Electronic Retailer - July 2011 - 41

The more specific the FTC can be in the document, and the more it can illustrate with visual examples like it did back in 2000, the more useful the agency’s guidance will be for all of us who desire to advertise online while staying on the right side of the law.

So, where does the FTC want you to put your disclosures now? How does it want you to phrase them? How can you do it in way the FTC will agree is clear and conspicuous? If you have input, now’s the time to speak up. Of course, it’s not just about websites any more. Today a lot of advertising is occurring through content that is much more abbreviated, including tweets and small ads on social sites, so there’s less room for a disclosure. And now, a lot of content that qualifies as advertising under the law is happening through channels that often aren’t getting legal review ahead of time, often because the content is being generated in real time or it’s being posted by bloggers who are endorsing a product but have a financial or other “material” connection to it. There also are now virtual worlds or multi-player games with embedded ad content and product placements, many of which reach children and minors. How should the FTC’s revised guide handle all this? What does the FTC want to cover – and not cover – in its updated guide? Only the FTC knows, but it may be possible to discern its direction, at least in part, by looking at its recent enforcement actions and at recent public statements made by the director of its Bureau of Consumer Protection.

Affiliate Marketing and Material Connections
In its revised guide, the FTC may cover ways to disclose material connections clearly and conspicuously in endorsements and the need to monitor affiliates.

This year, the FTC sued Legacy Learning, which advertised a guitarlesson course. Bloggers who seemed to be ordinary consumers endorsed it online when in fact they were affiliates who were paid for leads they sent. That fact should have been disclosed by those affiliates, but it wasn’t. In its settlement with the FTC, in addition to paying a six-figure fine, Legacy agreed to monitor its top revenue-generating affiliates to make sure that each discloses clearly and conspicuously that it earns a commission. It also agreed to terminate affiliates passing themselves off as ordinary consumers. In a recent speech, FTC Bureau of Consumer Protection Director David Vladeck said: “In some cases, affiliates are let loose on the public without adequate direction or supervision to ensure that their advertising is truthful and non-misleading.” He advised companies: “The first step is to give specific and detailed guidelines to the affiliates as to what information it should contain and any advertisements they disseminate. … [and then] do quality control on the back end once consumers are directed to [your] website as a result of affiliate marketing.” In the past year, the FTC has applied the same principles when filing legal actions against sites that looked like neutral “news” or “review” sites but in fact were connected to products (e.g., the acai berry cases and Reverb case). Clear and Conspicuous Terms and Conditions for Negative Options The FTC also may decide to mention negative option marketing in its revisions and how “clear and conspicuous”

disclosures should be made in that context. In the past year, the FTC has sued companies offering “risk-free” products or services online but then enrolling people in negative options. In its complaint in the Jeremy Johnson case, for example, the FTC alleged that all of the key details were “buried in the fine print on the website (if disclosed at all) or on a separate Terms page.” As Vladeck explained in a speech, “[Some marketers] have become experts in hiding disclosures where they are least likely to be noticed. They use mouse print, bury disclosures in complicated terms and conditions, provide disclosures at a point in the transaction when consumers are unlikely to read them, or make internet disclosures through hyperlinks that do not attract consumers’ attention.”

Privacy and Information Sharing
The FTC also may cover what it believes constitutes adequate notice to consumers regarding the sharing of their information. In a recent speech, Vladeck focused on privacy disclosure in online advertising, and he cited a recent FTC action against EchoMetrix regarding software it sold to parents to monitor their children’s online activities. The FTC alleged that EchoMetrix “failed to adequately disclose to parents that it would share the information it gathered from their children with third-party marketers” by making “only a vague disclosure about information sharing and placing it about 30 paragraphs into a multi-page end user license agreement.” It’ll be interesting to see how specific the FTC gets in its revised Dot Com Disclosures. The more specific it can be in the document, and the more it can illustrate with visual examples like it did back in 2000, the more useful the agency’s guidance will be for all of us who desire to advertise online while staying on the right side of the law. Greg Sater is an attorney with Rutter Hobbs & Davidoff in Los Angeles. Contact him at gsater@rutterhobbs.com. 41

July 2011 | electronicRETAILER

Electronic Retailer - July 2011

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