WOMMA and the Better Business Bureau Webinar Series Session 1: Overview of Legal and Ethical Compliance

WOMMA and the Better Business Bureau are proud to present a three part webinar series: Compliant & Successful: Aligning Marketing & Legal Around Word of Mouth & Social Media Marketing

Featuring Today’s Topic: Overview of Legal and Ethical Compliance: Understanding and Capitalizing on the Changing Marketing and Trust Landscape Tony DiResta Peter Marinello Partner in Advertising Vice President, CBBB Director Marketing & Media, Electronic Retailing Self-Regulation Program Manatt, Phelps & Phillips, LLP WOMMA General Counsel

Regulatory Considerations From a 30,000 Ft. Perspective • Regulatory issues concerning “word of mouth” marketing (or marketing practices utilizing social media platforms) revolves around four fundamental values that cut across all industry sectors and substantive disciplines: 1. Transparency (disclosing “material connections”); 2. Accuracy (communicating truthful information); 3. Honesty (avoiding misleading or deceptive communication); and 4. Respect (recognizing personal or property rights of others).

Regulatory Considerations From a 30,000 Ft. Perspective • These four values are at the core of the substantive legal issues presented by: – Advertising and Marketing, – Intellectual Property, – Defamation, and – Privacy/Publicity. • Litigation and negative PR from social media campaigns - - or employee uses of social media - - result from a failure to recognize one or more of these values.

The Regulatory Climate The FTC recognizes a new paradigm in the way consumers communicate and the way companies advertise; and has adopted a pro-consumer philosophical shift.

Values of Transparency, Accuracy, and Honesty: Advertising and Marketing Through Social Media FTC Guides Governing Use of Testimonials and Endorsements The Guides impact what your employees or representatives may say about your products/services.

Background to the Guides – The current Guides have not been revised since 1980, when they were issued. – In 2007, Commission initiated review of the Guides. – In November 2008, proposed revisions to the Guides were published for comment. – Comment period ended in March 2009. – Final Guides were issued on October 5, 2009. – Effective Date: December 1, 2009.

Nature of FTC Guides – “Guides” (as opposed to “regulations”) constitute administrative interpretations that are intended to provide the basis for voluntary compliance with the law by advertisers and endorsers. – However, practices inconsistent with guides may result in formal investigations and corrective action under the FTC Act by the Commission. – Moreover, guides can provide a substantive basis for state, as well as federal, investigations, consumer class action litigation, and advertising challenges in federal court (Lanham Act) or through the National Advertising Division of the Better Business Bureau (the “NAD, ” a self-regulatory dispute body).

Definition of an Endorsement – An endorsement is any advertising message that consumers are likely to believe that reflects the personal opinions, beliefs, findings, or experiences of a person or organization other than the sponsoring advertiser. – Endorsements include: • verbal statements, • demonstrations, • depictions of the name, signature, likeness or other identifying personal characteristics of an individual, or • the name or seal of an organization. – Endorsements do not include: • Fictional dramatization of a real life situation, or • Statements by an identified company spokesperson.

Essential Elements to Determine Whether a Statement is an Endorsement 1. Whether the statement or communication is “sponsored” • Factors to determine “sponsorship” • Key consideration: whether speaker is acting independently or on behalf of an advertiser or its agent 2. Whether the statement or communication constitutes a “advertising message” • Compare: product placement

Types of Endorsements and Testimonials – Consumers – Experts – Celebrities – Associations or Organizations

General Rules for Endorsements – An endorsement must reflect the honest opinions, findings, beliefs, or experience of the endorser. – An endorsement may not convey any express or implied representation that would be deceptive if made directly by the advertiser. – Advertisers are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between themselves and their endorsers. – Endorsers also may be liable for false or misleading statements made in the course of their endorsements.

General Rules for Endorsements – An endorsement may not be presented out of context or reworded so as to distort in any way the endorser’s opinion or experience with the product. – An advertiser may use an endorsement only so long as it has good reason to believe that the endorser continues to subscribe to the views presented. – When the advertisement represents that the endorser uses the endorsed product, the endorser must have been a bona fide user of it at the time the endorsement was given, and the advertiser may continue to run the advertisement only so long as it has good reason to believe that the endorser remains a bona fide user of the product.

Disclosure of Material Connections – The Guides require the disclosure of any “material connection” between the advertiser/seller and its endorser. • A “material connection” is information that could impact the weight or credibility a consumer gives to the endorsement. – Types of “material connections” • Consideration given to speaker (e.g., cash; free products; prizes) • Relationship between the advertiser and speaker (e.g., speaker is employed by advertiser)

Consumer Endorsements • Typicality Requirement – An advertisement employing an endorsement reflecting the experience of an individual or a group of consumers on a central or key attribute of the product or service will be interpreted as representing that the endorser’s experience is representative of what consumers will generally achieve with the advertised product in actual, albeit variable, conditions of use. • When Consumer’s Experience is Not Typical: Disclosure Needed to Prevent Ad from Being Deceptive – “Results may vary” is history. • Change based on use of FTC studies – Guides now require advertisers to clearly and conspicuously disclose what the generally expected performance would be in the depicted circumstances. – Net impression controls.

