FTC: Blogger Freebies May Be Ad Fraud

If you receive a free copy of the latest video game and post a positive review of that game on your personal blog without revealing that you got the game free of charge, you could be guilty of ad fraud, according to new guidelines from the Federal Trade Commission.

In June, the FTC confirmed that would review its advertising guidelines to determine whether blog posts should also be subject to its watchful eye. The news prompted concern that rules would lead to investigations against bloggers, and possibly stifle innovation in social media.

It was unclear in June whether the advertiser or bloggers would be held liable for violations. But Monday's new rules suggest that, in some cases, a blogger could be liable.

The voluntary guidelines offer broad suggestions for how advertisers can avoid deceptive marketing strategies. These guidelines, however, were last updated in 1980, so the agency wanted to consider new marketing techniques, like blogs.

Specifically, the new rules would require bloggers to clearly disclose what type of results they should expect to receive from a product. Currently, advertisers only have to display a small "results not typical" tagline if they feature an endorser who had an unusual level of success with their product. Now, they have to disclose what the average consumer should expect.

Meanwhile, bloggers must disclose material connections with advertisers: were they hired by the company's ad agency? Are they receiving payment or free products? Do they have a relationship with the company? Decisions about violations will be made on a case-by-case basis, but if someone receives cash or an in-kind payment to review a product, it's considered an endorsement.

The FTC provided the example of a college student with a well-known gaming blog who receives a free copy of the latest game for review, and posts a positive review. The student would have to tell readers that he received a free copy of the game, and the manufacturer should tell him that he has to disclose their relationship.

The commission also pointed to a message board that discusses new music download technology. If an employee of a leading playback company frequents the board and posts positive reviews, that employee needs to disclose their relationship with the company, the FTC said.

The guidelines also address celebrity endorsements for the first time, and explain that these types of endorsements are also liable.

News of the rules prompted concern among blogs that they might be investigated for any type of positive review. The new rules, however, say that the FTC wants consumers to be aware when a reviewer has received money or free products in exchange for publicity.

The issue highlights the difficulty in distinguishing between legitimate news sites and paid content in an age when anyone with an Internet connection can set up a blog.

The examples provided by the commission focus on a wide variety of products – from weight loss supplements and food products to chiropractic services and home cleaning services.

The FTC seems to be most concerned with endorsements that are disseminating false or misleading information – a blogger who claims that a certain product cures eczema without ever testing the product herself, for example. It's unlikely, therefore, that a positive review for the latest iPhone on a popular gadget blog would result in an FTC investigation, provided that the blog reveals that Apple provided them with a free iPhone for testing purposes.

The guidelines "should not be read to suggest that an advertiser is liable for any statement about its product made by any blogger, regardless of whether there is any relationship between the two," the FTC said. "However, when an advertiser hires a blog advertising agency for the purpose of promoting its products … the commission believes it is reasonable to hold the advertiser responsible for communicating approved claims to the service."

The guidelines, meanwhile, will "clarify that both the advertiser and the blogger are subject to liability for misleading or unsubstantiated representations made in the course of the blogger's endorsement," the commission said.

The FTC shot down suggestions that these guidelines would stifle innovation on the Web.

"The commission disagrees with those who suggest that including in the guides examples based on these new media would interfere with the vibrancy of these new forms of communication, or that the commission should, instead, defer to industry self-regulation," the commission wrote. "The guides merely elucidate the commission's interpretation of [the FTC Act] but do not expand (or limit) its application to various forms of marketing."

"Self-regulation works best when backed up by a strong law enforcement presence," the FTC concluded.