Marketers Could Face New Federal Rules

You already know 2009 is going to be tough. With consumer confidence and disposable income in a race to the bottom, and with market conditions squeezing marketing budgets, this is probably not going to be your favorite year — unless you sell résumé services or relaxation tapes.

A new administration in the White House adds another unknown: Will the Obama government take a more activist approach to some of the issues that affect brands and promotions? And if so, will it have the bandwidth to tackle those issues while trying to pursue two wars overseas and repair the banks, the auto companies and the broad economy on the home front?

Answers to those questions won’t be clear until sometime after Jan. 20. But you need to be aware of important legal and regulatory developments already in the pipeline and headed for possible implementation this year. Here’s a quick pre-Inaugural tour of some of the agency rules and legislative measures that may very well change the way your company markets, advertises and promotes in 2009 and for years after.

PAYING FOR PRAISE

In late November, the Federal Trade Commission put a new set of guidelines about endorsements and testimonials out for public comment through the end of January 2009. The document is the first update to the FTC’s thinking about best endorsement practices since 1980, so there’s plenty to update. The changes contained in the new proposed guidelines come from an earlier round of public comment in January 2007.

One testimonial change being sought by the FTC is to expand liability for the truth of marketing claims to include the endorsers, so that celebrities and experts who appear in marketing materials can also be held responsible for fraudulent claims. For example, the proposed guidelines postulate a celebrity who appears in an infomercial endorsing a new oven bag that claims to cook a whole chicken in 30 minutes. If that celeb sees that five studio efforts to cook a chicken in that time fail, and then takes part in an ad that substitutes an hour-cooked chicken, he or she can be held liable for the fraud.

“This is consistent with the FTC’s recent enforcement activity in the past several years,” says Joseph Lewczak, a partner with Davis & Gilbert LLP. “They’re trying to pin liability not only on advertisers themselves, but on other people connected with the ad. They’re looking for bottlenecks where they can capture the right person who will have enough control to stop an obviously false or misleading ad from happening.”

In the past, that has meant extending responsibility to the media. But of course there are a host of new media types out now that didn’t exist in 1980. Blogs have become a particularly prevalent channel for getting out marketing claims, and the FTC is asking for comment on the notion of extending endorsement liability to bloggers who have received some form of material compensation from the marketer brand.

That could include something as basic as sending an influential blogger a new product — a digital camera or a snowshoe — to test and then discuss or review in a post. If sending product constitutes a commercial relationship between the brand and the blogger, then the marketer could be responsible for the accuracy of anything that blogger might say on the product’s behalf.

That might mean that brands using social media to get out the word about a new skin cream, for example, would have to keep watch to make sure none of its bloggers were claiming that the product could cure psoriasis.

From the other direction, the new FTC guidelines want to debate whether anyone receiving material compensation to give an opinion about a product or service in any marketing medium should be compelled to disclose that they’re being paid by the brand. These channels would include blogs and online discussion boards — for example, a video game blogger who’s been given a free review copy of a new game, or a company employee posting in a chat room about products related to his employer’s business, would have to disclose those facts or be held liable.

But the disclosure requirement could also affect a marketer using “street teams” of volunteers who earn points toward prizes, such as concert tickets or gadgets, for talking to their friends about a marketer’s products. “These incentives would materially affect the weight or credibility of the team member’s endorsements,” the proposed guidelines say. “They should be clearly and conspicuously disclosed, and the advertiser should take steps to ensure that these disclosures are being provided.”

As to the form of this disclosure, Lewczak says he’s an advocate of unique or distinctive approaches. “You don’t have to go out there and say, ‘Hey I’m being paid by Coca-Cola,’ ” he says. “If everyone on the street team wears a Coke T-shirt or some other form of obvious branding paid for by the advertiser, theoretically that should be enough.”

WATCHING THE WATCHERS

Marketers are moving more ad dollars online in search of cost-effective, targeted advertising. And the Web is becoming increasingly personalized, as sites acquire the ability to know where we’ve surfed, what we’re interested in and even, with GPS-enabled phones, where we may be in the world.

The convergence of those two trends may make behavioral targeting — the serving up of ads tailored to our interests based on what sites users have visited in the recent past — a hot button issue this year. The FTC actually produced a set of online ad guidelines in December 2007 that let the marketing industry regulate itself as to what information it collected on Web users and how it used that data.

But tech developments since then have added a new sense of urgency to the debate over privacy and online advertising, and that new fear may combine with a new, consumer-oriented administration in the White House to produce new rulings on behavioral targeting.

In particular, online ad companies such as NebuAd and Phorm have stirred the issue by seeking deals with Internet service providers. These behavioral ad companies use hardware installed at the ISP to perform “deep-packet inspection” to get to know its customers’ interests much better, they say, and thus to serve up more personally relevant ad messages.

