Virtual World Law Blog

We have previously posted about some of the often overlooked requirements of the FTC Endorsement Guidelines. Recent actions show that the FTC and other regulatory authorities are getting serious about enforcement.

In March 2011, a company selling a popular series of guitar-lesson DVDs agreed to $250,000 to settle Federal Trade Commission charges that it deceptively advertised its products through online affiliate marketers who falsely posed as ordinary consumers or independent reviewers. According to the FTC release:
The FTC's revised guidelines on endorsements and testimonials, issued in 2009, explain in general terms when the agency may find endorsements or testimonials unfair or deceptive.  Under the guidelines, a positive review 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 between the reviewer and the seller of the product or service.

"Whether they advertise directly or through affiliates, companies have an obligation to ensure that the advertising for their products is not deceptive," said David Vladeck, Director of the FTC's Bureau of Consumer Protection.  "Advertisers using affiliate marketers to promote their products would be wise to put in place a reasonable monitoring program to verify that those affiliates follow the principles of truth in advertising."

In August 2010, a public relations agency hired by video game developers agreed to pay $250,000 to settle Federal Trade Commission charges that it engaged in deceptive advertising by having employees pose as ordinary consumers posting game reviews at the online iTunes store, and not disclosing that the reviews came from paid employees working on behalf of the developers. The company also agreed to set up a monitoring program to ensure compliance going forward.

Other regulators have taken similar actions. In 2009 Lifestyle Lift, a cosmetic surgery company, paid $300,000 to settle with the State of New York over its attempts to fake positive consumer reviews on the Web regarding the results of face-lift procedures. .
Many aspects of social media provide great business opportunities, but it is important to ensure that your use, and your employee's use, of social media is done in way that does not create legal liability.