05/11/2010 10:08 am ET | Updated May 25, 2011

Federal Trade Commission Reins In On Blogger Swag Orgy

Originally Published December 2009

One hundred and fifty bloggers and reporters step off an airplane in Jamaica and the swag orgy begins: a free weekend, including airfare, at an all-inclusive beachside resort where advertisers shower them with free goods.

The bloggers return home and post reviews of the flight, the resort stay, and the products they've received - all free of charge - to consumer blogs and social media sites.

As of December 2009, if these reviews do not mention the blogger's receipt of free products, the company that provides the free goods and the online author of the review might face prosecution by the Federal Trade Commission (FTC). The new FTC rule has sparked legal debate and outrage amongst advertisers who say it restricts free speech in digital media, while exempting print media from the same rules.

Since the early days of print media, the provision of free tickets, samples, and merchandise to independent reviewers has been a staple of the industry. Journalists historically accepted modest salaries because the perks and payola that come with being a member of the press.

In the digital age, advertisers give away free products to bloggers to generate online buzz and spur sales. Procter & Gamble ships free strollers and diapers to mommy bloggers. Estee Lauder delivers free cosmetics to beauty bloggers. And with the help of an e-mail newsletter called Thrillist*, JetBlue flies travel and consumer bloggers on junkets to Jamaica.

A myriad of companies contributed goods and services to "Thrillist and JetBlue's JetMystery" in Jamaica in October 2009, including Sandals Resort, Gillette, and Starbucks. The companies expected attendees to use their products then write positive reviews on well-read consumer blogs, Twitter-feeds, and Facebook pages.

Accordingly, Courtney Scott, who attended Thrillist's junket on behalf of the travel blog, posted a positive review of the Iberostar Rose Hall Resort, where attendees stayed. "This is decadence that every Trazzler should experience," wrote Scott. Another attendee Adam Hirsch, COO of the news site, praised the hotel's "great bed and awesome views" on his Facebook page. Both forgot to mention that the stay, including food, drink, and the personal butler, were given to them free.

The Federal Trade Commission now requires what they call "sponsored" online testimonials to be labeled as such.

In October 2009, the Commission revised its guide on the use of online endorsements and testimonials in advertising. In its own comments on the revisions, the FTC says that online consumer reviews written by bloggers who accept product compensation are "sponsored advertising messages." And to fairly assess a speaker's credibility, consumers must know this. Therefore, bloggers or social media conversationalists who do not disclose their material connections to advertisers are, under the new FTC guidelines, posting false and misleading statements.

In addition, the guidelines make advertisers liable for online consumer reviews that fail to comply. An advertiser who gives away free products, according to the FTC, "assumes the risk that an endorser may fail to disclose a material connection or misrepresent a product, and the potential liability that accompanies that risk."

In deciding whether to prosecute an advertiser for violations of the guidelines, the FTC will "consider the advertiser's efforts to advise endorsers of their responsibilities and to monitor their online behavior." Thus, the new guidelines place a heavy burden on advertisers to monitor and police thousands of independent consumer reviews online that might have been inspired by a free product they've distributed.

The Commission's differential treatment, which critics call a "digital double standard," is based on the FTC's belief that, in traditional media, the connection between endorsers and advertisers is clear and "reasonably expected by consumers." Average consumers expect that print columnists who publish consumer reviews receive free merchandise. And since the connection is expected, says the FTC, reviewers and endorsers in traditional media shouldn't have to disclose their connection to advertisers.

The FTC believes consumers tend to think of bloggers not as marketers with links to companies, but as regular folks with personal opinions - suburban moms, electronics hobbyists, and opinionated teens who are free from the influence of advertisers. When, in some cases, they are tied to advertisers, the rules aim to reveal it to readers.

In his "Open Letter to the FTC," Randall Rothenberg, the President of the Interactive Advertising Bureau calls the FTC's new guidelines "an expedition from Oceania" [the place where Big Brother ruled]. He says the new rules stifle independent opinion in digital media.

Of particular concern to Rothenberg and other advertisers is the guideline's implication that newspapers, magazines, radio stations and television networks are exempt from the rules, which gives traditional media more freedom to commercial speech than online media. He disparages the FTC's assertion that bloggers be subject to different disclosure requirements than reviewers in traditional media.

Rothenberg protests the guideline's implication that "opinions published by individuals have less protection than speech promulgated by large corporations," and that "the internet, the cheapest, freest, most accessible communications medium ever invented, should have less freedom than other media."

David Balter CEO of BzzAgent, an online platform for consumer reviews, further warns that such regulations may "impede - or even prevent - the development of consumer-friendly mechanisms for dissemination of honest, unfiltered word of mouth [online]." Others agree that as new media channels for communication evolve - like blogs, Twitter-feeds, or forms of social media we don't yet know of - the FTC should avoid making rules that might inhibit digital media and online entrepreneurs.

Since the guidelines went into effect in November, the FTC has not taken any action against bloggers or advertisers. The debate has cooled. Bloggers can take comfort in the FTC's statement that they "are not planning on investigating individual bloggers." They instead "will be focusing any enforcements on advertisers, not on individual endorsers."

Most bloggers and advertisers have also consulted their lawyers by now and realized that Federal Trade Commission guidelines are not law. The Commission doesn't have the authority to impose a fine for a violation of the guidelines. An FTC challenge would come in the form of a warning letter and then, if violations persist, the FTC would take an advertiser and/or blogger to court. It would then be up to the judges to decide the enforceability and the scope of the guidelines, which legal professionals agree is not wide.

Thrillist is one of the many marketers that facilitate the exchange of free goods from companies to online consumer bloggers.

The e-mail newsletter also welcomes traditional print journalists at its events and junkets. But print columnists looking for a free resort stay, be careful: the New York Times recently fired one of its columnists for attending Thrillist's JetMystery to Jamaica. The Times cited the writer's violation of company policy that "no travel writer, whether on assignment or not, may accept free or discounted services.

*Since this is an article about a writer's responsibility to disclose connections, this writer should tell readers that he is the brother of the events manager at Thrillist.