FTC Guidelines For Online Testimonials
It’s a common question: Can I get in trouble for using fake testimonials? What about paid testimonials without proper disclosures? The simple answer is, “Yes”. However, there are ways to legally include reviews and testimonials on a website; you just have to know what needs to surround the content. Below, we’ll go over the basics of false advertising under United States law, review a few fake and paid testimonial case studies, and then conclude with a brief discussion about international considerations.
The FTC In Twenty Seconds
If you reside in the United States (or court customers in the United States), the Federal Trade Commission is the government body of which you should be most aware. The FTC is the regulatory agency tasked with prohibiting “unfair and deceptive acts or practices in commerce.” They’re also the authors of the Dot Com Disclosures (a.k.a., The Online Marketers’ Bible). If you’re going to land in legal quicksand as a result of fake testimonials or false advertising, there’s a 99% chance that the people doing the prosecuting with be the FTC.
What Constitutes False Advertising in the United States?
U.S. law codifies false advertising as:
“a means of advertisement other than labeling, which is misleading in a material respect; and in determining whether an advertisement is misleading, there shall be taken into account (among other things) not only representations made or suggested by statement, word, design, device, sound, or any combination thereof, but also the extent to which the advertisement fails to reveal facts material in the light of such representations or material with respect to consequences which may result from the use of the commodity to which the advertisement relates under the conditions prescribed in said advertisement, or under such conditions as are customary or usual.”
In other words, false advertising in the United States is not just about the actual aspects of a given ad; regulations also consider missing information and how omitted material can lead to consumer deception.
What the FTC says About Disclosing Ads on Twitter
“The FTC isn’t mandating the specific wording of disclosures. However, the same general principle – that people have the information they need to evaluate sponsored statements – applies across the board, regardless of the advertising medium. A hashtag like “#paid ad” uses only 8 characters. Shorter hashtags – like “#paid” and “#ad” – also might be effective.”
The overall impression a marketing piece conveys is important in the eyes of U.S. regulators. While one statement may not, by itself, get you in trouble, the combination of the statements, images, and claims may be considered deceptive when looked at as a whole. So why is this important? Well, the excuse “I didn’t mean it that way” doesn’t matter any more, and will not convince regulatory agencies to cut your a break.
For example, the overall impression that landed marketers in hot water for hocking Acai was the claim that they could lose weight without diet and exercise, that they could burn fat easily, that they could feel more energized, that they lost XX amount of weight in a week, and then showed before and after stock photos of dramatic weight loss. Any of these aren’t necessarily problematic alone, but taken together they give the overall impression that if you took Acai you could sit at home and lose 10 pounds while eating a tub of butter and watching Dr. Oz reruns. That just doesn’t work anymore.
Does The FTC Consider Fake & Paid Testimonials Illegal?
The FTC released a set of “common sense” guidelines when it comes to online advertising. The commission lays out the main foundations of the guideline as such:
- Endorsements must be truthful and not misleading.
- If the advertiser doesn’t have proof that the endorser’s experience represents what consumers will achieve by using the product, the ad must clearly and conspicuously disclose the generally expected results in the depicted circumstances.
If there’s a connection between the endorser and the marketer of the product that would affect how people evaluate the endorsement, it should be disclosed. It’s common sense to think that if someone is paid to provide a particular statement, they may be biased and the FTC wants to make sure that people understand that.
If we apply the above points, it’s safe to argue that the one cut-and-dry rule of online testimonials and reviews is that if it’s 100% fake (i.e., you make up a fake news reporter, complete with a picture you pulled off Google images, who claims to have tried the product and lost a significant amount of weight), then it is not compliant. Same thing goes for any paid testimonials if they are not properly disclosed – paid being defined as any material exchange for a positive review.
Here’s another example: you cannot give someone free hosting for a positive testimonial about your new software and not mention that fact in the review. Now, let’s say you have three friends named Jane, John, and Jackie. If each of them uses your software, and writes an unsolicited positive review, then it’s legal. It’s best, though, not to include unsolicited testimonials from family members.
