Expensive Pitfalls of Online Endorsement and Testimonial Advertising

FROM MCAFEE & TAFT’S NOVEMBER NEWSLETTER

More and more companies are seeking ways to establish an Internet presence to
promote their products and services. The industry phrase the “Twitter Effect” refers to the instantaneous consumer-to-consumer feedback that drives customer decisions, such as instantaneous reviews of a movie on its opening night.

Forward-looking companies are increasingly searching for ways to make this instant feedback work to their benefit. A popular path is for a company to have its products reviewed by well-known bloggers or social media personalities, i.e. people who have well established followings on social media networks such as Facebook®, Twitter® or MySpace®. While this may be an effective way to generate “buzz,” online endorsement and testimonial advertising is not without its legal hazards.

Revised Federal Trade Commission (FTC) rules may impact company and consumer approaches to Internet advertisements. Under recently revised FTC rules found in 16 C.F.R. § 255, reviewers must disclose if any material connection exists between the reviewer and the products or services being reviewed, or else face stiff penalties.

The FTC revisions reflect increased enforcement efforts to prevent false or misleading testimonial advertising or product reviews and the ease of disseminating product reviews on the Internet.

For example, in a recent New York investigation, Lifestyle Lift agreed to pay more than $300,000 in penalties and costs based on the publishing of fake reviews on the Internet. According to reports, Lifestyle Lift paid employees to engage in creating advertising in the form of consumer testimonials and spread these testimonials across the Internet, which is sometimes referred to as “astroturfing.”

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