May It Please the Mozzers,
It's not Monday, but I hope it's worth the wait.
Our European colleagues have been buzzing about a new law prohibiting certain stealth marketing tactics. Distilled, IPA, The BBC, BigMouthMedia, The Times Online and Marketing Week have speculated on the potential fallout of the new regulation. Many have predicted the demise of common but controversial covert marketing techniques, including paid links, fake reviews, flogs, and comment seeding.
What exactly does the law prohibit? Is it the death of stealth marketing? What does it mean for stealth marketers in other countries who may do some business in the UK?
The Unfair Commercial Practices Directive (UCPD) came into effect on May 26, 2008. The new law makes the UK consistent with other EU Member states by implementing a broad-sweeping EU-wide mandate, the Consumer Protection from Unfair Trading Directive. In short, the entire EU either already has similar legislation or will soon. The goal is to make it easier for businesses based in one EU Member state to market and sell their products to consumers in other Member states without having to comply with unfamiliar, foreign commercial regulations.
Much of the law repeats and restates old prohibitions against unfair consumer practices, such as classic bait-and-switch schemes, dishonesty, and highly aggressive sales techniques. Only two of 31 specifically identified unfair practices break new and important ground.
The controversy surrounds sections 11 and 22 and addresses non-disclosed commercial relationships in advertising. Let's take a closer look.
It is open for interpretation whether accepting money in exchange for putting a link on your website without disclosing your financial incentive violates this provision. Is a paid link an "advertorial"?
If I were a judge trying to make that call, I would rule that a mere link without much more wouldn't constitute "using editorial content...to promote a product." However, if the overall context surrounding the paid link offers an opinion or endorsement of the product (i.e., "editorial content"), then you could be in trouble, unless you disclose, of course. To be on the safe side, lists of links with headings such as "Products or Companies I Like" should contain disclosures if you're being compensated for links.
Both civil and criminal penalties are possible. Penalties will likely be progressive and proportional, at least that's the stated mission by enforcement agencies. This means that your business will likely get a stern letter with some specific guidance, before being slapped with a civil fine or criminal conviction.
On a first conviction, the maximum penalty is not more than £5,000 (for now) and up to two years in jail. All claims must be brought within three years of the offense taking place, or within one year of the discovery of the offense by the prosecutor, whichever is earlier.
In the UK, the law is going to be enforced by the Local Authority Trading Standards Services (TSS), the Department of Enterprise, the Office of Fair Trade (OFT), and a select group of industry-created self-governing bodies, such as the Advertising Standards Authority (ASA).
It appears that individual citizens and businesses cannot independently bring a lawsuit to enforce the regulation, but I'm not certain. If any UK law specialists out there know whether private citizens have a cause of action under this law, please let me know.
Within the European Community, violations will usually be dealt within the jurisdiction where the business responsible for the violation is located. Thus, if a breach of the law is hurting UK consumers, but stemming from a business in Spain (a fellow Member State), the UK can ask Spain to crack down on the business violating the regulation.
I'm not an expert in UK law, but here's an educated guess: If a US-based business were to violate the law and it has sufficient connections with the UK, it could be prosecuted in the UK. It's not clear what level of connection to the UK would be necessary in order for UK courts to exercise jurisdiction over a US-based business. However, the following factors would be relevant:
I'm going to go out on a limb here and predict that the new regulation will not make that much of a difference.
Why? Because governmental agencies have a lot to do and there are more egregious unfair practices to prosecute than the stealth marketing techniques identified above. Finding and prosecuting undisclosed paid links, reviews and blogs isn't easy. Further, in the continuum of harms to consumers, this is not the most serious of concerns. Thus, I doubt that enforcement agencies are going to put their limited resources to patrolling for and prosecuting these kinds of harms. More likely, violations of sections 11 and 12 will be offenses tacked on to other more serious offenses.
I'll keep you informed as the situation develops. Maybe I'll be proven wrong and there really is the political will and resources to tackle internet stealth marketing in the EU.
