Guitar Company in a Jam Over Testimonials

The FTC recently brought an action against a guitar learning company, Legacy Learning, and an officer/director, for misleading and deceptive testimonials, and ordered it to face the music and pay $250,000 to settle the charges. We have previously blogged about the FTC's Testimonial and Endorsement Guides here, here, and here. When the revisions to the Guides came out in late 2009 adding do and don't examples for online advertising, there was an uproar that the FTC was going to go after bloggers and assess $11,000 per violation penalties for every blog. The FTC assured bloggers that was not their intent, but the agency did intend to hold companies liable in certain cases if bloggers or other reviewers received compensation but did not disclose the material connection to the advertiser. Indeed, the FTC has investigated advertisers in such cases (see here and here) and made clear in public statements that they expect advertisers to have a compliance program to monitor bloggers and other folks it pays or otherwise compensates who tout the products. This recent case may provide a useful roadmap for an adequate monitoring program. In this case, the FTC's complaint alleges that Legacy Learning recruited "Review Ad" affiliates as part of a commission-based program, who promoted the program by leaving positive reviews on blog posts, its website, and other online sites without disclosing their connection to the company. The reviewers received between twenty and forty-five percent of the purchase price of the instructional program. On one website that calls itself "The Independent Reviews Site" a reviewer wrote "What we think: Putting it simply: Learn and Master Guitar emerged from our test as the King of 'learn guitar at home' courses." The FTC believes that such review ads are responsible for at least $5 million of Legacy's sales. The complaint states that Legacy Learning's contracts with reviewers tells them that they must comply with the FTC guidelines on disclosures, but that Legacy Learning failed to implement any sort of monitoring program to ensure that the reviewers disclosed their relationship to the company. By failing to disclose their relationship to the company, and in fact representing to consumers the opposite by advertising that they are independent, the reviewers engaged in misleading and deceptive practices in violation of the Federal Trade Commission Act. The consent order requires Legacy Learning to monitor and covertly review the websites of their top fifty revenue generating affiliates monthly, and to monitor and covertly review a sample of 50 of the rest of the affiliates monthly. Any affiliates that have misrepresented their relationship to Legacy Learning or their lack of independence should be terminated from Legacy Learning's affiliate program. In addition, all affiliate reviewers are to be provided with a copy of the order and sign it indicating agreement to comply. The consent order sets forth requirements for Legacy Learning to periodically report back to the FTC and remains in effect for twenty years. It has been placed on the public record for thirty days to allow public comment before the consent order becomes finalized. – Amy Mudge and Deborah Birnbaum

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