FTC: What is the Federal Trade Commission Doing to Internet Marketing?
For good or bad, the U.S. Federal Trade Commission under the Obama administration is going to take a more pro-consumer stance than we’ve seen in years. What’s that mean to your business?
With little understanding of how social media works, the FTC will be looking at its prior success in cracking down on deceptive business practices both in franchising and multilevel (MLM)/network marketing.
Here’s where I see things headed…
1. Affiliates will be required to disclose financial compensation is involved when they promote a particular product or service in exchange for a commission. In particular, this is going to affect “review” sites, blogger “recommendations,” Facebook posts, and even Tweets that contain affiliate links. This is going to be particularly troublesome for Twitter because of the 140-character limit.
2. Anyone who receives a complimentary review copy and writes or blogs a recommendation will need to disclose the “freebie” to the reader. That means no more positive spinning buzz for a $2,000 info product as a favor to a friend who gave you a free review copy pre-launch.
3. Testimonials are going to need verification for accuracy and, if the results are atypical, there will need to be a prominent disclaimer to that effect plus a disclosure as to what are typical results. For example, if Joe Smith claims he made $10,000 the first month using your biz opp product, you better (a) verify Smith’s claim is accurate, (b) let the reader know if those results are atypical, and (c) disclose what the typical purchaser really earns.
4. If there are expert endorsements, there will likely be a requirement that the endorsement is backed by generally accepted scientific proof (not some wild theory from Dr. Ima Quack who earned her doctorate from the correspondence school New Age University of Alternative Reality Living while institutionalized as a psychiatric patient). Bogus testimonials aren’t going to cut it, particular when your offer relates to earning money or health issues.
5. In lawsuits and actions by state attorneys general, all of the above will be taken into account when making charges of fraudulent and deceptive trade practices against Internet marketers. That’s in addition to what the FTC and FDA will do at the federal level.
About the Author
With an advanced international law degree from Georgetown University and more than 15 years of real world legal experience, Attorney Mike Young is President of the Internet Ethics Council and creator of Website Legal Forms Generator software. He helps entrepreneurs protect and grow their businesses online.
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Unfortunately, “commission disclosure” requirements are not going to change the HUGE number of foreign-based affiliates who will just start sucking a bigger share of the money out of this country.
Don’t get me wrong–ALL veiled review sites are scammy and reprehensible–but this is only a partial fix that will result in the pumping of more money out of the U.S.
There could even end up being a “Swiss Affiliate” industry…
Tom,
I agree with with your assessment unless (1) the FTC holds the owner of the affiliate program liable for affiliate misconduct (like MLMs can be held liable for misconduct by their distributors) and (2) the FTC asserts long-arm jurisdiction over affiliates based in other countries and either extradites to the U.S. for prosecution or sues and freezes assets as part of the civil litigation.
Best wishes,
-Mike
it seems to me that these laws are necessary considering some of the affiliate scams on the internet today but it is a shame that the law seems to target american affiliates when most of the scams are conducted outsides of the united states.
Raymond,
Many of the laws affect those doing business in the United States via the Internet regardless of location (inside or outside the country).
The big issue is whether or not the U.S. has a treaty or trade agreement that allows enforcement of these laws on those living outside of the U.S. Some nations do. Others don’t. And even those that do may not cooperate when one of their citizens is caught engaging in piracy, spamming, deceptive affiliate marketing practices etc.
Best wishes,
-Mike
What will this do to a company like “RipoffReport” – which excepts money in exchange for a positive review?
Jason,
At some point, websites that accept money in exchange for positive reviews will have to prominently disclose the compensation so that the average reader will know the monetary bias behind the reviews.
Best wishes,
-Mike