On Oct. 1, the Federal Trade Commission issued a new rule which will become effective on Dec. 1. This new rule has the potential to affect millions of individuals who maintain blogs, make comments on Web sites, or use social networking sites such as Twitter. The new rule, available online at http://www.ftc.gov/os/2009/10/091005endorsementguides fnnotice.pdf, contains 81 pages and sets forth the FTC’s new legal scheme for requiring users of the Web and social networking sites to disclose any compensation they receive from any entity or individual whom they “endorse” in their comments.

Increasingly over the past decade, businesses and professionals have realized that positive comments from popular bloggers or tweeters may have significant publicity value. As a result more and more businesses and professionals have been willing to sponsor “paid endorsements” on popular sites.

Unlike so-called “banner advertisements” or pop-ups, these endorsements come in the body of the substantive text, and authors or editors often do not reveal that they have received some form of compensation for the endorsement. The FTC, which is charged with consumer protection, viewed these “secret” paid endorsements as a violation of consumer rights and, for the first time in 30 years, issued new, updated rules to prohibit this behavior.

The problem with the new rule is that its definitions of key terms such as “compensation” and “endorsement” are quite broad and may well prove to be a trap for the unwary. On reading the rules, it would seem for instance that a blogger who endorses a product produced by the company he works for, even though he has not specifically been paid to mention the product in his blog, may fall afoul of this new rule.

Similarly, a frequent traveler who gains free days from a rental car agency and then tweets about how good the service has been from that company without revealing he received free use of a car, although not specifically in payment for his tweet, may also run afoul of the rule.

Critics of the new rule and its seemingly heavy-handed approach have been told by government and media sources that the FTC has no intention of pursuing average citizens who happen to violate the rule. There are two problems with this statement. First, although the government may say that they have no intention of enforcing the rule in certain cases, they are empowered to do so by the rule and, thus, can change their mind at any time. Second, the rule carries a substantial penalty for its violation: an $11,000 fine!

What steps should individuals and businesses take to protect themselves against the new rule. The answer is fairly clear. Anyone who blogs, tweets, or otherwise comments over the Web and includes positive statements about goods or services in their comments must be sure to also include information about any financial ties, even small payments of a dollar or two or small gifts including free products or services, to the product manufacturer or service provider. Failure to do so, under the new rule, raises a real possibility of being fined.