An FTC spokesperson explained, “While decisions will be reached on a case-by-case basis, the online post by a person connected to the seller, or someone who receives cash or in-kind payment to review a product or service, should disclose the material connection the reviewer shares with the seller of the product or service.”
|Lifestyle Lift – 2009||Employees wrote positive reviews of the company and were instructed to do so; emails found by the AG’s office proved that employees were instructed to write anonymous reviews in the voice of satisfied customers.||Settled with the NY AG’s office for $300,000; Andrew Cuomo , the AG at the time, said that the “attempt to generate business by duping consumers was cynical, manipulative and illegal.”|
|Reverb Communications – 2010||Paid for positive reviews on iTunes.||Had to delete all paid testimonials and agreed not to do it anymore. Didn’t have to pay, as reverb was one of the first to be brought up on charges after the 2009 FTC guideline changes for online testimonials.|
|Acai Berry Debacle – 2011||Niche market where many affiliates set up “fake news” websites with fake customer testimonials.||FTC launched national crack-down on the activity; froze accounts of affiliate marketers; clearly stated their position that hawking acai berries with fake reviews would result in legal troubles and fines.|
So, Be Straight, Can I Legally Get Away With Fake Testimonials If I have a Nearby Link to a Disclaimer?
You’re crafty, so you may be thinking, “can’t I just pay someone for a testimonial, and then put them up on my website, and then simply have a disclaimer in the site’s terms of service – which nobody reads anyway?” While having a link disclaimer may protect in some areas, the FTC has hammered home the point that a link to a disclosure that all your testimonials are paid is insufficient.
Proper disclosure dictates both clear and conspicuous disclaimers within close proximity of the statement being made. So using before and after photos of someone who was paid, along with their statement, but burying the “disclaimer” in the footer won’t cut it.
To comply, you should put the disclaimers in close proximity to the content being annotated. You cannot make the text a similar color to the background; the word must be readable without squinting. If the FTC deems that a “significant minority” of the population would not be able to clearly make out the word, it’s considered not in legal compliance. Any other disclaimers you may have can be at the bottom but as long as the person is giving the opportunity to read them and they stand out (use bold and all caps for the heading).
Lastly, we regularly see people utilizing paid testimonials from fiverr. Be careful. While you may think that your properly disclosed “paid” video testimonial from a “real” person on fiverr is compliant, be warned that unless the person has actually used the product in question you’re just toeing that line. A testimonial from a person who is not actually a bona fide user of the product, but is making claims about it, may land both you and that person in trouble. It is, however, a legal gray area if the person is a bona fide, actual user, of the product and is making statements about their actual experiences of the product (so long as you disclose this fact). Nonetheless, you should still only use actual users of the product who have signed testimonial affidavits and where you have made proper disclosures.
If you market to consumers outside of the United States, it’s important to comply with various international standards – especially in the EU. For example, in the United Kingdom, “falsely representing oneself as a consumer” is listed as one of the 22 prohibitions in the “Consumer Protection From Unfair Trading” regulations. If breeched, perpetrators can be fined up to £5000 or a jail sentence of up to two years in some instances.
Another type of law to look out for in various countries are “monetary advantage by deception” rules.
Making sure that you’re online marketing efforts are compliant should be a top priority of anybody doing business online – -whether you’re an affiliate marketer, a brick-and-mortar business owner with a Web presence, a startup, or an Internet entrepreneur. Contact the online marketing lawyers at Kelly / Warner today to arrange a consultation.
Several months ago, the Federal Trade Commission released a new set of rules for “biz ops” – a category of commerce which consists of single-operator, turn-key and work-at-home businesses. In April, the Arizona legislator also passed a similar business opportunity rule – Arizona House Bill 2825.
Specifically, HB 2825 amends the Telephone Solicitation Act by clarifying the definition of “business opportunity.” It also clarifies that “telephone” now covers all digital devices. In the simplest terms, the Arizona House made it so Internet and mobile devices are now subject to the Telephone Solicitation Act.
Of particular import to those who market or sell work-at-home opportunities and other types of bizops, the new bill includes very specific steps one must take when pitching and closing a business opportunity deal.