Until then, each individual business needs to decide for itself how risk averse it is and conduct itself accordingly. If you're very risk averse, the solution is to disclose disclose disclose. Even if you have high risk tolerance, set some resources aside to deal with possible fines and steer clear of elaborate, high-profile covert marketing campaigns, at least for the near future.
Very truly yours,
Sarah
Other Resources:
The Onion on Stealth Marketing
The Seattle Times on Kids and Stealth Marketing
WOMMA's List of Unethical Word of Mouth Strategies
Eric Goldman Takes A Look at What Lawyers are Saying About Stealth Marketing
1. Throughout this post, I have substituted the word "business" for "trader" to improve readability for our North American audience. The new law defines a trader as 'any person who in relation to a commercial practice is acting for purposes relating to his business, and anyone acting in the name of or on behalf of a trader'. This includes companies. It could also include individuals who regularly sell goods from their homes on the internet using auction websites. The assessment of whether or not the individual is acting as a "trader" will depend on whether or not the relevant activity is done in the course of business. An individual person selling goods on the internet, merely as a means by which to dispose of unwanted goods from time to time, would not be likely to fall within this definition.
It's not Monday, but I hope it's worth the wait.
Our European colleagues have been buzzing about a new law prohibiting certain stealth marketing tactics. Distilled, IPA, The BBC, BigMouthMedia, The Times Online and Marketing Week have speculated on the potential fallout of the new regulation. Many have predicted the demise of common but controversial covert marketing techniques, including paid links, fake reviews, flogs, and comment seeding.
What exactly does the law prohibit? Is it the death of stealth marketing? What does it mean for stealth marketers in other countries who may do some business in the UK?
The Unfair Commercial Practices Directive (UCPD) came into effect on May 26, 2008. The new law makes the UK consistent with other EU Member states by implementing a broad-sweeping EU-wide mandate, the Consumer Protection from Unfair Trading Directive. In short, the entire EU either already has similar legislation or will soon. The goal is to make it easier for businesses based in one EU Member state to market and sell their products to consumers in other Member states without having to comply with unfamiliar, foreign commercial regulations.
What Exactly Does the Law Prohibit?
Much of the law repeats and restates old prohibitions against unfair consumer practices, such as classic bait-and-switch schemes, dishonesty, and highly aggressive sales techniques. Only two of 31 specifically identified unfair practices break new and important ground.
The controversy surrounds sections 11 and 22 and addresses non-disclosed commercial relationships in advertising. Let's take a closer look.
Section 11 prohibits using editorial content to promote a product without indicating that the content is paid.
(11) Using editorial content in the media to promote a product where a business1 has paid for the promotion without making that clear in the content or by images or sounds clearly identifiable by the consumer (advertorial).The following is an "official" example of a violation provided by one of the UK agencies in charge of enforcing the regulations:
A magazine is paid by a holiday company for an advertising feature on their luxury Red Sea diving school. The magazine does not make it clear that this is a paid-for feature – for example by clearly labeling it 'Advertising Feature' or 'Advertorial'.Failure to explicitly identify the commercial relationship between the advertiser and the company is thus directly prohibited by the new law. One can easily see how this law also makes it illegal for a business to pay a blogger/affiliate to write a review about its product without disclosing the commercial relationship.
It is open for interpretation whether accepting money in exchange for putting a link on your website without disclosing your financial incentive violates this provision. Is a paid link an "advertorial"?
If I were a judge trying to make that call, I would rule that a mere link without much more wouldn't constitute "using editorial content...to promote a product." However, if the overall context surrounding the paid link offers an opinion or endorsement of the product (i.e., "editorial content"), then you could be in trouble, unless you disclose, of course. To be on the safe side, lists of links with headings such as "Products or Companies I Like" should contain disclosures if you're being compensated for links.
