The FTC (Federal Trade Commission) “closing letter” to AnnTaylor Stores was like Gunsmoke’s Marshall Dillon shooting a warning at online marketers and bloggers: you’d better take FTC’s revised Endorsement Guides seriously. They require advertisers to disclose “material connections” with endorsers.

The Guide’s 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.

FTC closed the investigation without making AnnTaylor sign a consent agreement, because: the 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. FTC’s closing letter demonstrates that marketers should have a written policy governing disclosures by affiliates, and monitor them to determine whether the policy is observed or ignored.

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.

Now that FTC has followed its warning with action, there will likely be further enforcement affecting blogs. And 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.”

Tom is of counsel in Venable’s NY office, www.Venable.com, and a former FTC Regional Director.

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Advertising claims by merchants have long attracted the attention of state Attorneys General (AG) and the Federal Trade Commission (FTC), but recently these regulators have signaled a willingness to pursue advertising cases against a new target: online affiliate marketers.

Until recently, affiliates have operated anonymously and attracted little scrutiny, because they do not sell the goods/services featured in their published content. But affiliate-published pages have always been vulnerable: if they contain misleading claims about a product, or fail to disclose connections with sellers, the affiliate may face liability for deceptively driving online sales.

Recently, the FTC and AGs have stepped up scrutiny of online claims. Regulators have attacked a variety of questionable practices, from misleading product claims, to deceptive trial offers with unauthorized charges, to falsely implied celebrity/expert endorsements and fake consumer blogs.

Affiliate-created blogs, review sites and other pages have proliferated, filled with claims that drive traffic to merchants. When this content contains suspect claims or fails to disclose connections with sellers, there may be liability for deceptively inducing sales.

It is no surprise that the FTC shows increased interest in affiliates. It has long held that it is not just advertisers who are liable for deceptive advertising. Anyone who plays a promotional role, be it ad agencies or shopping channels, is liable for its role in allegedly deceptive advertising.

Now the FTC may apply this expanded liability principle to affiliates. It is revising its Endorsement Guides to clarify that both advertisers and endorsers could be liable for the endorsers’ false advertising claims, and for failing to disclose material connections between advertisers and endorsers. But it has not confronted this issue – until recently.

In May, the FTC sued affiliates who pretended to operate “MakingHomeAffordable.gov,” the official Web site of a federal program providing free mortgage assistance. The defendants purchased links on results pages when consumers searched for “making home affordable.” A sponsored link displaying the official site’s full URL appeared in the search engines’ results.

Consumers clicking on the ads were directed to sites that sell paid loan modification services. Although the FTC did not sue those Web sites, it alleged the affiliates were attempting to defraud homeowners by falsely implying through search results that visitors were being sent to the government’s Web site.

Also, state AGs have cited the role of affiliates in their latest actions against online promotions, and these may be followed by other AG and/or FTC actions against merchants, affiliates, and/or networks that either engage in deceptive advertising, or knowingly assist and facilitate it.

In addition, affiliates’ unauthorized use of celebrity and news images and marks is subjecting them (and the merchants they link) to charges of trademark infringement, false endorsement and related allegations, under state and federal law.

Now that the FTC and AGs have brought cases, affiliates should consider themselves on notice: any affiliate who engages in or assists with fraud might end up in the crosshairs of law enforcement. Affiliates must be careful to publish truthful content that is not deceptive and contains the proper disclaimers and disclosures.

Mr. Cohn, of counsel with Venable LLP in New York, advises clients on the legal and practical aspects of compliance with state and federal consumer protection regulations and industry self-regulation programs, and represents clients during investigations and enforcement actions; he can be reached at tacohn@venable.com.

Download the entire FeedFront issue 8 here – http://www.scribd.com/doc/20220412/FeedFront-Magazine-Issue-8
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