Celebrity Endorsers – Both the advertiser/brand and the celebrity endorser are liable for any deceptive or unsubstantiated communications made by the celebrity. – Celebrity has a duty to disclose her or his relationship as a sponsor when the celebrity appears in media that would not be expected by the consumer to contain promotional messages.

Liability Issues Raised by FTC Guides – Now, all stakeholders – whether advertisers, brands/companies, ad agencies, and bloggers or other agents – are liable for (i) their failure to disclose “material connections” and (ii) the speaker’s making unsubstantiated claims about the products/services of the advertiser or brand. – Rationale: Advertisers and brands assume the risk by employing social media in the marketing practices. – FTC now mandates: Advertisers and brands to develop policies that 1. educate their agents/endorsers about their responsibilities; and 2. monitor the communications/statements/claims by their agents/ endorsers.

FTC Guides: Practical Implications • Develop a Social Media Policy – Standards of Conduct for your sponsored speakers • For employees: – Example 8 in 16 C.F.R. Part 255.5 illustrates that both the employee and employer are potentially liable for employee’s failure to disclose her material connection with the employer. • For third parties and agencies: – Training for your speakers/bloggers – Monitoring of their communications

FTC Guides and Social Media: Practical Implications • Develop a clear understanding between the brand/advertiser, agency, and blogger/ speaker – Who is responsible for what • Who trains • Who monitors the speaker • Who obtains confirmation by speaker that he/she understands – What is appropriate conduct • What are the disclosures • How they are to be portrayed clearly and conspicuously – Consequences for violations of the policy

FTC Investigation: Ann Taylor • April 20, 2010: FTC closes investigation involving Ann Taylor promotion • Issue: whether Ann Taylor violated FTC Act where company provided gifts to bloggers who company expected would blog about company’s LOFT division. • Some bloggers failed to disclose they had received free gifts from LOFT. • FTC determined not to recommend enforcement action, because, in part, “LOFT adopted a written policy . . . stating that LOFT will not issue any gift to any blogger without first telling the blogger that the blogger must disclose the gift in his or her blog.”

FTC Investigation: Ann Taylor • FTC also expects company to monitor bloggers’ compliance with obligation to disclose gifts they receive from LOFT. • http://www.ftc.gov/os/closings/100420anntaylorclosingletter.pdf

Social Media Policy Core Ingredients • Standards of Conduct – Communications by sponsored speakers must: • Reflect honest beliefs, opinions, or experiences; • Not make objective claims about products/services without authorization; • Not constitute defamatory statements; • Not violate privacy of others; • Not be offensive, profane, harassing, derogatory, or discriminatory; • Not infringe upon intellectual property rights of others; and • Not constitute deceptive or misleading statements about products/services.

Social Media Policy Core Ingredients • Disclosures – Communications by endorsers must disclose: • All connections that can influence the weight a consumer or customer would give to the communication; and • Do so clearly and conspicuously, in light of the platform environment.

WOMMA Releases Social Media Policy Template Essential Elements: – Purpose/Scope – Standards of Conduct To reflect: IP; Litigation; FTC/regulatory; and Co. guidelines/cultural considerations – Disclosure of “material connections” – Confidentiality – Press inquiries

Values of Transparency, Accuracy, and Honesty: Advertising and Marketing Through Social Media • Resources: – Word of Mouth Marketing Association – www.womma.org • WOMMA: Standards of Conduct and Code of Ethics • WOMMA: Disclosure Guidelines

The Electronic Retailing Self-Regulation Program (“ERSP”) Peter Marinello ERSP Director, VP CBBB

Self-Regulatory Goals 1. Restore consumer confidence in electronic retailing. 2. Provide an efficient mechanism for reviewing “high profile” advertising campaigns. 3. Effectuate the discontinuance of direct response advertising that contains egregious, unsupported efficacy and/or performance claims. 4. Demonstrate to the regulatory agencies the direct response industry’s commitment to meaningful self-regulation and compliance with legal requirements.

ERSP Policy and Procedures • Direct Response Advertising • 60 Calendar Days • Primary and Core Claims • Determination as to whether substantiation appears reasonable on its face

3 Main Changes in Revised FTC Guides 1. “Endorser Typicality” – Communication that a consumer experience is typical when that is not the case must include a disclosure indicating the results that consumers can generally expect. 2. Disclosure of “Material Connections” in new media forums that affect the weight/credibility of the endorsement. 3. Celebrity endorsers liable for false and unsupported claims.

Welcome to WeKnowDiets.com. We have compiled the most comprehensive database of information for people who are looking for a trimmer body and healthier lifestyle.

Welcome to Googlediets.com. We have compiled the most comprehensive database of information for people who are looking for a trimmer body and healthier lifestyle.

