Top Story: FTC at a Cross Road

FTC CROSSThe Federal Trade Commission (FTC) seems to be at the center of most major internet issues with its recently released and heavily criticized guide for endorsements by bloggers; the Red Flags Rule, the upcoming privacy town hall which will revive the debate over further privacy regulation (especially with respect to behavioral targeting) and the pending legislation to create a Consumer Financial Protection Agency that also expands the FTC’s authority.

If you are unfamiliar with the role of the FTC it is really two agencies in one.  (See A Guide to the FTC)  Its principal role is in regulating mergers, but the Bureau of Consumer Protection is the arm that has regulated the internet under its mandate to prevent unfair or deceptive conduct.

Endorsing “Internet Exceptionalism”

The updated Guides Concerning the Use of Endorsements and Testimonials in Advertising, have stoked debate and criticism like no other recent regulatory action.  The principal source of controversy is over when reviewers need to disclose a relationship with the party offering the service or product.  The FTC’s response in this area has been described as being “decided  without due care and reasoned judgment” by IAB President Randall Rothenberg while Slate simply calls it a “Mad Power Grab.”

What is triggering the criticism is their embrace of internet exceptionalism (i.e., treating the same conduct differently when it occurs online because the internet is “different”), as they declare without any meaningful justification that readers of traditional media would not be concerned whether a reviewer received any consideration from the subject of the review but somehow this becomes relevant to a consumer once he switches to reading a review on a blog. This appears to be based on an alarmingly simplistic view of current media as consisting of large traditional media companies versus laptop bloggers at a time when Huffington Post is valued near $100 million and major newspapers continue to close across the country.

In addition, some legal experts such as Santa Clara University Law School professor Eric Goldman believe that holding companies liable for third party reviews posted on their site would be prohibited by the Communications Decency Act.

The updated guidelines also dealt with consumer testimonials, which absent objective information demonstrating that such a result is typical must either disclose the typical result or avoid typicality claims and instead rely on testimonials that a product is better than others.

More info:  Online Media Daily article on reaction by legal scholars . 

Expanded FTC Authority and the “Internet Czar”

The amendments provide two significant changes to FTC authority. First it removes the current restrictions that limit its rulemaking authority to only addressing a prevalent practice. While this would give the FTC greater rule making authority, it also might reduce their current reliance on enforcement actions as a substitute for rule making.

The other significant change is that it extends liability to those who knowingly provide substantial assistance to a violation, making advertisers concerned about their downstream liability.

Some industry groups have raised concerns the bill would make the FTC Chairman a de facto “Internet Czar”. That factor and residual unhappiness with the FTC over the blogger guidelines has led groups such as the Interactive Advertising Bureau to step up lobbying efforts against the bill.

The bill is expected to go to the House floor shortly, but no projection yet on Senate action.  More info:  Online Media Daily article on the pending legislation and a CRS Summary of the Bill.