Interest Relationship Disclosure – FTC’s New Guidelines Regarding Astroturfing

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Summary

Taiwan’s Fair Trade Act (FTA) governs the maintenance of the trading order, protects consumers’ interests, ensures fair competition and promotes economic stability and prosperity. Noznetheless, there were originally no provisions in the FTA or other Taiwan laws regulating online or offline 'astroturfing,' i.e. paying someone (a paid poster) to promote an advertiser’s products or to criticize the products of a competitor by posing as a disinterested consumer. However, this absence of regulations changed in November 2013.

On October 31, 2013, Taiwan’s Fair Trade Commission (FTC) imposed a fine of TWD10 million (about US$330,000) on a Taiwan subsidiary of a Korean multi-national electronics company (Violator) for hiring paid posters through a public relations company to conduct internet astroturfing, including promoting the Violator’s products and criticizing products of the Violator’s competitors on an anonymous basis. The FTC ruled that such internet astroturfing conduct was in violation of Article 24 of the FTA, which is a catch all clause for the maintenance of trade order.

Subsequently, on November 7, 2013, the FTC promulgated an amendment ( Amendment) to the FTC’s Explanation of Rules for Testimonial Advertisements (Testimonial Advertisements Rules), which is a set of guidelines and examples promulgated by the FTC outlining its attitude toward testimonial advertisements.

In the sanction decision, the FTC did not clearly point out whether it was the anonymous promotion of the Violator’s products or the combination of this anonymous promotion and criticism of competitors’ products that constituted a violation of the FTA. However, the basic idea of the Amendment is that, regardless of the advertising content, where there is an interest relationship between a witness and an advertiser, and such relationship is not within the reasonable expectation of the public, it must be fully disclosed in the advertisement, no matter whether the advertisements are made on the internet or elsewhere.

Below, please find our summary of the sanction decision against the Violator and the Amendment.

FTC’s Decision

In early April 2013, a newly launched website quickly drew the attention of many Taiwan internet users. The website made public many internal documents of a public relations company (PR Company) which is an affiliate of the Violator. The leaked documents indicated that the PR Company had been hiring paid posters for the Violator to anonymously promote its products and to criticize its competitors on multiple Internet forums. Such disclosure finally led to the FTC’s investigation and its decision described below.

In the decision, the FTC first referred to Article 24 of the FTA, which stipulates that “[I]n addition to what is provided for in this law, no enterprise shall otherwise engage in any deceptive or obviously unfair conduct that is able to affect the trading order.” The FTC then defined 'deceptive conduct' as “conduct wherein an enterprise uses deception, the hiding of important facts, or other misleading means to cause trading counterparts to trade with it or cause its competitors to lose transaction opportunities.1

The FTC concluded that the existence of interest relationships between an enterprise and its paid posters (in the Violator’s case, including hired students, reporters, employees, project partners and bloggers) impacts the credibility of the opinions given by the paid posters, and such relationship, is therefore, generally regarded as important trading information. The FTC further reasoned that “in the event that a paid poster fails to disclose his/her interest relationship with the enterprise, such conduct may potentially constitute deceptive conduct by hiding important trading information.2” The FTC concluded that “if an enterprise promotes its products and intentionally deceives others or passively hides its identity as an enterprise, and makes negative comparisons to or comments about competitive products by means of hiring paid posters, with the result that the trading counterparts have no clues to judge or cannot reasonably anticipate that the information provided is being promoted by the enterprise, and [falsely] believe that such information is in the form of opinions from ordinary third parties, therefore taking them into consideration when making trading decisions thereby encouraging trading counterparts to trade with the enterprise or lowering the possibility of them trading with the competitors of the enterprise, it is a violation of Article 24 of the FTA.3

Given the reasoning above, the FTC concluded that the Violator and the two public relations companies (the PR Company which was briefly involved in the astroturfing conduct) violated Article 24 of the FTA, and they were, therefore, fined TWD10 million (approx. US$330,000), TWD3 million (approx. US$100,000) and TWD50,000 (approx. US$1,600), respectively. The FTC further ordered the Violator and the two public relations companies involved to cease the Internet astroturfing conduct.
According to the FTC, the Violator has filed an appeal.

