New FTC Rule Helps Improve Social Media & Travel Reviews

UPDATED – Eliminates $11,000 per event penalty originally published and later retracted by The Associated Press.

The United States Federal Trade Commission has published new guidelines requiring much greater transparency regarding endorsements and testimonials. In the first updating of its rules since 1980, the new guides clearly define that that it is not acceptable to provide an endorsement or testimonial regarding a product or service without revealing “material connections” – i.e. payments or free products received in exchange for the endorsement. The new rules go into effect December 1, 2009.

Smoke and Mirrors

New US trade rules will help clean up misleading travel & hotel reviews, blog posts and twitter updates by requiring disclosure of compensation.
Image Credit: Alex Clark cc|flickr

These guidelines cover more traditional advertiser / celebrity endorsements, but also specifically include any testimonials made via social media. The FTC press release provides blogging as a example, stating: “the post of a blogger who receives cash or in-kind payment to review a product is considered an endorsement. Thus, bloggers who make an endorsement must disclose the material connections they share with the seller of the product or service.”

That example leaves very little to the imagination for those seeking a loophole.

The FTC’s intention is to protect consumers from being misled by individuals having a potential conflict of interest. If any relationship involving compensation exists, disclosure will be required. Additionally, it also protects against claims that would not be “reasonably expected” by a consumer using the product or service. The FTC has put some teeth into the new rules, with fines up to $11,000 per post for breaching the guidelines.

As the rules cover “new media,” updates posted on the Twitter micro-blogging platform, and travel and hotel reviews and all forms of user generated content will also be covered under the new rules. Again, the goal is to allow consumers to benefit from the opinions of bona-fide users of the product or services, not the spin generated by “social media campaigns” created by clever digital advertising and public relations experts.

The impact of these guidelines on both social media and the travel industry should be very beneficial. One area that has come under considerable scrutiny recently has been hotel reviews on sites like Trip Advisor. While TripAdvisor has some good processes in place to protect against phony and/or inaccurate hotel reviews, it is very difficult for any site to weed out more sophisticated unethical activity.

Hopefully, these rules will severely inhibit the cottage industry that “enhances” hotel rankings by publishing bogus positive reviews to counteract legitimate negative reviews about a client hotel and generating similarly fictional poor reviews against competitive properties to negatively impact their rating in the destination. The requirement to disclose a client relationship will undermine the credibility of the review and the risk of significant fines should put a damper on operating covert review mills, or the actions of the companies themselves.

As I see it, the key issue within the 81 page guide (not a quick read) comes down to this section within Article II.A.1.2:

“The Commission does not believe that all uses of new consumer-generated media to discuss product attributes or consumer experiences should be deemed “endorsements” within the meaning of the Guides. Rather, in analyzing statements made via these new media, the
fundamental question is whether, viewed objectively, the relationship between the advertiser and the speaker is such that the speaker’s statement can be considered “sponsored” by the advertiser and therefore an “advertising message.” In other words, in disseminating positive statements about a product or service, is the speaker: (1) acting solely independently, in which case there is no endorsement, or (2) acting on behalf of the advertiser or its agent, such that the speaker’s statement is an “endorsement” that is part of an overall marketing campaign?”

The section continues by clarifying the issue: “The facts and circumstances that will determine the answer to this question are extremely varied and cannot be fully enumerated here, but would include: whether the speaker is compensated by the advertiser or its agent; whether the product or service in question was provided for free by the advertiser; the terms of any agreement; the length of the relationship; the previous receipt of products or services from the same or similar advertisers, or the likelihood of future receipt of such products or services; and the value of the items or services received. An advertiser’s lack of control over the specific statement made via these new forms of consumer-generated media would not automatically disqualify that statement from being deemed an “endorsement” within the meaning of the Guides. Again, the issue is whether the consumer-generated statement can be considered “sponsored.”

The one aspect that is still a bit hazy is exactly the method of disclosure that is required. For example, disclosures within the 140 character constraints of Twitter may present a challenge. Another question is how far the “material connection” can be taken. I am not a lawyer, but no, I don’t believe the combination tooth flosser / screen cleaner schwag given to attendees at a tradeshow last year would constitute a material connection…

So, bottom line, it is time for all those bloggers, pundits and product reviewers to have a bit of self reflection on the ethics of reviewing products when they have even a small business relationship with an organization. They remain entitled to their personal opinions; it’s just their financial relationships that need to be considered before they choose to include or exclude a disclosure. If there is a relationship, there will need to be a disclosure.

The full text of the FTC notice is available here.

About Robert Cole

Robert Cole is the founder of RockCheetah, a hotel marketing strategy and travel technology consulting practice. He also authors the Views from a Corner Suite Blog and publishes the Travel Quote of the Day. Robert speaks regularly at major travel industry conferences, authors articles for leading travel industry publications, advises travel-related startups and the equity investment community. He is an evangelist for the global travel industry.

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