In what appears to be the first enforcement action under an FTC rule enacted in December 2009 under which companies may be liable for company product endorsements posted online by employees who do not disclose they are paid by the company, a public relations agency hired by video game developers will settle Federal Trade Commission charges that it engaged in deceptive advertising by having employees pose as ordinary consumers posting game reviews at the online iTunes store, and not disclosing that the reviews came from paid employees working on behalf of the developers, the agency recently announced.

Reverb provides PR and marketing services to developers of video game applications, including mobile gaming apps. Reverb employees posted reviews about their clients’ games at the iTunes store using account names that gave readers the impression the reviews were written by disinterested consumers, according to the FTC complaint. Reverb and Snitker did not disclose that they were hired to promote the games and that they often received a percentage of the sales. These facts would have been relevant to consumers who were evaluating the endorsement and deciding whether to buy the gaming applications, the FTC complaint alleged. By not disclosing these facts, the agency alleged, Reverb engaged in unfair or deceptive acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act.

Under the proposed settlement order, Reverb Communications, Inc, and its sole owner, Tracie Snitker, are required to remove any previously posted endorsements that misrepresent the authors as independent users or ordinary consumers and that fail to disclose a connection between Reverb and Snitker and the seller of a product or service. The agreement also bars Reverb and Snitker from misrepresenting that the user or endorser is an independent, ordinary consumer, and from making endorsement or user claims about a product or service unless they disclose any relevant connections that they have with the seller of the product or service.

In its revised endorsements and testimonials guides issued last year, Commission’s Guides Concerning the Use of Endorsements and Testimonials in Advertising (16 CFR Sec. 255.0) an online post by a person connected to the seller, or someone who receives cash or in-kind payment to review a product or service, should disclose the material connection the reviewer shares with the seller of the product or service. This applies to employees of both the seller and the seller’s advertising agency. The FTC has issued a fact sheet for businesses in which it outlines and answers frequently asked questions on its new endorsement guidelines.