Digital Media

(Credit: Josh Lowensohn/CNET)

Prominent users of Twitter and Facebook won't be exempt from controversial new Federal Trade Commission guidelines that keep tabs on blogger freebies and giveaways, according to Richard Cleland, associate director for the FTC's advertising division. The agency absolutely plans to keep tabs on social networks as well as blogs in accordance with revised regulations that could see violators fined up to $11,000, he said.

Here's a sample scenario: a celebrity or other prominent figure with loads of friends on Facebook receives free hotel says from Hotel Chain X in exchange for running Hotel Chain X ads on his or her blog. If that person then signs up as a Facebook fan of Hotel Chain X--which, remember, could mean that the person's name can show up for his or her Facebook friends alongside Hotel Chain X display ads on the social network--he or she could be held liable by the FTC.

"It would be the same thing if you were going to pay the celebrity a thousand dollars to go register as a fan," Cleland said. "In that case, there wouldn't be any question about it."

Facebook spokesman Barry Schnitt told CNET News that the social network doesn't have anything concrete to say in reaction to the new regulations just yet. "I don't think we have anything to say other than that we've had an ongoing dialogue with the FTC and we'd love to talk to them more about what this means," Schnitt said. "I think we're already consistent with the spirit of it."

Schnitt added that some of the practices that may be encompassed by the new FTC guidelines are already banned by Facebook. "We say in our statement of Rights and Responsibilities, and people actually applauded this when we added it in a few months ago, that you will not use your personal profile for your own commercial gain such as selling your status to an advertiser." This is contained in section 4.2 of the document, he said.

As for Twitter, the FTC isn't letting you get a pass with the excuse that 140 characters--Twitter's famous text limit--is simply too short. "There are ways to abbreviate a disclosure that fit within 140 characters," Cleland said. "You may have to say a little bit of something else, but if you can't make the disclosure, you can't make the ad."

The question still remains as to exactly how the new guidelines will be enforced, given the sheer scope of online media--not to mention the millions upon millions of active Twitter and Facebook users.

"As a practical matter, we don't have the resources to look at 500,000 blogs," Cleland said. "We don't even have the resources to monitor a thousand blogs. And if somebody reports violations then we might look at individual cases, but in the bigger picture, we think that we have a reason to believe that if bloggers understand the circumstances under which a disclosure should be made, that they'll be able to make the disclosure. Right now we're trying to focus on education."

That's worth highlighting. Small-time bloggers freaking out over whether the FTC will really crack down on them may be pleased to know that the FTC at least claims its aim is to make everyone aware of what's right and wrong rather than to hunt down every Twitter user who may have been given a free toaster or something. Unless, that is, somebody rats them out--and at least one blogger is already raising concerns that angry readers may use the regulations to attempt to get back at blogs they don't like.

Industry blogger Peter Feld of Brandchannel thinks he can see another outcome. "A safe prediction for 2010: some big scandal when the first celebrity to run afoul of the new rules, by promoting a product on Twitter or a talk show, gets fined by the FTC."

This post was updated at 5:13 p.m. PT with comment from Facebook.

Independent bloggers who fail to disclose paid reviews or freebies can face up to $11,000 in fines from the Federal Trade Commission, according to revisions to the agency's "Guides Concerning the Use of Endorsements and Testimonials in Advertising" published Monday.

This marks the first time that the Guides document has been updated since 1980.

From an FTC-issued release:

"The revised Guides also add new examples to illustrate the long standing principle that 'material connections' (sometimes payments or free products) between advertisers and endorsers--connections that consumers would not expect--must be disclosed. These examples address what constitutes an endorsement when the message is conveyed by bloggers or other 'word-of-mouth' marketers. The revised Guides specify that while decisions will be reached on a case-by-case basis, the post of a blogger who receives cash or in-kind payment to review a product is considered an endorsement. Thus, bloggers who make an endorsement must disclose the material connections they share with the seller of the product or service."

The FTC also has its eye on celebrities. "Celebrities have a duty to disclose their relationships with advertisers when making endorsements outside the context of traditional ads, such as on talk shows or in social media," the release explaining the revisions explained.

