From Jeremy: I am excited to have William contributing to ShoeMoney.com. William Rothbard was an attorney with the Federal Trade Commission, holding positions as an advertising enforcement attorney, Deputy Assistant Director of the Bureau of Consumer Protection, and Attorney-Advisor to FTC Chairman Michael Pertschuk. Bill has practiced law continuously since 1984, except for a two-year appointment as Counsel to the United States Senate Judiciary Committee, Subcommittee on Antitrust, Monopolies and Business Rights, in 1987-88. Bill writes a excellent blog with the latest news here.
Pay Phony Product Reviewers First, Then Pay FTC Later
Advertisers now can know with confidence there is a costly toll to pay to the Federal Trade Commission (FTC) for using online product “reviews” by affiliates that pretend to be independent but aren’t. In a March 2011 settlement in In re Legacy Learning Systems Inc., the FTC – for the first time – imposed financial penalties on an alleged violator of provisions of its Revised Endorsement Guides that were added in 2009 to address testimonial practices in online marketing. It also ordered the institution of a tough affiliate monitoring and disciplinary program that’s a precedent for the type of compliance measures the FTC expects online marketers to take to ensure product reviews are for real and don’t mislead consumers.
Legacy Learning Systems sold a home guitar instruction program through “Review Ad” affiliates it recruited and paid to promote its courses through endorsements in articles, blog posts and other online editorial material. The FTC claimed the reviews violated the Endorsement Guides because they falsely posed as the opinions of ordinary consumers or “independent” reviewers and did not disclose at all, or clearly enough, that affiliates made money on sales.
As an example, one review said: “Read my Independent Review and Discover the Truth of Learn & Master Guitar Now.” Another said it was “The Independent Reviews Site…Learn and Master Guitar emerged from our test as the King of ‘learn guitar at home’ courses.” The FTC also alleged that Legacy Learning Systems failed to enforce affiliate contracts that required them to comply with FTC disclosure guidelines.
To settle, Legacy Learning Systems agreed to pay $250,000 and implement a rigorous affiliate compliance monitoring and zero-tolerance disciplinary system requiring it to:
- Monitor and submit monthly reports to the FTC about its top 50 money-making affiliates and ensure they are disclosing they’re paid for sales and are not misrepresenting themselves as independent users or ordinary consumers
- Monitor and submit monthly reports on a random sampling of another 50 affiliates to ensure they also disclose the financial connection and don’t misrepresent who they are
- Immediately terminate and stop payment to any non-complying affiliate
The mechanism of a regular FTC reporting requirement should be plenty of stick to make sure the company meets its settlement obligations to monitor affiliates and swiftly can those who don’t tow the line. If it doesn’t, it could find itself in contempt and facing even greater sanctions.
Other online sellers who sponsor product reviews won’t be under such a microscope, but should still heed Legacy Learning Systems as a signal the FTC is conducting its own “affiliate monitoring” program to enforce the Endorsement Guides against phony reviews – and will make marketers who pay for them without consumers’ knowledge pay the FTC as well.
About the author...
WilliamRothbard – who has written 9 posts on ShoeMoney.com.
William Rothbard was an attorney with the Federal Trade Commission, holding positions as an advertising enforcement attorney, Deputy Assistant Director of the Bureau of Consumer Protection, and Attorney-Advisor to FTC Chairman Michael Pertschuk. Bill has practiced law continuously since 1984, except for a two-year appointment as Counsel to the United States Senate Judiciary Committee, Subcommittee on Antitrust, Monopolies and Business Rights, in 1987-88. Bill writes a excellent blog with the latest news here.
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{ 13 comments… read them below or add one }
Thanks for the great post, William.
I’ve seen a lot of blogs that have a “disclosure policy” page which just issues a blanket statement that the blogger does make money from affiliate links and/or sponsored reviews. Is having a link to a disclosure policy page enough to keep the FTC happy or is it necessary to do a full “I am an affiliate of Brand X and I earn a small fee if you click this link” type statement?
