Using Testimonial Claims in Social Media Platforms

Introduction to Endorsements Jeffrey A. Greenbaum

Section 5 of the FTC Act prohibits “unfair or deceptive acts or practices”

The Guides Guides Concerning the use of Endorsements and Testimonials in Advertising Originally issued in 1975 Revisions announced in October 2009 Advisory only

“ Endorsement” “ Any advertising message . . . that consumers are likely to believe represents the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser . . .” What is an “advertising message”? When does it reflect someone else’s opinions?

Endorsement - Examples Obvious actors, not identified as real people, talking about laundry detergent Slice of life Not an endorsement Consider personal details and production values Unidentified voiceover talks about the effectiveness of a pain reliever Clearly speaking on behalf of the company Not an endorsement

Endorsement - Examples Infomercial for a home fitness system is hosted by a well-known entertainer, who says that it’s effective and easy to use Endorsement (even if scripted) Commercial for a retail store, where celebrities joke with each other about what equipment are going to buy for each other Not an endorsement

Endorsement - Examples Consumer writes about her regular dog food on her blog Not an endorsement Based on her purchases, the store sends her a coupon for a free bag of the more expensive version, which she blogs about Not an endorsement She joins a network marketing program, and receives the free bag of dog food, which she then blogs about Endorsement

Honest Endorsements should reflect the endorser’s honest opinions, findings, beliefs, or experiences If the advertising represents that the endorser uses the product, the endorser be a “bona fide user” of the product Obtain the endorsement properly Was the endorsement obtained in a manner designed to elicit honest opinions? Was the endorser offered anything in exchange for giving the views?

Substantiation Endorsements may not include representations that are deceptive or cannot be substantiated by the advertiser Substantiate the individual’s experience Substantiate the representation Advertisers cannot use endorsers to make claims that they could not make themselves

Consumers Consumer endorsements about the performance of a product Interpreted as “representing that the product or service is effective for the purpose depicted” Also “likely” to be interpreted as representative of “what consumers will generally achieve” Subjective statements of opinion are not likely to convey a typicality message

Consumers - Typicality If the endorser’s experience is not typical, the advertiser should clearly and conspicuously disclose “the generally expected performance” under the circumstances FTC has eliminated the safe harbor for “results not typical” Possibility that a “strong disclaimer of typicality could be effective”

Experts Endorsements must be supported by: Actual exercise of expertise in evaluating product features or characteristics; With respect to his or her expertise; and Which are relevant to an ordinary consumer Key questions: Did the expert evaluate the product? Is the expert really an expert in the field?

Organizations Organizational endorsements are understood to represent the judgment of the organization Must be reached by a process that ensures that the endorsement reflects the collective judgment

Connections Connections between the endorser and the advertiser, which might materially affect the weight or credibility of the endorsement, should be clearly and conspicuously disclosed Connections that are “not reasonably expected by the audience”

Connections - Payment Consumers Disclose payment, if offered to induce endorsement No disclosure required, if offered afterwards Celebrities Generally, no disclosure of payment is required Disclosure now required in non-traditional contexts, where claims are made Talk shows Celebrity blogs No disclosure just for product placement Wearing branded clothing Sponsored party Experts Disclosure of payment now required for funded research

Connections - Bloggers FTC example As it has previously done, a manufacturer sends an expensive video game system to a college student to write a review in his well-known gaming blog FTC says: Blogger should disclose he got it for free Manufacturer should require this and should have procedures to monitor for compliance

Connections - Bloggers Case-by-case analysis FTC has informally suggested some factors to consider Ultimately, is the review site “independent”? Explicit understanding Payment or perks Intentional promotion because of future expectation Value of free items Steady stream Links to advertiser Business relationship Network marketing program

FTC’s FAQs No disclosure of material connection is generally required in traditional media or on websites with similar content On Facebook, you should disclose the connection with each post Celebrities should still disclose the connection, even if they are a well-known spokesperson for the product A single disclosure on a home page that says that products may be provided for free, or a button that says “disclosure,” is generally not sufficient disclosure On Twitter, use disclosures such as “#paid ad,” “#paid,” and “#ad”

Liability Advertisers and endorsers may be liable for false or unsubstantiated endorsements Advertisers may be responsible for statements made in non-traditional media Endorsers have some obligation to ensure the truth of their claims Media outlets also may have liability

Jeffrey A. Greenbaum (212) 826-5525 [email_address]

