of free products or anything else of value), the content is an endorsement, and the existence of payment must be disclosed if you have an ongoing relationship, such as an independent contractor arrangement with a network marketing company, and you publish content about their product or service, the content is an endorsement, and the relationship must be disclosed if you publish content as part of an organized word of mouth marketing program at your blog, social network or other New Media outlet, the content is an endorsement, and you must disclose the fact that the content is part of an organized campaign if you regularly review products that you receive from a particular company, type of company or group of companies, the content is an endorsement, and you must disclose the fact that your regularly review products that are a part of a particular company or group

The Guides are far more detailed than this, and they contain specific examples and nuances designed to help you as a content producer or advertiser decide whether a particular piece of content is or is not an endorsement. You can read these examples at your leisure, starting on page 61. The Guides state that all scenarios will be reviewed on a case-by-case basis. Chances are you will find a situation that resembles yours in the Examples starting at page 61.

Product or Service Suppliers: Advertisers Because artisans, crafters and Indies are often both content producers and suppliers (sometimes even in the same article!), it is important to know how your actions are viewed by the Guides under both scenarios. When you are supplying the products that someone else is reviewing as part of a social media campaign, you may be considered an advertiser, and as such, your conduct is covered by the Guides.

The important thing to remember here is that, as the advertiser, you can be held liable for false or unsubstantiated statements made through endorsements, even if you are not the direct source of the false statements.

For example, if you work with a New Media outlet to create a social media campaign to promote your products or services, you must make sure not only that the owner of the Media Outlet makes disclosure, but also that the others promoting your products at the site make disclosure. Thus, when you know that people at a blog or social network will be spreading the word about your products or services, you should make sure that they know about the disclosure requirements and do not violate them. You should also insist that the owner of the New Media outlet where your campaign appears monitors activity there to ensure that proper disclosures are made by all, and that any misstatements are immediately corrected.

Type of Disclosure Required The Guides say that, when content amounts to an endorsement, the relationship between the content producer and the product or service being reviewed must be fully disclosed so that anyone consuming the content is aware of the relationship. The disclosure must be meaningful. In other words, it must be clear, and conspicuous and understandable to the average consumer.

The Guides do not specify particular language that must be used in a disclosure. For a single product review, it could be as simple as disclosing that the product you are reviewing was sent to you at no cost to you, along with a request to review the product. The more involved a campaign is, the more detailed the disclosure may need to be.

For example, if a supplier asks you to review a new product (which they send you for free), and also asks you to ask your readers to re-post your review on their blogs, thereby multiplying the visibility of a favorable review, you and the supplier will want to make sure that re-posters use an appropriate disclosures as well. In this way, the hundreds of people who read a re-post know that it is the result of a review of a product that the original reviewer received for free or as part of an organized marketing campaign.

While Twitter, FaceBook and social networks where all types of blogs appear are not specifically mentioned in the Guides, it seems clear to me that you do not have to own the new Media outlet in order for content you post there to be covered by the Guides. I think there’s no doubt that the scope of the Guides extends beyond your branded blogs to cover your Twitter, FaceBook and LinkedIn pages, as well as comments posted to other people’s blogs, as well as blogs, groups and discussions that you are belong to at various other social networks.

I suppose it could even apply to actions you take to Digg posts. After all, when you click to Digg something, you are in effect endorsing something, and you are adding content to a New Media outlet. This Digg example may not be a stretch, but my point is that the owner and type of New Media outlet does not matter much. What matters is the content found there. If the content is an endorsement, the Guides apply no matter what form the content takes or who owns the space where the content appears.

Penalties A violation of the Guides could result in penalties of up to $10,000 per violation. Such liability could attach if the FTC initiates and wins an action in federal court. There may also be some agency or arbitration proceedings that could result in liability, but I have not investigated that yet. I suppose the FTC also has authority to issue cease and desist letters in an effort to stop violations before resorting to formal litigation.

A few reports I saw earlier this week (namely this one and this one) indicate that the penalty is $11,000 for each violation, I cannot find this figure anywhere. According to 15 U.S.C. 45, the statute pursuant to which (as far as I can tell) the Guides were promulgated, the correct amount is $10,000 per violation. If you can find the $11,00 figure anywhere, please let me know so I can correct this post.

The Quick And Dirty For Bloggers: If you manage or use a blog, a social network, a Twitter account, a FaceBook account and any other kind of New Media outlet, even if you do not consider yourself to be a blogger or a business owner, and even if you do not own the site you are managing or using, the Guides apply to the content at the New Media outlet. Always disclose the relationships between you and the people, products and services you endorse at your sites.

