March 2014
Practice Group(s):
Corporate/M&A
Antitrust,
Competition and
Trade Regulation
Interest Relationship Disclosure – FTC’s New
Guidelines Regarding Astroturfing
By Max Wang
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. Nonetheless, 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.
Interest Relationship Disclosure – FTC’s New Guidelines Regarding
Astroturfing
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
1
Page 14 of the FTC sanction decision, which can be retrieved at http://www.ftc.gov.tw/uploadDecision/d6b4b457452c-401f-9054-a0c676db6ea1.pdf.
2
Id. at page 14.
3
Id. at page 14.
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Interest Relationship Disclosure – FTC’s New Guidelines Regarding
Astroturfing
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.
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.
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Interest Relationship Disclosure – FTC’s New Guidelines Regarding
Astroturfing
Author:
Max Wang
max.wang@klgates.com
+866.2.2326.5182
Contact:
Jacqueline Fu
jacqueline.fu@klgates.com
+886.2.2326.5125
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