The legal implications of using social media as an organization and as part of an organization have not yet been fully vetted. Yesterday, Forbes reported on a growing controversy over Federal Trade Commission (FTC) regulation of advertising on social media. The FTC imposed new regulations covering social media a few years ago and is now taking a PR agency, Reverb, to court over their practice of having paid employees post reviews for products without disclosing their employment.  This brings up serious questions about free speech and FTC regulation of Social Media.

The expanding regulations related to Social Media use are a topic that has continues to interest to Cause of Action. See our previous discussion of social media standing in court here.


Reviews Can Work Wonders, but They Can’t be Faked

By Ed Keller
August 30, 2012

An article in the New York Times caught my eye recently.  Entitled “The Best Book Reviews Money Can Buy”, the article says there is a growing practice of authors who commission reviews for their books, rather than letting them spring up organically on online sites such as or


It’s not just authors who crave positive reviews. The products and services from businesses of all sizes and sectors are now being reviewed online, whether on Amazon, or travel sites such as Trip Advisor or Expedia, or restaurant sites such as Open Table, or sites relating to local service providers, like Angie’s List and Yelp, or the many retail and manufacturers offer online ratings on their websites.


It’s not a surprise that there should be such a surfeit of ratings and reviews.  The research is very clear that online reviews are popular with consumers and are a powerful driver of online (and offline) commerce. According to Google, 70% of Americans say they look at reviews before taking the next step to purchase products.  And according to a 2012 global study by Nielsen, online consumer reviews are the second most trusted form of advertising with 70 percent of global consumers surveyed online indicating they trust this platform, an increase of 15 percent in four years; only word of mouth recommendations directly from friends or family is more trusted.  The Timesarticle quotes professor Bing Liu from the University of Illinois who says “The wheels of online commerce run on positive reviews.”


The troubling part about the Times article is the underlying premise that people with something to sell feel so strongly motivated to get positive reviews that they would fake it by writing them themselves or paying people to write positive reviews, rather than building up a stable to authentic reviews from customers.  This is a bad business practice on two counts. First, the marketplace is too wise to let fake reviews go unnoticed, and there is a very good chance the people who do so will be “smoked out” and publicly embarrassed, thereby negating whatever benefit they might have otherwise achieved. Second, it is potentially against the law and many businesses do not realize that.   A few years ago the Federal Trade Commission issued new advertising guidelines that cover social media and word of mouth marketing.    The guidelines make clear that companies are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose a material connection between themselves and their endorsers.


In one of the first cases the FTC brought under these new guidelines, a PR agency, Reverb , was charged with having engaged in deceptive advertising by having employees pose as ordinary citizens while posting game reviews online and not disclosing that the reviews came from paid employees working on behalf of the game developers.  In the press release announcing the action, Mary Engle, the Director of the FTC’s Division of Advertising Practices stated: “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, and endorsers should make it clear when they have financial connections to sellers.”

If you’re unsure what constitutes ethical business practices in this area, you might want to check out the Word of Mouth Marketing Association.  The WOMMA Ethics Code provides a strong guidepost to help businesses, whether large or small, plan your social media disclosure activities. (Disclosure: my business partner, Brad Fay, is on the WOMMA Board of Directors and I am a former President of the association.)

In part, they say that any word of mouth or social media marketing should include:

  • Disclosure of identity: Make meaningful disclosures of your relationships or identities with consumers in relation to any marketing initiatives that could influence a consumer’s purchasing decisions.
  • Disclosure of consideration or compensation received: Do not engage in marketing practices where the marketer/sponsor or its representative provides goods, services, or compensation to the consumer as consideration for recommendations, reviews, or endorsements, unless full, meaningful, and prominent disclosure is provided.
  • Disclosure of relationship: Any brand or representatives involved in a word of mouth initiative on their behalf should disclose the material aspects of their commercial relationship with a marketer, including the specific type of any remuneration or consideration received.

What it all comes down in the end is that there should be genuine honesty in communication. That’s what makes consumers turn to word of mouth and social media for advice, recommendations, and help in making product choices. If you’re honest, your efforts will be rewarded. If you’re dishonest, it will be come back to haunt you.

The bottom line for all businesses is that you are being watched, both by the FTC and also by consumers who have an uncanny sense of smell for what’s real and what’s fake.