Articles Posted in Federal Trade Commission

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We have previously posted about some of the often overlooked requirements of the FTC Endorsement Guidelines. Recent actions show that the FTC and other regulatory authorities are getting serious about enforcement.

In March 2011, a company selling a popular series of guitar-lesson DVDs agreed to $250,000 to
settle Federal Trade Commission charges that it deceptively advertised its
products through online affiliate marketers who falsely posed as ordinary
consumers or independent reviewers. According to the FTC release:

The Learn and Master Guitar program promoted by Legacy Learning and Smith is
sold as a way to learn the guitar at home using DVDs and written materials.
According to the FTC’s complaint, Legacy Learning advertised using an online
affiliate program, through which it recruited “Review Ad” affiliates to promote
its courses through endorsements in articles, blog posts, and other online
editorial material, with the endorsements appearing close to hyperlinks to
Legacy’s website.  Affiliates received in exchange for substantial commissions
on the sale of each product resulting from referrals.  According to the FTC,
such endorsements generated more than $5 million in sales of Legacy’s
courses.

The FTC’s revised guidelines on
endorsements and testimonials, issued in 2009,
explain in general terms when the agency may find endorsements or testimonials unfair or deceptive.
Under the guidelines, a positive
review by a person connected to the seller – or someone who receives cash or
in-kind payment to review a product or service – should disclose the material
connection between the reviewer and the seller of the product or service.

“Whether they advertise directly or through affiliates, companies have an
obligation to ensure that the advertising for their products is not deceptive,”
said David Vladeck, Director of the FTC’s Bureau of Consumer Protection.
“Advertisers using affiliate marketers to promote their products would be wise
to put in place a reasonable monitoring program to verify that those affiliates
follow the principles of truth in advertising.”

In August 2010, a public relations agency hired by video game developers agreed to pay $250,000 to settle Federal
Trade Commission charges that it engaged in deceptive advertising by having
employees pose as ordinary consumers posting game reviews at the online iTunes
store, and not disclosing that the reviews came from paid employees working on
behalf of the developers. The company also agreed to set up a monitoring program to ensure compliance going forward.

Other regulators have taken similar actions. In 2009 Lifestyle Lift, a cosmetic surgery company, paid $300,000 to settle with the
State of New York over its attempts to fake positive consumer reviews on the
Web regarding the results of face-lift procedures. .
Many aspects of social media provide great business opportunities, but it is important to ensure that your use, and your employee’s use, of social media is done in way that does not create legal liability.

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Congressman Edward J. Markey (D-Mass.), a senior member and former chairman of the Energy and Commerce Committee’s Communications, Technology and the Internet Subcommittee, sent a letter dated February 8, 2011 to the Federal Trade Commission (FTC) requesting more information about possible consumer protection issues related to “in-app” purchases, particularly relating to kids.

The following is an excerpt from the letter:

“I am disturbed by news that in-app purchases may be taking advantage of children’s lack of understanding when it comes to money and what it means to ‘buy’ an imaginary game piece on the Web.  Companies shouldn’t be able to use Smurfs and snowflakes and zoos as online ATMs pulling money from the pockets of unsuspecting parents.  The use of mobile apps will continue to escalate, which is why it is critical that more is done now to examine these practices. I will continue to closely monitor this issue and look forward to the FTC’s response.”

Click here for a copy of the letter

It is important for companies to understand the potential legal issues with innovative business models and to ensure clarity so that consumers understand

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Originally posted on the Gamification Blog.

Many people are aware that in 2009,
the FTC implemented guidelines that addressed the use of endorsements and testimonials by bloggers. The main stream press highlighted just the part of these guidelines that require disclosure by bloggers of compensation received for recommending a product or service. However, the guidelines include some lesser known provisions which apply more broadly to consumer generated media and relate to gamification.

  • The guidelines are not limited to bloggers, but cover any advertising message,
    including consumer-generated media,
    that consumers are likely to believe reflects the opinions, beliefs, findings,
    or experiences of the endorser. This includes consumer testimonials, such as reviews or recommendations endorsing a product or service on any social media site, not just blogs.
  • When a connection exists between the endorser and the seller of an advertised product that might materially affect the weight or credibility of the endorsement, such connection must be fully disclosed. In one example, the FTC says that if a blogger gets a free video game to evaluate and review, he must clearly and conspicuously disclose that he received the game for free. In another example, it states that if someone receives redeemable points each time they tell friends about a product, this fact needs to be clearly and conspicuously disclosed.
  • In these examples, the FTC also states that the company needs to advise the consumer giving the testimonial that this connection should be disclosed,
    and it should have procedures in place to try to monitor the consumer’s postings for compliance.
  • Advertisers are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between themselves and their endorsers. Endorsers may also be liable.
  • Whenever an advertisement represents, directly or by implication, that the endorser is an expert with respect to the endorsement message, then the endorser’s qualifications must in fact give the endorser the expertise that he or she is represented as possessing with respect to the endorsement. This raises potential gamification issues with leader boards, badges and expert status to the extent that this implies an “expert”
    status that the user does not actually posses.