Using Testimonial Claims in Social Media Platforms: FTC Enforcement Affiliate Summit East, New York, NY August 22, 2011 Thomas A. Cohn, Venable LLP PLI -- Hot Topics in Advertising Law New York, March 21, 2011 © 2010 Venable LLP

Bloggers [and other Affiliates] Beware: FTC Warns, Then Fires The FTC "closing letter" to AnnTaylor Stores was like Gunsmoke's Marshall Dillon shooting a warning at online marketers and bloggers: You'd better take revised Endorsement Guides very seriously. They require advertisers to disclose "material connections" with endorsers. The revised Guide's “new media” examples include a manufacturer who sends a new video game to a blogger, who reviews it favorably. The Guides say "the blogger should clearly and conspicuously disclose that he received the gaming system free of charge.“ FTC investigated AnnTaylor because it gave gifts to bloggers who attended the review of its summer 2010 collection, and some of them failed to disclose that when they blogged about it. FTC didn't investigate the individual bloggers, but examined whether AnnTaylor had taken sufficient steps to prevent or correct their failure to disclose this "material connection." Only 31 bloggers attended the preview, and each was promised a gift card worth up to $500 if they posted coverage of the event within 24 hours. © 2010 Venable LLP

Ann Taylor [cont’d] FTC closed investigation in April 2010 without making AnnTaylor sign consent agreement, because: preview was the only one AnnTaylor ever held; only a few bloggers were involved, and some of them did disclose they had been given gift cards; and AnnTaylor later adopted a written policy stating that it would never again give gifts to bloggers without first telling them they were expected to disclose this in their blog. In its closing letter, FTC said it expected that AnnTaylor "will both honor that written policy and take reasonable steps to monitor bloggers' compliance with the obligation to disclose gifts they receive." This issue arises often in affiliate marketing, where a company's affiliates endorse its products in their blogs [or reviews, articles, or other published content]. FTC's closing letter demonstrates that marketers should have a written policy governing disclosures by affiliates, and monitor those affiliates to determine whether the policy is observed or ignored. © 2010 Venable LLP

FTC v. Reverb settlement In August 2010, FTC moved from warning to enforcement. In a settlement with a PR agency that used its employees to blog positive "customer" reviews for the video games of the agency's client, FTC signaled that it will hold advertisers and their "hired guns" responsible for postings that do not disclose the blogger's connection with the company whose products are touted. The agency did not have to pay money, but it agreed to an administrative order against endorsements promoting advertisers without disclosing material connections between endorser and advertiser. For more on this first FTC enforcement action applying the revised Endorsement Guides, see the press release announcing the action, and the FTC's blog discussing the Guides: http://www.ftc.gov/opa/2010/08/reverb.shtm and http://business.ftc.gov/blog/2010/09/full-disclosure . © 2010 Venable LLP

Reverb [cont’d] Now that FTC has followed its warning with action, there will likely be further enforcement affecting bloggers and other affiliates. But FTC clearly is targeting advertisers and their agents, not individual bloggers, for failing to disclose compensation and other connections between endorser and advertiser. The FTC message was clear: “Companies, including public relations firms involved in online marketing, need to abide by long-held principles of truth in advertising,” said Mary Engle, Director of FTC’s Division of Advertising Practices. “ Advertisers should not pass themselves off as ordinary consumers touting a product, and endorsers should make it clear when they have financial connections to sellers.” © 2010 Venable LLP

FTC v. Legacy Learning Systems settlement [March 2011]: affiliate marketing and consumer testimonials Legacy, seller of instructional DVDs, including “how to play guitar” series, represented that product reviews were endorsements reflecting opinions of ordinary consumers or independent reviewers. Customers didn’t know that many favorable endorsements were posted by affiliate marketers who received commissions from Legacy for sales generated. Failure to disclose that material connection allegedly violated FTC Act. Terms of proposed consent order: $250,000 settlement, plus provisions about Legacy’s future business practices: Legacy agreed not to misrepresent status of any product user or endorser, such as that the person is an independent user or ordinary consumer of the product. Legacy can’t make any representation about a product user or endorser unless any material connection between that person and any other party involved in promoting the product is clearly and prominently disclosed. The proposed order defines “material connection” as a relationship that materially affects the weight or credibility of an endorsement and wouldn’t be reasonably expected by consumers. © 2010 Venable LLP