What Are Business Opportunities?
The most common types of business opportunities are:
- Vending Machines
- Rack Card Businesses
- Display Cases
- Businesses and Gambling Machines
Over the past 10 years, the number of online and work-at-home business opportunities has also increased. Essentially, business opportunities are usually companies you can buy in-tact, which can be operated by a single person. In many cases, the buyer does not need to have any prior experience in the field to get the company up and running.
The new bill defines a business opportunity in Arizona to be “the sale or lease, or offer for sale or lease, of any goods or services to a consumer for an initial payment of five hundred dollars or greater for the purpose of enabling the consumer to start or operate a business, which sale or lease is not limited to sales initiated or made by the telephone.”
Arizona Business Opportunity Rule: Changed Definition in Telephone Solicitation Act
In addition to defining bizopps as any “offer for sale or lease” over $500, the new bill goes a long way in detailing the exact parameters of what constitutes a business opportunity in the state of Arizona. Specifically, the law delineates business opportunity as a solicitation in which the seller says or implies that:
1) The consumer will earn more than the initial payment if they purchase;
2) A profitable market exists for the opportunity;
3) They, the seller, will provide locations or assist the consumer in setting up the business;
4) They, the seller, will buy services or goods from the consumer;
5) The consumer will make money – either conditionally or unconditionally — and that if they don’t, a refund – either partially or in whole – will be given if bizopp buyer is unsatisfied;
6) They will provide a marketing plan, unless the marketing program is offered in conjunction with an already trademarked plan that could be sold as a standalone product.
Arizona Business Opportunity Rule: Changed Disclosure Requirements
In addition to laying out a concise definition for ‘business opportunity’, House Bill 2825 also features a few new disclosure requirements. Namely, the following must be disclosed, to the buyer, before the final purchase, in the registration statement:
1) A factual description of the business, training, and assistance that the seller will provide;
2) A statement describing any goods, services signs or fixtures relating to the establishment of the operation that the consumer is required to purchase, lease or rent either directly or indirectly from the seller.
Sellers must now also disclose:
1) Their sales experience, including the length of time they have sold the bizopp in question or any other business opportunity;
2) The names of all businesses that have previously purchased the bizopp in question. Presumably this is done so potential buyers can do their own due diligence with regards to the viability of the opportunity.
Arizona Business Opportunity Rule: Changed Notice Requirements & Cancellation Standards
Amendments to cancellation and notice requirements are also an element of the updated telephonic law. The new statutes state that at least five days before the contract execution, a written disclosure must be given to buyer with highly-specific cover sheet that includes precise information.
Cancellation provisions included in the bill state that any business opportunity contract or agreement can be canceled for any reason within 10 business days “after the date that the consumer signs the contract or agreement or the date that the seller notifies the consumer in writing that the contract or agreement is accepted by the seller, whichever is later.”
And lastly, which may be of particular significance to mobile telemarketers, all solicitations made to home phones, cell phones or any type of mobile device must be identifiable on the caller ID mechanism. Even if you are operating from another state and soliciting individuals or businesses in Arizona, you must comply with the statute.
House Bill 2825 was signed into law on April 4, 2012 and slated to go into effect 90 days after the current legislative session ended – which was in the beginning of May.
If you’re an online or mobile marketer who wants to discuss the legal ramifications of the revised Telephone Solicitation Act and how it may affect your operation, please give Kelly / Warner law a call. We’re here to help answer all your questions and assist you with any marketing compliance issues.
Get ready for some pop-culture publicity regarding false advertising legalities.
Thanks to a diet and detoxification product line, promotional tweeting, some Internet ads and an appearance on a morning news program, four frustrated weight-loss hopefuls in New York filed a false advertising lawsuit against the Kardashians and QuickTrim. According to multiple reports, sisters Kim, Khloe and Kourtney have taken legal action to get their names removed from a multi-million dollar claim.
