FTC’s Disclosure Guidelines for Online Marketing: How to get it right (Part 1)

    Kevin Thompson is an MLM attorney, proud husband, father of four and a founding member of Thompson Burton PLLC. Named as one of the top 25 most influential people in direct sales, Kevin Thompson has extensive experience to help entrepreneurs launch their businesses on secure legal footing. Recently featured on Bloomberg TV and several national publications, Thompson is a thought-leader in the industry.

    FTC Disclosure Guidelines

    The world we live in today is changing at a rapid pace. Technological developments have revolutionized the way we communicate and live. We can now complete our Christmas shopping lists from the comfort of our recliners. But while these technological advancements bring great convenience, they also create serious problems for marketers. Bottom line: technology is growing faster than the law can keep up. It was easy to regulate marketers back in 2000 when the original guidelines were written. Few people had the ability to publish…anything.  But today, it’s a different ballgame.  We all have the means of production in the palm of our hands with our mobile devices. With communication tools such as YouTube.com, Facebook, Twitter and WordPress, it’s been really difficult for network marketing companies to create clear policies for their salespeople.  Luckily, the Federal Trade Commission clarified much of the confusion. The FTC has recently published the .com Disclosure Guidelines (fully included below). Essentially, the guidelines provide a “how to” guide for giving adequate disclosures in online advertisements. This is a good thing. The FTC has recognized that this area of the law is fuzzy, blurry, and every other synonym for “unclear” you can find in Merriam-Webster.

    These guidelines are extremely helpful and a step in the right direction for our industry. But….the document is over 50 pages long. This is why I have decided to boil them down in a way that makes sense for you all. The purpose of this series is to give you specific instructions on how to stay within the boundaries of these guidelines. While the guidelines never referenced any MLMs, I’ll be providing examples using fact patterns that are common to our industry.

    Before we get into those fact patterns, it’s important to understand the basics of these guidelines. There are several key themes to keep in mind when providing “adequate disclosure.”

    1) Required disclosures must be “clear and conspicuous.”
    A clear and conspicuous disclosure is:
    i. One that is within close proximity to the relevant claim in question.
    ii. One that is not hidden in a bunch of senseless words.
    iii. One that is prominent and easy to spot i.e. clearly visible.
    iv. One that is in plain language that your target audience will understand.
    v. One that is not accompanied by other distractions in the advertisement.

    In other words, do not bury the disclosure in the fine print.  It needs to be seen.  Period.  Keep in mind, the manner you communicate the relevant claim should also be the manner you communicate your disclosure. Therefore, a YouTube video should contain a disclaimer in both video and audio formats.

    2) Do not partake in “unfair or deceptive acts or practices.”
    While this should go without being said, it’s important to remember that “honesty” is always the best policy. Never try to hide the ball or position your product or service in a way that’s inconsistent with reality. Transparency with customers is actually good for business long term.
    If the claim is untrue, there is no amount of disclosure or substantiation that can “sanitize” the statement. For example, an advertisement states that an individual lost 100 pounds taking a new weight loss supplement when in reality she only lost 75 pounds. In this scenario, no disclosure or amount of substantiation can qualify or limit the claim being made because the claim is blatantly false. Therefore, in this scenario, the claim itself must be modified, i.e. individual X lost 75 pounds using the dietary supplement.

    3) Claims must have “substantiation,” regardless if they originate from the company or the field.
    Substantiation refers to evidence that backs up your claim. The FTC states in the guidelines that before distributing an ad, advertisers must have “appropriate support for all express and implied objective claims that the ad conveys to reasonable consumers.” In other words, if a company or its sales people make aggressive marketing claims, those claims need to be backed up with reliable data. Research studies, expert opinions, and other types of data must be used to support any type of claim you make.

    With MLM companies, distributors are also required to provide substantiation when promoting a product or service. As made clear in the Endorsements and Testimonials Guidelines published in 2011, the company can be held responsible for any false or misleading claims made by its distributors. Therefore, it’s vitally important to ensure the field is educated on ways to properly market the products and services. It’s crucial that the field understands when and how to provide substantiations and income disclosures. This is where compliance training becomes a key factor. If you care about the longevity of your business, you’ll make the investment to make sure your reps are adequately trained.

    4) Would your disclosure give a “reasonable customer” notice of the information?
    A reasonable customer is a hypothetical person who contains the necessary intelligence, judgment, attention, knowledge, and experience required to function in our society. For example, where a disclaimer is located at the bottom of a website in 30 lines of small text titled “LEGAL TERMS AND CONDITIONS,” a reasonable person would never expect to find a disclosure about the product they are buying buried there. A reasonable person would expect to find the disclosure somewhere within close proximity of the statement in question.  When you’re creating promotional materials, use common sense when figuring out the location and form of your disclosures.

