Thank you for the summary. I appreciate you providing the key points in a concise yet informative manner.

1. Learn more about WOMMA and how
we can help you improve your word
of mouth marketing program at
www.womma.org.
(c) 2006 Word of Mouth Marketing Association.
You may share this presentation if it is not altered in any way.

2. Word of Mouth
Marketing & FTC
Advertising Law
Mary K. Engle
Associate Director for
Advertising Practices
Federal Trade Commission

3. Overview
• Disclaimer: The views I express are my
own, and not necessarily those of the
FTC or any individual Commissioner
• FTC jurisdiction & ad law basics
• FTC law applied to word of mouth
marketing
• Commercial Alert complaint
• FTC Act deception analysis
• Word of mouth and children
Slide 3

4. FTC Basics
• Law enforcement agency with broad
consumer protection and antitrust
authority over most industries
• Consumer protection responsibility
under Section 5 of the FTC Act,
prohibiting “unfair or deceptive acts or
practices” in commerce
• Includes false or misleading advertising claims
• Includes sales and promotional activities
Slide 4

5. FTC Advertising Law
• Ads must be truthful and substantiated
• Ads are deceptive if they are likely to
mislead consumers to their detriment
• Express or implied claims can mislead
• Ads are evaluated as a whole
• Ads are interpreted from standpoint of
reasonable consumer
• Ad may have more than one reasonable
interpretation
Slide 5

6. Word of Mouth Product Claims
• Marketers who employ consumers to
buzz about their products must comply
with the FTC Act
• Word of mouth marketers are
responsible for their agents’ claims
• As with any ad, if word of mouth
marketer makes deceptive claims
through an agent (e.g., says product can
do something it can’t), FTC can bring an
action under Section 5 of FTC Act
Slide 6

7. Commercial Alert Petition to FTC
• Consumer advocacy group, Commercial
Alert, filed petition with FTC
• States that it’s deceptive for marketers
to pay consumers to buzz about a
product without disclosing they’re being
paid
• Seeks investigation of “buzz marketing”
practices
• Asks FTC to issue guidelines and bring
cases
Slide 7

8. Response to Commercial Alert
• FTC staff declined Commercial Alert’s
request to issue guidelines specific to
word of mouth marketing
• Case-by-case investigation and
enforcement under Section 5 is
adequate to address any deceptive
practices
• Response letter offers guidance based
on existing FTC Guides
Slide 8

9. Response to Commercial Alert
• Response letter states that FTC’s
Endorsement & Testimonial Guides
apply to word of mouth marketing
• An endorsement is any advertising
message that consumers believe
represents the opinions, beliefs,
experience, etc. of a person other than
the sponsoring advertiser
• Paid word of mouth advocacy fits this
definition
Slide 9

10. FTC’s Endorsement Guides
• Endorsement Guides require disclosure
of a connection between a seller and an
endorser that might materially affect the
weight or credibility of the endorsement
• A material connection is one that isn’t
reasonably expected by the audience
• Examples of such connections include:
• Seller is paying endorser
• Endorser is related to seller
• Endorser is business associate of seller
Slide 10

11. Application of FTC’s Endorsement Guides to
Word of Mouth Marketing
• Consumers wouldn’t normally expect
that another consumer has been paid to
talk to them about a product
• Consumers may reasonably give more
weight to another’s views -- based on
assumption that speaker is independent
from the seller -- than they would if they
knew the speaker was being paid
Slide 11

12. Financial Ties Should Be Disclosed
• So: Under the FTC Endorsement
Guides, financial tie between seller and
paid agent should be disclosed
• Examples:
• Cell phone company pays college students to buzz
about sound quality of speaker phone
• Appliance company pays homemakers to buzz
about how well its dishwasher cleans without pre-
rinsing dishes
Slide 12

13. What If Agents Aren’t Paid?
• If word of mouth marketer doesn’t pay
its agents, is disclosure necessary?
• Depends on whether consumers would
give more weight/credibility to
endorsement even absent payment
• WOMMA’s ethical principles call for
disclosure regardless of payment
• Good practices and sound ethical principles can go
beyond the demands of the law
Slide 13

14. Word of Mouth Marketing and Kids
• Commercial Alert also complained
about word of mouth marketing by
children
• Same disclosure principle applies to
word of mouth marketers using teens:
paid relationships should be disclosed
• Whether teen consumers would expect a
relationship b/t marketer and agent is considered
from ordinary child’s standpoint
• There may be situations where kids would find a
connection material where adults would not
Slide 14

15. Word of Mouth Marketing and Kids
• Commercial Alert complained about
kids participating in word of mouth
advocacy w/o their parents’ knowledge
• If soliciting children under age 13
online, marketers must comply with
Children’s Online Privacy Protection Act
• Must get parents’ consent to collect personal info
• Outside of COPPA, FTC doesn’t enforce
any other law that would require
parental approval
Slide 15

16. Summary
• Word of mouth marketers who pay their
agents to talk about their products should
require agents to disclose their relationship
• With apologies to Andrew Lloyd Webber:
“What’s the buzz? Tell me what’s happening…
What’s the buzz? Tell me what’s happening…
What’s the buzz? Tell me what’s happening…”
-- The Apostles, in Jesus Christ Superstar
Slide 16