Monday, March 21, 2011

FTC Settles with Company Allegedly Using Deceptive “Consumer” Reviews

This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices Law.

A company that produced the “Learn and Master Guitar program” has agreed to settle FTC allegations that it engaged in deceptive advertising of its products through online marketers who falsely posed as ordinary consumer or independent reviewers.

Through an online affiliate, the company—Nashville, Tennessee-based Legacy Learning Systems Inc.—advertised the program through endorsements in articles, blog posts, and other online editorial materials that included hyperlinks to the company’s website, according to the agency.

The FTC charged that the company disseminated deceptive advertisements by representing that online endorsements written by affiliates reflected the views of ordinary consumers or independent reviews, without clearly disclosing that he affiliates were paid for every sale they generated.

Legacy Learning Systems and its owner have agreed to pay $250,000 under the terms of a proposed FTC consent order. In addition, the company would be required under the consent order to submit monthly reports about their top 50 revenue generating affiliate marketers and to disclose that they are earning commissions for sales.

Guides Governing Endorsements, Testimonials

In 2009, the FTC issued its final Guides Concerning the Use of Endorsements and Testimonials in Advertising (CCH Trade Regulation Reporter ¶39,038A).

Under the guidelines, a positive review by a person connected to the seller—or someone who receives cash or in-kind payment to review a product or service—should disclose the material connection between the reviewer and the seller of the product or service, according to the FTC.

“Whether they advertise directly or through affiliates, companies have an obligation to ensure that the advertising for their products is not deceptive, said FTC Bureau of Consumer Protection Director David Vladeck.

“Advertisers using affiliate marketers to promote their products would be wise to put in place a reasonable monitoring program to verify that those affiliates follow the principles of truth in advertising.”

The FTC complaint is In the Matter of Legacy Learning Systems, Inc., CCH Trade Regulation Reporter ¶16,571.

Text of the complaint, the Agreement Containing Consent Order, and a news release appear on the FTC website.

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