Reason for the False Advertising Lawsuit against QuickTrim and the Kardashians
The “QuickTrim Four” argue that both QuickTrim and the Kardashian sisters knowingly made false statements about the product line. The customers also admit that they only bought the product because they believed Kim, Kourtney and Khloe wouldn’t lead them astray. After all, Kim tweeted “Our QuickTrim cleanse will be massive! Khloe has already lost so much weight!” – [sarcasm]why would fans think Kim was not telling the truth?[/sarcasm] Moreover, since it’s difficult to fit much into a 140 character missive, there was no disclaimer for the customers to review and consider. (Interesting, social media advertising disclaimers is an issue that the FTC recently tackled in a fact-finding workshop.)
Kardashian Kamp: “Not Our Problem, People”
But if you think the ubiquitous sisters are going to take this lawsuit lying down (Freudian slip), you’re wrong. Despite the fact that Kim and Khloe went on TV to promote the program, and pointed out that:
a) They don’t “just put [their] name on anything,”
b) They “helped develop the product” and
c) It “really works,”
the Kardashians are now saying they’re simply spokespeople who having nothing to do with product development.
If a judge decides that the Kardashians’ public statements and digital proclamations render them more than just product pushers, the move to have their names removed will most likely be rejected and have a significant impact on social media marketing.
Why Affiliate Marketers Should Pay Attention to the Kardashian QuickTrim Lawsuit
If the Kardashian cabal loses, it could have a significant impact on affiliate and Internet marketing, as judges may feel more empowered to apply stricter interpretations of endorsement standards. After all, just this year, the FTC tightened biz op rules to ostensibly protect consumers from fraudulent “turnkey” business and work-at-home opportunities.
A dismissal refusal would most likely have an effect on the number of celebrity endorsements in the future. In fact, the era of celebrity Twitter endorsements could die a slow death — and reality show super-stars may find themselves down one revenue stream.
What’s bad for celebs, though, could be brilliant for affiliate marketers. After all, if celebrities are not as willing to sign up for an endorsement for fear of litigation, it may just level the playing field.
Imagine you were taking it easy on a Friday night and plopped on the couch to watch “20/20.” Now think about what you would do if one of the segments featured your ex, who was announcing to the world that you’re the lying, no-good, jerk-face inspiration for their background-check service.
Well, that’s exactly what happened to David Williams. His ex-girlfriend, creator of icheckmates.com, Kelley Cahill, was featured in a 20/20 piece entitled “Blinded by Love: Kelley Cahill’s Ordeal.” In it, Cahill accused Williams of being a dastardly cad. Williams, however, says Cahill is lying and filed a defamation lawsuit.
Williams v. Cahill: The 20/20 Defamation Lawsuit
According to David Williams, he was shocked after viewing the 20/20 episode entitled “Blinded by Love: Kelley Cahill’s Ordeal.” The piece was about his ex-girlfriend, with whom he’d allegedly broken up with 5 years earlier. During the episode, she accused him of scoundrel-like behavior, ans cited it as the inspiration for her business icheckmate.com – an online service that allows Internet daters to check-up on potential mates before making substantial contact.
In a television segment hosted by Christopher Cuomo and edited by Jack Pyle, Cahill accused Williams of cheating, concealing a marriage and raking her over the coals financially. Williams insists that Cahill knew he was separated and not fully divorced when they were together; he also insists he lavished Cahill with gifts and supported her financially while dating.
During the program, Cuomo allegedly reported that Williams declined to comment. But Williams avers that Cuomo’s statement was false and that when he was contacted by ABC, he instructed them to look at public records that would prove she was lying. Williams also says he did not offer a statement to the news program because he didn’t have enough time to procure legal counsel before the segment aired.
Williams’ defamation claim asserts that ABC failed to engage in “meaningful research to determine whether Cahill was being truthful, and failed to give Williams any, or any adequate, opportunity to [refute] Cahill’s allegations treating her story objectively.” He’s asking for a jury trial and claiming publication of private faces, intrusion, and intentional infliction of emotional distress.
Celebrity Defamation Considerations: Will Williams Be Considered A Private Citizen or A Public Figure?
