Failure to Disclose Payment for Word-of-Mouth Marketing Can Violate FTC Act

This posting was written by William Zale, editor of CCH Advertising Law Guide

A marketer could violate the Federal Trade Commission Act by paying a consumer to praise a product or service to others, if the consumer’s relationship with the marketer is undisclosed or otherwise unclear from the context, according to a Federal Trade Commission Staff Opinion Letter dated December 7.

The practice could be deceptive because those hearing the consumer’s favorable comments are likely to give them greater weight and credibility than would be the case if the marketer’s sponsorship were disclosed. The relationship between the “word-of-mouth” marketer and the endorser should be disclosed if consumers hearing the message would not reasonably expect the existence of the relationship, according to the FTC staff.

Because children and teens are more vulnerable to marketing messages than adults, the Commission would consider consumer expectations from the standpoint of an “ordinary child or teenager” in determining whether to launch an enforcement action in cases of marketing to children, the FTC staff added.

The staff letter was issued in response to a letter from Commercial Alert, a nonprofit marketing watchdog group, requesting that the FTC investigate companies that engage in “buzz marketing” and that the FTC issue new guidelines requiring disclosure of paid marketing relationships. FTC staff concluded that issuance of guidelines was unnecessary at this time and that the staff would determine on a case-by-case basis whether law enforcement action is appropriate. Members of the public were encouraged to submit information and recommend that the Commission take law enforcement action.

As an example of conduct viewed as improper, Commercial Alert’s letter referred to a 2002 Sony/Ericsson marketing campaign in which 60 trained actors reportedly were employed to prowl tourist attractions in New York and Seattle, behaving like tourists and asking passersby to take their pictures with a camera phone. In another example, Procter & Gamble reportedly assembled in 2004 a marketing task force of 250,000 teens compensated with coupons, product samples, and other items.

The FTC Staff Opinion Letter and the petitioning letter from Commercial Alert will be published in the December report of the CCH Advertising Law Guide.