The problem is that while deep-packet inspection doesn’t reveal any personally identifiable information, the ad company could possibly acquire that user ID data by, for example, monitoring traffic to link an IP address to a specific e-mail address. Privacy advocates have also charged that the opt-out provisions for ISP customers in these deep-packet deals are weak, and that controls over how ISPs can sell their users data need to be beefed up.

This hot button may only get hotter this year. A class action lawsuit filed in California last November against NebuAd and several ISPs charged that they violated several federal and state laws protecting computer users from abuse and data theft. Legislators such as Rep. Ed Markey (D-MA), chairman of the Telecommunications and Internet Subcommittee, have said they will draft legislation this year that will impose a consumer opt-in to any data monitoring by their ISP or third parties. State laws are also in the works.

And in a legal forecast published just after the Obama election, Lewis Rose, a partner with Kelley Drye & Warren LLP, suggests that a new administration with a more activist Internet ideology might lead the FTC to a 180-degree turn on self-regulation of Internet advertising.

“It is possible that the FTC will do an about-face, and ask Congress to implement privacy legislation, just as the FTC reversed course under President Bush and withdrew a prior call for privacy legislation under the Clinton administration,” Rose writes. “If the FTC does so, the behavioral advertising guidelines will be on the negotiating table.”

HEY KIDS!

In the matter of advertising to kids, the most significant regulatory development of 2008 was probably the FTC’s report, “Marketing Food to Children and Adolescents,” a snapshot published in July 2008 of the ways and means spent on selling food products to U.S. kids in 2006 — the early days of the effort to stem childhood obesity.

But that bygone pub date doesn’t make the report old news, Kraft Foods Global senior counsel Sharon Kohn told the Promotion Marketing Association law conference in November. “This is a living, breathing document for those of us in the food industry, and I think people in other industries will begin to feel its impact too,” she said. “It’s just the beginning of where the FTC is going.”

That journey is leading the agency to spread the responsibility for childhood obesity, and for finding its solution, widely among involved parties: not just food companies, but parents, schools, health care and the media. Kohn said that in a November meeting with the members of the Children’s Food and Beverage Advertising Initiative (CFBAI), FTC commissioner Jon Leibowitz stressed this broad approach to food marketing solutions.

“It was very clear that the primary concern of the FTC is that food companies start thinking more expansively about what they consider food marketing to kids,” she said. “They want us to consider all marketing and promotional tactics: packaging, POS, billboards, pre-movie ads.” The aim is to get the same healthy-foods commitment in unmeasured media that the CFBAI called for in measured channels.

Other FTC concerns on the topic of kids’ marketing include setting standards and guidelines for advertising anything — not just food, Kohn pointed out — to children under 12, and the need to integrate the media and entertainment companies more directly into fighting child obesity. Measures to do that include self-imposed limits on the use of licensed characters and uniform standards for advertising placements.

“I think the media and entertainment companies are the next frontier in childhood obesity,” Kohn said. “I think the pressure is going to increase on them to really limit what food products are advertised in connection with, or on, their licensed characters and properties.”

At the same time as Kohn’s presentation, a study by the National Bureau of Economic Research found that banning fast-food TV advertising could cut U.S. childhood obesity by 18%. Eliminating the tax deduction for fast-food ads would reduce the overweight young population by about 5%. While no one expects to see those policies enacted, the findings do strengthen the link between marketing food and overeating in those 18 and younger.

As for what’s next for the FTC’s involvement with marketing to kids and, specifically, with food marketing, Kohn said marketers can expect an activist Congress and an activist FTC this year. The CFBAI, which is administered by the Council of Better Business Bureaus, will hold another meeting this summer to take another snapshot of food marketing practices and benchmark the industry’s progress on those 2006 stats.

Kohn’s takeaway message: Given the FTC’s already broad view of who’s part of the child-obesity problem, and with watchdog groups sensing a sympathetic ear for their views in Washington, other companies in the food-marketing chain — and particularly those that supply content or media aimed at kids — had better prepare to be drawn into the obesity fight.

“The FTC is going to be reaching out to more than just the food companies,” she said. “The pressure on media and entertainment companies is going to increase to help get their arms around this issue.”

OTHER REGULATORY LANDMINES MARKETERS SHOULD WATCH FOR IN 2009:

• The Federal Communications Commission is in the process of rewriting its guidelines for TV sponsorship and product placement disclosures, specifying when in the program the disclosure should be made, how prominently and for how long.
• Updated “Green Guides” from the FTC will tackle new eco-claims such as carbon footprints, sustainability and renewability. Chances are the agency will offer examples but not standards for measuring these claims.