United States defamation law provides for different defamation standards for private citizens and public figures. And as social media and reality television grow in popularity, the lines between a “purely private person” and a “public figure” are increasingly blurred. For example, in a recent publicity rights lawsuit, a judge ruled that “everybody is famous on Facebook.”
So in the case of Williams vs. Cahill, will the fact that the 20/20 episode was publicly broadcast effect the case? Will Williams automatically be considered a “celebrity” or “public figure” because his story was told on a prime-time network program, even though he may not have authorized the use of his name? To be honest, it may come down to the judge. But if Williams can provide ample evidence that he did not commit the acts attributed to him on the television segment, he may come out on top. Since he didn’t ask for the attention, a judge may decide Williams doesn’t have to meet the “actual malice” standards of a “celebrity defamation” lawsuit.
What Will Williams Have To Prove To Win This Defamation Lawsuit?
In order for David Williams to win this defamation lawsuit, he’ll need to prove that Cahill was lying and that said lying harmed him materially. He could submit public records that prove his side of the story; he can call witnesses to attest to his claims; he can gather any and all personal evidence that absolve him of any wrongdoing.
Williams would also need to have evidence proving that he was in some way harmed by the broadcast. Did he lose his job over the incident? Is he now unable to find new work because his reputation has been tarnished? In the simplest terms, any plaintiff in a defamation lawsuit should gather as much evidence as possible to prove that the material in question is connected to their harmed his reputation and/or diminished bank account.
If Williams can prove that Cahill harmed his reputation for the sole purpose of promoting icheckmate.com, she could find herself out of business — as puffery is one thing, but blatantly defaming another individual to promote a service will not win over many judges and juries.
If, however, Cahill is in the right and the powers that be find that she did not commit defamation, then Williams may have worsened his own reputation by calling further attention to the issue via the lawsuit.
Papers were filed in Orange Country California Superior Court.
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At the end of January, 2012 news hit the wires that Facebook was involved in another lawsuit. But this time around, it wasn’t angry consumers or countries suing the technology firm, oh no, this time around, it was Facebook who was doing the suing. In conjunction with Washington State Attorney General, Rob McKenna, in late January 2012, Zuckerberg’s lawyer’s filed claims against Adscend Media. The accusations? Engaging in illegal “likejacking.”
What is Likejacking?
Like its predecessor, clickjacking, likejacking is the practice of getting someone to click on something ostensibly deceptive, which causes a different action than what the user thinks they’re initiating. Since Facebook has become the social networking powerhouse, many affiliate marketers use techniques to market products on the platform. A popular method is “likejacking,” which helps to augment the number of likes in a short period of time.
Who is Adscent Media?
Delaware-based Adscent Media is the target of this double-pronged suit. Adscent Media would probably describe themselves as an online marketing and ad firm, while Facebook and the Washington AG may use something more like “spam promoter.”
The Lawsuits Against The Likejackers
McKenna filed his papers with the U.S. District Court in Seattle. The claim argued that Adscent violated the CAN-SPAM Act, Washington State’s Consumer Protection Act, which guards against deceptive business practices, and the state’s Commercial Electronic Mail Act – a bill that makes illegal “the misrepresentation or obfuscation of origin points or transmission paths in electronic communications.”
Facebook’s lawsuit was filed separately in a Northern District of California Federal Court, but the details weren’t discussed in the initial announcement. Facebook’s lead litigation counsel, Craig Clark, did warn: “Facebook’s security professionals have made tremendous strides against this particular form of attack and we are intent on eradicating it completely.”
Wondering about the legality of your online marketing techniques? Aaron Kelly is an Internet lawyer very well-versed in the “technicalities” of tech law. Get in touch and he’ll make sure your operation stays on the right side of the law…innovatively.
Online Marketing Laws Introduction
More than ever, it is imperative that businesses tread the line between successful marketing campaigns and misuse of marketing techniques that may border or cross into illegality. The best defense is to establish standards of online marketing well within the realm of the law — and familiarization with current online marketing laws is the first step.
