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How to design an FTC compliance program for social media marketing

The first part of this tip explained new FCC rules for social media marketing, including when a favorable post is an endorsement and three different scenarios for interpretation.

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The second half addresses how to design an effective program for compliance with the new rules, including a social media marketing policy.

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On Oct. 5, the Federal Trade Commission (FTC) issued new versions of its Guides Concerning the Use of Endorsements and Testimonials in Advertising, the first rewrite of the Guides since 1980. Under the revised rules, which will go into effect Dec. 1, if a company or its advertising agency provides a blogger or other online commenter with valuable incentives (such as free products) in the hopes of getting a favorable review or positive buzz for its products, the online comments will be treated legally as endorsements. In this case, both the blogger and the company will be held responsible for ensuring that the incentives are clearly and conspicuously disclosed, and that the blogger's posts contain no misleading or unsubstantiated statements and otherwise complies with the FTC's rules concerning unfair or deceptive advertising.

Unfortunately, this means corporate legal departments will now have to extend the long arm of compliance over a whole host of Web 2.0 marketing activities that until now may have been loosely policed, if at all. "In employing this means of marketing," the FTC dryly observes, "the advertiser has assumed the risk that an endorser may fail to disclose a material connection or misrepresent a product, and the potential liability that accompanies that risk." The FTC also states, however, that in the exercise of prosecutorial discretion it will consider "the advertiser's efforts to advise these endorsers of their responsibilities and to monitor their online behavior …."

Designing a compliance program

The first step for companies, then, is to get a handle on what their online marketing departments are doing to curry favor with bloggers and create buzz through social media marketing. It is especially important to get a firm handle on the activities of advertising and public relations agencies, since the FTC will hold companies responsible for the actions of these third-party agents.

If compensation, free products or other valuable incentives (such as sponsorships) are offered in the hope of stimulating positive reviews, then the company should institute and document processes for advising bloggers and other new media commentators about their duty to disclose material connections, along with the limits on the factual claims they can make about a products and its beneficial effects. There should also be periodic monitoring of the resulting posts, with documented follow-up action if necessary, to make sure they comply with the FTC's endorsement guidelines.

If relationships with bloggers are managed through an advertising agency or other third party, the written contract with that third party should specifically address each party's rights and obligations with respect to monitoring and compliance. At the very least, a company should reserve the right to audit and preapprove an advertising agency's solicitation of bloggers. By doing so, the company knows which bloggers the agency is dealing with and whether the relationships are of a type that could lead to advertiser-endorser liability and can monitor the bloggers' posts about the company's products.

If all this sounds like overkill (and no doubt it will be met with fierce resistance from some online marketing departments), it is critical to remember that incentivized blogger buzz will now be treated the same as any paid endorsements. According to the FTC, both are advertising subject to disclosure requirements and prohibitions on misleading or unsubstantiated claims. The FTC compliance burden may, in fact, prove too onerous for some companies. In this case, their best bet is to implement policies that prohibit paying others or giving away valuable products in the hope of generating positive online buzz. Favorable reviews are not "endorsements" within the meaning of the Guides unless they have been incentivized in some way.

Implement a social media marketing policy

Promoting FTC compliance within organizations also it makes it essential, now more than ever, to have a social media and blogging policy. Such a policy should cover both references to the company and its products in employees' personal posts, as well as the use of social media and blogs for online marketing and other business purposes.

Promoting FTC compliance within organizations also it makes it essential, now more than ever, to have a social media and blogging policy.
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It's now a best practice to treat company-initiated social media and blog posts as official corporate communications that require consideration of regulatory, securities, litigation and reputational risk issues, and possibly prior legal or regulatory review. The possibility that third-party posts may now be deemed company-initiated endorsements makes it vital to bring all social media marketing activities under one comprehensive policy.

Furthermore, according to the Guides, a company employee who posts messages online promoting the company's product (a common practice) must clearly and conspicuously disclose his relationship to the company. This requirement should be specifically spelled out in the company's social media usage and blogging policy.

The FTC's new rules impose strict compliance obligations in what was previously thought to be an unregulated or loosely regulated space. With the FTC indicating that its primary enforcement focus will be on advertisers rather than bloggers, companies must determine whether the benefits of using bloggers and other social media personalities to reach consumers online outweigh the liability risk and regulatory burden.

Andrew M. Baer is an attorney and founder of Baer Business Law LLC, a Philadelphia firm focused on providing clients with cost-efficient business counseling and transactional assistance, particularly in the areas of technology and intellectual property law. Baer can be contacted at andrew@baerbizlaw.com or @BaerBizLaw on Twitter.


 

This was first published in October 2009

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