The Federal Trade Commission (FTC) has finally stepped up and issued new regulations affecting commercial use of social media. Specifically, the agency now requires bloggers to disclose relationships with sponsors, whether the blogger is paid or merely receives “free” products and services; and for celebrities to disclose their paid relationships with sponsors. The FTC’s updated Endorsement Guides (PDF) define those circumstances under which disclosure must be made, removing what many thought were gray areas of the law.

The new rules go into effect December 1, and violators can be fined as much as $11,000.

The pending changes to the guidelines have been made available for public comment for some time, and were discussed in detail by J. Thomas Rosch, Commissioner of the FTC, in a talk (PDF) given June 25 in Washington, DC.

The new regulations include extensive examples of situations that require disclosure, and recognize the difficulty of regulating social media given that endorsements and testimonials may not come from the company or its employees, but from individual consumers.

“An advertiser’s lack of control over the specific statement made via these new forms of consumer-generated media would not automatically disqualify that statement from being deemed an ‘endorsement’ within the meaning of the Guides. Again, the issue is whether the consumer-generated statement can be considered ’sponsored.’”

The FTC also recognizes, for example, “the ‘near-endless’ variety of possible relationships between bloggers and the companies about whose products they blog.”

The new Guides document is 81 pages long. For a briefer and more readable discussion by the FTC of the challenges it faced (and the process it followed) drafting these new regulations, check out Rosch’s speech (PDF), which includes this example.

“an advertiser hires a blogger to test out and then review a new body lotion. The advertiser does not make any specific claims about the lotion’s ability to cure skin conditions, and the blogger doesn’t ask the advertiser whether there is any substantiation for such a claim. Yet, in the online review, the blogger writes that the lotion cures eczema and recommends the product for that condition. Under the facts set forth in new Example 5, both the advertiser and blogger would be subject to liability for false or unsubstantiated statements made by the blogger’s endorsement.”

“Payola,” which transformed into blogola with the rise of social media, is one of the most difficult to detect, difficult to define forms of online consumer deception and some would argue, thought not I, that there is nothing wrong with some of the current practices whereby sponsorships are not disclosed. I believe the FTC has done a good thing defining which practices are acceptable, which are not, and who is responsible for a breech. Removal of all of these mysterious connections between sponsors, bloggers and celebrity endorsers is absolutely required for social media to reach its absolute effectiveness as a corporate marketing tool.

Tags: Federal Trade Commission, FTC, payola, blogola, Endorsement Guides, J. Thomas Rosch