The Federal Trade Commission’s recent settlement with Reverb Communications is the FTC’s first case targeting deceptive advertising on the Internet since the FTC Guides were announced late in 2009.

If you use online endorsements or testimonials from others, you should review your internal marketing policies and your FTC website forms to avoid substantial liability for deceptive advertising.

The Reverb Communications Case

Reverb Communications is a public relations firm representing major clients in the video game industry, including clients such as MTV Games and Harmonix, as well as smaller firms that sell mobile game apps via the iTunes store. According to the FTC, Reverb’s fee often includes a percentage of the sale of its clients’ gaming apps.

The iTunes store provides users the ability to post reviews of gaming applications that are available for purchase. These reviews include a rating system (based on a possible rating of one to fire stars) and written text.

According to the FTC, during a period of approximately one year Reverb employees posted reviews in the iTunes store favorable to games of Reverb’s clients. The reviews were posted in a manner that would convey the impression that disinterested consumers had posted them.

In addition to giving five-star ratings to Reverb’s clients’ games, Reverb’s employees posted written endorsements such as:

* “Amazing new game”,

* “ONE of the BEST”, and

* “Really cool game”.

The FTC brought suit claiming that Reverb engaged in deceptive advertising by having its employees pose as ordinary consumers posting reviews, while failing to disclose that the reviews were from paid employees working on behalf of their clients. Reverb agreed to settle the case.

Lessons Learned

The basic lesson is clear – don’t use employees or contractors to post fake endorsements under any circumstances.

The FTC stated in its press release announcing the Reverb settlement: “Companies, including public relations firms involved in online marketing need to abide by long-held principles of truth in advertising. Advertisers should not pass themselves off as ordinary consumers touting a product”.

What if you post actual endorsements (not fake ones) from satisfied customers on your website – or if you allow bloggers to post endorsements on your site? What is required to avoid a deceptive advertising claim by the FTC?

If some of your endorsers receive a fee or some kind of benefit in connection with their endorsements, you need to place a link in close proximity to the endorsement that links to disclosure text such as:

* Some or all of the endorsers who provide testimonials or comments on this site regarding this site, its products or services may receive payment in the form of affiliate commissions, referral fees, or promotional materials or benefits from us.

* Although you might assume that these endorsements are biased by reason of compensation, to the best of our knowledge we believe these endorsements represent the honest opinions of the endorsers. Conclusion The FTC settlement with Reverb requires Reverb to remove the previously posted deceptive endorsements and to refrain from using employees to post fake reviews for its clients in the future.

The Reverb case indicates that the FTC is very serious about enforcement of its Guides that were announced late last year.

Expect more FTC enforcement actions in the near future.

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