This is just one of many examples of little known laws that relate to gamification.

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The Federal Trade Commission has extended until July 12, 2010, the deadline for public comments on its review of the Children’s Online Privacy Protection Act (COPPA) Rule. The request for comments was originally published in the Federal Register on April 5, 2010.

As stated on the FTC website:

The primary goal of the Children’s Online Privacy Protection Act (COPPA) Rule is to give parents control over what information is collected from their children online and how such information may be used.

The Rule applies to:

* Operators of commercial Web sites and online services directed to children under 13 that collect personal information from them;

* Operators of general audience sites that knowingly collect personal information from children under 13; and
* Operators of general audience sites that have a separate children’s area and that collect personal information from children under 13.

The Rule requires operators to:

* Post a privacy policy on the homepage of the Web site and link to the privacy policy on every page where personal information is collected.

* Provide notice about the site’s information collection practices to parents and obtain verifiable parental consent before collecting personal information from children.

* Give parents a choice as to whether their child’s personal information will be disclosed to third parties.

* Provide parents access to their child’s personal information and the opportunity to delete the child’s personal information and opt-out of future collection or use of the information.

* Not condition a child’s participation in a game, contest or other activity on the child’s disclosing more personal information than is reasonably necessary to participate in that activity.

* Maintain the confidentiality, security and integrity of personal information collected from children.

Many in the industry have complained that the FTC has not provided clear enough guidance on how to comply with COPPA.

However, in order to encourage active industry self-regulation, COPPA also includes a safe harbor provision allowing industry groups and others to request Commission approval of self-regulatory guidelines to govern participating Web sites’ compliance with the Rule.

One of the few companies to have received Safe Harbor status is Pillsbury client Privo, Inc.

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The FTC recently posted a press release (FTC Press Release) on their settlement with Twitter, Inc. over charges that the company failed to protect users’ private information. The charges against Twitter stem from several high-profile incidences where hackers were able to gain administrative control of Twitter to: view nonpublic user information; gain access to direct messages and protected tweets; reset any user’s password; and send authorized tweets from any user account.

The FTC made it a point to remind companies that a promise to keep user personal information secure must be kept. Furthermore, even when social networking users choose to share information with others, they still have a right to expect that their personal information will be kept private and secure. The press release outlines the reasonable steps Twitter failed to take and serves as a useful guideline for companies that want to make sure their user information security practices do not run afoul of FTC expectations.

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This Federal Trade Commission has launched a campaign to educate tweens (kids ages 8 to 12) about advertising so they can become more discerning consumers of information. Called Admongo, the goal of the campaign is to boost advertising literacy by:

  • Raising awareness of advertising and marketing messages
  • Teaching critical thinking skills that will allow tweens to better analyze and interpret advertisements
  • Demonstrating the benefits of being an informed consumer

Here is a link to the game trailer

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ftc-logo.gifThe Federal Trade Commission released a study raising issues regarding adult content in virtual worlds that virtual world providers should consider when evaluating their privacy, content storage, access, and age verification policies. The FTC also highlights “best practices” for virtual world providers dealing with these important issues. The full report (.pdf) is available at the FTC’s website.

From the FTC’s report:

The FTC surveyed 27 online virtual worlds – including those specifically intended for young children, worlds that appealed to teens, and worlds intended only for adults. The FTC found at least one instance of either sexually or violently explicit content in 19 of the 27 worlds. The FTC observed a heavy amount of explicit content in five of the virtual worlds studied, a moderate amount in four worlds, and only a low amount in the remaining 10 worlds in which explicit content was found.

The FTC recommends that virtual world providers:

  • Use more effective age-screening mechanisms to prevent children from registering in adult virtual worlds;
  • Use or enhance age-segregation techniques to make sure that people interact only with others in their age group;
  • Re-examine language filters to ensure that they detect and eliminate messages that violate rules of behavior in virtual worlds;
  • Provide more guidance to community enforcers in virtual worlds so they are better able to review and rate virtual world content, report potential underage users, and report any users who appear to be violating rules of behavior; and
  • Employ a staff of specially trained moderators who are equipped to take swift action against rule violations.

Many of the issues highlighted by the FTC’s report could have been avoided by addressing these concerns, from both a technical and legal perspective, early in the design process.

Pillsbury’s Virtual Worlds and Video Games team has helped many clients address these issues when building their virtual worlds, and has developed additional “best practices” regarding deployment of virtual worlds. Some of our recommendations include:

  • Seeking specific parental permission for youth visitors;
  • Deploying parental permission systems in conjunction with youth accounts;
  • Assigning specific staff responsibility for monitoring compliance with emerging legal trends.

It is best to address these questions early in the development cycle, when a potentially expensive problem can be averted with minimal expense.

For further information, please contact our Virtual Worlds and Video Games team.