Section 22 is slightly broader in scope and prohibits falsely giving the impression that you're not motivated by business or falsely representing yourself as a consumer:
(22) Falsely claiming or creating the impression that the business is not acting for purposes relating to his trade, business, craft or profession, or falsely representing oneself as a consumer.For example, the following conduct would be a breach of this provision:
A second-hand car dealership puts a used car on a nearby road and displays a handwritten advertisement reading 'One careful owner. Good family run-around. £2000 or nearest offer. Call Jack on 01234 56789'. The sign gives the impression that the seller is not selling as a trader, and hence this would breach the law.Section 22, then, is designed to prevent sock puppetry and similar covert tactics. Most people assume this would outlaw techniques such as Wal-mart's fake blog, Sony's AllIwantforxmasisapsp.com gaffe, and anonymously seeding positive feedback about your company or product in blog comments. Further, authors can't create anonymous reviews praising their own books on Amazon. Similarly, hotel owners can't create fake reviews to boost rankings on TripAdvisor.com and similar websites.
What Are the Potential Penalties?
Both civil and criminal penalties are possible. Penalties will likely be progressive and proportional, at least that's the stated mission by enforcement agencies. This means that your business will likely get a stern letter with some specific guidance, before being slapped with a civil fine or criminal conviction.
On a first conviction, the maximum penalty is not more than £5,000 (for now) and up to two years in jail. All claims must be brought within three years of the offense taking place, or within one year of the discovery of the offense by the prosecutor, whichever is earlier.
Who's Going to Enforce the Law?
In the UK, the law is going to be enforced by the Local Authority Trading Standards Services (TSS), the Department of Enterprise, the Office of Fair Trade (OFT), and a select group of industry-created self-governing bodies, such as the Advertising Standards Authority (ASA).
It appears that individual citizens and businesses cannot independently bring a lawsuit to enforce the regulation, but I'm not certain. If any UK law specialists out there know whether private citizens have a cause of action under this law, please let me know.
Where Will the Case Be Brought?
Within the European Community, violations will usually be dealt within the jurisdiction where the business responsible for the violation is located. Thus, if a breach of the law is hurting UK consumers, but stemming from a business in Spain (a fellow Member State), the UK can ask Spain to crack down on the business violating the regulation.
What If the Business Violating the Law Is Located in a Non-EU Country, Like the US?
I'm not an expert in UK law, but here's an educated guess: If a US-based business were to violate the law and it has sufficient connections with the UK, it could be prosecuted in the UK. It's not clear what level of connection to the UK would be necessary in order for UK courts to exercise jurisdiction over a US-based business. However, the following factors would be relevant:
- Whether the business was targeting UK consumers
- Whether the business has a physical office in the UK
- Whether the business's server or other services or equipment are located in the UK
- Whether employees made repeated trips to the UK to further business relationships
How Is This Law Going to Affect Internet Marketing in Europe and Abroad?
I'm going to go out on a limb here and predict that the new regulation will not make that much of a difference.
Why? Because governmental agencies have a lot to do and there are more egregious unfair practices to prosecute than the stealth marketing techniques identified above. Finding and prosecuting undisclosed paid links, reviews and blogs isn't easy. Further, in the continuum of harms to consumers, this is not the most serious of concerns. Thus, I doubt that enforcement agencies are going to put their limited resources to patrolling for and prosecuting these kinds of harms. More likely, violations of sections 11 and 12 will be offenses tacked on to other more serious offenses.
I'll keep you informed as the situation develops. Maybe I'll be proven wrong and there really is the political will and resources to tackle internet stealth marketing in the EU.
Until then, each individual business needs to decide for itself how risk averse it is and conduct itself accordingly. If you're very risk averse, the solution is to disclose disclose disclose. Even if you have high risk tolerance, set some resources aside to deal with possible fines and steer clear of elaborate, high-profile covert marketing campaigns, at least for the near future.