Welcome to Wikidietinfo.com. We have compiled the most comprehensive database of information for people who are looking for a trimmer body and healthier lifestyle.

URBAN NUTRITION, LLC WeKnowDiets.com (and affiliated websites) • Urban Nutrition owned not only the websites at issue, but several products being reviewed on the websites. • This relationship constituted a “material connection” that would not be reasonably expected by the audience and was one that would have a effect on the credibility given to the endorsement. • Disclosure of “material” relationship that may exist between the “communicator” of the message and the controller of the content.

• # 1 Vibrant White - “The obvious # 1 choice” • 2 In Office # - “Professional Teeth Whitening has been on the market for several years now and is available at most dental offices”

• America’s Most Trusted Teeth Whitening Product • rofessional Strength Whitening Ingredients P • Developed and Manufactured by dental professionals • Guaranteed easiest application in teeth whitening • ated #1 new discovery in teeth whitening R

ECOMMERCE SOLUTIONS, INC. Vibrant White Tooth Whitener • Presented itself as unbiased product review site. • Disclosure of a “material” relationship that may exist between the “communicator” of the message and the controller of the content. • “I started this site to once and for all establish which teeth whitening products truly work and which ones don’t” • Advertiser also failed to support basic superiority and performance claims being communicated.

Ann Taylor Loft Come take a sneak peak at Loft’s summer 2010 collection before anyone else! Bloggers who attend will receive a special gift and those who post coverage from the event will be entered in a mystery gift card drawing where you can win up to $500 at Loft!!!

Ann Taylor Loft • Retailer invited bloggers to preview new products, offered special gift for attendance, and promised that coverage of event would enter blogger into a “mystery gift-card drawing” for chance to win $50-$500. • “We were concerned that bloggers who attended a preview on January 26, 2010 failed to disclose that they received gifts for posting blog content about the event” - Mary Engle, FTC Associate Director Advertising Practices • Considerations as to why FTC took no action after investigation: a) preview was first and only event of its type b) only a small number of bloggers posted content about the event, and several disclosed that gifts were received c) LOFT adopted a written policy in February 2010 concerning gifts and bloggers.

The following are the only companies officially endorsed by MovingScam.com at this time. Our endorsement is based on the positive experiences of many consumers who have used them.

MovingScam.com Budget Van Lines • The moving company broker Budget Van Lines has sued MovingScam.com and a related company for allegedly endorsing affiliates while disparaging Budget on the site's message boards. • The MovingScam.com site expressly endorses several companies, but says that it does so "based on the positive experiences of many consumers who have used them." • Budget, however, asserts that the site actually earns a portion of sales revenue when users click through to endorsed companies.

Tony DiResta Peter Marinello Partner in Advertising Vice President, CBBB Director Marketing & Media, Electronic Retailing Self-Regulation Program Manatt, Phelps & Phillips, LLP WOMMA General Counsel ADiResta@manatt.com PMarinello@narc.bbb.org Visit WOMMA online at www.WOMMA.org Visit the BBB online at www.BBB.org

WOMMA Brands Council " Community: For Brands, By Brands.  The WOMMA Brands Council is a learning community where marketers from Brands and Non-Proﬁts share best practice advice on how to use Word of Mouth and Social Media marketing more effectively.   Through exclusive webinars and conference calls, the WOMMA Brands Council helps marketers learn whatʼs working today. Participants discuss and become smarter about core issues facing brand marketers, including: marketing mix integration, measurement, ROI, ethics, and selling programs inside the company.   For membership inquiries or to participate on the Brands Council:" Gary Spangler, Brands Council Leader/WOMMA Board of Directors$ eMarketing Manager, DuPont, Gary.spangler@usa.dupont.com$ Tarah Remington Brown, Membership Director$ Tarah@WOMMA.org$ $ $ $ " 312-853-4400 x. 205$   http://WOMMA.org/BrandsCouncil

WOMMA Brands Council " http://WOMMA.org/BrandsCouncil

CBBB Corporate Partnership" Support Self-Regulation by Becoming a Corporate Partner  National Corporate Partners of the BBB have a core belief and value that trust in the marketplace is essential for the marketplace to ﬂourish. Becoming a Corporate BBB Partner is a tangible demonstration of corporate responsibility to advance trust in the marketplace. Your partnership and ﬁnancial support provides the necessary foundation for BBB to develop, deliver and administer innovative self-regulation and marketplace education programs that meet the needs of both industry and consumers. consumers. $ For membership inquiries:" Kate McGoldrick, Managing Director$ Kmcgoldrick@council.bbb.org$ $ $ $ $   http://www.bbb.org/us/partnerships/

WOMMA and the Better Business Bureau Webinar Series Session 1: Overview of Legal and Ethical Compliance

by Word of Mouth Marketing Association on Aug 09, 2010

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WOMMA and the Better Business Bureau Webinar Series Session 1: Overview of Legal and Ethical Compliance — Webinar Transcript