Thursday, April 19, 2007

ABA Section on Antitrust Law, Panel on Product Promotion and Disparagement by Consumers: government speakers

This panel wasn't really about the advertised topic (which is a little bit amusing, given the consumer protection focus) because, I think, practicing lawyers are not as concerned about statements by real consumers as about related issues, particularly promotional statements that don't disclose the marketer's involvement.

Mary Engle, Associate Director of Advertising Practices, FTC: For the most part, the FTC isn’t concerned with user-generated content. Where the FTC is concerned is when something appears to be UGC but is in fact sponsored or put out by a marketer itself. (Ironically – or not, really – yesterday’s NYT film blog included this story about stealth marketing by HBO.)

Commercial Alert filed a petition with the FTC on buzz/word of mouth marketing. Is this deceptive? The FTC’s staff opinion letter indicated that the Commission already has endorsement and testimonial guidelines that apply. If consumers are endorsing products for pay, that’s a material connection that consumers would want to know about, and that must be clearly disclosed. We bring a certain amount of skepticism to an ad, and the source affects the weight or credibility of a claim.

These principles apply to word of mouth marketing, a MySpace profile, a blog, a YouTube video, etc. Advertisers are trying to catch consumers off guard, but then the consumer may not understand who is speaking. There are good reasons to do this – cutting through clutter, going to where the eyeballs are, taking advantage of UGC – but it’s still got to be clear that you’re running an ad. This goes back to an older issue the FTC addressed, where ads looked like newspaper editorials. Magazines and newspapers adapted to that rule and now it’s common to see the “ad” disclosure; it’s the same in new media. Sony’s website: all I want is a PSP – it appeared to be a couple of fans, but really it was a marketing tool. People quickly figured out that it was fake, but that’s an example of something that shouldn’t have been done in the first place.

The Commission is looking for good cases in the area, and would be happy to hear from “snitches” who have good leads. Competitor complaints are a major source of investigative leads in all areas, and she invites emails on this topic.

Disclosure needs to be made, but the manner is up to the company and its agents. Still, it has to be clear and open, not fine print.

What about using kids or teens to buzz about products? That presents special circumstances – whether something is deceptive is considered from the child’s POV, not the adult’s. Disclosures have to be sensitive to the sophistication of the recipients.

Q from Darren Bowie: How does disclosure here relate to the FTC’s position on product placement, which many people consider to be advertising?

A: The FTC has said you don’t need to disclose during the TV program that Tide paid for placement on Desperate Housewives, because we didn’t think it would be material to consumers to know that the advertiser paid v. the producer/writer’s judgment that placement would add reality to the show, particularly in the context of fiction. For American Idol, we thought that it was obvious paid placement and wouldn’t cause deception. But if the housewife is shown using Tide to get out an awful stain (of what kind, she didn’t specify), P&G would be responsible for substantiation.

Q: So what if a teen just wears a “Drink Coke” shirt, like a product placement?

A: We haven’t thought about that expressly. She isn’t sure – nothing is being said, no claim is necessarily being made. (Isn’t there a representation that the individual chose, of his/her own free will, to wear that shirt because it was cool?)

Q from audience: Advertisers sponsor discussion forums on their websites, and maybe they waive membership fees (for good reviewers, anyway) – how does that work?

A: Is the company screening out negative reviews?

Q: Maybe. The expectation is that reviews will be positive, and the only compensation is free use of the website.

A: We have thought about noncash compensation, like coupons or free samples. There’s little empirical data on whether that’s a material connection, but some research suggests that when someone’s paid in cash v. gift, it creates different expectations about performance. Cash = a perception of work. Candy = a social market. What people are willing to do differs – they don’t care as much about how much they get as a “gift” in social markets, but they do correlate amount of work to amount of cash. This suggests a difference in materiality. (Translating that to materiality for other people requires several logical steps, though I do think they’re logical – the real issue is whether consumers will understand the ways in which cash and gifts both, though differently, distort ordinary judgment. If your “good friend” Coke gives you gifts, you may be a more committed salesperson than you’d be if your employer Coke paid you – and yet other people may not discount your advice even if they know about the gifts, whereas they would discount your advice if they thought of you as a paid shill. So gifts could be a cheap and effective way of distorting consumers’ communications. Robert Cialdini’s book Influence has some great discussion of the ways in which we fail to understand the psychological effects of “gifts.”)

Another answer from a panelist: Putting things on your website may be different, especially if you screen out negative reviews. You may expose yourself to a backlash or even legal risks if you take off negative information that you let people post.

Q: What about recent research by Lowenstein et al. that says that disclosing conflicts of interest (in investment advice, as I recall) tends to increase consumer trust and yet increase biased advice, making matters worse?

A: She isn’t familiar with the research. The goal is to inform consumers. Information overload is something the FTC deals with all the time.

Justin Brookman, Internet Bureau, NY AG’s office: His opinions are his own, not the AG’s. The Internet Bureau was created in 1999, and pursues any illegal activity on the internet, but mostly goes after false advertising and deceptive practices. He was concerned about the DMCA’s effects on ordinary consumers – both 512’s notice and takedown, which can harm user speech like Wendy Seltzer’s about the NFL’s copyright claims, and 1201’s anticircumvention ban, which hampers security testing of things like Sony’s CD copy protection schemes.

So the AG is very pro-consumer speech. One concern: license agreements that ban negative reviews and product testing. These should be void as against public policy, yet lots of companies include these provisions. They aren’t necessarily acting in bad faith. No one likes to be criticized or thinks criticism is fair; they may wish that benchmarking be done by different standards. NY’s position is that it’s not for the criticizee to decide when criticism is fair, and even putting the provision in your license agreement is unconscionable and subjects you to liability under NY law. NY went after McAfee for its anti-benchmarking contract, which even misrepresented that testing was illegal under federal law. This is an area where NY will continue to be active, especially as UGC becomes more important. Some companies are becoming more reasonable – IBM says you have to test the latest version of our software and disclose your methodology. He’s not sure that’s good enough, but it’s definitely better than the earlier versions.

Q: Does it matter whether the license term is disclosed before purchase? Does it make a difference whether a business is purchasing versus a typical consumer?

A: As to the first question, unconscionable terms are not valid no matter how well disclosed. As to the second, it’s not a big area for the AG – the AG’s purview is practices that affect lots of consumers. His instinct is that companies too have free speech rights, but the case is less compelling (at least if it’s individually negotiated, and not a blanket term).

Q: What is the allegation? Unfairness or unconscionability?

A: The NY AG doesn’t have unfairness jurisdiction. But telling someone they can’t criticize software, implying that it’s illegal to do so and would create a breach of contract, is itself deceptive.

Q: Most people don’t read those terms at all. Is there a solution to that?

A: It’s always been an issue. We’re bringing these actions to prevent boilerplate from taking over the world.

Q: Are you applying the reasonable consumer or the fool’s test?

A: NY has the fool’s test (what would confuse the gullible consumer), but the AG tries to be reasonable in practice. If only 1-2 consumers would be fooled, we’re unlikely to expend resources.

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