Very truly yours,
Sarah
Other Resources:
The Onion on Stealth Marketing
The Seattle Times on Kids and Stealth Marketing
WOMMA's List of Unethical Word of Mouth Strategies
Eric Goldman Takes A Look at What Lawyers are Saying About Stealth Marketing
1. Throughout this post, I have substituted the word "business" for "trader" to improve readability for our North American audience. The new law defines a trader as 'any person who in relation to a commercial practice is acting for purposes relating to his business, and anyone acting in the name of or on behalf of a trader'. This includes companies. It could also include individuals who regularly sell goods from their homes on the internet using auction websites. The assessment of whether or not the individual is acting as a "trader" will depend on whether or not the relevant activity is done in the course of business. An individual person selling goods on the internet, merely as a means by which to dispose of unwanted goods from time to time, would not be likely to fall within this definition.
The Onion link. Classic.
(Side note: Shamless Plug - My brother Mike directed "The Onion Movie". I saw a friends and family screening - it's hysterical. You must see it).
I loved this post. Probably one of my top ten on SEOmoz. As for those that are going to enforce these laws? My gosh - they're going to have their hands full.
Nice work Sarah.
BTW- Would my OnionMovie plug be considered stealth marketing?
This is obviously something which we have to be very aware of, but it has been coming for a long time and we have had the details of the bill for almost a year now.
Pretending to be a consumer is not ethical and so this has never been something which would effect our work, but it is important to be careful with link building.
Ethical European organic search agencies are going to have to either annotate their posts to highlight the fact that they are working on behalf of the client or be very certain not to make any review or promotion of a client's product or brand.
The question here is, does a simple Client name link count as promotion?
A good British example of the sort of promotion which this is aimed at outlawing is the Barry Scott comment here:
https://www.plasticbag.org/archives/2005/09/the_first_contact_with_my_father_in_28_years/
Barry Scott is a fictional UK advertisement character, who posted, with a link to the Cillit Bang blog, to give advice to a man on a deeply personal matter regarding his estranged father.
Whilst the divide between this sort of gaff and dropping the odd link to your client's knitting needles site on the knitwit forums is massive, I wait for a trial case where a TSS tries to close that divide with a mixture of interest and trepidation.
Other things that aren't ethical but due to their effectiveness won't be going away anytime soon regardless of any level of legislation:
1. Spam
2. Telemarketing
3. Targeting commercial financial solutions to those who have real, financial problems.
4. Guns
etc. you get the point.
It will simply become a market where those who do it very well will suceed, like blackhat SEO. Legislation like this is simply not policible on the massive scale of the online UK market.
Of course.
What it does represent for respectable agencies, with legitimate, ethical, blue-chip clients, is similar to the problems associated with paid links.
We cannot (and indeed will not) sockpuppet or astroturf consumers, but we are competing against those who will.
I am interested to see how far the legislation will go as far as linkbuilding is concerned though.
Guns are unethical?
Ditto cowboy, huh?
The Barry Scott example is exactly why I disagree with the 'it'll only impact small busiensses' comments above.
I have never bought Cillit bang since this incident, and advise anyone I know not to as well.
I don't think your campaign is working - Reckitt Benckiser shares rose 100 points to 2794 (LON:RB) since 5 June. Giving them a market cap of just shy of £20000 Million pounds, ie £20 Billion.
I don't think a £5k fine will hurt too much either. Perhaps the fine should relate to market cap or something like corporation tax.
However, I applaud your efforts to be a more ethical consumer. I'm still boycotting Nestle.
Great post sarah - was at an Outlaw conference this morning on online law and it mirrors pretty much what you've got here! Although they bought up diggs being an example of astroturfing, in that its misleading if you promote your own product on digg without disclaimer!
edit: on a sidenote PHORM came up - and the presenters said that they see the UK information commisioner is seen as viewing it as definately coming into the playground.
As you know, that was my concern in my write-up of the issue, Rob. My reading of the law is that digging or stumbling a client's site would technically become illegal (even if you didn't submit the story - to my mind, a 'thumbs up' or a 'digg' are endorsements).
Although, of course, it is acceptable to have more than one on-line persona, a Digg account which declares your affiliations in the profile for work purposes and a nicknamed account for general surfing?
I think this will disproportionately affect smaller businesses.
