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This post on Chris Brogan's "Dadomatic" blog last December put him smack in the center of a controversy involving what constitutes paid advertising in social media marketing:

"I have to admit that I haven’t stepped foot in a Kmart for a while, like probably since before they merged up with Sears. But this assignment was totally worth it. Basically, the plan was this: take a $500 gift card and figure out what was cool to buy at Kmart,” Brogan wrote. 

Brogan, president of New Marketing Labs LLC, a Massachusetts-based media marketing agency, was criticized for the post because, some argued, he failed to disclose his connection with Kmart clearly. The bottom line is he did disclose that he was compensated, while most don't.

The Federal Trade Commission will soon see to it that everyone does make the disclosure. After several months of considering industry comments, the agency is getting ready to issue new guidelines that would update its 30-year-old ethics, endorsements and testimonials rules to include all media, including blogs and social media Web sites. 

"We’re acting to ensure that bloggers don’t create a bias in the consumer decision-making process,” said Mary Engle, acting deputy director for the FTC's Bureau of Consumer Protection. “Consumers need to know that what they’re reading is technically an advertisement.”

Engle noted that the FTC's current truth-in-advertising principles are sufficiently broad, but said the agency only has examples for TV, radio, magazine and newspapers. "So what we are doing now is to set up new examples regarding social media, which weren't included in the current guidelines,” she said.

She said the FTC wants to draw attention to the issue by setting better standards, definitions and best practices for the online marketing industry as well as consumers.

The upshot is that bloggers could be liable if they make misleading or untrue statements about products or services online, or if they fail to disclose “material information,” such as getting payment or free products in return for their testimonials.

The companies that benefit from the testimonials could face sanctions, too. The FTC is expected to issue the final guidelines later this summer.

"The main purpose is to protect consumers from false advertising,” said James Speta, a Northwestern University law school professor and an expert on legal matters pertaining to telecommunications and marketing.

Speta said the FTC has two major concerns: One is the truthfulness of online advertising; the other is that some endorsements of products are being made without disclosing that the endorser has been paid for the statement.

In a young and evolving industry, online marketers and consumers are still in a largely undefined area, at least legally. While marketers and advertisers may agree that it’s unethical for bloggers to make comments on products or services without disclosing relationships with advertisers, it’s not explicitly illegal.

The result is that it’s hard for consumers to know whether they’re getting an objective opinion or an advertisement when they read product reviews on blogs, Facebook, Twitter and other social media.

"I think consumers need to know that they’re getting reliable information, or they won’t trust the media,” said Carol Jouzaitis, who owns an independent marketing company CJPR. “Advertisers always have to meet certain standards.”

Jouzaitis and others say they already apply the FTC’s truth-in-advertising guidelines to online media and they welcome the greater scrutiny.

"You don’t get some special protection from long-standing rules just because you write on a blog instead of a newspaper,” said Andy Sernovitz, the author of Word of Mouth Marketing.

"It’s okay to be a professional blogger who earns a living from advertising, but when you get paid for the editorial as well as the ads, you’re in danger of crossing the line,” he said. “Ads should look like ads, not posts.”

The proposed guidelines will require bloggers to disclose “clearly and conspicuously” when they’ve been wooed with cash, freebies or other compensation from companies they write about. 

For example, Jessica Smith, who has blogged about Wal-Mart Stores Inc, Ford Motor Co. and videogame maker Electronic Arts Inc. has a notice at the bottom of her Web page, JessicaKnows.com, that she accepts compensation for blog posts.

Smith also disclosed in her post that last month she was given the use of a Ford Flex and a gas card for a year after she wrote a favorable review about the car.

It may prove tricky, however, to accomplish FTC-mandated disclosure in some social media, Speta said, such as Twitter.

"When you only have 140 characters to tweet, it’s hard to imagine that you have enough space for disclosure,” Speta said. “Some of the details [of the FTC's guideline] still need to be worked out.” 

"[Disclosure] has to be 'creative' in some media,” agreed Engle, but she added "there are ways to convey" monetary relationships. She said the FTC has already observed some advertisers on Twitter finding ways to disclose their material connection with endorsers.

Sernovitz has another worry: Even though a blogger may make proper disclosure in the first place, his paid message could get repeated elsewhere by others without disclosure. "That means you may be the source of a widespread deception,” he said.

"The bloggers won’t be liable for what they cannot control,” Engle responded. “They should be responsible for their own activities, and companies who employ people on their behalf should be liable for what those people say.”

Bloggers would be wise to bone up on the basic principles that currently apply to traditional media, Speta said, in preparation for the new media guidelines.

"As soon as the author begins to explain the characteristics and the features of the products, those are going to be treated as statement of fact,” he explained.

Jouzaitis agrees and gives her own formula. "If you say the product is cheaper, you have to provide evidence of what the prices were, what the prices the competitors were offering, etc,” she said. “You have to be able to back it up with statistical claims.” 

Speta said the FTC will rely to a great extent on the public to help it enforce the new social media marketing guidelines.

"If the FTC receives a lot of complaints about a specific Web site, it would begin an investigation,” Speta said. “The first step would be to seek a cease-and-desist order to stop the practice that the company or blog has been engaged in. In serious cases, the FTC can impose fines.”