New Jersey Law Journal Volume 198, No. 9, Index 765 November 30, 2009

FEDERAL TRADE COMMISSION REGULATES BLOGGING - BLOGGERS AND ADVERTISERS COULD FACE INJUNCTIONS

By Jonathan Bick Bick is of counsel to Brach Eichler of Roseland and is an adjunct professor of Internet law at Pace Law School and Rutgers Law School. He is also the author of 101 Things You Need To Know About Internet Law [Random House 2000].

The Federal Trade Commission (FTC) has promulgated regulations for Web logging (blogging). New FTC regulations allow the imposition of fines up to $11,000 per violation. Bloggers and advertisers who use blogging could face injunctions and be ordered to reimburse consumers for financial losses stemming from inappropriate product reviews.

The FTC action is in response to thet fact that blogging is used to market products and services online, but unbeknownst to consumers, companies may compensate blogger reviewers for their write-ups. Traditional journalism outlets are normally barred from such compensation.

Recently, the FTC published its final revisions to the ‘Guides Concerning the Use of Endorsements and Testimonials in Advertising,‘ which will go into effect on Dec. 1. The guidelines address ‘endorsements,‘ i.e., advertising messages which may be understood as the opinion of someone other than the sponsoring advertiser, from the perspective of consumers. The FTC action generally addresses the use of endorsements and consumer testimonials on the Internet and specifically focuses on bloggers.

The guidelines appear to be far more reaching with respect to expanding the liability for deceptive trade practices. The guidelines make both the endorsers as well as advertisers liable for statements they make in an endorsement and for failure to disclose material connections between the advertiser and the endorser.

The guidelines also appear to cover Internet entities which report endorsements as conveyed by bloggers or other 'word-of-mouth' marketers. Wikipedia, an Internet-based free-content encyclopedia, may arguably be considered as a blog for guideline purposes because it contains Internet articles which constitute commercial endorsements.

Even Wikipedia seems to understand that its site is used as a blog for certain commercial goods and service, sometimes know as endorsement entries. Presently, some of the Wikipedia endorsement entries have been labeled by Wikipeida as in need of ‘references that appear in reliable third-party publications‘ and deemed the ‘primary sources or sources affiliated with the subject are generally not sufficient for a Wikipedia article.‘ Such notice may not provide sufficient liability protection from Federal Trade Commission scrutiny in the future. The guidelines may require Wikipedia to change their posting procedures to ensure the new FTC regulations are satisfied, or they may face sanctions.

One of the most prominent features of the guidelines deals with expressed support. Endorsements must reflect the honest opinions and true experience of the endorser. If paid actors are used, this fact must be disclosed. Endorsements may not be deceptive, or unsubstantiated. Endorsements are limited to representative results a consumer can reasonably expect to achieve. Any claim made by the endorser must reflect the opinion or experience of a significant proportion of consumers.

The guidelines limit the use of disclaimers. In particular, the guidelines prohibit that use of a previously accepted practice of allowing a 'safe harbor' statement. In the past, such a statement allowed advertisers to describe unusual results in a testimonial as long as they included a disclaimer such as ‘results not typical.‘ Disclaimers like ‘results not typical‘ are no longer sufficient.

Disclosure must be included in the content containing the expression of support. For example, all material associations between the advertiser and the endorser must be disclosed unless intuitively obvious. All exchanges of free products or monetary compensation must be disclosed.

Both Internet and traditional content distribution contracts normally contain common contract elements. However, the guidelines will likely require different treatments with respect to the implementation special warranties.

For example, Internet advertisement distribution agreements for transactions after November 30, should address the guidelines by requesting the advertisement content provider warrant that to the best of their knowledge the content complies with the Federal Trade Commission's revised guidelines for the use of endorsements and testimonials in advertising.

The guidelines are novel, so it may be prudent for Internet advertisement distribution agreements to specifically identify the guidelines in their agreements.

Internet content agreements grant license for the use of content. Such agreements are used for bloggers associated with commercialized goods or services. Typically, an Internet licensor may modify content to assume any form consistent with the ‘look and feel‘ of the content recipient's Internet site. However, that amount of modification may not be sufficient. The guidelines as promulgated could require Internet advertisement distributors to be allowed to add new and additional content to the Internet advertisements so as to be in substantial compliance.

Similarly, Internet content agreements typically address the delivery of content to blogs with commercial ties. Internet agreements usually have delivery technical specification for both the content sender and the content recipient. For example, the content sender must deliver content by using a particular electronic format, such as JPEG, but the content recipient must provide compatible electronic content storage and typically supplements the sender's content with specified hyperlinks.

Internet advertisement distributors should be sure their agreements include a clause which requires the advertiser's content to be delivered in a form suitable for accepting new and additional content. This will facilitate corrections or additions mandated by the guidelines.

While the guidelines had the stated intent of addressing changes in the way products are marketed compared to 30 years ago, if enforced as promulgated, it will restrict blogging. This governmental effort follows several lawsuits that have been filed against employers in recent years alleging that they unlawfully restricted employee blogging or allowed employees to defame others in blog postings. Last year, Cisco Systems was sued for defamation after one of its attorneys blogged about opposing counsel.

Because blogging is a relatively new phenomenon, there is little court guidance for governmental restrictions on blogging. The guidelines' restriction of blogging is likely to become a matter of First Amendment litigation in the near future. In particular, the First Amendment protects an advertisement which uses truthful, 'atypical' testimonials without a disclaimer as to the typical result, as long as the ad as it stands is not deceptive, but the guidelines as promulgated do not.

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