Whether you are paid $1,000 or all you get is a free bottle of lotion, disclose the fact of value received and you will likely be in compliance with the Guides. You should also post Editorial Policies at your site(s) so there is no doubt about how you handle the required disclosures. Make sure your employees, virtual assistants and others are familiar with your Editorial Policies and follow them. (Read this entire post and the Guides to be sure you inform yourself fully.)

For Advertisers: If you are an advertiser using bloggers and other forms of New Media to spread the word about your products, work with them to ensure that they make the proper disclosures. Also, to the extent possible, make sure they monitor their site and site users to ensure that the proper disclosures “follow” the endorsement wherever it goes. You should also post Editorial Policies at your site(s) so there is no doubt about how you handle the required disclosures. Make sure your employees, virtual assistants and others are familiar with your Editorial Policies and follow them. (Read this entire post and the Guides to be sure you inform yourself fully.)

For Everyone: These Guides and recent advances in technology have benefited all of us. As consumers, we have more options. As small and independent business owners, we have more profit-making opportunities. But there’s no such thing as “something for nothing.” If we want to profit from new technologies, we have to be accountable for how we use them. These new Guides and other laws, rules, regulations and policies are filtering down to us quickly and we have to remain vigilant. We must inform ourselves, our customers and other stakeholders.

We must keep up with the latest rules and policies as they are promulgated by legislators and policy makers at the state and local level. If you want to join me in an effort to make sure that our voices continue to be heard, and that future laws and rules do not have an adverse and unduly burdensome impact on small and independent business owners, please join me on FaceBook at the Indie Business Page where I am coordinating efforts expand my advocacy efforts on behalf of small businesses nationwide.

Questions and Conclusions

Whether a violation could result in a fine of $10,000 or $11,000, it’s clear that the FTC is taking aim at everyone who seeks to profit unscrupulously from New Media opportunities. The disclosure requirements in the Guides sound good in theory.

Who could argue with a requirement that bloggers disclose that they are raving about a product that was given to them by the manufacturer, or that the manufacturer paid for their endorsement? The challenge I see is in enforcing the Guides.

How on earth will the federal government have the resources to troll the Internet, find potential violators, monitor their blogs to assess the scope of an alleged violation, conduct an investigation, issue warnings or cease and desist letters and perhaps file suit in federal court to hold violators accountable?

And even if they can do that, how will they do it uniformly and fairly across the board? I’ve also been wondering why all this fuss is being made about bloggers and social media users, when television shows are filled with undisclosed sponsored product placements. They are not required by law to disclose that the product I see on my screen was placed there only because the manufacturer paid thousands of dollars (or more) for the privilege. (Are they?) This seems unfair to me.

(As an interesting side note, many actors are not happy about this either. When they perform in a show or movie, they are paid to act, not to endorse products. If a media outlet is paid because an actor drinks a particular kind of soda as part of a scene, the actor should be paid extra for that.)

Congress has empowered the FTC to do what it can to protect consumers from false and deceptive trade practices. Since consumers are turning in massive numbers to New Media to collect the information they need to make informed purchasing decisions, it stands to reason that the FTC would at least attempt to put everyone on notice that, even if you are a stay-at-home mom with a fun hobby blog, you must tell your readers when a company has somehow compensated you for a product review.

Tell The Truth

What this is really all about is telling the truth. And isn’t that what social media is about? Honest, open and transparent communication. While I’m not saying that your sincere efforts to always tell the truth excuse you from reading and complying with the Guides, they will go a long way toward helping you comply with them — without even trying. Honesty is, and has always been, the best policy.

Questions:What do you thin of the new Guides? Do you think it’s fair for all people with blogs to be includes, even if they are not “bloggers?” Are you going to post an Editorial Policy at your blog and other social media sites? If you think this information would be helpful to your friends on Twitter, FaceBook, LinkedIn and elsewhere, please use the icons below to share it!

Yesterday Randall Rothenberg, head of the Interactive Advertising Bureau, published an open letter to Jon Leibowitz, Chairman of the Federal Trade Commission highlight what he calls “a grave concern” with regard to the new Guides Concerning the Use of Endorsements and Testimonials in Advertising (PDF). In particular, Rothenberg says that the Guides are unconstitutional because they treat other media outlets like traditional radio, cable and television networks differently from social media outlets. Rothenberg’s letter echoes a concern I raised in my post as well. Namely, I said this:

I’ve also been wondering why all this fuss is being made about bloggers and social media users, when television shows are filled with undisclosed sponsored product placements. They are not required by law to disclose that the product I see on my screen was placed there only because the manufacturer paid thousands of dollars (or more) for the privilege. (Are they?) This seems unfair to me.