The catch 22 is that when an entity collects data from consumers in the U.S., the standard is that the entity owns the data, or in more precise terms, “the right to store and utilize it.” Such a broad reaching generalization is the exact issue that got Google in legal trouble a while back. Despite the “green light” to enjoy the privilege of “data use and dissemination,” legal boundaries can be crossed — and the fuzzy realm of impropriety belies no protection if consumers choose to complain or sue.
To help ensure your business stays on the right side of online marketing laws, make sure you:
– Opt to choose not to sell information. While the benefits of “information sharing” are tempting, selling information will often diminish consumer trust. Being able to state that you will never sell consumer information will put many of your users at ease. It’s also advisable to state that sensitive information will be stored under a non disclosure policy.
– If you work with other websites for your online marketing campaign, make sure to absolve yourself of fault with any issues related to your partners’ sites.
Online Marketing Laws: Full Review and Affiliation Disclosure
If your online promotions will include consumer reviews or “mock reviews” in which the reviewer has been paid for their review content you must disclose that fact. As of 2009 the Federal Trade Commission revised its Guide concerning the use of Endorsements and Testimonials. Reviewing the guide is essential as it outlines the cases in which a businesses content may be deemed worthy of adverse legal action.
Not only are undisclosed paid testimonials and reviews frowned upon, including posts on review websites, undisclosed endorsements garnered by those in close relation to businesses are prohibited as well. Also, not telling users that you paid for a research study highlighted on your site, is also a big no-no.
Online Marketing Laws: CAN-SPAM — Controlling Online Marketing Laws:the Assault of Non-Solicited Pornography and Marketing Act
The Controlling the Assault of Non-Solicited Pornography and Marketing Act or the CAN-SPAM Act is the bible of commercial email etiquette. More than a mere set of “rules of thumb” these regulations must be strictly adhered to. The cost of CAN-SPAM violations can reach up to 16k per individual email violation. Therefore businesses need to ensure that each email sent on their companies behalf falls under submission to the regulations set in place.
– The “To”, From” and Subject lines in all emails must be clear and non-deceptive. Additionally the “Reply to” must be equally transparent.
– You must always provide a means of “opting out” of future communications. It is best to have a system in place that will remove consumers who opt out promptly.
– There must be a physical mailing address visible in the body of the email.
– Utilize a reliable ESP to prevent non-compliance issues.
Perhaps the most murky waters of online marketing fall under the umbrella of intellectual property. More than all other violations this one ensnares the most businesses. It is worth noting that even user generated violations of intellectual property can be viewed as violations. There are many arguments both plaintiffs and defendants can use in intellectual property lawsuits. Consultation with an attorney is advisable.
No doubt, while there are immense benefits to online marketing it pays to be diligent in avoiding unnecessary pitfalls. Making the most of your online marketing campaign can be done without detriment to your desired message. If you take the proper cautionary steps, your business can enjoy a lucrative online marketing campaign without worrying whether or not you’re on the right side of the law.
Note that the information within this article is just an informative guide. It is not an all-inclusive layout of all laws and responsible practices. For a complete understanding of the laws that may pertain to your specific online marketing campaign and advice on if your proposed approaches will be in compliance with the law always consult an attorney.
Symantec, the company that distributes Norton Utilities, is the subject of a lawsuit filed recently by James Gross, a resident of Washington. Gross alleges in the lawsuit that Norton Utilities, along with two other products offered by Symantec, PC Tools Registry Mechanic and PC Tools Performance Toolkit, are actually “scareware,” designed to frighten consumers into purchasing the products. Gross has requested class action status for the lawsuit.
Trial Version Always Reports Errors: Misleading Advertising or Software Glitch
According to the lawsuit documents, Symantec designed the software to report problems, even if they do not exist, in an effort to scare consumers into purchasing the paid software immediately. Gross claims that he ran one of the free trial scans, which indicated that his computer had “high priority errors” and that his system health was “low.” The program indicated that Gross must purchase the full version in order to eliminate the problems. A computer forensic review of the software stated that the software “always” reported low system health after running the trial version.
