Product endorsements and testimonials are one of the most effective and powerful advertising techniques used by retailers.  As a result, the Federal Trade Commission (FTC) has for years regulated such advertising in traditional media—television, radio and print.  But with the explosion of Internet retailing and social media, retailers have increasingly used bloggers, twittering representatives and viral advertisement techniques to more effectively spread the word about products and services.  With a newly released set of key changes to its rules, the FTC has, for the first time, applied its existing rules to the electronic frontier in retailing.  The agency’s "Guides Concerning the Use of Endorsements and Testimonials in Advertising" now expressly apply to advertisers who use bloggers (both employee and non employee), members of social networks like Facebook, MySpace and LinkedIn, or Twitter messages to generate interest in a product.  Under the new Guides, the FTC will hold both the advertiser and the endorser liable for false statements in an endorsement.   Every Retailer should review the Guides and the sooner, the better.

The FTC's Guides

The Guides' core principles remain unchanged:

• Endorsements and testimonials must reflect the honest opinions, findings, beliefs or experience of the endorser.
• Endorsements and testimonials may not contain deceptive representations or unsubstantiated claims by the advertiser about the efficacy of the product.
• Advertisers must disclose connections—especially financial connections—between the advertiser and the endorsers that might materially affect the weight or credibility of the endorsement.

Disclosing Material Connections Between Endorser and Advertiser

The Guides apply explicitly to bloggers and other informal "word-of-mouth" endorsers.  The core question is whether there exists an economic relationship between the advertiser and the endorser that, if known to its readers, could affect the weight and credibility of the endorsement.  Because employees want to remain on good terms with their employers, an employee who through his or her personal blog or a social network reviews one of the employer's products must disclose the fact of employment. Disclosure is also required by a reviewer who receives payment from the advertiser.

More difficult questions arise from endorsements by nonemployee bloggers or social network members who receive free goods from the advertiser. A blogger who receives unsolicited free products in the mail does not have a relationship that needs to be disclosed.  But advertisers who initiate contact with bloggers or other social network "opinion leaders" and offer them expensive products to review, or a continuing supply of less expensive but still valuable products, may run afoul of the Guides unless the reviewer discloses the relationship with the advertiser.   The Guides are primarily aimed at advertisers of branded products. But they also apply to retailers who advertise such products.  So  a  store employee's blog entry about a product sold at his or her employer's store (like "check out AllShoes.com; they have a great selection of indestructible HiJump running shoes and the best customer service team on the web!") would also have to comply.

For details on liability issues and to see examples of how both the advertiser and endorser may be liable, see our update from October 7, 2009.