Tuesday, October 6, 2009

Full Disclosure: The Twisted Lives of FTC Commissioners

I see where the FTC commissioners have voted (4-0) that anyone who endorses a product, including celebrities and bloggers, must make explicit the compensation received from companies.

Since I can take or leave any endorsement or comment, anywhere, based on the logic of the argument made, this FTC regulation is superfluous at best, and, at worst, it will cut back on the opportunities for me to receive information.

One twitter feed I monitor is EconomyFeed. It is provides great bulletins everytime new economic data is put out. About once a day, they also send out a tweet about how to eliminate yellow teeth in your backyard, or something like that. I generally ignore this ad except for thinking to myself, "How many people tracking economic data have yellow teeth that want to fix the problem in their backyard?"

Do I need to know that they are getting paid (duh) for this post? Who knows, maybe the government of Bulgaria is slipping EconomyFeed 10G a month to get them to report Bulgarian economic data? I don't care! As long as EconomyFeed provides the data I am looking for FOR FREE, I really don't care how they pay their bills.

But now this great service that I get FOR FREE might be in jeopardy thanks to the twisted revolving door commissioners and other regulators at the FTC. Reports FT:

While the FTC made explicit what is not allowed, it did not provide clear guidelines on how to make adequate disclosures.

“How do you give effective disclosure on a tweet that’s 140 characters or on message on a cell phone?” said Mr DiResta. “When it’s a new product, how do you say what typical results are?”

Richard Cleland, assistant director for the FTC’s division of advertising practices, said violations would be assessed on a case-by-case basis. “There will be some accommodations for the type of media involved,” he said. “But if the required disclosure can’t be made, then that kind of medium might not be appropriate for advertising.”
Who is this idiot? Edward Champion got on the phone with Cleland and really squeezed his balls:

As Michael Cader remarked in this morning’s Publishers Marketplace:

The main point of essence for book publishers (and book bloggers) is the determination that “bloggers may be subject to different disclosure requirements than reviewers in traditional media.” They state that “if a blogger’s statement on his personal blog or elsewhere (e.g., the site of an online retailer of electronic products) qualifies as an ‘endorsement,’” due to either a relationship with the “advertiser” or the receipt of free merchandise in the seeking of a review, that connection must be disclosed.

In an attempt to better understand the what and the why of the FTC’s position, I contacted Richard Cleland of the Bureau of Consumer Protection by telephone, who was kind enough to devote thirty minutes of his time in a civil but heated conversation. (At one point, when I tried to get him to explicate further on the double standard, he declared, “You’re obviously astute enough to understand what I mean.”)

Cleland informed me that the FTC’s main criteria is the degree of relationship between the advertiser and the blogger.

“The primary situation is where there’s a link to the sponsoring seller and the blogger,” said Cleland. And if a blogger repeatedly reviewed similar products (say, books or smartphones), then the FTC would raise an eyebrow if the blogger either held onto the product or there was any link to an advertisement.

What was the best way to dispense with products (including books)?

“You can return it,” said Cleland. “You review it and return it. I’m not sure that type of situation would be compensation.”

If, however, you held onto the unit, then Cleland insisted that it could serve as “compensation.” You could after all sell the product on the streets.

But what about a situation like a film blogger going to a press screening? Or a theater blogger seeing a preview? After all, the blogger doesn’t actually hold onto a material good.

“The movie is not retainable,” answered Cleland. “Obviously it’s of some value. But I guess that my only answer is the extent that it is viewed as compensation as an individual who got to see a movie.”

But what’s the difference between an individual employed at a newspaper assigned to cover a beat and an individual blogger covering a beat of her own volition?

“We are distinguishing between who receives the compensation and who does the review,” said Cleland. “In the case where the newspaper receives the book and it allows the reviewer to review it, it’s still the property of the newspaper. Most of the newspapers have very strict rules about that and on what happens to those products.”

In the case of books, Cleland saw no problem with a blogger receiving a book, provided there wasn’t a linked advertisement to buy the book and that the blogger did not keep the book after he had finished reviewing it. Keeping the book would, from Cleland’s standpoint, count as “compensation” and require a disclosure.

But couldn’t the same thing be said of a newspaper critic?

Cleland insisted that when a publisher sends a book to a blogger, there is the expectation of a good review. I informed him that this was not always the case and observed that some bloggers often receive 20 to 50 books a week. In such cases, the publisher hopes for a review, good or bad. Cleland didn’t see it that way.

“If a blogger received enough books,” said Cleland, “he could open up a used bookstore.”

Cleland said that a disclosure was necessary when it came to an individual blogger, particularly one who is laboring for free. A paid reviewer was in the clear because money was transferred from an institution to the reviewer, and the reviewer was obligated to dispense with the product. I wondered if Cleland was aware of how many paid reviewers held onto their swag.

“I expect that when I read my local newspaper, I may expect that the reviewer got paid,” said Cleland. “His job is to be paid to do reviews. Your economic model is the advertising on the side.”

From Cleland’s standpoint, because the reviewer is an individual, the product becomes “compensation.”

“If there’s an expectation that you’re going to write a positive review,” said Cleland, “then there should be a disclosure.”

