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There’s been a real tempest in a teacup lately about FTC blog regulation, and I’d imagine that the phones are ringing off the hook at companies that help brands pay bloggers to write about them (notice the conspicuous lack of linkage in that last sentence). This issue is going to be dissected from 16 different angles over the next day or so, and the only points that are relevant to our clients are the ways in which this will affect consumer lifestyle brands.

First, let’s push aside the non-relevant recent FTC news, to cut to the heart of the issue. The whole FTC To Bar Atypical Results Advertising : was nice to know if you work in the weight-loss or the QVC-type home shopping industry, but it’s not really relevant for lifestyle brands. Onward.

Michael Bush’s post in Ad Age this past Monday largely cut to the relevant part of the issue. When a blogger (who is compensated either in product or cash) writes about something that is knowingly false, not only are brands liable, but so are the bloggers themselves. This extends to the public-facing areas of social networks like Facebook and MySpace.

If you just read that and are asking yourself: “Does this mean that there is a potential legal liability to social media outreach, even to ‘non-professional’ end-users?,” the answer is, yes, if this legislation goes through IF the end users are compensated with cash or product and DO NOT IDENTIFY THEMSELVES AS SUCH. My odds on this legislation going through? 70/30 for, but I’m still waiting to have lunch with my contact at the FTC.

Here’s a fairly realistic example. You’re a tea company that sends out $50 boxes of tea for bloggers to review, citing that some of the enclosed products are organic. It turns out that one of the twenty bloggers screws up, and cites the entire product as organic. An organic competitor responds, and files an FTC complaint. Brand gets slapped with a $20k fine, and then sues blogger for damages. Under this proposed legislation, the blogger is indeed secondarily liable.

Here’s another example: Victoria’s Secret sends out free nylon thong underwear to 2000 Facebook users (young women 18-24 who have 500+ friends each, targeted as “influencers”). 2 of them make false statements about their new cotton underwear, and someone at Hanes alerts the FTC to a violation of the regulation. Victoria’s gets sued, and the buck eventually gets passed to the end-user.

As Chris Crum states in his Ad Age piece, the FTC is currently grappling with updating legislation from 1979, a pre-Internet marketing climate, so there are liable to be some missteps, and I’m fairly certain there will be some costly missteps.

My advice: CYA. Save every email and take lots of screenshots whenever you’re doing any social web outreach that involves a financial or quasi-financial transaction.

Names to watch in this case include the FTC’s Rich Cleland, who runs the agency’s advertising-practices division, and I was also particularly impressed by the comment from Roberta Jacobs-Meadway [from Ad Age], who’s a partner at Eckert Seamens Cherin & Mellott (Pittsburgh-based law firm).

“The FTC is … putting out guidelines to make it clear to people who are involved in social media and viral marketing that the same rules apply in this context as they do in the more formal context of paid advertising and infomercials,” Jacobs-Meadway said.