This morning, the FTC announced a settlement with a company that sells guitar lesson DVDs using social media. According to the complaint, the company recruited affiliates to promote its courses through endorsements. In exchange, affiliates received commissions on sales resulting from referrals. The FTC charged that the company disseminated deceptive ads by representing that the endorsements reflected the views of ordinary “independent” consumers, without clearly disclosing that the affiliates were compensated. To settle the case, the company must pay $250,000 and monitor affiliates to ensure they are disclosing the commissions.
This isn’t the first case a regulator has brought against this type of campaign. For example, last year, the FTC entered into a similar settlement with a company that failed to disclose that endorsers were connected to the company. And the New York Attorney General recently also challenged a company whose employees wrote reviews while posing as independent consumers.
As we have noted in previous posts, endorsers are required to disclose any material connections to the companies whose products they endorse. Companies would be well-advised to establish written policies designed to ensure that their employees, bloggers, and other agents make the required disclosures. In addition, companies should closely monitor bloggers and take actions against those that do not comply with their policies.