It’s good to know that others have the same concerns. As small and independent business owners, our blogs typically supplement our main businesses. We are usually not “bloggers” in the traditional sense of the word. Rather, we are in another industry entirely, yet we use blogs to supplement our marketing efforts. We are, in effect, a subset of the blogging industry, which is a subset of the traditional media industry. Without a trade organization to represent our unique interests, it’s good that other organizations share the same regulatory concerns.

It will be interesting to see how all of this evolves.

Question: What do you think? Do you think your blog should be treated different from traditional media outlets.

[This letter is being sent via fax to Chairman Leibowitz today.]

The Honorable Jon Leibowitz
Chairman
Federal Trade Commission

Dear Chairman Leibowitz:

I am the founder and CEO of Indie Business Media, and the Indie Beauty Network, a trade organization representing 800+ small health, beauty and lifestyle companies. As an advocate for small and independent business owners nationwide, I am pleased to offer my position on the Guides Concerning the Use of Endorsements and Testimonials in Advertising, issued by the Federal Trade Commission (FTC) on October 5, 2009. Shortly after they were issued, I posted a high level overview summary of the Guides in layperson’s terms. This letter shares my concerns about how the Guides apply to small and independent business owners – concerns which are shared by millions of people nationwide.

Introduction

I am very concerned that the Guides are unfairly harmful to individuals and small businesses owners who use blogs to communicate efficiently and cost effectively with their friends, customers and other stakeholders. While I think everyone generally supports the FTC’s efforts to encourage truth in advertising, testimonials and endorsements, these Guides are too broad to address the problems sought to be curtailed. Instead, they unnecessarily limit the free speech of consumers and small and independent business owner users of social media, without any corresponding benefit to the public.

In many ways, I agree with the October 15 open letter addressed to you by Randall Rothenberg of the Interactive Advertising Bureau. His position is well articulated, particularly as it concerns the ad supported interactive media industry. But my concerns are slightly different because they concern people who use social media in ways that are not generally ad supported. In other words, they are not “bloggers” in the sense that their blogs in and of themselves generate income. Instead, they are either consumers who enjoy blogging for fun and enjoyment, or they are small business owners who use blogs and other social media tools to communicate with customers and other stakeholders about the products and services they offer.

The Media

While it may be early in the evolution of “social media” or “blogging” to call either “industries,” either collectively or unto themselves, the reality is that they are playing increasingly vital roles in domestic and worldwide commerce. In many ways, the entire “media” industry can be divided into at least these three categories:

1. Traditional Media: corporate-owned cable systems and broadcast television and radio stations that are regulated by the Federal Communications Commission; and corporate-owned print newspapers and magazines;
2. New Media: entities, whether or not they are traditional media as defined above, whose income is fully or meaningfully partially dependent on their use of social media, and where an “entity” is anything from a large corporation to an individual working on a laptop at a local coffee shop; and
3. Individual New Media Users: consumers and small and independent business owners who use traditional and new media tools to communicate, but who do not rely to any meaningful extent on either to generate income or make a living.

While these categories overlap some, and each is (and will always be) in a state of flux, I believe the new Guides do the greatest disservice to the third category, composed largely of people whose proportionate impact on the public is so small that they cannot be reasonably expected to comply with the Guides as currently written, nor should they have to.

This category includes consumers in the traditional sense, as well as consumers who are also very (and I mean “very”) small business owners. I call these persons “consumer-business owners” or “indie business owners” because they are neither wholly consumers nor wholly business owners. Instead, they are a self-contained intersection between consumers and business owners. As such, they cannot and should not be treated entirely as one or the other, and they should not be subjected to the Guides to the same extent as those in any other category.

The Unnecessary Adverse Impact on “Consumer-Business Owners”

Over the last decade, federal regulators across the board have had to deal with a new type of stakeholder: the “the consumer-business owner”. These people participate in regulated industries to the same extent as multi-national corporations, yet their interests are very different. These differences give rise to the need to regulate consumer-business owners differently from other interested industry participants.

For proof of this, one need look no further than the passage and implementation of the Consumer Product Safety Improvement Act of 2008 (CPSIA). Signed into law by former President Bush on August 14, 2008, the CPSIA establishes safety requirements for products intended primarily for children 12 years of age or younger. In particular, the law treats as a banned hazardous substance products that contain more than an acceptable level of several substances, including lead. Because the law is not carefully tailored, it adversely impacts consumer-business owners who did not contribute to the overall problem of lead in children’s products. The result is that thousands people who manufacture or resell products in tiny numbers were forced out of business for no good reason, and in the midst of the worst financial crisis our nation has seen since the Great Depression.

