Celebrities face endorsement crackdown

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By David Gelles in San Francisco

Published: October 5 2009 19:53 | Last updated: October 5 2009 21:26

Advertisers, celebrity endorsers and even some internet bloggers will be held liable for false statements they make about products as part of a crackdown by US regulators on deceptive advertising practices.

The new rules on the use of testimonials in advertising, released by the Federal Trade Commission on Monday, also say that anyone who endorses a product, including celebrities and bloggers, must make explicit the compensation received from companies.

“All the worst fears of businesses have come true,” said Anthony DiResta, an attorney representing several advertising groups. “Brands that sponsor blogs or pay bloggers to cover events could face increased legal risk when held accountable for the statements of their bloggers.”

Many of the new guidelines, which were expected, are focused on online word-of-mouth and social-media advertising, two categories that have grown during the recession. Spending on social media marketing reached $1.35bn in 2007 and is expected to reach $3.7bn by 2011, said the Word of Mouth Marketing Association.

“The FTC is trying to get a grip on this new media, and in doing this they’re saying they need full and complete disclosures,” said Mr DiResta. “But this industry is changing by the hour when you’ve got all sorts of social media platforms, whether they’re blogs or tweets.”

The new focus on transparency in online advertising comes after several companies have been exposed for “astroturfing,” or creating fake grassroots campaigns, and as advertisers race to spread word of their products through new services such as Facebook and Twitter.

Some companies are paying users to send out advertisements through these services, but attempts at full disclosure have achieved mixed results.

In an effort to hold companies and endorsers accountable, the FTC guidelines state that businesses and reviewers will be liable for any false statements made about a product. If a blogger receives a free sample of skin cream and untruthfully claims it cures eczema, for example, the company and the blogger could be held liable for false advertising.

The addition of qualifying phrases, such as “results may vary”, will not release the companies and the endorsees of their products from responsibility for their statements. Instead, companies will have to provide the average results achieved by typical consumers.

The new guidelines are not law, but are meant to inform prosecutors and courts that handle such cases. They will come into effect on December 1.

While the FTC made explicit what is not allowed, it did not provide clear guidelines on how to make adequate disclosures.

“How do you give effective disclosure on a tweet that’s 140 characters or on message on a cell phone?” said Mr DiResta. “When it’s a new product, how do you say what typical results are?”

Richard Cleland, assistant director for the FTC’s division of advertising practices, said violations would be assessed on a case-by-case basis. “There will be some accommodations for the type of media involved,” he said. “But if the required disclosure can’t be made, then that kind of medium might not be appropriate for advertising.”

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