Copyright © 2010 Chip Cooper

It didn't take the Federal Trade Commission (FTC) long to show Internet advertisers and blogger-endorsers that they mean business regarding the FTC Guides Concerning the Use of Endorsements and Testimonials in Advertising (16 CFR, Part 255) that went into effect in December, 2009.

On April 20, 2010, the FTC notified AnnTaylor Stores Corporation regarding the FTC's investigation into whether AnnTaylor violated Section 5 of the FTC Act (15 U.S.C. Sec. 45). At issue was AnnTaylor's offer to provide gifts to bloggers who AnnTaylor expected would post blog content about their attendance at AnnTaylor's preview of its Summer 2010 collection of women's clothing.

Applicable FTC Guides Requirements for Endorsers and Advertisers

If all you do on your blog website is publish creative content about your areas of interest or your own products or services, you're not regulated by the Guides.

However, if you're an intermediary (such as an affiliate or blogger) for another online marketer, and you pitch someone else's products or services in exchange for payment of money, you're clearly an endorser. The receipt of payment is considered a "material connection". If you're an endorser, you must disclose all "material connections" with advertisers, and you don't, you could be fined $11,000 by the FTC.

There's a "grey area" in situations where an endorser isn't paid money, but does receive some sort of benefit or gift. Under these circumstances, where the applicable facts indicate there is a "material connection", the FTC Guides will apply, and the "material connection" must be disclosed.

The "grey area" is exactly where the FTC had concerns regarding AnnTaylor (the advertiser in this case). Specifically, the FTC was concerned that bloggers who attended the preview failed to disclose that they had received gifts for posting blog content about the preview. Under the Guides, advertisers are required to monitor and to provide guidance to their endorsers to ensure that they comply with the Guides - including the obligation to disclose "material connections" with the advertisers.

The FTC's Recommendation -- "No Enforcement"

The FTC's closing letter concluded that no enforcement action would be recommended.

In support of this conclusion, the FTC noted that AnnTaylor had adopted a written policy stating that no gifts would be issued to a blogger without first telling the blogger that the blogger must disclose the gift in his or her blog. In addition, the FTC noted that AnnTaylor posted a sign at the preview that informed bloggers that they should disclose the gifts if they post comments about the preview.

Conclusion

What are the take-aways from this case?

First, there is a confusing element in this case that made it difficult for bloggers to determine whether they were required to disclose a "material connection". The promotion actually promised bloggers who attended the preview that if they posted about the preview within twenty four (24) hours they would be entered into a "mystery gift card drawing". Although the gift came after the blog post (which ordinarily would mean that no disclosure was required), the gift offer was actually made before the blog post, and the offer was contingent on the blog post being made within a specified time (which probably means that there was a sponsorship relationship and a benefit or gift requiring disclosure). The confusing nature of the offer and its relationship to the gift could have been a factor in the FTC's decision not to seek enforcement; it just wasn't a clear-cut case.

Second, should we conclude that AnnTaylor's written policy plus its sign posted at the preview are sufficient to satisfy its legal requirements as an advertiser under the Guides? It's difficult to say. The advertiser's obligations are essentially to notify and to monitor its endorsers. The sign provided scant notice. And there's no evidence that there was any monitoring. So, we'll have to wait for further guidance from the FTC.

One thing is clear; however -- the FTC has fired its first shot over the bow of Internet advertisers and endorsers based on its recent Guides. Expect the FTC to be aggressively monitoring the Internet landscape for violations of the FTC Act from now on.