According to this WaPo article:
The Federal Trade Commission yesterday said that companies engaging in word-of-mouth marketing, in which people are compensated to promote products to their peers, must disclose those relationships.
In a staff opinion issued yesterday, the consumer protection agency weighed in for the first time on the practice. Though no accurate figures exist on how much money advertisers spend on such marketing, it is quickly becoming a preferred method for reaching consumers who are skeptical of other forms of advertising.
Word-of-mouth marketing can take any form of peer-to-peer communication, such as a post on a Web blog, a MySpace.com page for a movie character, or the comments of a stranger on a bus.
As the practice has taken hold over the past several years, however, some advocacy groups have questioned whether marketers are using such tactics to dupe consumers into believing they are getting unbiased information.
The article also notes:
The FTC said it would investigate cases where there is a relationship between the endorser of a product and the seller that is not disclosed and could affect the endorsement. The FTC staff said it would go after violators on a case-by-case basis. Consequences could include a cease-and-desist order, fines and civil penalties ranging from thousands of dollars to millions of dollars. Engle said the agency had not brought any cases against word-of-mouth marketers.
Though the staff’s opinion fell short of Commercial Alert’s original request, the group’s executive director, Gary Ruskin, said he was pleased the staff agreed that word-of-mouth marketing could be deceptive.
“This letter tells marketers like Procter & Gamble that their ‘sponsored consumers’ must disclose that they are shilling, or they are probably in violation of the prohibition against deceptive advertising. That’s big,” he said. “It will change practices in the word-of-mouth marketing industry.”
Andy Sernovitz, chief executive of the Word of Mouth Marketing Association, said the FTC’s decision was an endorsement of the industry’s efforts to police itself. The Chicago-based association, which has more than 300 members, last year issued a code of ethics stating that marketers should disclose ties to sponsors.
The group has also tried to hold members accountable. Sernovitz said the group is reviewing the membership status of the Edelman public relations firm after Wal-Mart, one of the firm’s clients, reportedly gave positive comments to bloggers who then posted the comments without mentioning the source. Edelman later admitted that some of its employees had written the blogs. …
Well, it’s a step in the correct direction, at least. I hope the astroturfing blogger “opinion shapers” are taking note, particularly those working for the porn industry. The relevant staff opinion letter is accessible here. It was written in response to this. Complaints can be filed with the FTC here.