Legacy (cont’d) Legacy must take steps immediately with regard to its affiliate program: Company will set up and maintain system to monitor and review affiliates’ representations and disclosures to ensure compliance with order. Within 30 days - and semi-annually after that - company will determine its top 50 revenue-generating affiliates. At least once a month, Legacy will visit their sites to review their representations/disclosures, and must do this in a way designed not to disclose to the affiliates that they’re being monitored. For the other affiliates, Legacy will monitor random sample of 50 sites at least once a month. If affiliates misrepresent their status in any way — for example, by claiming they’re an independent reviewer or an ordinary person who’s used the product or by failing to disclose a material connection with Legacy — the order says that Legacy must immediately terminate them as an affiliate and stop paying them. © 2010 Venable LLP

For Release: 04/19/2011 FTC Seeks to Halt 10 Operators of Fake News Sites from Making Deceptive Claims Re: AcaiBerry Weight Loss Products Web Marketers Falsely Claim Endorsement by ABC, Fox News, CBS, CNN, USA Today, and Consumer Reports, FTC Alleges FTC is requesting federal courts to temporarily halt allegedly deceptive tactics of 10 operations using fake news websites to market acai berry weight-loss products. FTC seeks to permanently stop this misleading practice and has asked courts to freeze assets pending trial. According to FTC, defendants operate websites that are meant to appear as if they belong to legitimate news-gathering organizations, but in fact the sites are simply ads aimed at deceptively enticing consumers to buy the featured acai berry weight-loss products from merchants. FTC complaints allege that these fake news sites have titles like “News 6 News Alerts,” “Health News Health Alerts,” or “Health 5 Beat Health News.” Sites often include names and logos of major media outlets, such as ABC, Fox News, CBS, CNN, USA Today, and Consumer Reports, and falsely represent that the reports have been seen on these networks. © 2010 Venable LLP

For Release: 04/19/2011 FTC Seeks to Halt 10 Operators of Fake News Sites from Making Deceptive Claims Re: Acai Berry Weight Loss Products An investigative-sounding headline on one such site proclaims “ Acai Berry Diet Exposed: Miracle Diet or Scam?” The article that follows purports to document a reporter’s first-hand experience with acai berry supplements – typically claiming to have lost 25 pounds in four weeks. “ Almost everything about these sites is fake,” said David Vladeck, Director of the FTC’s Bureau of Consumer Protection. “The weight loss results, the so-called investigations, the reporters, the consumer testimonials, and the attempt to portray an objective, journalistic endeavor.” © 2010 Venable LLP

From FTC Revised Endorsement Guides FAQs, re: Affiliate Marketing: I’m an affiliate marketer with links to an online retailer on my website. When people click on those links and buy something from the retailer, I earn a commission. What do I have to disclose? Where should the disclosure be? Let’s assume that you’re endorsing a product or service on your site and you have links to a company that pays you commissions on sales. If you disclose the relationship clearly and conspicuously on your site, readers can decide how much weight to give your endorsement. In some instances, where the link is embedded in the product review, a single disclosure may be adequate. When the product review has a clear and conspicuous disclosure of your relationship – and the reader can see both the product review and the link at the same time – readers have the information they need. If the product review and the link are separated, the reader may lose the connection. As for where to place a disclosure, the guiding principle is that it has to be clear and conspicuous. Putting disclosures in obscure places – for example, buried on an ABOUT US or GENERAL INFO page, behind a poorly labeled hyperlink or in a terms of service agreement – isn’t good enough. The average person who visits your site must be able to notice your disclosure, read it and understand it. © 2010 Venable LLP

For Release: 05/31/2011 FTC Charges Promissory Note Pitchman With Deceiving Consumers Infomercial Falsely Claims It’s Easy to “Find ‘Em,” “List ‘Em,” and “Make Money;” Agency Also Settles Charges Against Consumer Who Gave Allegedly Misleading Testimonial © 2010 Venable LLP FTC charged Russell Dalbey and others with making phony claims that people could earn big bucks quickly by using his system of finding and brokering seller-financed promissory notes – privately held loans often backed by real estate. Dalbey's late night infomercial, "Winning in the Cash Flow Business," attracted thousands of people who paid from $40 to $160 each for the program. But FTC alleged that most of them didn't earn a dime. Dalbey and company also pushed enrollment in other services – like his Protégé Program – that cost consumers hundreds or thousands of dollars more. At the same time, the FTC and the Colorado Attorney General announced a settlement with Marsha Kellogg, a consumer who offered a glowing testimonial – but one the agencies said was deceptive – in one of Dalbey's infomercials. This is the FTC's first order against a consumer charged with making misrepresentations in a testimonial.

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

The Advertising Industry ’ s Self-Regulatory System 1971 - The Self-Regulatory System formed as a response to consumer activists pushing for increased government regulation of the advertising industry. Three major advertising trade associations along and the Council of Better Business Bureaus created the system.

