International Law

Testimonials and Disclaimers

Megan McArdle clearly doesn't understand the FTC's position on testimonials. She is not alone, neither does Jack Shafer writing for Slate, who thinks that the FTC is bent on a power grab.

Some background is needed to educate both Megan and Jack.

For those of us who watch and write on business opportunity fraud regularly, the failure of the FTC to pass their revised Business Opportunity Rule was a source of disappointment.

Worse was the exclusion of direct marketing from the scope of the new Business Opportunity Rule.

Too many of these sellers of business opportunities use deceptive tactics and one of the worst is misleading earnings claims.

The revised Business Opportunity Rule was very strong on misleading earnings claims, and I among many others was disappointed when the scope of the Business Opportunity Rule was scaled back by the FTC.

However, with today's announcement by the FTC about their revised rules about testimonials, misleading earnings claims are about to be quashed by the FTC.

In order to understand the FTC's litigation strategy, you need to know how expensive it is for the FTC to prove that a) some consumer relieved upon a representation, and b) that representation was false, and c) the consumer suffered damages because of the falsity and not some other intervening event.  

It is hard for the FTC to spend money on litigating every deceptive advertising fraud case because they need to have so many witnesses and the recovery rates are so low.

This is why the FTC use of the Business Opportunity Fraud laws was so effective: no registration, then there were deemed misrepresentations and so no need for an extensive witness list.

Now, marketers who sell schemes to make money online are about to feel the same legal pinch.

Shoemoney has part of the FTC strategy correct.

Now here is the part nobody is reporting on but I feel will have the most impact. If you are going to report earnings they now have to be accurate. This also goes for any sort of "results".

Obviously this is totally targeted at the fake news and blog websites. I think we will see heavy enforcement in these areas from these new rules.

Shoe is right in his first paragraph, but wrong with his analysis of the target.

Prior to today, a marketer could make atypical representation and then disclaim them: your earnings may not be the same, sort of thing.

But after today, the FTC has removed this safe harbor for disclaimers.  If the testimonial is an outlier, then the company has to report "the typical consumer experience".

For most marketers, they have no idea about the "typical consumer experience" because they don't keep any data about their sucker's, I mean, customer's profit after taking their marketing course.

This means that they cannot make any earnings claim because they don't have any typical consumer experience data.  

But they will continue to make these claims, making it an easy case for the FTC to prosecute.

Full post as published by Misleading Advertising Law on October 09, 2009 (boomark / email).