FTC Disclosure Rules & Affiliate Marketing Implications

Mandatory Disclosure—————————————————–
: 2 follow-up posts: (i) FTC Says the $11000 Fine “is Not True”, (ii) How to Word Disclosures & Agreements to Meet FTC Rules

On 1 December 2009 the new Federal Trade Commission’s endorsements/testimonials rules are coming into force. I am referring to the “Guides Concerning the Use of Endorsements and Testimonials in Advertising” the text of which was announced by FTC yesterday. Changes will affect “testimonial advertisements, bloggers, celebrity endorsements” and affiliate marketers employing any such techniques. FTC stressed that regardless of the undertone of a blog post, “the post of a blogger who receives cash or in-kind payment to review a product” will be  “considered an endorsement”. Therefore “bloggers who make an endorsement must disclose the material connections they share with the seller of the product or service.” [more here]

The full 81-pages long FTC’s Guides document may be downloaded in PDF here. Below I am quoting just a few of the excerpts that affiliates and affiliate program managers should pay attention to.

Imposing liability… hinges on the determination that the advertiser chose to sponsor the consumer-generated content such that it has established an endorser-sponsor relationship. It is foreseeable that an endorser may exaggerate the benefits of a free product or fail to disclose a material relationship where one exists. (p. 15)

Shift of responsibility from advertiser to publisher:

When the Commission adopted the Guides in 1980, endorsements were disseminated by advertisers… through such traditional media as television, commercials and print advertisements. With such media, the duty to disclose material connections between the advertiser and the endorser naturally fell on the advertiser.

The recent creation of consumer-generated media means that in many instances, endorsements are not disseminated by the endorser, rather than by the sponsoring advertiser. In these contexts, the Commission believes that the endorser is the party primarily responsible for disclosing material connections with the advertiser. However, advertisers who sponsor these endorsers (either by providing free products — directly or through a middleman — or otherwise) in order to generate positive word of mouth and spur sales should establish procedures to advise endorsers that they should make the necessary disclosures and to monitor the conduct of those endorsers. (pp. 38-39)

So, while the disclosure responsibility has  shifted from advertisers to publishers, advertisers should have both a policy for endorsers to follow, and policing procedures in place.

The Commission does not believe, however, that it needs to spell out the procedures that companies should put in place to monitor compliance with the principles set forth in the Guides; these are appropriate subjects for advertisers to determine for themselves, because they have the best knowledge of their business practices, and thus of the processes that would best fulfill their responsibilities. (p. 49)

It is also important to understand 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 endorsers. Endorsers also may be liable for statements made in the course of their endorsements. (p. 61)

Connections must be clearly disclosed:

When there exists a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement … such connection must be fully disclosed. (p. 75)

And a helpful example:

A college student who has earned a reputation as a video game expert maintains a personal weblog or “blog” where he posts entries about his gaming experiences. Readers of his blog frequently seek his opinions about video game hardware and software. Ad it has done in the past, the manufacturer of a newly released video game system send the student a free copy of the system and asks him to write about it on his blog. He tests the new gaming system and writes a favorable review. Because his review is disseminated via a form of consumer-generated media in which his relationship to the advertiser is not inherently obvious, readers are unlikely to know that he has received the video game system free of charge in exchange for his review of the product, and given the value of the video game system, this fact likely would materially affect the credibility they attach to his endorsement. Accordingly, the blogger should clearly and conspicuously disclose that he received the gaming system free of charge. The manufacturer should advise him at the time it provides the gaming system that this connection should be disclosed, that it should have procedures in place to try to monitor his postings for compliance. (pp. 79-80)

The whole document is chock-full of examples, and while it is not a quick read, it is a document every affiliate and affiliate program manager should study to arrive at their further course of action.

Shawn Collins concluded that affiliate program managers “should get acquainted with this issue fast and update their terms and conditions accordingly” — the sooner, the better. Affiliates, in their turn, should also review the full text of the above-quoted Guides Concerning the Use of Endorsements and Testimonials in Advertising and, regardless of whether the merchants advise them on this question or not, disclose of the fact that they are acting in partnership with the merchants that they are promoting. I do not believe this should have any negative effect on affiliates that are really adding value for the end user. To provide a simple example, if a blog with a built-in shopping comparison engine (run by an affiliate) that receives commission of every sale they refer to merchants offers a helpful tool for shoppers to compare products across several different merchants, and blogs about them and their products daily, discloses its relationship with these merchants, it will only spell out their honesty and add more credibility to the affiliate’s website.

The new FTC’s rules do raise many questions (e.g.: how do you disclose when you only have 140 characters?, how exactly do you word the disclosure policy? etc), leaving plenty of food for thought. While there are still many things to clarify, overall, I believe this to be a positive development. It helps us all move on to a more transparent online environment, and that is good. I am sure much more will be written on the subject in the coming days and months, but for the time being everyone who is involved in affiliate marketing (on both the affiliate and the merchant sides) must make the necessary adjustments to their strategies. After all, $11,000 is indeed “a steep price to pay” for violations of the new rules and guides.

More to read on the subject:

19 thoughts on “FTC Disclosure Rules & Affiliate Marketing Implications”

  1. Is this something that will affect those outside the US? I mean, if both blogger/affiliate marketer and advertiser are from outside US, do we care about this?