TODAY … FTC points to ERSP as example of successful industry self-regulation in America. The Board has expanded to include:

Self-Regulation Components NARC Establishes policies for the self-regulatory structure NAD Resolves issues as to the truth and accuracy of national advertising claims CARU Analyzes and evaluates advertising directed to children under 12 ERSP Resolves issues as to the truth and accuracy of claims made in direct response NARB The appellate body of the self-regulatory forum

ERSP Goals and Procedures Restore consumer confidence in electronic retailing Discontinue egregious unsupported claims quickly Demonstrate the direct response industry’s commitment to legal compliance to the FTC Primary and core claims Does substantiation appear reasonable on its face

“ “ Lose 287% the weight compared to placebo” “ The World’s Fastest Weight-Loss Solution” “ Within 7 days my acne completely disappeared ” ‘ The Clinically Proven Weight Loss Supplement!” The #1 Doctor Recommended Joint Supplement” Over the past few years, ERSP has examined many types of claim substantiation: - Testimonials/Endorsements - Before and After Depictions - Weight Loss - Health and Safety - Establishment Claims - Disclosures - New Media - Puffery - Demonstrations

When there exists a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement ( i.e. , the connection is not reasonably expected by the audience), such connection must be fully disclosed Social media marketers should “clearly and conspicuously disclose” the material connection § 255.5 Disclosure of material connections

LIQUID HCG DIET LLC Liquid HCG Diet ERSP identified several instances where individual weight loss results announced on a Twitter page entitled “ JessicaStewart9” were hyperlinked back to the Liquid HCG Diet website ERSP concluded that weight loss results attested to on individual Twitter pages may be considered advertising messages for the purposes of communicating general expectations about the product ERSP also determined that simply because the marketer did not know about a consumer making a particular claim, it is not somehow absolved from responsibility about the accuracy of the claims.

NAD & Consumer Testimonials The advertiser’s Facebook and Twitter pages contained testimonials from satisfied parents, claiming that their babies or very young children learned to read using the YBCR program. These statements were not accompanied by a disclosure noting the results a typical parent can expect to achieve using the YBCR program . YourBabyCan, LLC (Your Baby Can Read! Early Language Development System), NAD Case #5313 ( 3/24/2011)

NAD recommended the advertiser clearly and conspicuously disclose, in immediate proximity to the triggering claim or depiction, the performance that consumers can typically expect. Such testimonials should also clearly disclose the timeframe consumers must use the product before they may achieve the expected results.

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 Wikidietinfo.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.

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 one that would have a effect on the credibility given to the endorsement. Disclosure of “material” information that may exist between the “communicator” of the message and the audience.

When a site which appears neutral is actually a form of advertising, this fact must be clearly and conspicuously disclosed…

Professional Strength Whitening Ingredients Developed and Manufactured by dental professionals Guaranteed easiest application in teeth whitening Guaranteed results or your money back Rated #1 new discovery in teeth whitening

# 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”

ECOMMERCE SOLUTIONS, INC. Vibrant White Tooth Whitener “ America’s Most Trusted Teeth Whitening Product” The studies produced as support by Ecommerce Solutions utilized tray applications and longer wear time Presented itself as an unbiased product review site Disclosure of a “material” relationship that may exist between the “communicator” of the message and the audience

THANK YOU Peter Marinello ERSP Director, VP CBBB The Electronic Retailing Self-Regulation Program (“ERSP”) www.narcpartners.org ersp.blogspot.com

Disclosing Affiliate Relationships in Social Media Affiliate Summit East 2011 Presented by: Tom Chernaik CEO

Regulatory Environment " As a practical matter, social media is now a regulated industry ; and all stakeholders are responsible for compliance with the FTC Guides. As a result, all marketers, agencies, and brands must develop a 'culture of compliance' where the vocabulary of risk management is a central aspect of an advertising strategy. ” – Tony DiResta, Partner at Winston & Strawn General Counsel of WOMMA " If law enforcement becomes necessary, our focus will be advertisers, not endorsers – just as it ’s always been.” – FTC Factsheet on Update to Endorsement Guides

FTC Requirements Disclose & Inform Disclosures must be clear & conspicuous Advertisers and agencies are liable Create a process that ensures a culture of compliance between advertisers, employees, agencies and influencers Document & Monitor Must know what your influencers are saying Process & procedures must be documented Follow Up & Takedown Expectation is not that you will catch everything but you must be responsive and proactive in addressing required compliance All material connections must be disclosed with documented process

