Effective on December 1, 2009, online affiliates, resellers, bloggers, podcasters, video producers, and other producers of consumer-generated online content began to be regulated in their online endorsements and testimonials by Guides issued by the Federal Trade Commission (FTC), and failure to comply can result in a hefty $11,000 fine imposed by the FTC.

Now that the initial buzz on the Web has analyzed when and under what circumstances endorsers are required to disclose “material connections” with their advertisers, the next big questions are:

• how to actually disclose these material connections,

• what are the elements of an FTC Guides Disclosure Policy, and

• how to write one?

What is a Disclosure Policy?

In the context of the Guides, a Disclosure Policy is a written statement by an endorser that discloses the endorser’s relationship with an advertiser and any related financial interest with the advertiser or the advertiser’s products or services.

In a nutshell, a Disclosure Policy is the means of compliance with the Guides for endorsers.

What’s in a Disclosure Policy?

An effective Disclosure Policy should contain the following statements indicating:

• purpose – the purpose of the policy;

• relationship statement – a statement regarding applicable advertising and/or sponsorship relationships, whether for a specific, named advertiser or for a class of unnamed advertisers, including the nature of the relationship, and any financial interest with the advertiser; and

• influence statement – a concluding statement indicating the extent to which the relationship or financial interest might influence recommendations, if at all.

Here’s an example for a blogger who operates a book review site:

• The Federal Trade Commission (FTC) requires that I disclose any relationship I may have with anyone that provides something of value in connection with my reviews.

• This blog site is my personal blog; I am the sole author and editor of all posts. I would like to disclose that I do not accept any form of cash compensation for my reviews. However, I do accept and retain books that are provided by book publishers and authors free of charge for review purposes.

• Even though I receive books for review free of charge, my reviews are always based solely on my honest opinions.

How to Handle Banner Ads?

The question is a good one. And the answer is: “it depends”.

The Guides set forth general principles the FTC will use in evaluating endorsements and testimonials. For purposes of the Guides, the term “endorsement” includes “testimonials”.

The Guides do not regulate advertisements.

The key question is how to distinguish an endorsement from an advertisement? According to the Guides, this is how to determine the difference between the two.

• Endorsement: “…any advertising message… that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser… . The party whose opinions, beliefs, findings, or experience the message appears to reflect will be called the endorser and may be an individual, group, or institution.”

• Advertisement: if the advertising message is likely to lead consumers to believe that it speaks only for the advertiser, and does not reflect the beliefs, findings, or experiences of the individual, group, or institution that placed the advertising message, then the advertising message is an advertisement and not an endorsement.

So, how to apply the foregoing to banner ads? It appears to be a grey area. Here’s why.

The answer depends in part on the nature of the ad and how it’s perceived by consumers. For relatively sophisticated consumers (savvy Web surfers and online shoppers), it would be clear that the typical banner ad would be perceived as an ad, not as an endorsement. Relatively unsophisticated consumers, however, may perceive the banner ad differently (i.e. as speaking for the party that placed the ad on its website).

In grey areas, the recommended approach is a conservative one, particularly in situations where compliance would be relatively easy and inexpensive. To resolve all doubt, it would be a good idea to simply place a Disclosure Policy on the site that states that banner ads are not endorsements and reflect the messages of the advertiser only.

If your website is classified as an “endorser” by the Guides, you should make compliance your highest priority. The possibility of an $11,000 fine for non-compliance should be a major concern.

[This article is provided for educational and informative purposes only. This information does not constitute legal advice, and should not be construed as such]

About the Author: Leading Internet, IP, and software lawyer, Chip Cooper, has published a new e-book, FTC Guides How to Comply – Legally, to show advertisers and endorsers alike how to comply with the new FTC Guides, and particularly, how to write and post an effective FTC Guides Disclosure Policy. It’s a simple, nuts and bolts approach, complete with legal forms and sample policies, and it’s available for immediate download.