Larger businesses will think that <£5k is a small additional cost on an advertising budget (if they get fined). Also it's probably sufficiently easy to prevent it being clear who is responsible and so no prison sentence would be possible.
Small businesses. Well £5k would sink my business, there are only two of us so reasonable doubt is easier to assuage.
We get editorial content along with advertising as a sweetener (for first time adverts in new magazines for example). The content of such is not deceptive IMHO, uninspiring maybe.
FWIW
Summary:
Dir. of small business = Jail
Large business = <1% tax
I think that's a great point pbhj.
It will be interesting to see whether they raise the maximum fine. If they really want the law to have teeth, I think they'll have to.
Thanks for your comment!
PBHJ:
I agree. Small businesses will be the most effected by this as they also are the ones that typically have to be a little more creative in their marketing efforts.
Large corporations will only see this as a minor obstacle and also will probably be less likely to be fined as they have superior methods of hiding their motives and protecting themselves with the top lawyers in the world.
The one benefit I guess is the truth which is rare to find in this world of fake agendas. Including my shameless plug to follow...
Nathan Lands
I disagree - £5k may not be much in budgetary terms, but the shame of being caught can be massive in brand terms, something small businesses don't have to worry about as much.
Agreed - the consequences may be larger for big firms - and if the information commisionar's office want to make an example they wont go for smallbusinness.com but one of the big multi million brands.
Also as Ciaran says the negative PR would be far worse with examples like walmart and sony seen already.
Aye, ever since I got into writing Hollywood reviews I've been careful on just where I click these days. A great, well-written article; however, I have to disagree with a comment that someone made earlier on. Guns being unethical? Please. Guns are simply a means; the intent is still there. That would be like saying the urge to murder, or rage, or simple bloodlust, is unethical. Simply because guns exist does not mean they are the cause of violence. [removed link]
Thank you for a Great Article...
Hi Sarah,
Great posting. Thanks for updating us with the regulations.
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Thanks for the post. I've recently been hit by agressive sales people... I'm glad to see this.
A great article; I enjoyed reading it throughly from top to bottom, and devoured every word of it. I don't think they should "criminalize" it like that, but if they want to do so then hey, it's the UK, not the US. We have enough issues with the economy,laws in general, that we can't handle any one else's problems.
Edited for link.
Wow. Great article. It's something to be cautious about. Since I've been looking into Paid Links. Good to see their are some laws to keep honesty in the business world.
This is a really interesting article. I agree with this article that this is finally a step in the right direction in helping cleaning up bad marketing techniques. For outside countries to recognize that this really is hurting the consumer online shows us that something needs to be done in the United States about this problem. This is always a really nicely written blog and I look forward to reading more of your terrific work.
I am not sure that the US marketing practises are all that likely to have had much effect on European laws - Europe represents around twice the number of online users of the US, indeed only Asia has a larger user base, and where almost three quarters of the North American population currently use the internet, the European figure is less than a half which, matched with Europe' much steeper growth curve, leaves North America only representing a little over a sixth of online users and falling.
The USA is still just about the largest country in terms of internet users but, even with Canada's huge uptake, America is a much smaller player than Europe or Asia.
This bill has been passed for European corporations, although clearly American companies, including those from the USA, will be held accountable if they are represented within Europe to a large enough extent to be considered as having influence .
China now has a bigger internet 'population' than the US...
Well, according to Chinese state media, yes.
I have not seen any fresh data for a while, but the reports which were circulated in February seemed to be jumping the gun and I think that they are probably a few months short in real user terms.
There's no question that they will be there within a matter of months and that their growth rate will leave the USA and indeed America outstripped before too long.
Indeed, although China is nowhere near Europe yet, it is only a matter of time before we see chinese dominance.
I wonder what sort of impact this will have on affiliate marketing - does this mean that all affiliate links must be specifically flagged as such? Or would a disclosure in the footer of a site declaring that some links on the site may be affiliate links do the trick?
Of course, I agree that there is unlikely to be active enforcement of this law on such a small scale.