Gross further alleges in the lawsuit that the trial version actually contains no diagnostic abilities, despite the claims to consumers in the company advertising. Instead, it’s being alleged that Symantec engineers designed the program to find errors that do not exist and report those errors back to the consumer in an ominous way, causing the computer user to feel they must immediately download the paid software. The lawsuit alleges that this is evidence of fraud. The suit also states that the trial versions are of no benefit to customers because not only do they not perform diagnostic tests, but also cannot remove any of the problems allegedly “found.” Some industry insiders feel that the problem may not be with Symantec’s marketing but more of an engineering problem. If Gross can prove that they designed software that would intentionally mislead customers, he could have a shot.
History of Advertising Scare Tactics?
This is not the first time that customers have accused Symantec of using “scare tactics” to sell products. In 2010, customers complained that when their anti-virus subscriptions expired, they received a message warning them that a virus may have already infected their system. Reports stated that the message included wording such as: “Any second now a virus might infect your computer, malicious malware might be installed or your identity may be stolen.” The warning continued, saying that “maybe cybercriminals are about to clean out your bank account. The choice is yours: Protect yourself now or beg for mercy.” Customers claimed that the warning was similar to extortion and Symantec eventually removed the warning, issuing a statement that it “was meant to be a joke.”
Although some experts believe that it will be difficult for Gross to prove that Symantec intentionally defrauded customers, especially the claim that the software has no benefit, computer software companies are watching the lawsuit closely. The outcome may affect the way that software companies market their products in the future. In addition, the lawsuit does more than just accuse Symantec of scare tactics, but accuses them of actual fraud. Despite the fact that it may be difficult for Gross to prove fraud, the “scareware” label may remain.
Do you have a product that’s marketed online? Want to make sure you’re staying on the right side of technology law when it comes to misleading advertising statutes? If yes, contact the Kelly Law Firm today to sort through your website and marketing collateral. You’ve spent a considerable amount of time building your business, don’t let yourself get into trouble for crossing the “misleading advertising” line.
In 1914, The Federal Trade Commission (FTC) was established as an independent, consumer protection bureau. FTC compliance requires business institutions to follow certain consumer protection regulations; the FTC also aims to eliminate and prevent anticompetitive practices (for instance coercive monopolies). Trust-busting and trusts used to be among the major political concerns of the Progressive Era and the FTC was introduced for combating the issue. Today, the FTC has significant authority over online commerce and Internet advertising.
Who Are The FTC Commissioners?
The Federal Trade Commission is headed by 5 commissioners. The President of the United States is responsible for nominating commissioners to head up the FTC; these picks then get confirmed by the Senate. Commissioners serve 7 year terms and The Federal Trade Commission ACT does not allow for one political party to hold more than 3 commissioner seats at any given time.
The Federal Trade Commission primarily operates three bureaus: the Bureau of Consumer Protection, Bureau of Competition and Bureau of Economics.
Bureau of Consumer Protection: Its mandate is to protect consumers against deceptive or unfair business acts. The principal functions of this department are business and consumer education, enforcement, and investigation. Its main areas of concern include financial practices and products, marketing and advertising, identity protection, privacy protection and telemarketing fraud. In the event of compliance failure, FTC attorneys have the authority to bring actions in federal court. Certain consumer protection cases, on the other hand, are handled by the United States Department of Justice with support or assistance of the Federal Trade Commission.
Bureau of Competition: This FTC department is responsible for preventing anticompetitive business practices. The bureau completes its jobs by investigating all the non-merger trading practices that have the potential of impairing competition, reviewing the proposed mergers and enforcing antitrust laws. The Federal Trade Commission enforces the antitrust laws in association with the United States Department of Justice. While the FTC looks after civil enforcement, the US Department of Justice is responsible for bringing both criminal and civil actions in case of antitrust affairs.
Bureau of Economics: This department primarily supports the other two bureaus and its main function is to research the economic impact generated by the operation and legislation of the FTC.
The Federal Trade Commission works by investigating the issues obtained from reports of businesses and consumers, reports published in media, congressional inquiries and reports filed about pre-mergers. Examples of such issues include frauds, like false advertising. The Commission may investigate FTC compliance of an entire industry or a singular business. In case, the investigation results in revelations of unlawful conduct, the FTC might ask for voluntary compliance from the offending businesses through consent orders, begin federal litigations or file administrative complaints.
