How to Keep Your Digital Programs ‘FTC-Free’


Are you a PR pro charged with social media management? Then be aware of the following: Today, many companies recruit affiliate marketers—or paid brand advocates—to promote their products or services via social platforms in return for a commission. These advocates can include individual bloggers or brand ambassadors, as well as affiliate management agencies that employ associates to blog and post hyperlinks. A recent case from the Federal Trade Commission (FTC) reminds companies—and the executives in charge of these programs—of potential liability they expose themselves to if they do business with these advocates without proper contracts and careful monitoring.

On March 15, 2011, the FTC announced that it had settled its action against Legacy Learning Systems, Inc. (Legacy), the marketers of instructional guitar DVDs, and its sole owner, Lester Gabriel Smith. The settlement resolved allegations that Legacy’s online paid brand advocates falsely posed as ordinary consumers and failed to disclose their compensation from the sale of Legacy’s products when promoting Legacy’s products.

This FTC settlement implicates two regulatory issues of growing concern: paid brand advocates and consumer testimonials. Since the implementation of the revised Guides Concerning the Use of Endorsements and Testimonials in 2009 (The Guides), the FTC has emphasized that these paid advocates are under a duty to disclose their relationship with a company when endorsing the company’s products or services. The FTC has consistently stated that this disclosure must be clear and should not be buried in obscure places. For example, the disclosure should not be posted on an “About Us” or “General Info” page.

Accordingly, it was only a matter of time before the FTC brought an action against a company as a result of its brand ambassador conduct. Now that time has come.

WHAT DID LEGACY DO?

According to the FTC’s complaint against Legacy, the company encouraged advocates who participated in its “Review Ad” program to promote its courses by posting positive endorsements in articles, blog posts and other online editorial copy. Members of this program could allegedly generate commissions ranging from 20% to 45% of the cost of each instructional course sold. The FTC claimed that the advocates’ endorsements violated the law because they gave consumers the false impression that the endorsements were posted by ordinary consumers, and failed to adequately disclose the advocates’ paid relationship with Legacy.

Legacy’s contracts with its brand advocates instructed them to “comply with the FTC guidelines on disclosures.” That, however, was not enough. According to the FTC, Legacy failed to implement a reasonable monitoring program to ensure that the advocates clearly disclosed their relationship to Legacy. The FTC claimed that certain advocates provided no disclosure at all, while others buried the disclosure at the bottom of their sites.

WHAT DOES THE SETTLEMENT MEAN?

As part of the settlement, Legacy and Smith agreed to pay the FTC $250,000. Legacy and Smith further agreed to implement a monitoring program for their paid advocates. Legacy and Smith also agreed to monitor a random sampling of another 50 paid brand advocates. If any advocate is found to be misrepresenting his or her status as ordinary consumers or failing to disclose his or her connection to Legacy, they must be immediately terminated from the program.

WHAT DOES THIS MEAN FOR YOU?

If you work for an organization that recruits paid advocates, or you recruit them for a client, there is much you can learn from the FTC’s action against Legacy. Here are four tips:

• Companies and/or their agencies should have an agreement with their paid advocates that instructs their affiliates to make appropriate disclosures when endorsing their products or services. But that is not enough….

• Companies and/or their agencies should establish reasonable monitoring programs for their online advocates to verify that they are making the appropriate disclosures.

• Companies and/or their agencies should ensure that their advocates’ disclosures are clear and conspicuous and not buried behind general info or poorly labeled hyperlinks.

• Companies and/or their agencies should consider consulting with counsel on how to establish reasonable monitoring programs for paid brand advocates.

Unfortunately, there is no one-size-fits-all model. But failure to properly address your advocates could have serious consequences.

CONTACT:

This article was written by Michael Lasky (mlasky@dglaw.com) and Allison Fitzpatrick (afitzpatrick@dglaw.com), partners at the law firm Davis & Gilbert LLP.




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