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Tom Cohn is an online advertising legal eagle. During a 17 year stint with the FTC, he was regional director for the Northeast region in the marketing practices division. He's also worked as a legal advisor to the director of the Bureau of Consumer Protection.
Currently, Cohn is with Venable LLP's New York office, where along with legally representing clients, he also advises them on legal and practical aspects of FTC and industry regulatory compliance. His clients include some of the major players in digital advertising as well as industry trade organizations including the IAB, AAAA, AAF, and the DMA.
We caught up with Tom to ask what he sees as the burning legal issues in online advertising today. Number one on his list? The still-in-progress FTC Guides Concerning the Use of Endorsements and Testimonials in Advertising.
Tom Cohn: A few of the touchy areas are endorsements, testimonials, and any third party statement used to advertise and promote -- such as blogs, discussion boards, chat rooms, and forums. Any third party statements must reflect the honest reflections and findings of the endorsers. Those statements can't contain any representations that are deceptive or that can't be substantiated by the advertiser.
The FTC has…posted revisions to its endorsements and testimonials guide that came out in 1980. At the last minute, they stuck in new issues concerning new media marketing. One example [they provide] is a video game expert. He's a blogger who publishes about games, who got a free game from a company for review. According to the new proposed guidelines, he should have disclosed that he got the game for free.
Here's a second example: An employee of an MP3 device company posts a message on an online discussion board touting the benefits of her employer's new product. The FTC says she should disclose the fact that she works for the company, given a consumer reading the post would not ordinarily make this association.
In terms of enforceability, it's really unclear how an advertiser or a marketer is supposed to police this. You can't make that blogger post that disclosure. [Yet under these guidelines], both the game maker and the blogger could be found at fault. Is the manufacturer supposed to check on a 24/7 basis that everyone's doing that [disclosing]? And what do they do if he isn't? It's the blogger's site. The manufacturer doesn't control what's on it.
It gets even dicier in that example about the employee. If an employee does this on her own free time because she's passionate about MP3s, how is an employer supposed to monitor that? It's really impractical for an advertiser or seller to monitor this activity.
These comments that the FTC stuck in at the eleventh hour really raise more questions than answers.
The other issue they didn't address is the fact that this goes on all the time in the offline area. They basically are treating online and offline differently. Traditional media outlets don't disclose this type of information [e.g. if a book or film reviewer got the product at no cost].
Affiliates, Ad Networks and Flogs
The second area in which Cohn sees real potential for legal intervention, both on the state and potentially on the Federal level, is that point at which affiliate marketing and ad networks intersect with dubious products and sellers.
Cohn: What we've seen in recent months is a lot more interest, at least on the state enforcement level, in sites that use review and blogger sites to drive traffic to sellers, generally diet supplements and business services. Affiliates are doing this by the thousands, and ad networks are part of the process of driving traffic through those mechanisms.
Not only might there be false or unsubstantiated claims on the product websites, but also on these blog sites or review websites. The state AGs [attorneys general] are noting this. I haven't seen a lawsuit yet that's gone after an affiliate marketer. Texas noted a couple of blog sites in a recent action. The Texas AG said these were basically get rich quick claims on these blog sites that the Texas AG alleged were not true.
These are flogs, or fake blogs, that basically exist for the sole purpose of driving traffic to the seller's Web site. And really, they were just a couple exhibits attached to the Texas AG's lawsuit. This practice has been going on for months, if not years, but it's heating up now. It's kind of like a confluence of a few concerns, a perfect storm getting the attention of the AGs and possibly on the federal level as well. First, there are fraud claims -- that the advertiser may be deceptive, then marketing claims that may be deceptive, and then the third issue is the affiliates who use allegedly deceptive practices to drive users to the Web sites. If these things result in a lot of consumer complaints, credit card billings, for example, it can garner a lot of attention.
State law enforcement scrutiny is heating up in this area. And what we've seen just this year is not just the FTC moving toward the endorsement and testimonial guidelines, but also in February they published Negative Option Marketing and issued five guidelines for marketers who use these negative option features.
There are two cases [the FTC] has spoken on just in recent months involving false and deceptive advertising in weight loss products and allegedly bogus cancer cures. I think it stands to reason that if they put the pieces together they'll match the state AGs. It's already happening on the state level. Connecticut is investigating açaí berry online marketers. Other states are looking at this also, I've heard.
We represent lots and lots of advertisers, but also affiliate marketers and some ad networks, too. It's really unclear as to whether some state or federal agency is going to seek to hold an affiliate, or a super affiliate, or an ad network responsible. So far all we've seen are state and federal actions against the product sites themselves. But we're watching with concern. It's possible government enforcers must seek to hold them liable.
UPDATE: In the few days between our conversation, and publishing this post, the FTC made its move. "My prediction has now come true," says Cohn, "the FTC announced Monday that it sued 'unknown' affiliate marketers behind sponsored search results that read: 'makinghomeaffordable.gov', but that, when clicked on, take consumer not to the US govt website/program by this name that provides free assistance, but instead to commercial websites collecting personal financial info and charging fees. The FTC alleged that affiliates were engaged in deceptive practices: falsely claiming to operate US govt website, and to be, or be affiliated with, the US government."