That means, theoretically, that if a celebrity gushes about a new car on his or her Twitter account and it turns out that the car was given away for free, the celebrity could be fined by the FTC.

Word of the FTC's crackdown on blogger endorsements first broke in June and set off a wave of chatter in communities of bloggers who are well used to receiving and keeping free products from marketers and PR agencies--most notably the thriving "mommy blogger" sector.

It's going to be hard to police--there are a lot of bloggers out there, not to mention a lot of different kinds of bloggers, and a lot of marketers. And as some media critics have pointed out, undisclosed endorsements of freebies have plagued some sectors of the magazine industry for decades now.

Correction at 2:50 p.m. PDT: This story initially misquoted Kent Walker. He confirmed that Google was aware of a "pending FTC discussion" into Schmidt's board seats.

MOUNTAIN VIEW, Calif.--Google confirmed that the Federal Trade Commission plans to hold discussions with the company over a possible conflict of interest due to CEO Eric Schmidt's participation on both Google and Apple's board of directors.

In response to questions posed by reporters during a lunch meeting with Google executives--including Schmidt--Google vice president and general counsel Kent Walker confirmed that Google was aware of a "pending FTC discussion" into Schmidt's board seats, which was reported earlier in the week by The New York Times.

Google does not believe Schmidt's role on Apple's board presents a problem, and encourages company members to participate on boards, said David Drummond, Google's chief legal officer and senior vice president for corporate development.

Schmidt reiterated that he recuses himself from discussions inside Apple that involve areas in which the companies overlap, such as the iPhone. When asked if he recuses himself from any other discussions inside Apple, he said "not that I recall."

With so many czars running around trying to solve the nation's problems in tech, auto and drugs, perhaps Sony should consider hiring a common-sense czar.

Is there any major consumer company around that seems to understand basic customer relations less than Sony? Isn't rule No.1 in the CR manual, "Don't spy on customers?" If so, then rule 1-A must be: "Take extra care to avoid spying on customers' children."

The latest example of Sony's disconnect with the masses came this week when the company's music division was fined for surreptitiously collecting information on children under 13-years old.

On Thursday, Sony agreed to pay $1 million to the Federal Trade Commission for collecting information on 30,000 children without obtaining parental consent. According to the Associated Press, Sony violated the Children's Online Privacy Protection Act when it collected the data from hundreds of fan sites, including those of such musical acts as Kelly Clarkson, Britney Spears and Christina Aguilera.

Sony representatives declined to comment.

Sony's growing list of scandals raises the question of whether anyone at the conglomerate has an ounce of public relations savvy. If they don't, the company should find someone fast and that person's mission should be to smack down overly zealous marketing types who come up with lamebrain ideas like this one.

Or how about the one for last year's promotional party for the PlayStation 2 game God of War II that turned into an international embarrassment for Sony. In keeping with the video game's Greek mythology theme, comely women were hired to prance around topless and feed grapes to partygoers as part of the "theatrical dramatization." If that wasn't over the top enough, the centerpiece of the festivities was a butchered goat that was dressed up to look like the animal's entrails were falling out.

Across the world, animal activists howled and critics blasted the company's "bad taste." Sony apologized and yes, returned the goat carcass to the butcher. (I'm not kidding, that was their response).

Then there was the company's supreme blunder, which also came from the music division.

Before Sony, even some hardcore techies were unfamiliar with rootkits. Now, the two are synonymous. In 2005, Sony loaded MediaMax CD 3 and Extended Copy Protection (XCP) software on music CDs to help boost copy prevention. The software loaded a rootkit malware onto the PC of anyone who loaded the discs. Rootkits are programs designed to hijack control of a computer.

Texas' attorney general filed suit against the company and accused it of loading spyware onto computers. Class action suits were also filed in New York and California. The fallout lasted years.

The rootkit debacle makes this latest child-spying case all the more mind-boggling. Even if you give Sony the benefit of doubt and discount the possibility the company is evil, then what are you left with? Yes, that's right: incompetence.

I have met a lot of smart people from Sony and I have to believe that some of them realize the company is developing a nasty reputation as an enemy of consumer privacy.