Paying for Playing the Wrong Tune: FTC Enforces Endorsement/Testimonial Guides against Guitar Educator

A recent FTC enforcement activity shows that the FTC is serious about its revised Testimonial and Endorsement Guidelines.

On March 15, 2011, the FTC announced that it had settled its complaint against Legacy Learning Systems, Inc and its individual owner. Legacy had been promoting its learn the guitar at home DVDs and written materials. The FTC alleged that it advertised using an “online affiliate program, through which it recruited ‘Review Ad’ affiliates to promotes its courses through endorsements in articles, blog posts, and other online editorial material, with the endorsements appearing close to hyperlinks to Legacy’s website.” The endorsements appeared to be the views of “Ordinary consumers or ‘independent’ reviewers”, and they did not disclose that Legacy paid a commission for sales their referrals generated. The FTC alleged that these paid endorsements resulted in more than $5 million in sales for Legacy.

The FTC’s revised Guidelines on Testimonials and Endorsements require, in part, prominent disclosure of any material connection between a company and its endorsers. A material connection can be anything from a commission, pre-payment, coupons, or free product samples. The FTC takes the position that consumers have a right to know of any material connection between the endorser and the advertiser. Failure to make such a disclosure constitutes deceptive advertising.

Legacy has agreed to pay $250,000 to settle the FTC’s charges. In addition, they will have to monitor an submit reports about their affiliate marketers. The FTC’s press release can be found here.

If your company uses third party endorsers, affiliate marketers, or even employees to promote your products, it is essential that you:
1) Create a written policy for disclosing the material connection between your company and these endorsers. The FTC’s guidelines require such a policy.
2) Train all endorsers about how to make proper disclosures. Give examples in different social media. Teach them that a material connection means.
3) Consider short hand disclosures such as easily understandable hashtags on Twitter (NOTE: Since the publication of this blog post, the FTC has issued many clarifications on dotcom disclosures. For example, it recommends against vague hashtags like #spon . The FTC wants clarity in hashtags and recommends hashtags like #ad.)
4) Monitor and enforce your policy.