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Potential Liability for Endorsements on Social Networking Websites

Posted on June 29th, 2010 | Author: admin

Endorsements on social networking websites can be a valuable marketing tool for companies.  They can also lead to potential liability according to guidelines issued by the Federal Trade Commission (“FTC”).  Effective December 1, 2009, the FTC issued revisions to its endorsement guidelines which provide guidance on how to avoid deceptive advertising.  Section 5 of the FTC Act (15 U.S.C. 45) prohibits businesses from engaging in unfair or deceptive acts or practices affecting commerce, and the FTC has interpreted this prohibition as covering false and misleading advertising practices.  The newly revised guidelines, called the Guides Concerning the Use of Endorsements and Testimonials in Advertising (16 C.F.R. § 255), address the application of Section 5 to the use of endorsements on the Internet and social networking websites, such as Facebook, Twitter, LinkedIn, MySpace, and personal blogs.

Pursuant to Section 5, advertisers are subject to liability for false or unsubstantiated statements made through endorsements, or for the failure to disclose a material connection between themselves and their endorsers.  Endorsers also may be liable for statements made in the course of their endorsements.  According to the new guidelines, an individual can have a “material connection” with a company not only if he or she is employed by the company whose products or services are discussed, but also if the individual receives free goods, services or special privileges in connection with commenting about a company.

Thus, if an employee posts a favorable comment about his employer’s product or service on his blog, the fact of employment must be disclosed.  A blogger must clearly and conspicuously disclose if she is paid by an advertiser or receives a free product or service in exchange for an online review. Furthermore, any comment made by the employee or blogger must be true and substantiated.

Although there is no private right of action under the FTC Act, a company may still be exposed to investigation or suit by the FTC.  Employers and advertisers should be aware that in addition to FTC enforcement, violations can also ignite consumer protection lawsuits by state attorneys general and consumer class action lawsuits.

The FTC noted that a company’s establishment of appropriate procedures governing social networking websites would be a factor in its determination as to whether law enforcement action is appropriate.  Therefore, to minimize liability, it is important that businesses immediately adopt social networking and blogging policies or review their current policies.

Social networking policies should be clearly written and require employees or agents to disclose their employment or agency relationship when making online comments about the company’s products or services. Alternatively, employers can simply prohibit such online comments by employees. Employees and agents should also be prohibited from posting any misleading or unsubstantiated statements about the company’s products or services online.  Finally, a good social networking policy will also address the proper use of the company’s name, trademarks, and other proprietary information on social networking websites.  Employers and advertisers may consider requiring employees and agents to submit proposed endorsements of the company’s products or services for approval by the company’s legal staff before they are posted on websites.  Employees and agents should be trained on the policy and a company should vigorously enforce its policy when there is a known violation.