For the last year or so, I've been warning my clients that the Federal Trade Commission is becoming more involved in regulating online commerce, specifically in terms of disclosures relating to online content. In particular, I've been telling companies that the FTC is likely to implement new guidelines that will bring blogs, Internet forums, message boards, word-of-mouth marketing, social media marketing, social commerce, and other forms of electronic and viral marketing in line with fair advertising practices that have not been updated in more than 25 years.

Well, earlier today, in a highly anticipated move, the FTC did just that. By a vote of 4-0, the Commission has approved new rules requiring bloggers and social media users to disclose payments they receive from companies for reviewing their products. The rules, which go into effect Dec. 1, give clear guidance to advertisers on how to keep their endorsement and testimonial ads in line with the FTC Act (warning: link takes you to a pdf file, not a Web page).

Under the revised rules, advertisements that feature a consumer and convey his or her experience with a product or service as "typical" when that is clearly not the case, will be required to disclose the results that consumers can generally expect. In contrast to the 1980 version of these same rules--which allowed advertisers to describe unusual results in a testimonial, as long as they included a disclaimer such as "results not typical"--the revised rules no longer contain a safe harbor around that issue.

The revised rules also add new examples to illustrate the long standing principle that "material connections" (i.e., payments or free products) between advertisers and endorsers (i.e., bloggers and other online influencers lurking in social media channels like Facebook, Twitter, MySpace, etc.) must be disclosed. These examples address what constitutes an endorsement when the message is conveyed by bloggers or other "word-of-mouth" marketers. The revised rules specify that while decisions will be reached on a case-by-case basis, the post of a blogger who receives cash or in-kind payment to review a product is considered an endorsement. So, bloggers who make an endorsement must disclose the material connections they share with the seller of the product or service, or face a stiff fine from the FTC (which may be as much as $11,000 per incident).

"Companies that sponsor blogs or pay bloggers to cover events -- an emerging trend in branded entertainment -- could face increased legal risk when held accountable for the statements of their bloggers," says Anthony DiResta, general counsel for the Word of Mouth Marketing Association. "A compliance program for brands that outlines policies and practices for selecting, hiring, and monitoring of agents or representatives is essential."

Celebrity endorsers also are addressed in the revised rules. While the 1980 version of the rules did not explicitly state that endorsers--as well as advertisers--could be liable under the FTC Act for statements they make in an endorsement, the revised rules reflect FTC case law and clearly state that both advertisers and endorsers may be liable for false or unsubstantiated claims made in an endorsement--or for failure to disclose material connections between the advertiser and endorsers. 

The revised rules also make it clear that celebrities have a duty to disclose their relationships with advertisers when making endorsements outside the context of traditional ads, such as on talk shows or in social media.

By operating with integrity, your company builds a loyal and trusting community and avoids the negative press and legal issues that could result from any failure to disclose word-of-mouth advertising that has been bought and paid for. And, by keeping your social media real, you can generate positive word-of-mouth without having to sponsor or pay reviewers and risking a possible penalty or lawsuit.