Saturday, April 24, 2010

ABA Antitrust Section Spring Meeting part 3

Is Nothing Typical? Applying the New Standards in the Revised FTC Testimonial Guides

Presented by the Consumer Protection, Federal Civil Enforcement, Healthcare & Pharmaceuticals and Private Advertising Litigation Committees

Session Chair and Moderator: David A. Zetoony, Bryan Cave LLP

Cosponsorship is an indicator of how important and wide-ranging the FTC’s guides have been—our clients are asking lots of questions.

Mary K. Engle, Associate Director for Advertising Practices, Federal Trade Commission

One principal motivation for review of guides was widespread use of “results not typical,” particularly for weight control; most consumers couldn’t hope to get those results. Research on actual consumer reactions led us to amend the Guides. Commercial Alert also complained about stealth/buzz marketing, where consumers are paid to talk up products.

Three principal changes: (1) What happens when advertiser pays for a study whose results are featured? Previously we said no disclosure was necessary because the presumption was that substantiation would suffice. We changed because the fact the study was paid for might be material to consumers. (2) Typicality. When you use testimonials, they have to be representative of what consumers can expect; if the advertiser can’t substantiate that, then it can say what the general expected result is or it can say that consumers shouldn’t expect to get that result. The safe harbor for “results not typical” wasn’t working. (3) Disclosure of material connections between advertisers and endorsers.

Zetoony: Was there a need to deal with people stepping over the line, or was the word of mouth problem people who were also abusive under the old standards?

Michael Zaneis, Vice-President of Public Policy, Interactive Advertising Bureau: There was a need to update the guidelines. Microbloggers had no idea that rules existed, much less that they’d apply to bloggers. Wasn’t skirting the rules so much as lack of understanding. The disclosure rules are pre-internet—growing pains around pharma disclosure, and how FDA applies fair balance rules. Paid political speech: disclosure issues are also arising online. A few stumbles out of the starting block, but the substantive changes are not that big hurdles.

Natalie G. Lontchar, Vice-President, Senior Counsel, Home Shopping Network, Inc., St. Petersburg, FL: Most of her clients don’t have attorneys, so they may not know the rules—didn’t think they needed to disclose if they gave products to bloggers. The guidance helps small companies understand the rules.

Zetoony: Blogosphere reactions—effective at disseminating the guide?

Zaneis: It took a while for the industry/blogosphere to actually understand that they were going to be regulated (or that they already had these obligations). After that, the FTC did a lot to get the word out, as did WOMMA (Word of Mouth Marketing Ass’n) and DIMA (Direct Marketing Ass’n). Then bloggers exploded with worry: needed to explain the substance of the guides and then the enforcement priorities—the FTC is not a “gotcha” agency that tries to hide the ball and get a big settlement, but instead wants to send signals. That eventually dampened concern.

John P. Feldman, Reed Smith LLP, Washington, DC: Got attention because goes to basic tenets of how we relate on the internet: very immediate, personal, familiar-feeling even though you don’t know them personally—in ways you don’t feel close to actors in a conventional ad spot. When the blogosphere sensed tinkering with democratic aspects/immediacy, it touched a nerve. (Even though the regulation is designed to preserve that democratic/personal nature.)

Substantiation: The rules are trying to level the playing field—aspirational claims in weight loss still need to be substantiated; there is no free ride. To say that some companies are smaller/disproportionately impacted is not convincing.

Zetoony: are there industries where it’s harder to provide substantiation?

Lontchar: We’ve lost some products, particularly exercise equipment—we know the basics, but it’s hard to show exactly how. Seeing before and after photos of someone who lost 50 pounds is very effective, and it’s harder to show clinical results than with diet programs. Most of the companies we use are smaller companies. They don’t want to spend the money to do a study to show the basics of exercise. If you’re doing 5 hours a week and eating a health-conscious diet, you can expect to lose 2 lbs/week—but the companies want more than that because it’s not sexy enough. We don’t let them say more unless they have more evidence. It’s somewhat of a barrier, but we tell them to sell the product on the exercise and the basics of 2 lbs/week.

Zetoony: There’s no one size fits all on what’s a typical result—there is some flexibility. But clients want answers; safe harbor would be average.

Engle: It’s not always the numerical average. The results depicted in the ad under depicted circumstances should be generally representative of what consumers can expect to achieve. In terms of smaller companies: well, yes, substantiation will always be harder for someone with fewer resources, but you’ve always needed to substantiate claims. The evidence required for substantiation should also be sufficient to substantiate your expected results (if true).

Zetoony: Example of someone on raw vegetable diet/working out 10 hours a day/also using advertised machine. How comfortable are companies in depicting a unique situation and not holding results out as typical?

Lontchar: Generally the vendor knows the main point it wants to make. It can get a little blurry, but she thinks that eyeballing will generally identify a typicality claim.

Feldman: a question about the role of disclosures in general. FTC studies of supers suggest that the FTC hasn’t seen an appropriate disclaimer in this context. In that case, an advertiser will have a difficult time coming up with a claim not subject to typicality analysis.

Zetoony: Perhaps this fits in with David Vladeck’s suggestion that we might be in a post-disclosure era. Maybe we can’t use the disclosure framework any more.