Many other pieces of pending federal legislation could have a similar devastating effects on consumer-business owners who do not contribute to the problems sought to be curtailed by the legislation. Among them are the following:

(1) The FDA Globalization Act of 2009: introduced by Congressman John D. Dingell (D-MI) on January 28, 2009
(2) The Safe Baby Products Act: introduced by Senator Kirsten Gillibrand (D-NY) on April 28, 2009
(3) The Food Safety Enhancement Act of 2009: introduced by Congressman John D. Dingell (D-MI) on June 8, 2009
(4) The Household Product Labeling Act: introduced by Senator Al Franken (D-MN) on September 23, 2009

In years past, bills like these would be fully vetted by all affected stakeholders because the affected stakeholders were generally well funded private or publicly traded companies and non-profit consumer groups with powerful lobbying arms. As a result, everyone had an opportunity to share how the proposed law, if passed, would impact their businesses and constituents.

Today, new legislation and Guides such as those at issue here impact more than just well funded companies. They impact an entirely new category of stakeholders –consumer-business owners. And because of their size and proportionate lack of resources, these affected parties are without the resources to speak up when new laws are pending. When they go into effect, they are often blind-sided and without the resources to comply. As a result, these tiny entities, which are not the source of the problem sought to be addressed in the legislation, are decimated and forced to shutter their doors. The unfair effects are devastating and far-reaching.

While the new FTC Guides do not have the full force and effect of law, it is clear that they can be used by the federal government to form at least a part of the basis for prosecution of a consumer-business owner. They apply with absolute equal effect to the largest new media company in the nation to the smallest individual new social media user in the smallest corner of every state in the union. And that, Mr. Leibowitz, is unfair and unnecessary.

Interestingly, as pointed out in my overview summary, the Guides do not seem to apply to the first category of media: corporate-owned cable systems and broadcast television and radio stations that are regulated by the Federal Communications Commission; and corporate-owned print newspapers and magazines. This discrepancy is also noted in Mr. Rothenberg’s letter.

It seems patently unfair that the FTC deems it necessary to promulgate new guidelines to constrain the rights of individual consumers and tiny business owners, while failing to address the segment of the industry with the most power to use new media tools to do the most harm to the most people.

While it may be necessary to clarify the FTC’s Guides since they have not been updated since 1980, I believe that any amendments should be carefully scrutinized to ensure that individuals and indie business owners are not adversely affected for no good reason. It is clear that such scrutiny did not occur in this case, nor did individuals and consumer-business owners who are affected have any meaningful opportunity to participate in the process and inform FTC staff about how the new provisions would impact them.

Possible Alternatives

If the FTC is determined to move forward with new Guides, I suggest that there are far less burdensome ways to protect consumers, ways that are less threatening to consumers and consumer-business owners and far more solution-oriented. I strongly urge you to re-think your approach to adopt the least restrictive means to accomplish legitimate consumer protection goals.

For example, there is no good reason to require the same level of disclosure for consumers and consumer-business owners with a miniscule audience, whose income is not meaningfully partially dependent on their blog or other social media outlet. Without disturbing the intent of the Guides, or the laws they interpret, and without endangering consumers, the Guides can be tailored to realistically reflect the proportionate risk these types of social media users actually present. In fact, they could, and perhaps should, contain an exemption for social media users who fit this category.

Additionally, federal laws and regulations are often extremely difficult for experienced attorneys to understand and apply, let alone a indie business owners and consumers who are treated the same as huge companies for no good reason. Since the FTC is issuing Guides to address the behavior of people using new media tools, why not use those same tools to create meaningful dialog between FTC staff and the public so all affected parties can participate in the process.

The new Guides can and should include provisions to use new media tools to host teleconferences, webinars and working sessions to, in the first instance, provide an opportunities for real people to inform FTC staffers about how they are using social media tools. In this way, staffers would understand first-hand how unnecessarily constraining the new Guides are to consumers and consumer-business owners.

The Guides could also include the establishing of an “ombudsman” or other type of liaison so small businesses can get the help they need to understand and apply the Guides going forward in a rapidly technologically evolving world.

Conclusion

As you consider all of the feedback you are now receiving, I respectfully request that you acknowledge and invite the participation of consumers and consumer-business owners who are impacted by your actions. I and many people in this category are prepared to work with FTC staff and the media industry as a whole to achieve our shared goal of protecting consumers from unfair and misleading advertising. However, we believe that the one-size-fits-all approach contained in the Guides falls miserably short of what the FTC needs to do to achieve this goal.

I look forward to working with you.

Sincerely,

Donna Maria Coles Johnson
CEO, Indie Business Media
Founder, Indie Beauty Network