Bloggers and Advertisers Beware: FTC Rules on Sponsored Endorsements Create Major Risks for “Word of Mouth” Advertising

New FTC Rules on Bloggers: According to the Word of Mouth Marketing Association (WOMMA), word of mouth advertising is “the most honest form of marketing, building upon people’s natural desire to share their experiences with family, friends, and colleagues.” But here comes the rub. When marketers pay for “word of mouth” messages, haven’t the messages ceased to be the result of “people’s natural desire to share” — and instead become the result of people’s natural desire to make money?

This certainly is the view of the FTC, which on October 5, 2009 finalized a new revision of its rules governing the use of testimonials and endorsements in advertising (to be codified at 16 C.F.R. §255). These revisions make it clear that the FTC intends to extend the reach of its advertising regulation and enforcement to bloggers who make sponsored endorsements of products and services.

The rules affect both advertisers and bloggers who cooperate on sponsored endorsements. For example, the new rules state that the FTC intends to hold both advertisers and bloggers liable for false and misleading statements made by either party in the course of an endorsement. This means that an advertiser who provides free products to a blogger can be liable if the blogger makes false statements about the products in her blog. And the blogger can be liable if she repeats false statements from the advertiser. Both parties can also be liable if the blogger fails to disclose her connection with the advertiser.

Word of mouth advertising in the age of Web 2.0

Word of mouth advertising was once naively thought to refer to a spontaneous and uncompensated testimonial communicated from one consumer who was excited about a product he had just tried to another customer. Word of mouth marketing has long been thought to be more effective than print advertising because the message comes from a peer that the customer trusts. When a customer hears a peer rave about a product, she assumes that the endorser is speaking out of his genuine experience with the product.

Now that we have moved into the world of Web 2.0, which has put the megaphone of the Internet into the hands of consumers, word of mouth has morphed into planned, compensated advertising that is piped through consumers via social media, such as blogs. This once spontaneous activity now has its own trade association — WOMMA — which boasts over 400 marketers as members.

WOMMA’s website lists about a dozen different types of word of mouth marketing campaigns, by which an advertiser can “harness, amplify, and improve” on this “pre-existing phenomenon.” Some of these methods include old-fashioned P.R., such as using high-profile entertainment events or news to create “buzz.” Others include creating social networks or affinity groups of users that have a special interest in a product.

However, several categories involve providing products or compensation to “influential” consumers, who “volunteer” to tell others about the product. In “product seeding,” the marketer provides samples of product to “influential” individuals, such as bloggers or persons with large social networks, who then write posts about the product on their sites. In “evangelist” and “influencer” marketing, the marketing “cultivates evangelists, advocates, or volunteers who are encouraged to take a leadership role in actively spreading the word on [the marketer’s] behalf” — in other words, the marketer pays the blogger to write about the product.

Social media posts covered by the FTC rules

The new FTC rules don’t constitute a new extension of the FTC regulations on deceptive advertising to blogs. The prior FTC rules already arguably covered any form of media, including social media, such as blogs. Rather, the new rules and the FTC’s statements in its Notice of Adoption simply make it clear that the FTC intends enforce these rules on new media sites, including, specifically, blogs.