I am very disappointed to learn that Barry Scott is fictional though...
I have a signed photograph of Barry Scott on the wall next to my desk.
He is an excellent example of when search PR goes wrong.
I think affiliate marketers are very anxious right now for the reasons you've pointed out.
I think there is a good argument that the new law requires affiliates to disclose the fact that they get paid for referrals/clicks/conversions etc etc. The question, of course, is how much disclosure is enough?
You can bet a judge would look at this from an 'average consumer' perspective, i.e., would the average consumer realize that this is a paid link or paid referall relationship? If the answer is "yes," then you're probably okay. If the answer is "no," then you could be afoul of the law. Most likely, an appropriate disclaimer would be in close proximity to the paid link.
At this point, we can only speculate how aggressive the government will be in prosecuting these cases.
I, for one, would be surprised if it aggressively went after paid links and affiliate marketers. But only time will tell.
Martin Lewis, whilst not my preferred internet entrepreneur, does have an excellent affiliate model and he is open and clear with his users about this.
I think that sites such as his, where the affiliate links are included in editorial content, will definitely fall under the wing of this bill. Less obvious are sites which are directly working as affiliates, such as SaveBuckets.com and similar price comparison engines.
As far as I can see, simple link building, particularly using text links and organic Search PR, remains fine for the moment, although I suspect that we will see a test case before to long.
The truth is, most consumers are savvy enough to determine when they are being misled or if someone is more than enthusiastic about a product or service. The web has made people more suspicious as a whole.
Like I don't know that MindValley is being paid as an affiliate to disseminate the ideas of Chet Holmes ( I must disclose that my company bought some of his products, and we have implemented some of his suggestions). Either that, or they are just piggybacking off his vast media presence over at CNBC. Not a bad idea, come to think of it.
My real question comes to whether or not the highly successful parties that Red Bull threw to launch their product in the US, would come under the same scrutiny. Does the local chapter of Beta Lambda Gnu in the UK now have to disclose that the soda is free?
This law is just flat out bad for business--as most regulation is-- and will hurt the consumer and creativity if enforced.
This sounds like it will just make any stealth tactics even more er... stealthy... and the methods for sly marketing will probably always be one step ahead of the curve.
I mean I think the governments intentions are admirable; protecting us from well coordinated, psychological marketing, but I just can't see how this will be enforced bar perhaps a couple of big lawsuits to make an example and to tick boxes.
Surely the UK gov can find better things on which to spend its time and money (sorry I meant my money!)
The average consumer is such an inattentive / poor reader that I bet carefully worded and placed disclaimers will have only minimal effect on advertisement effectiveness.
That might satisfy the letter of the law, but the ethical question remains - how willing is one to exploit the gullibility of the public for financial gain?
Sarah, thanks. It's very interesting to know what's going on with Internet Marketing regulations. The European Market is big and it sure will affect many businesses targetting that Market. It might also show a general trend, who know maybe US and other countries will follow. We'll have to continue be creative to try to make good "trades".
Probably just one of many regulations that will be coming in over the next few years. And about time too. It's been like the wild west for too long. Unless the industry cleans it's own act up, then the lawmakers will step in and do it for us. This is just the beginning.
Cool - it will save a lot of less intelligent or poor old folks getting conned.
It will be beneficial in my opinion.
Whilst I think my native UK (Devon, England) is going down the dumps pdq I really think steps such as this and the smoking ban are major steps forward.
Smoking ban? Why can't we have a blanket ban over here in the US?
Cheers
David
Really interesting post Sarah - to be honest the thought that this law would impact on buying links hadn't even crossed my mind, I had only considered the fact that it would now be illegal for brands to pretend to be consumers (think WalMart), which I'm actually kind of glad about.
As you say though, who will investigate and prosecute such breeches remains to be seen.
Ladies and gentleman, it is the 21st century, we have bodily integrity, autonomy and self determination and we are all armed with the phrase cavaet emptor. grow up and stop blaming cutting edge marketing techniques for your limited brain power and abilites to discipher messages!