Notable Regulatory Events State action (NY State) FTC action (endorsements) FTC action (astroturfing) TBD SEC/FTC UK OFT action (foreign jurisdictions) FTC action (affiliate marketing)

State Attorney General Actions State Actions for Deceptive Advertising & Lack of Disclosure Investigations & Fines Lifestyle Lift – July 2009 Cuomo's deal is first case in nation against growing practice of "astroturfing" on Internet Lifestyle Lift employees published positive reviews and comments about the company to trick consumers into believing that satisfied customers were posting their own stories Internal email directed a Lifestyle Lift employee to “Put your wig and skirt on and tell them about the great experience you had” These tactics constitute deceptive commercial practices, false advertising, and fraudulent and illegal conduct under New York and federal consumer protection law Company employees were directed to create accounts with various Internet message boards and pose as satisfied customers of Lifestyle Lift Employees also attacked legitimate message board posters who criticized Lifestyle Lift and tried to get those posts removed from message boards 'Lifestyle Lift ’ to Pay $300,000 in Penalties and Costs to New York State

OFT Actions in UK UK ’s Office of Fair Trading took action against Word of Mouth marketing agency Handpicked Media - December 2010 Sponsored Tweet programs lacked disclosure “ The integrity of information published online is crucial so that people can make informed decisions on how to spend their money. We expect online advertising and marketing campaigns to be transparent so consumers can clearly tell when blogs, posts and microblogs have been published in return for payment or payment in kind. We expect this to include promotions for products and services as well as editorial content.” - Heather Clayton (Senior Director of OFT Consumer Group) It is prohibited to use editorial content in the media to promote a product, where the trader has paid for the promotion, without making that clear in the content. It is also prohibited to mislead consumers by act or omission (for example in relation to any endorsement of the product), where this is likely to have an impact on the consumer's decision making about the product. These rules apply to any trader involved in the promotion, sale or supply of products to or from consumers.

Connections Must Be Disclosed Rapper 50 Cent Tweeted from CES, encouraging his followers to purchase the stock of a company that he owned a substantial stake He filed a 13D disclosure of ownership with the SEC He failed to disclose his connection in Tweets under FTC requirements

Risks of Non-Compliance Regulatory Action / Investigations Significant legal costs Penalties and settlement terms Potential for erosion of brand trust Legal Exposure / Liability 3 rd party lawsuits / consumer actions Responsible for affiliate representations Must monitor and document Court of Public Opinion Consumers, bloggers, Social media backlash Blacklisting PR Nightmares Scandals, reports & investigations Bad press & negative opinions

What Should We Consider? Platforms Programs Sampling / Reviews / Gifting / Fly Aways / Haul Video Paid Review / Endorsement / Mentions Contests / Promotions / Special Offers Blogs / Posts / Status / Videos Influencers Blogger / Influencer Outreach Employee influencers Agencies / Partners / Affiliates

Your Message Here Include: Your complete marketing message Link to content Call to action Contest & promotion rules Required disclosures

The Challenges of Compliance Short, Simple, Clear & Conspicuous Space limitations - 140 Characters or less Universal, standardized & recognizable Fine print, terms, rules, etc. Management Challenges Communicate policies and document participant acceptance Multiple programs, brands, agencies, stakeholders, platforms Maintain consistency & control across influencer channels Scale Challenges Ensure proper use of disclosures – enforce policies Monitor for omitted disclosures / compliance at influencer level Understand the context of specific messages/posts/tweets Document follow up actions Archive audit trail data of all program activities

How Are People Addressing This Best intentions vs. Best Practices Ignoring it Rely on agency to handle it Looking to the affiliate network Leaving it up to the affiliate Ad-hoc compliance solutions / Hashtags Background & Profile Disclosures Site-wide disclosures

Preparedness Checklist Ensure Disclosure in all SM Formats Document Compliance Monitor Influencers for Compliance Follow Up & Takedown ✔ Audit & Archive Scale Efforts Across Brands & Programs Efficient Use of Human Resources Create & Implement Process ✔ ✔ ✔ ✔ ✔ ✔ ✔

Tom Chernaik CEO 646.369.4555 [email_address] http://cmp.ly “ It’s quick and easy, and you can even do it on micro-blogging services such as Twitter.” -Mashable “ Where there's a challenge, there's probably a tech startup. Enter CMP.LY, which aims to make compliance simple for the Twitter and Foursquare users of the world.” -CNN Money

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