    5) Research and follow-up on the effectiveness of your disclosure.
    The FTC states that the ultimate test to determine the adequacy of a disclosure is whether the information intended to be disclosed is actually conveyed to consumers. While this is not a requirement made by the FTC in making an adequate disclosure, be forewarned that you will run the risk of having your disclosure declared inadequate. The FTC recommends conducting controlled side-by-side research experiments to determine where the average consumer does and does not look on a computer screen to test the effectiveness of your disclosures. The FTC also recommends assessing the effectiveness of a disclosure via hyperlink by monitoring the link’s click-through rate and make adjustments accordingly. If you know of an analytics geek that’s good with tech, it’s time to pay him or her.  That data is going to be very important.

    6) If you cannot follow the FTC guidelines in your advertisement, do not make the claim in question.
    Where it is not possible to follow the FTC’s guidelines in giving adequate disclosure to customers, the claim in question should NOT be disseminated. This further reiterates point #1 and #4. A disclosure is not adequate simply because it is the best you can do under the circumstances. The disclaimer must actually convey the qualifying or limiting information to the ultimate consumer.

    A perfect example of when it is not possible to ensure compliance with the FTC’s guidelines is when a distributor makes an income claim via Twitter. The character count allowed per “tweet” is simply not high enough to ensure that adequate disclosure is given to the consumer.  As an example, a proper disclaimer could take up half of the tweet: “the average person can expect to earn between $300 and $500 per month.”  While it’s true that a hyperlink may be included within a tweet, a reasonable consumer will not likely realize that “bit.ly/f56” leads to a disclosure of the statement made. Therefore, it is best to completely avoid making income claims on Twitter altogether.

    Conclusion

    Be careful.  With companies that exercise tight control over their marketing efforts, complying with these standards will be easy.  But for network marketing companies that rely on the creativity of a volunteer army, it’s going to be incredibly to walk this tight rope.  Compliance training is going to be incredibly important to ensure sales leaders really understand how to do things right.  Proper behavior in the field is not going to happen by sending out a single newsletter once a quarter or  referencing the “C” word (compliance) at an annual convention.  It’s going to take commitment.  In Part 2 of this series, I’ll provide you with specific instruction on ways to do this right.  I’ll be sure to use fact patterns that are common in the MLM industry.

    Click here to jump to Part 2 of this series.

    If you’re reading this via email, please click here to review the full .com Disclosure Guidelines.

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      Kevin Thompson is an MLM attorney, proud husband, father of four and a founding member of Thompson Burton PLLC. Named as one of the top 25 most influential people in direct sales, Kevin Thompson has extensive experience to help entrepreneurs launch their businesses on secure legal footing. Recently featured on Bloomberg TV and several national publications, Thompson is a thought-leader in the industry.

      • How meaningful is prohibiting “unfair and deceptive” when we can’t even agree on what that means?

        • This is why the law needs to be clarified. These FTC guidelines are a step in the right direction when it comes to internet marketing.

          • tex2

            We need to apply common sense, we do NOT need to “clarify” the law. When the upline makes 2/3s to 9/10s or more from the tools than they do the advertised business and displays their lifestyle as if it came from the 1/10 or less to 1/3, there is a need to apply the law, NOT to “clarify” it.

            • Kevin Thompson

              This is an article about online marketing, Scott. It has nothing to do with tools. When it comes to providing disclosures online, the clarity from the FTC is step in the right direction. What one person thinks is “clear and conspicuous” is “vague and ambiguous” for another.

              • tex2

                I consider online marketing showing the MLM marketing plan on a webinar. Do you?

              • Shawna

                I do as well! If the company is going to show a webinar, there must be a disclaimer advising that the income claims but be substantiated, for example sometimes an income claim can be made based off of a full and active matrix etc. In addition to this, I think all MLM companies are required to develop and post an “Income Disclosure Statement” after its first or second year of existence. This will show the average earnings of its distributors… FYI take a look at Herbalifes… Not good..

              • tex2

                Shawna,

                I don’t know much about Herbalife, but when Amway people show the sales and marketing plan, whether online or otherwise, they leave out where most of the profit comes from, the “tools” (various types of meetings, CD/DVDs, books, voice mail, web sites, etc.). There is NO WAY this can be considered “clear and conspicuous” and is not only “vague and ambiguous” but “unfair and deceptive” as well, the latter of which is right out of FTC Section 5 law.

      • Shawna

        I am an IBO for an MLM company who does not put any emphasis on Compliance. They have some lady doing compliance who has never done it before so that means there is no one searching for potential violations on the internet by other IBOs.. Why would a company not put emphasis on the external portion of compliance and be proactive on making sure that its IBOs are protected?

        • tex2

          If your company is like Amway, they allow the IBOs with huge businesses to break the rules all of the time. If the company actually enforced the rules, the high level IBOs would leave to a company like yours, that doesn’t enforce the rules. Amway only goes after the “little guys.”

      • Katherine

        Thank you for your well-written post! You mentioned that for a YouTube Video, the disclaimer should appear in both video and audio formats. Would you happen to mean that the disclaimer should appear in both the video itself and in written form in the description box? What is your view on having just a disclaimer in the description box and no disclosure in the video itself? I am a proponent of seeing a clear and conspicuous disclosure both in the video as well as the text in the description box, but that is seldom the practice on YouTube these days. Content creators usually just bury the disclaimer somewhere in the description box all the way at the bottom.