What do the new Federal Trade Commission (FTC) guidelines mean to you and your business?

2009-12-01
12:16:01

Today, the new guidelines from the FTC went into effect.  In my opinion, these guidelines help protect consumers from fraud.  Chances are good, as much as you hate to admit it, that you have been the victim of fraud or deceptive advertising at some point in your life.  If the FTC can help prevent the next scam, I’m all for it.  If you’re a consumer, reviewing these  new FTC guidelines will help you know what to watch for, and help you avoid becoming a victim.  As a business owner or someone that is in charge of creating marketing material, if you create any form of advertisement, you need to pay close attention to the new FTC guidelines(Unless you want to end up going through the same misery as Frank Kern).  If you have any doubt as to your ability to comply with or understand the new FTC guidelines, I strongly suggest you speak with a lawyer who specializes in FTC legal issues.

If you still don’t think the FTC guidelines are a big deal, I strongly encourage you to read this “Frank Kern FTC: What it’s like to sued by the FTC”. (The original article has since been taken offline.)  Frank Kern talks about his not  so pleasant experience with the FTC.

If your ready to dive into the heavy reading, you can go straight to the Federal Trade Commission web site at http://www.ftc.gov.  The Federal Trade Commission site is large, and can easily become overwhelming.  A page that provides some condensed information directly from the FTC is the Frequently Asked Questions page, which can be found at: Advertising FAQ’s: A Guide for Small Business (FTC).  These links are provided as a courtesy to my readers, I have no connections with the Federal Trade Commission.

I’ll give commentary and my personal views on a few aspect of the new guidelines.  Lets take a look at the first part of the guidelines(from FTC.gov):

• Advertising must be truthful and non-deceptive;
• Advertisers must have evidence to back up their claims; and
• Advertisements cannot be unfair.

That all sounds reasonable to me, and on the face of it, you would think that most legitimate businesses are in the clear.  However, once we take a look at this in a little more detail, you’re going to see that compliance might not be as easy as one would hope.

Lets take a look at the first of several problems I see most business running into. This is a direct quote from the FTC web site:

“Advertisements that feature a consumer and convey his or her experience with a product or service as typical when that is not the case will be required to clearly disclose the results that consumers can generally expect.”

I see this as a problem, because with most products we don’t know what  results  consumers might generally expect .  Let’s use the example of a shoe company; we will call them Shoes 123.  Shoes 123 has a shoe they designed to help with foot pain.  They have been selling this shoe for years.  Over the years, a number of Shoes 123 customers have written to the company and made statements like “Your shoes are the best I have ever owned; they have eliminated my foot pain”.  Prior to using this or similar statements, we have to ask the question, is this representative of what consumers can generally expect when using this product?  In the case of these shoes, the answer is likely no.  There are very likely many consumers that felt the shoes were just average and didn’t say anything at all about them.  This means that in order for Shoes 123 to use the testimonial listed above, they would also have to state what the consumer can generally expect when using the product.

The big question that no one has answered  is, “How do you establish what results a consumer can generally expect”?  As far as I have been able to gather, the FTC has not told us how we are suppose to gather this information, nor what information will qualify.  Do we need surveys, independent testing or what?  The FTC has left us guessing.  This is something that will clearly have to be figured out in the very near future.  I strongly suggest you use a great deal of caution in the use of any testimonial until FTC expectations are more clearly defined.

The second major part of the guidelines require material connections to be disclosed.  The law has required this in the past, but the new guidelines make it more defined when and where this is required.  This has recently become more of an issue with the Internet.  I’ll tell a story here to help you understand what I see happening:

Joe, a 40 year old business person who writes a blog in his spare time goes to a online electronics store to buy some new speakers.  After Joe makes his purchase, he gets an e-mail from the company offering to pay him for any referrals he sends to their web site.  Joe thinks this is a great idea.  He had already written a blog entry about his new speakers, so now all he needs to do is tell everyone how great this company is, and add a link to their site.  He does just that.  Now Joe is getting paid to send people to the online electronics store, when he is clearly giving the impression that his only connection to the store is that of a customer.

A endorsement like Joe gave in the above example is a powerful tool for companies and can also create a great deal of income for people like him.  Many companies know this, and have allowed web sites to be created that purposely deceive the customer into thinking a neutral third party is endorsing the product.

The FTC words this “The revised Guides also add new examples to illustrate the long standing principle that “material connections” (sometimes payments or free products) between advertisers and endorsers – connections that consumers would not expect – must be disclosed.”

If you have a blog or other web site that provides you an income, you need ensure proper disclosure, and do so in a way that is clear to the viewer.  Fine print at the bottom of the page likely isn’t going to cut it anymore.  This isn’t the time to try and be clever or sneaky; make sure it is clear to the viewer of your web site what your connection is to a company or product.

Overall the FTC guidelines are quite complex, and you should review them for yourself before making any business decisions.  If you’re in doubt as to  compliance, now is a good time to check with a lawyer who has experience in the field.

Regards,

Jamie Dolan