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  3. I will be interested to see how it does affect those outside the US though as surely there are potential implications for Affiliate Network agreements as they might impose blanket rules across all affiliates – not just US ones.

  4. Definitely. But again, whatever rules US affiliate networks impose on content affiliates, neither US-based, nor internationally-based affiliates have much to fear. If you’re a decent affiliate (not dependent on fake reviews or made-up content), this shouldn’t have any negative effect on you.

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  6. I am a blogger outside of the US but I have a pretty good understanding of legal compliance due to my background. If any case law develops as a result of this then you can pretty much guarantee that benchmarks will be set. But, as Geno says, if you are honest in your testimonials what have you got to fear?

    It’s a good thing really because it may weed out some shysters.

  7. Would someone be kind enough to summarize the requirements/implications of these new FTC regulations. I am sure the majority of us will not be able to make head or tail of excatly what is required as per these new rules.

    Does it only affect product or service endorsements or even all affiliate links, banners, etc that a website may publish ?

  8. Guys.. There is nothing to fear. There is absolutely no way that the FTC or any governing body, for that matter, can regulate the affiliate marketing industry. It’s like trying to regulate the internet..

    Do you really think the United States government is going to pay people to sit around all day and worry about the millions of d-list bloggers across the globe?

    The only people that really need to be concerned with this crap are those who are making “noise” online… Shoemoney, Copyblogger, John Chow etc…

    If you make $2000 per month off blogging/aff marketing and have an email list of 1000 people… stop stressing. Nobody is going to be coming after you – it’s not worth their time.

  9. I actually believe otherwise. It is clear that the burden of policing is expected to be on the advertiser’s shoulders. Additionally, I do not believe that the FTC’s new rules (which kick into power just a week from now) are going to hurt one decent affiliate (that has nothing to hide, and really does add value). I therefore recommend that (a) merchants enter the proper wording into their affiliate programs’ TOS, and work out a monitoring system, while (b) affiliates add disclaimers to their blogs/sites.

  10. Such an interesting discussion! Elijah does have a bit of a point. Having the resources to monitor such a huge industry will be tough logistically (kind of like policing smoking in public places or littering)but the FTC are now responsible for policing the new rules. More than likely it will be a complaints based system where the FTC will have to investigate on a case by case basis and they will have software programs in place of some sort that will also ‘surf’ for offenders. Simply comply and no problem.

  11. I think the disclosure is easy to take care of. It’s the sections of the FTC clauses that deal with posting atypical testimonials/product endorsements that will be difficult to get around for most Internet marketers.

    Since the FTC hasn’t spelled out exactly how this is to be worded (the affiliate disclosures) I believe we can get by with something that is a good faith effort. (Courts often discuss the concept of “intent”.) This is what I’m going to put on all my pages near the affiliate link banners:

    “Make a purchase at one of the affiliates displayed on these pages, and I get a small percentage to keep this site going. Thanks!”

    I believe it will suffice for now, and think the transparency will actually assist in building trust/credibility with readers.


  12. @ Tania: Beautiful Russian name (one of the names we were thinking of calling my daughter who’s turning 6 tomorrow). 🙂 Yes, I do agree with Elijah that it will be impossible for the FTC to police compliance worldwide, but they made it clear that it is actually expected of the advertisers to educate and monitor their “endorsers”… So, I’m sure we’re going to read/witness much more on the subject once the rules actually kick into power on December 1. …and I do like your “simply comply and no problem” advice. Exactly my point too!

    @ Steve: Good idea on including a short message on all pages in addition to the overall disclosure. Just one minor mistake in the wording. They are not “affiliates”, but “advertisers” or “merchants” you affiliate with (you are their “affiliate”).

  13. Thanks Geno! I quite like the name myself. It’s from Midsummers nights dream by Shakespeare – means fairy princess. Not sure it really fits me but you get that.

    I’ll be watching the post comments closely to see how the FTC fares with enforcement.

    I’ve experienced similar issues in the past. Legislation is great but it’s often not that easy for any body to enforce. I am sure the FTC will have their policies and procedures in place to do it though.

  14. Tania or Tanya is actually a short for a Russian name Tatyana (my mother-in-law’s name). Some would say that it means a Fairy Queen or Fairy Princess, others – that it is somehow tied to Tatius (a Sabine king), yet others – that it comes from some Greek word. Russians do not imply any meaning when they call their children Tatyana (or Tanya/Tania). I think it just sounds beautiful, and it seems that many Russian authors and poets (including Pushkin) thought so too.

    Yes, enforcing the rules will be tough. But if merchants/advertisers are expected to be the ones to do it, they better be ready (and have their bases covered)

  15. I have a specific example I’m wondering about:

    I wrote a post about an online clothing retailer – and posted a link (through Commission Junction) with a code (15% off) that CJ got the online retailer to create for my blog readers specifically.

    I did not receive any money, product or bonus for posting it.. all I got was a code to give my readers. So would I need to disclose something like this?

    Or is it just when you receive money or free products?

    1. Megan, if you’re getting affiliate commission when the end user makes the purchase from the clothing retailer after clicking on your link you must disclose the “sponsor-endorser” relationships. So, basically, every affiliate must have a disclosure on their website.

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