Law Professor Eric Goldman on the New FTC Disclosure Guidelines

sam.engel Jul 11, 2013
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The latest FTC disclosure guidelines (or .Com Disclosures) issued by the Federal Trade Commission have left many marketers wondering how they should respond. Expanding on the original FTC disclosures from 2000, these 2013 guidelines have been updated with new requirements for blogs and social media, among others. Early indications suggest that these requirements are rather stringent—which should pose some interesting challenges for the affiliate marketing industry, particularly in the area of compliance.

So, to get a better understanding of what this means for brands and marketers, we asked Eric Goldman from the High Tech Law Institute at Santa Clara University for his take on these new FTC disclosures. Of course, you should always consult an attorney for specific advice about your own situation, but we think the opinions Eric expresses here should provide you with some clarity and insight about these guidelines.

Without further ado, here are our questions and Eric's responses:

How has the FTC traditionally enforced compliance with these guidelines?

EG: The FTC Act prohibits unfair and deceptive trade practices. The FTC enforces this act through investigations and enforcement actions, which often lead to settlements but sometimes can lead to litigation.

To educate industry about the FTC's interpretations of what is deceptive or unfair, the FTC often issues reports or other guidance. The .Com Disclosures report is an example. The guidance doesn't have the force of law—the FTC still must convince a judge that its interpretations are correct if a defendant challenges those interpretations—but most companies find it wiser to accede to the FTC's interpretations than to challenge them.

Is there a comparable precedent for these FTC disclosures? Or is this territory rather unique?

EG: The FTC is constantly researching how consumers behave in the marketplace and then issuing guidance to industry about ways that the FTC thinks companies are improperly manipulating consumers. The FTC is aware of many ways that marketers can play tricks with online user interfaces, so the FTC initially provided guidance to the Internet industry in a document called ".Com Disclosures" issued in 2000. The recent .Com Disclosures guidance provides a more modern explanation of the FTC's views to reflect technological and industry developments over the past 13 years.

How do you expect the FTC will monitor and enforce compliance with this new guidance?

EG: The FTC initiates investigations in response to complaints from competitors, consumers, consumer advocates and others. The FTC also proactively looks for problems, including conducting "surf days" where staff members sweep the Internet. Still, the FTC has limited staffers, so they tend to focus on really bad actors defrauding consumers, small companies that will fold even if the FTC's legal position is unreasonable, and big branded companies that the FTC can use to scare other industry participants.

Even though a company trying to do the right thing has relatively low odds of getting a call from the FTC, most companies find it cheaper and safer to comply with the FTC's guidance than to risk getting a call. An FTC investigation can easily cost a targeted company hundreds of thousands, or even millions, of dollars in defense costs—and that's not even considering the damages or fines the company must pay if it didn't comply with the law. The FTC also imposes onerous compliance restrictions on companies in its settlements, and those restrictions can severely hinder a company's future competitiveness as well as drain the company of more cash for years.

How reasonable are these guidelines?

EG: Parts of the .Com Disclosures guidance are quite reasonable. For example, if a website makes a required disclosure (such as limits on its offer), it's completely reasonable that consumers should see those disclosures no matter what technological platform they are using.

Other parts of the .Com Disclosures are less reasonable. For example, the FTC expects an advertiser to make all required disclosures within the ad itself. If the advertiser wants to post that ad to Twitter, the FTC expects all relevant information to be included in 140 characters—or the FTC thinks the advertiser should not make the Twitter post at all.

This is especially problematic given the FTC's overbroad interpretation of what constitutes an ad. The FTC thinks that if a blogger or Twitter user gets a freebie, the resulting post about the item is an ad. That's not how most consumers would interpret the rule; and it means the FTC expects the blogger or Twitter user to make all required disclosures in their post or not make the post at all. I think this is an unreasonable position because it is difficult or impossible for advertisers to control third parties so tightly.

In response to these guidelines, what steps should brands be taking today?

EG: As usual, companies should consult with their attorneys and review their websites and other online materials to ensure they comply with the law. This includes checking to see that all disclosures are clear and conspicuous, and that they can be seen in every technological format that consumers are likely to use.

If the company has paid spokespeople or gives away freebies, the company should also adopt a policy that those folks should identify their company-related statement as ads, inform the spokespeople or bloggers of this policy, and monitor the statements of the spokespeople or bloggers to see if they are complying with the policy.

How much authority does the FTC have to enforce these guidelines?

EG: As I indicated, as a practical matter, we'll probably never know. Legitimate companies rarely fight the FTC in court; they find it cheaper and easier to just do what the FTC says. As a result, the FTC's interpretations are almost never validated by an independent judge, yet they act as de facto legal rules.

Additional Information

You can find the FTC's full set of guidelines on its website.

Topics: affiliate marketing

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