On Saturday my Google Alerts notified me of an article at lexology.com which talked about a merchant agreeing to settle with the Federal Trade Commission (FTC), having “signed a consent agreement and agreed to pay $250,000 for deceptively representing that endorsements … that were posted on blogs or other websites created by Legacy’s affiliates.”
Sad precedent which obviously required a bit of additional digging on my part. And the source wasn’t hard to find. FTC itself has all the details:
A company selling a popular series of guitar-lesson DVDs will pay $250,000 to settle Federal Trade Commission charges that it deceptively advertised its products through online affiliate marketers who falsely posed as ordinary consumers or independent reviewers.
…The Learn and Master Guitar program promoted by Legacy Learning and Smith is sold as a way to learn the guitar at home using DVDs and written materials. According to the FTC’s complaint, Legacy Learning advertised using an online affiliate program, through which it recruited “Review Ad” affiliates to promote its courses through endorsements in articles, blog posts, and other online editorial material, with the endorsements appearing close to hyperlinks to Legacy’s website. Affiliates received in exchange for substantial commissions on the sale of each product resulting from referrals. According to the FTC, such endorsements generated more than $5 million in sales of Legacy’s courses.
The FTC charged that Legacy Learning and Smith disseminated deceptive advertisements by representing that online endorsements written by affiliates reflected the views of ordinary consumers or “independent” reviewers, without clearly disclosing that the affiliates were paid for every sale they generated.
So we’re talking about the Federal Trade Commission’s endorsements/testimonials rules which came into force on December 1, 2009. In essence, these FTC’s rules say that when there is a sponsor-endorser relationship (merchant-affiliate relationships included) between an advertiser and a marketer who publishes a testimonial about the advertiser’s product/service, such a relationship must be clearly disclosed on the marketer’s website. Additionally, the advertiser is responsible for educating and equipping the marketer to comply with these rules, as well as for policing and enforcing such compliance.
The above isn’t the first instance of the FTC bringing action over “deceptive advertisements”. In September of 2010 I blogged about a settlement with Reverb Communications over a very similar issue, with the only difference that there we no affiliates involved (reviews and testimonials were posted by company’s employees instead).
Affiliates, merchants and affiliate program managers must understand that the FTC is very serious about those mandatory disclosures. If you aren’t yet compliant, you want to take care of this a.s.a.p.!
Here are some articles that you may find of help on this subject: