Canada: Risks of Astroturfing and Online Endorsements

Copyright 2011, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Intellectual Property – Social Media Series, January 2011

The expansion of Web 2.0, including user-generated content and social media activities, has provided fertile and inexpensive ground for organizations to more easily engage in astroturfing and other forms of marketing that risk being held deceptive.

Astroturfing and Flogging

In July 2009, the Attorney General of the State of New York announced a settlement with cosmetic surgery company Lifestyle Lift over its publishing of allegedly fake consumer reviews on the Internet. The Attorney General's office claimed that company employees were directed to pose as satisfied customers and post positive reviews and comments about the company.

Under the settlement, Lifestyle Lift was required to pay $300,000 in penalties and costs. In its press release, the Attorney General's office stated that "[t]he case is believed to be the first in the [United States] aimed at combating 'astroturfing', a growing problem on the Internet".

Astroturfing is often defined as an advertising, public relations or political campaign of an organization that is disguised as a spontaneous grassroots campaign.

A related concept is flogging, or fake blogging. Flogging is the term frequently used for a blog that appears to originate from a credible, non-biased source, but is, in fact, created by an organization to market a specific product, service or political view.

A recent example of flogging was an advertising campaign by an electronics device manufacturer that included a fan blog run by a person who claimed to be helping his friend get a particular device for Christmas. The blog was discovered to be the marketing campaign of the manufacturer and swiftly pulled, and the tactic was widely criticized by the online community.

This article considers recent changes to United States policy, and current Canadian policy, in respect of astroturfing and endorsements in the commercial marketing and advertising sphere. As will be evident, even organizations with good intentions need to carefully consider current guidelines in order to ensure compliance.

U.S. Reaction

Effective December 2009, the U.S. Federal Trade Commission (FTC) revised its Guides Concerning the Use of Endorsement and Testimonials in Advertising (FTC Guide) to cover explicitly blogging and social media.

The FTC Guide, which reflects the FTC's interpretation of the prohibition on unfair or deceptive acts or practices, provides that advertisers and endorsers are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between advertisers and endorsers.

In the FTC Guide, an "endorsement" is defined as any advertising message, including one on a blog, that consumers are likely to believe reflects the opinions, beliefs, findings or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser.

The existence of an "endorsement", and the application of the FTC Guide, depends on the relationship between the "endorser" and the "sponsoring advertiser". The FTC will consider various factors, including whether the endorser has been compensated (in the form of money or free product), the value of any product received, the terms of any agreement, and the history of the advertiser and endorser.

According to the FTC Guide, a blogger who receives a free video game system from a manufacturer in exchange for reviewing the product is considered an endorser, even if the blogger is not obligated to write a positive review of the product.

As a result, the FTC Guide requires the blogger to disclose the receipt of the free system, and requires the manufacturer (the so-called advertiser) to advise the blogger of the disclosure requirement and have procedures in place to try to monitor the blog postings for compliance.

In addition to the disclosure requirements, both the advertiser and the endorser would be liable for any false or unsubstantiated statements, such as claims about the product that are inaccurate, made through the endorsement, the review on the blog. This potential liability extends to the advertiser, even if the advertiser has no control regarding the content or the dissemination of the endorsement, since the advertiser initiated the process

The FTC Guide also provides new celebrity endorsement disclosure requirements. The previous guidance did not require a celebrity endorser to disclose his or her relationship with an advertiser when making most endorsements as the FTC recognized that consumers expected a monetary relationship in such situations.

The new FTC Guide, however, makes it clear that celebrities have a duty to disclose such relationships when making endorsements outside of traditional advertisements, such as on talk shows or in social media.

The FTC is now actively enforcing the FTC Guide, and recently finalized its first order, a consent order against a public relations agency regarding its online marketing tactics, that cited the new FTC Guide. In that case, the FTC claimed that the agency and its principal engaged in deceptive advertising by having employees pose as ordinary consumers posting video game reviews on a website where games could be purchased, without disclosing that the reviews came from paid employees working on behalf of the developers.

Endorsements in Canada

Canada's federal false and misleading advertising statute, the Competition Act (the Act), applies to "representations" that promote directly or indirectly any business interest by any means whatever. While there is no Canadian guideline equivalent to the FTC Guide that explicitly sets out how endorsements will be treated in respect of Web 2.0, it is clear that the treatment of endorsements under Canadian law is similar.

The Canadian Competition Bureau's guideline entitled "Application of the Competition Act to Representations on the Internet" clearly states that the Act applies equally to false or misleading representations regardless of the medium used.

The Bureau has stated that it focuses its enforcement efforts in respect of online representations on the party or parties who "cause" the representation to be made, which may be the party who makes the representation and/or the party that permits the representation to be made. Thus, a company that encourages or requests a consumer or other endorser to post comments on a company product or service may be deemed responsible for the comments.

The Bureau has also provided some guidance on the requirements for endorsements, so that companies can avoid liability for false and misleading representations under the Act. In particular, the Bureau has stated that representations should contain all information necessary to enable a reasonable purchaser to make sound decisions and, in the context of endorsements in particular, representations must be free from ambiguity as consumers normally attach greater weight to them.

Further, it is the Bureau's expectation that a connection to the sponsoring advertiser or product should be disclosed. As in the U.S., the non-disclosure of payments to a prominent individual is not misleading.

However, exceptions arise where the format of the advertisement suggests that such individual volunteered his or her services. Although the guidance on endorsements does not explicitly mention the online environment, it is clear that the guidance can, and should, be applied to endorsements made in all media.

In addition to the Act, Advertising Standards Canada (ASC), which is a substantial advertising industry self-regulatory body, has included guidance on endorsements, including regarding disclosure, in its Canadian Code of Advertising Standards.

Amongst other comments relevant to endorsements, the Code states that endorsements must not be deceptive and that "no advertisement shall be presented in a format or style which conceals its commercial intent". ASC has both consumer complaint and trade complaint procedures, both of which are actively used, and can result in advertising material having to be withdrawn.

Canadian Practice Considerations

Organizations should consider the following points when implementing advertising strategies:

  • Given the overlap in advertising between Canada and the U.S., especially the global and accessible nature of Web 2.0, any changes in U.S. practice and increased disclosures as a result of the new FTC Guide are likely to become the standard requirement in Canada. Consumers will expect disclosure of material connections between advertisers and endorsers, and a failure to disclose such connections is more likely to be considered misleading.
  • Organizations should monitor their relationships with online reviewers, and their consumers generally, as it is easy to slide into an endorser/sponsoring advertiser relationship where disclosure is required.
  • Organization-sponsored messaging, including postings on message boards, websites, blogs and social networks and in TWEETS, should always be clearly disclosed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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