With the introduction of the Federal Trade Commission’s (FTC) new revisions to their endorsement regulations, they laid down the foundations to deal with any infringement of the guidelines. The guarantee of a nationwide crackdown began in December and in the wake of this, there have been numerous news stories outlining FTC’s action against certain companies flouting the new revisions.
Although some have argued that the new revisions aren’t black and white, and that they can be found to be a little vague, the FTC have still found vendors and affiliate marketers deliberately ignoring the clearly established regulations outlined in the guideline revisions.
Despite the warning leading up to and the media sensation after the changes, many companies and affiliates did not heed the warning, and FTC has come down on companies like a hammer on nails. Handing out high fines and warning of termination of business, it is clear that infractions haven’t been taken lightly. The question is, whether this action is enough to wake companies up to the threat of punishment and avoid the need to hire a criminal defense attorney.
But is it just a scare tactic or are they really doing something?
1. Legacy Learning Systems – Not Disclosing Endorsement Contracts
Legacy Learning Systems are an online based business which provides courses to learn a variety of skills such as playing musical instruments. One of such courses was an educational DVD series which taught buyers to play the guitar. Online the DVD series had a substantially lengthy list of glowing review hailing it as the best thing since sliced bread.
This all seemed absolutely perfect. Sales were up for Legacy Learning Systems and customers were receiving what they thought to be a highly recommended product. Until, of course, they came under the scrutiny of the FTC.
The FTC found that Legacy Learning Systems had been hiring people to provide bogus reviews on the product, posing false positives which showed the product to be something just less than holy. This in itself is not a problem. Legacy Learning Systems are completely within their rights to hire third parties to write reviews on the products. In the case of this, most reviewers will see it as an unwritten rule to give a positive slant on the recommendation.
Legacy Learning Systems crime, however, was the lack of disclosure from both themselves and the third party reviewer, stating their connection with Legacy Learning Systems and their contractual circumstance of being paid. The FTC don’t take too kindly to the breach of this rule, as they feel that consumers have the right to fair, unbiased reviews; and in the case that recommendations are a marketing ploy, these consumers have a right to know that and draw their own conclusions on the validity of the information.
In respect of this defiance of regulations, Legacy Learning Systems have been fined $250,000 by the FTC along with other stipulations regarding their future behavior.
In light of this case, Marisa Vallbona, a member of the Board of Directors for the Public Relations Association of America (PRSA) gave her advice on the subject: “Let’s say your client or employer gives a gift to a blogger and expects a review. Tell—don’t ask—the blogger to disclose the fact in his or her review. Otherwise, you’re asking the review to be considered fake and putting yours and your client’s reputation at stake.”
2. Skechers – Providing Deceiving Claims
The famous shoe brand Skechers, recently aired a TV commercial which viewed Kim Kardashian endorsing a pair of trainers that would help the wearer lose weight, as well as tone certain muscles. With a celebrity endorsing a product, the public feel safe in the knowledge that ‘Well, if they’re wearing them, so should I.’
In fact, in reality Skechers found themselves facing a horrendous fine in regards to false information deceiving the public in the advertisement. The shoes do not help the wearer lose weight. Despite the claims made by the company, and reaffirmed by celebrities such as Kim Kardashian and Brooke Burke, there was no evidence to show that the shoes in fact made any difference to a person’s figure. Despite a settlement out of court, Skechers criminal defense attorney still only managed to make a deal at a whopping $40 million.
Skechers not only had to pay out $40 million in fines, they were also forced to provide refunds to all customers who bought the shoes, giving them the benefit of the doubt that they were bought for weight-loss purposes. The point that the FTC were trying to make was that companies need to either provide supportable authentication of their claims, or be hyper-aware of exaggerating results.
About the Author
James Martell is an Internet pioneer who discovered the lucrative world of affiliate marketing in 1999. He is a self-taught Internet entrepreneur and a leading expert in affiliate marketing, search engine optimization and outsourcing. He speaks weekly on his popular long-running podcast on topics important to online marketers. Lately, James has spent time online researching various topics on www.ftc.gov, www.bgs.com and www.wikipedia.com. Residing in a seaside community south of Vancouver, B.C. Canada with Arlene, his wife of 24 years, and his four children, Adam, Justin, Shelby and Victoria, James has created a life that allows for more free time to spend with his family.