The administrative complaints usually are heard in the presence of an independent ALJ or administrative law judge; the FTC staff plays the role of prosecutor. If the case emerges as de novo according to the entire commission, a further appeal can be made in front of the United States Court of Appeals. If required, this is then followed by an appeal made to the country’s highest legal body, the Supreme Court. If you summarize the cases heard since 1996, you’ll find that not a single decision of the administrative law judge for dismissing a complaint has been upheld by the commission.
Identity theft is a major concern of the FTC. The Commission plays the role of federal repository handling each individual consumer complaint related to identity theft. The FTC is not known for resolving every individual complaint; what they do is utilizing the aggregated facts for determining the sections that require execution of federal action. You can obtain complaint forms both by phone or at the FTC’s website.
Looking for an FTC lawyer? Contact the Kelly Law Firm today.
The FTC has decided to swing a bigger stick at marketing mischief. If you use affiliate marketers to promote products or services online, this article will serve as an important cautionary tale about the FTC’s authority when it comes to punishing parties over false advertising.
FTC Busts Company For Questionable Affiliate Marketing False Advertising Tactics
A recent settlement with Legacy Learning Systems exemplifies the FTC’s efforts to crack down on false advertising. While it’s not the first company to be singled out for “deceptive advertising” practices, it’s the first to be sanctioned and fined.
Paid Testimonials and Reviews Angered FTC
The FTC took issue with promotional ads and testimonials for an instructional guitar DVD made by Legacy Learning Systems, which were written by third-party bloggers. The paid writers wrote positive reviews without ever using the product. Because neither the independent marketing firm nor Legacy added a disclaimer revealing their material connection, and because Legacy said the endorsements “reflected the views of ordinary consumers or independent reviewers,” the FTC ruled that Legacy acted deceptively.
Business Shells Out A Quarter Million Dollars For False Advertising Tactics
The FTC and Legacy reached a settlement. Legacy agreed to pay $250,000 and monitor 50 of their top revenue-generating affiliate marketers. The FTC will also randomly pick and track another 50 of Legacy affiliates; the company will also submit monthly reports to the FTC. Furthermore, the FTC strongly suggested that Legacy establishes a permanent monitoring system to assure that affiliate marketers adhere to “truth in advertising” principles.
Is the FTC Going Too Far In Its Quest To Clear the Internet of False Advertising?
Considering that Legacy’s DVD sales netted more than $5 million, one could argue that the company got off lightly. Regardless, the case raises several questions:
- Is the FTC setting a new precedent for controlling online advertising behavior?
- Will the policy of fining companies for the actions of their affiliates take root and require a substantive response from the vast numbers of businesses that draw a major portion of their revenue from online advertising and promotion?
- Although this agency has always held broad authoritative oversight, just how far does its reach extend?
Apropos of Nothing, Online Marketers Must Adhere To The Communications Decency Act
Since the Communications Act of 1934, America has been trying to balance First Amendment rights and marketing language rules. The Communications Decency Act of 1996 furthered the cause of keeping inappropriate and deceptive materials off the Internet. The law provides that:
- Website operators and ISPs are immune from defamation charges for content posted by third-parties;
- Payments made in cash or kind, for testimonials and reviews, must be disclosed as such.
FTC Head Honcho Says Businesses Are Responsible For Affiliate Marketers Activities!
So, are website operators passive service providers and therefore not responsible for content? Or, are they liable for material they contract and publish? The FTC felt that Legacy Learning Systems should assume responsibility because the company hired an affiliate marketing agency but allegedly didn’t stipulate that disclosure policies must be followed. According to the FTC, nor did the company monitor affiliates’ actions.
David Vladeck, Director of the FTC’s Bureau of Consumer Protection, advised that marketers, “Whether they advertise directly or through affiliates…have an obligation to ensure that the advertising for their products is not deceptive.” He also warned that advertisers using affiliate marketers should develop reasonable monitoring programs to ensure that their affiliates follow “the principles of truth in advertising.”
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