Engle: we did begin the review under a prior director! There are general issues surrounding effectiveness of disclosures. In 1980, when the FTC issued the guides, it considered this very issue. It initially said that it wouldn’t allow a disclaimer, then backed down under protest. But still said that the advertiser should make the disclaimer as prominent as, and integrated with, the endorsement itself. If that had been done all these years, we wouldn’t most likely have needed to make the change. But people ignored that. If you’re limiting the claim, it should be integrated with the claim itself: no separate disclosure required.

Zetoony: Do we have a new concept of a material connection, or is this elucidation of what we knew?

Zaneis: It’s basically the same—the connection might affect weight or credibility; a reasonable person would expect a connection. Those aren’t perfectly harmonious, though. Seems to be stacked against bloggers for disclosure: there’s an assumption that the public doesn’t understand that a blogger might be getting some sort of product v. the New York Times book critic—assumption that public understands that the NYT writer gets the book for free, but not that the blogger does. Two competing standards, not a level playing field in that example. Whether the FTC applies them that way, we don’t yet know.

Zetoony: The disparity is technological—comments say bloggers may be subject to different disclosure requirements than traditional media. People may not understand that the editor of the local paper gets stuff for free. Artificial disadvantage/different standard for new media?

Zaneis: Yes, though he doesn’t think it’s a difficult hurdle for marketers/bloggers. Hard to argue that there isn’t a different application, though, because there’s an assumption the audience doesn’t understand. (I think the problem with the blogger is that the paid blogger is indistinguishable from the unpaid one absent disclosure, and because unpaid reviewers will tend to far outnumber paid ones the paid ones will get by default too much credibility for independence. The problem, that is, is that there is more heterogeneity among bloggers than there is among newspaper reviewers, and there’s either a market-for-lemons issue of decreasing trust, or consumers will be deceived into giving the paid endorsers the same credibility as the volunteers, neither of which are good outcomes.)

Engle: we do treat book bloggers the same as traditional reviewers: just because you’re online doesn’t mean it’s inherently different; it’s just that historically some things are more obvious. We should have explained more fully: there are different types of blogs. There are personal journals where people talk about their lives, kids; talk about a book or product you enjoyed; in those contexts, the relationship with the company wouldn’t be apparent. Then disclosure is required. If you have a review site, then it’s like a magazine offline. (I will call this a different way of saying my comment!)

Zaneis: creative solutions: metadata that follows along with the marketing message, like a marketing hashtag that gets retweeted: helps with monitoring, which can otherwise be very daunting in a complex ecosystem where people send along messages and add their own comments.

Zetoony: is there a de minimis exception for low-value goods? Is that a material connection?

Lontchar: generally with blogs we deal with people who are sending products to their favorite customers; we haven’t considered that de minimis, but would be happy for clarification.

Engle: at some level, a de minimis benefit wouldn’t be material. In practice, though, it’s probably infeasible to have that exception. Consider a continuing relationship—do you start disclosing when it reaches $100? Disclosure is much more feasible at the outset. Failure to do an initial disclosure when the value was small would be considered during an investigation, but that’s not the way to go.

Feldman: Highlights a structural problem with the guides. We’re talking about material connections and about endorsement. Initial threshold question: whether we have an endorsement or testimonial at all. The staff offered some criteria to figure out what a sponsored message might look like. Length of relationship, size of gift, etc. go into assessing sponsorship. If it’s not enough, you don’t have a sponsorship. But people are jumping straight to material connections.

Zetoony: Did the guides go too far in who they considered endorsers?

Feldman: Don’t necessarily go too far. There is confusion; the examples have a lot going on—the blogger who gets computer equipment. The analysis isn’t fully fleshed out.

The guides don’t make advertisers strictly responsible for the speech of others. It’s not a massive change on its face.

Zetoony: what about the CDA interaction for online speech?

Feldman: there could be. If you’re not the publisher or speaker, you can’t be held liable for harm arising from that speech. The question ties into the sponsorship issue: if I’m the sponsoring advertiser, am I the speaker in truth? The CDA is for a provider/user of an interactive computer service. Typically, the advertiser isn’t a provider of interactive services, though it might be a user. We don’t really know. (I am writing an article about this!)

Comment from audience: monitoring is really tough—people may be having conversations in lots of places about your product; virality is why brands want to spend money on it!

Feldman: the CDA is not a bulletproof vest. If you hire Kim Kardashian to speak on your behalf, and if you then promote her promotion, you are unlikely to be protected.

Zetoony: Talk about the loose cannon blogger as enforcement challenge.

Zaneis: it’s a brand challenge, and has helped make brands hesitant to use some sites/techniques. It’s not impossible—take offline lessons and apply online. Have accompanying material along with your product. Have a feedback mechanism: true communication between advertiser and bloggers. Open line of communication: you can train, not just order them to follow the law. Disclosures don’t always work there too! Front-end training is key. There is a perception by folks in the blogosphere that outrageous claims are ok. The FTC wasn’t all off-base about different expectations for audiences and content creators online. So make sure your folks live up to your expectations.

Lontchar: it’s about control: you control what you can and not what you can’t. On HSN, we can add in disclaimers/corrections.

Then I had to leave for a conference call, which made me sad because the discussion was very interesting.

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