Sunday, January 03, 2010

The FTC Guidelines Part One: Good Intentions Don't Make Good Laws

Disclaimer: Before I start this series, let me make one thing very clear. I believe in openness and honesty. I believe people who are compensated for their speech should make that clear. But I don't believe that we should just blindly accept whatever regulation comes down the pike. Already online people are posting things like "Gosh isn't opennes and honesty a good thing? Why are you opposed to that?" I'm not.

If you are not an active blogger who spends your time worrying about these things, you may not know the details, but you've probably seen references to the Federal Trade Commission's (FTC's) new guidelines on endorsements and online activity. This post gives a bit of an introduction to these guidelines. In another post I'll give you my full disclosure.

What are the FTC Guidelines in Question?

In December of 2009 some new guidelines went into effect regarding the disclosure of relationships between advertisers, endorsers, social media, referral programs, and the acknowledgement of gifts received by people making comments in online forums. There were rules in place before this, of course, so the attention is not on the basic rules themselves but on the changes and new rules.

If you want to check out the new guidelines and see for yourself what we're discussing, here's the best place to start:

Federal Trade Commission Web Site

And the specific guidelines in question: Federal Trace Commission 16 CFR Part 255 (pdf). This is 81 pages of discussion and obfuscation. The actual guidelines start on page 56. The fifty-five pages before that are descriptive of changes and a justification for why the Commission has rejected all changes and clarifications proposed by the public during the open comment period for the regulations.

You can also watch some videos from Mary Engle, Associate Director - Bureau of Consumer Protection. These videos are 10-60 seconds each. Talk about short attention span theater. I'm not sure why they didn't cut them into one 3-minute video.

I only looked for half an hour, but I couldn't find a place to provide any feedback to the FTC other than by telephone. After reading the 81 pages, I'm not sure they want feedback, but you might start here:

Advertising Practices Associate Director Mary K. Engle - Telephone 202-326-3161

Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
(202) 326-2222

Agency Staff Directory (pdf)

What Is the FTC Really Trying To Do?

Great question. In very simple terms, their intent is to protect "the public" from false and misleading advertisements. With regard to these changes in particular, they want to make sure that consumers of the advertisements are not misled by endorsements that are deceptive or present atypical results as if they are typical results. In addition, they want to make sure that gifts, payments, and other financial arrangements are made known.

It is clear from their discussion and examples that their primary target is the health food/health miracle industry. But as with all government regulation, they spread a wide net so as to catch as many fish as they can.

Note: The big changes intended by the FTC are related to honesty regarding endorsements and financial relationships between parties. But along with that they have removed the language that allows advertisers to have some limits regarding liability for what is said by endorsers. In addition, the commission has dramatically expanded what constitutes an endorsement.

So What's The Issue?

Well . . . you've heard how a camel is a horse that went through committee. I say Jabba the Hutt is a mouse that went through a federal commission.

Their simple intention to eliminate false or misleading statements has resulted in a series of "guidelines" that will (have) stifle a great deal of free speech and have a serious (unintended) effect on commerce. The FTC has been extremely ineffective in most of their activities because of the manner in which they operate. (They are the architects of the Canned Spam Act.)

For those who haven't tip-toed into this arena, let me give a quick primer.

When the government decides it's time to regulate behavior, legitimate businesses only want one thing: Clear concise rules that can be followed. For example, if I put this precisely worded warning on a pack of cigarettes, then I've met the government requirement. Legitimate businesses love precise rules even if they're expensive because they can know for sure that they're following the law.

That's not how the FTC works.

The FTC works by publishing guidelines and then handling every instance of possible deception on a case-by-case basis. So there is no specific dollar amount that triggers an investigation; there's no warning or statement that protects the advertiser from prosecution; there's no checklist that guarantees you're inside the law. You have to just do your best and hope they don't come after you.

So what can legitimate businesses do? Pretty much the only thing they can do is to hire someone to help interpret the rules for them. If they have money they hire lawyers who pore through the guidelines and attempt to generate specific checklists so the business can operate within the law. After all, the legitimate businesses just want to get back to the business of making money. If it's a law, it's a law. How do I comply?

Businesses with less money have to wait until the other businesses figure it out, or until some "experts" emerge with a set of guidelines that they can follow. Again, the legit business just wants to get back to work.

All of this is complicated by the fact that U.S. government agencies throw a big dollop of political correctness into the mix. They can't say that a specific group of advertisers are all a bunch of lying bastards (e.g., the health supplement industry). So they have to craft a vast group of far-reaching policies that apply to everyone.

Serious Example: No one at the FTC is willing to make the following statement (which everyone knows to be true) . . .
    If you think you can take one sugar pill, do no exercise, and lose 40 pounds while getting chiseled abs, You're An Idiot.

The FTC spends an inordinate amount of effort protecting stupid people from themselves. They seem to have no understanding that some people WANT to believe that dried-up rare species nostril is going to cure cancer. No matter how much these people know they're being lied to, they'll spend their money. In the meantime, the FTC keeps spreading a wider and wider net.

In their defense, the FTC does not want to have a clear, concise set of rules because the bad guys will just stay one centimeter inside the line and find new and clever ways to rip people off. Uh . . . here's a news flash: No matter what the FTC does, the bad guys will learn new media and new techniques and find new and clever ways to rip people off. Creating overly-broad and vague regulations that have a chilling effect on free speech does nothing to advance your goals.

- - - - -

Next time I'll talk about the specific changes that are taking place as a result of these revised regulations. Intended or unintended. Businesses have to make decisions to limit their liability even if the FTC is acting completely irresponsibly through their unwillingness to be precise about their intentions.

Here are a few things to think about:

1) If you blog or post things on Twitter, Facebook, etc. you may be breaking the law. This includes comments on other peoples' blogs.

2) If people say nice things about you, your company, your product, or your service, you may be held liable for what they say.

3) The FTC doesn't remotely understand New Media but they're happy to add regulations anyway.


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  1. I've kept my eye on this fairly closely, but I've never come close to the line...yet.

    Recently, I started a website to allow Regional Managed Services Providers the ability to co-op on search engine marketing, content creation, link exchange, etc.

    The idea is that we have only one company from each region. If they submit blog content, an inbound link from their company and actively participate in keeping the site running, we'd give them a place to advertise their business and outbound links to their company.

    My concern is that I am planning on making it look more like a third party ranking site than a co-op of regional managed services providers.

    I am NOT collecting money from anyone for this. I am only helping promote their business (and my South Florida computer network support company).

    Do you think that a disclosure is necessary?


  2. Thank you for writing this series, it makes perfect sense what you say they are trying to do, and I think it is awful.


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