How is it different for say, a celebrity, to wear sponsored logos and appear in commercials without specifically disclosing details of their arrangement? It’s assumed that celebrity endorsements in other media follow FTC rules without coming out and stating their relationship – why is it different for blogs and/or niche sites?
Nice comment. Love the bit about celebrity endorsements.
@Merlene – I TOTALLY agree with the celebrity endorsement point… Just because Kim Kardashian jiggles about in Skechers for TV ads or makes sure she gets photographed wearing them when she hits the gym doesn’t mean she would be wearing them at all, if she wasn’t getting PAID (handsomely) to do so.
Although most people are fully aware that celebs get paid to endorse shizz (and I’m sure there will be a shocking number of people who actually don’t), the fact of the matter is, big brands know the psychological pulling power that aligning their brand or product with a celebrity has on the consumer (hence people like Kim Kardashian and Paris Hilton who have no discernible skills or talents being able to pull in TENS of millions per year in endorsement deals for, in essence, being professional celebrities).
They know that when people see Kim Kardashian looking hot and in good physical shape they will think “Kim wears Skechers and she looks amazing so maybe if I buy them I will too” (although the fact is she has a team of people making her look how she does: a highly paid personal trainer, nutritionist, make up artist(s), stylist(s), PR manager(s), hairdresser(s) and of course a highly skilled Photoshop photograph manipulator(S)…)
While there are indeed some unscrupulous practices online – which I also believe should go, of course, I think that the FTC need to have a look around them and see that what we (affiliates do) to a large extent is small-fry to what big brands get away with on a daily basis with hidden surcharges, dodgy customer service, immoral production systems, indecipherable T&Cs etc.
For the most part, all affiliates do is put themselves in front of someone who is ALREADY looking for/interested in something and say “Hey have a look at this” – that’s where the easiest money is for an affiliate as it’s more or less zero-friction. At the end of the day, if the product being promoted is worth it’s salt, the product they produce should please the majority of the users and they should have a reliable refund system so the consumer should be protected if they don’t like it.
I feel the advertisers (if there has to be someone) should be baring the brunt of this FTC shitstorm, not affiliates.
I think the days of the Interwebs is pretty much over. Either you have the FTC up your ass or you are constantly walking on Pagerank eggshells or sucking social media d***. I don’t know about anyone else but I think I’m about ready to open up a hot dog stand. LOL
Check out Verified Credible (verifiedcredible.com). Seems like a good concept for handling testimonials.
(I have no affiliation with this company)
The FTC is on a mission. One screw up and you won’t be able to sneeze without telling them first.
Best way to go is playing it smart. Make sure everything is to code before you just start pumping out false information.
This is a joke. What anyone writes on their blog should be their business. Fake review or not. The problem is where does this end? What are they going to tell website owners to do next?
If i want to promote a product on my blog, why should i disclose anything about it. No one has to visit the site. If they have a problem, go elsewhere.
Whatever happened to “let the buyer beware”.
What I do to make it safe for me is when I go ahead and tell people that I like something I let them know maybe I have a financial interest in saying it to them and then I’m OK even when I tell people during casual conversations or other events, too.
Just what we need, more federal regulation. Boo for the gov. growing out of control
They are getting real strict of everything. A cool thing for customers.
There is a definite problem here, but I am not sure the FTC is the proper way to handle this. I feel that we should have some type of rating system so that one can gauge the reliability of a given post. I have seen many blog postings with inaccurate information. Maybe they should be punished also
I know that “buyer be ware” is some peoples idea of marketing but it’s because there are to many dishonest people in marketing that this arises. I don’t want more regulation but I would like the fake reviews gone and have people able to trust affilite sites, Guess I’m going to be disappointed like the buyers of the goods.
Hi, I am really happy I’ve found this information. Nowadays bloggers publish just about gossip and internet stuff and this is actually irritating. A good site with exciting content, that’s what I need. Thanks for making this website, and I will be visiting again.