Amendment of the Testimonial Advertisements Rules

The Testimonial Advertisements Rules are a set of explanatory guidelines promulgated by the FTC regarding testimonial advertisements. The Testimonial Advertisements Rules are not a law or regulation; however, they are important guidelines for the FTC when it determines whether certain conduct violates the FTA. The Testimonial Advertisements Rules were promulgated long before the FTC’s sanction against the Violator, but there were no provisions in the Testimonial Advertising Rules governing astroturfing. However, soon after the FTC issued its sanction decision, the FTC promulgated the Amendment, which specifically addresses astroturfing.

Under the Amendment, the definition of Testimonial Advertisement has been amended as “an advertisement or any other method that makes information known to the public which contains a witness’ opinion, belief, discovery, or personal experience with goods or services.4” According to the FTC, social media website postings, which include “blogger’s postings and internet forum postings5”, are a “method that makes information known to the public," and therefore are now governed by the Amendment6. The FTC added a definition of 'interest relationship', which was previously undefined, as “employment, gift bestowal, rewarded, or other compensated relationship between witness and advertiser.7

Under the Amendment, the FTC imposes an obligation to disclose interest relationships, which provides that “if there is an interest relationship between witness and advertiser, and such relationship is not within the reasonable expectation of the public, it shall be fully disclosed in the advertisement.8

The Amendment gives three examples of astroturfing. The first example is a movie star who recommends a product in an advertisement. In this situation, there is no need to disclose the interest relationship between the movie star and the advertiser because the existence of an interest relationship is reasonably expected by the public. 

The second example is a video game manufacturer who gives a famous video game blogger a new gaming system in return for writing a review on his blog. Because the review is published by the blogger on his or her own media forum, the relationship between the blogger and the advertiser is not obvious, and therefore viewers are unlikely to expect that the blogger has been given a free video gaming system in exchange for writing a product review. Hence, the fact that the blogger has been given a free video gaming system should be clearly disclosed in his blog. The game producer must remind the blogger to disclose this relationship when providing the gaming system. The producer is also required to establish relevant procedures to ensure that the blogger does so.

The third example is similar to the second one. It describes an employee of an MP3 player manufacturer who posts promotional information for the products of his employer on internet forums. If it is known that the poster is an employee of an MP3 player manufacturer, the credibility of his testimony may be questioned; as a result, the employee must clearly disclose the relationship between himself and his employer to other forum members. The MP3 player manufacturer is required to supervise and remind the poster to disclose their relationship.

The Amendment stipulates that it constitutes a violation of Article 24 of the Fair Trade Act if a Testimonial Advertisement made by means of social media site postings lacks a sufficient disclosure of the interest relationship between poster and advertiser to the extent that the interest relationship is not reasonably expected by the public and such lack of disclosure may interfere with the trading order. The Amendment expressly sets forth that “social media site postings” refer to both postings on blogs and forums.


[1] Page 14 of the FTC sanction decision, which can be retrieved at http://www.ftc.gov.tw/uploadDecision/d6b4b457-452c-401f-9054-a0c676db6ea1.pdf.
[2] Id. at page 14.
[3] Id. at page 14.
[4] Article 2.1 of the Amendment, which can be retrieved at http://www.ftc.gov.tw/internet/main/doc/docDetail.aspx?uid=165&docid=13021.
[5] Article 6.2 of the Amendment.
[6] News release of the FTC on November 8, 2013, which can be retrieved at http://www.ftc.gov.tw/internet/main/doc/docDetail.aspx?uid=126&docid=13014.
[7] Article 2.3 of the Amendment.
[8] Article 3.4.2 of the Amendment.

 

Topics:  Disclosure Requirements, FTC

Published In: Antitrust & Trade Regulation Updates, General Business Updates, Communications & Media Updates, Consumer Protection Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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