Endorsement-based Advertising Subject to Law Enforcement by FTC

User endorsements are becoming a more and more popular form of “advertising” as the use of social media and user-generated content continues to increase. These endorsements often take the form of reviews via blogs or Yelp, but can also include other less conspicuous communications. These endorsements can be quite powerful. As a result some companies will compensate users for giving them. In some cases, the compensation can bias the endorsement. While this is not illegal, it creates issues that need to be considered.

In some cases, user endorsements leverage social media features. For example, a company’s website may include a button that, when clicked by a user, causes a positive message about the company to be posted via the user’s Facebook, LinkedIn, Twitter, or other social media account. When there is compensation for that endorsement–even soft compensation such as through loyalty program points or virtual goods–federal laws may come into play.

The Federal Trade Commission’s endorsement guidelines impose requirements on both the endorser and the advertiser if there is a “material connection” between the two parties. A material connection exists when there is a commercial link that consumers would not expect. A commercial link may arise when an endorser is compensated for the endorsement, for example, by payment, free samples, coupons, or other benefits. Several factors must be considered when determining whether there is such a consumer expectation to trigger the FTC requirements.

One of the requirements identified by the FTC is that any material connection must be “clearly and conspicuously” disclosed. The advertiser has affirmative duties to advise the endorser regarding the disclosure requirement and to have procedures in place to monitor compliance by the endorser. While both the endorser and the advertiser are subject to liability, the FTC has indicated that its enforcement activities will generally focus on advertisers.

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