But why shouldn’t a newspaper have to disclose about the many free books that it receives? According to Cleland, it was because a newspaper, as an institution, retains the ownership of a book. The newspaper then decides to assign the book to somebody on staff and therefore maintains the “ownership” of the book until the reviewer dispenses with it....
Note: Cleland is completely clueless if he thinks reviewers' copies from mainstream media don't end up with reviewers and then sold. All he has to do is walk into Strand's bookstore in NYC. They have half their basement devoted to current books that have been sold to them by reviewers.

But enough on Cleland, for now. Let's take a look at the FTC commissioners who voted for this disclosure rule that is clearly convoluted and not completely thought out.

The chairman is Jon Leibowitz. He is a typical revolving door gvt-private sector operator. He works for government, gets involved in regulations and legislation, then sells access and "expertise" to help organizations get around the rules and regulations that he and his revolving door peers have created.

Among other government positions, he was the Democratic chief counsel and staff director for the U.S. Senate Antitrust Subcommittee from 1997 to 2000 He also served as chief counsel and staff director for the Senate Subcommittee on Terrorism and Technology from 1995 to 1996. In addition, he served as chief counsel to Senator Herb Kohl from 1989 to 2000. Leibowitz worked for Senator Paul Simon from 1986 to 1987.

In the private sector, Leibowitz served most recently as vice president of the Motion Picture Association of America – from 2000 to 2004. What position did he hold at MPAA? VP for congressional affairs. He has also worked in private practice as an attorney. In what city? Washington DC.

Commissioner Pamela Jones Harbour is also a revolving door operator. Harbour joined the FTC from Kaye Scholer LLP where she served as a partner in the litigation department handling antitrust matters. Prior to joining Kaye Scholer, Harbour was New York State Deputy Attorney General and Chief of the Office’s 150-attorney Public Advocacy Division. In that position she harassed numerous corporations. She represented numerous states in New York v. Reebok, States v. Keds, and States v. Mitsubishi.

She also managed in an antitrust case to stop the merger of May Department Stores.

Commissioner William E. Kovacic generally takes the international revolving door route.

Before he became a Commissioner, Kovacic was the E.K. Gubin Professor of Government Contracts Law at George Washington University Law School. He also taught at the George Mason University School of Law, after practicing antitrust and government contracts law for three years at Bryan Cave’s Washington, DC, office. Earlier in his career, Kovacic spent one year on the majority staff of the U.S. Senate Judiciary Committee’s Antitrust and Monopoly Subcommittee.

But his real calling is selling his soul internationally.

Since 1992, Kovacic has been an adviser on antitrust and consumer protection issues to the governments of Armenia, Benin, Egypt, El Salvador, Georgia, Guyana, Indonesia, Kazakhstan, Mongolia, Morocco, Nepal, Panama, Russia, Ukraine, Vietnam, and Zimbabwe. Zimbabwe? I wonder how many new Zimbabwian dollars Robert Mugabe printed to pay Kovacic's fee.

Finally, we have Commissioner J. Thomas Rosch. Rosch joined the FTC from the San Francisco office of Latham & Watkins, where he was the former managing partner and most recently a partner, working in the firm’s antitrust and trade practices group. Rosch served as chair of the American Bar Association’s Antitrust Section in 1990, and he has chaired the California Bar Association’s Antitrust Section. He served as the FTC’s Bureau of Consumer Protection director from 1973 to 1975, and in 1989 was a member of the Special Committee to Study the Role of the FTC.

Bottom line, each and every one of the FTC commissioners is a proven revolving door operator. They all flaunt on their resumes the high profile government activities they created or have been involved in. What would they be able to flaunt on their resumes if they didn't create these high profile situations?

These are twisted power freaks. The only FTC disclosure regulation I would like to see is the requirement that on each commissioners forehead it is stamped, Revolving Door Bureaucratic Power Freak, so that we can shun them when they come within 25 feet.

Except for putting another notch on the resumes of these Revolving Door Bureaucratic Power Freaks, there is nothing that makes sense about the compensation disclosure rule. It clearly hasn't been thought out, given the objection after objection that can be raised about the rule. By handling situations on a case-by-case basis, as Cleland suggets, the stifling of ceativity and innovation will occur. It will require, those that can afford it and need a clarification on a rule, the necessity of hiring other revolving door operators to represent them in front of these revolving door operators.

America is crumbling from the weight of having to deal with these type power freaks. They should all be shoved into revolving doors and then the doors should be jammed. Then we can walk past them years from now, look at their skeletons, and think of how America was saved by jamming these power hungry beasts, before they jammed us.


  1. Well written piece. Thank you for doing it, because I can't find this level of reporting anywhere.

  2. This is horse hockey, especially when Tom Daschle and Bob Dole go on Meet the Putz and never mention their work for Alston & Bird, a lobbying firm with much skin in the health reform game.

    Or maybe Tom Scully, ex. Bush Medicare Chief and private equity underwriter. He never mentioned SHPS was a Welsh, Carson, Anderson & Stowe affiliate when he told a CSPAN caller to dial SHPS' Atlanta office for health care coverage consultation.

    As usual, the FTC goes after people clearly writing opinion pieces, while ignoring the influence peddlers, i.e. their friends.

  3. Funny, Gail Wilensky never said boo about her millions in holdings in for-profit health care stock when she testified before the Senate Finance Committee. CSPAN showed Gail in all her profitable glory.

    Where's the FTC on full disclosure with the twisted power freak community?