The FTC investigation into retailer Ann Taylor’s blogger payola flap sent a jolting wake-up call to businesses looking to drum up some positive word-of-mouth buzz via the blogosphere. Ann Taylor may have gotten off lightly, but there are still some hard lessons for businesses to come out of this. Here’s five lessons we draw from this matter:

1) The FTC takes company engagement of social media seriously and is watching.

Don’t presume that because this is such new territory, that there are no rules.
To the contrary, there are tough customer protection rules in place in both Europe and America, and they will be enforced.  The FTC made this law late last year to make sure business were letting bloggers keep to the spirit of blogging: unbiased and grassroots reporting. So, now anytime a business gets involved with blogging correspondents the blogger needs to disclose that information with his readers.

2) Social Media regulations are still in their early days. Brace yourself for more confusion.

Ann Taylor only got a slap on the wrist for the incident, but they probably won’t be so lucky next time around. FTC attorney Douglas Wood commented:

“I’m speculating, but what the FTC is doing is not being aggressive intentionally, so they can set up a standard they think is appropriate. Maybe they’ll do this a few more times. It’s not an unusual way to begin the educational process. In a way, it’s always good to be the first one looked at. The second one might not fare so well.”

3) Blogger Payola tactics is a questionable practice anyway.

This Gawker post sums up the failed buzz-generation attempt quite well:

“Good coverage in exchange for chance to win gift cards? Are bloggers that pathetic? Apparently not: While the Feds, like Ann Taylor, thought the promotion might produce a tidal wave of glowing coverage, it turned out ‘only a small number of bloggers posted content about the [collection] and several of those disclosed the gifts.’”

Apparently bloggers aren’t easily bought.

4) The long arm of the law has a wide reach.

If you’re a respectable business in the Western world you are going to be under the watchful eye of both the US and the EU governments. In fact, the EU passed similar regulation in 2007 to protect consumers from un-virtuous blogging.

5) Get your lawyer to catch up on the latest do’s and don’ts of social media consumer engagement.

There is new red tape all the time surrounding the use of SM for business purposes. If you’re going to get into using it (wait, you haven’t already?!) you should get to know the rules.

Editor’s Note: Learn more how major brands are going beyond campaigns to have a more fruitful dialogue with consumers at the Social Media Influence conference. Register before May 1 to get the early bird rate for the Social Media Influence conference.

Is Facebook on a collision course with privacy watchdogs? There have been isolated complaints in the U.S. and in Europe to rein in the rapidly growing social network and how it handles user data, but so far regulators have remained on the sidelines. That could change with a new feature Facebook is due to introduce later this week at its F8 conference.

Marketers are telling the Financial Times that changes in store for the 400-million-strong social network include turning the “Become a Fan” button underneath various content offerings to “Like.” (That much we already knew). The new bit is that the new “Like” content-sharing feature will enable marketers to see what users are responding favorably to, for purposes of targeting them down the line with an ad.

Facebook isn’t saying much at the moment, waiting instead for Wednesday to unveil the full details. Mashable explains though that this new social media marketing feature shouldn’t be too prickly for users, saying:

Facebook already targets ads using information from your profile, and this new system will not track all of your browsing… Rather, Facebook will offer sharing buttons to interested websites. Readers will be able to click on them to share the links with their Facebook friends via Facebook Connect

By extending Facebook connectivity outside the network, marketers will be able to see how people are interacting with their content and then respond accordingly with a targeted ad. What’s not to like about that?, most marketers are no doubt thinking.

Every day, quick bursts of highly targeted medical information are pumped into the Twitterverse, oblivious to most of us goof-offs blithely in search of the latest iPad reviews and Justin Bieber gossip. Lucky us. But, for the relatively small number of people who suffer from, say, the rare medical condition of Erythropoietic protoporphyria, where even the slightest exposure to sunlight can trigger spasms of intense pain, these bulletins are eagerly anticipated. One 140-character bulletin could hold the clues to a new treatment and a little relief.

Australian drugmaker Clinuvel has built a Twitter feed to cater to this small community who suffer from EPP, as it’s called. The pharmaceutical company is trying to get regulatory go-ahead for its drug, afamelanotide. Yesterday, it reported to its 267 Twitter followers that the Food and Drug Administration finally granted it approval to proceed with afamelanotide clinical trials in the U.S. It may still be years before it hits the market, of course, in the U.S.

Not long ago drug makers would hold off on discussing drugs in development until regulatory approval seemed imminent. Not so today. The public is hearing about drugs barely out of the labs. And it’s not just small drug makers likeClinuvel. Swiss pharma giant Novartis is an enthusiastic Tweeter, regularly sending out dispatches about drugs in the R&D stage, or drugs only approved overseas.

What makes this more remarkable is that Tweeting drugmakers (they are also active on Facebook too) may be breaking the rules in telling us about potential cures long before they get the green light. That’s right. To regulators, too much information can be a bad thing for the consumer.

It’s left the pharmaceuticals industry stuck in an odd bind. Millions of people may be scouring the Net daily for details on potential new cures, but thatdoesn ‘t mean those working on a breakthrough can let them in on the latest results. In this age of surfing-for-wellness-tips on social networks and niche medical communities, regulators in the United States and Europe are literally trying to turn back the clock to keep the information flow about new drugs in the pipeline to an easily controllable trickle.

Meanwhile, spammers and dubious drug vendors, not shackled by such restrictions, pound the net daily with false medical claims.

Big Pharma of course is not alone. Financial regulators have been unwilling to confront the ramifications of how social media is already transforming the way companies can communicate with the public. The Security and Exchange Commission and, in the United Kingdom, the Financial Services Authority, repeatedly ignore calls from companies to relax the rules against blogging, Tweeting and posting market-moving information even as investors are combing the same channels looking for detail.

Last year, in a belated attempt to address this imbalance in the pharmaceuticals industry, the Food and Drug Administration convened a series of meetings with industry executives to try to reach some agreement on how social media could be used by BigPharma to market more effectively their drugs to a demanding public. So far, the process has been bogged down by sticking points over what can and cannot be disclosed – for example, should all the potential harmful side effects of a new medication be revealed in a single Tweet? And what about guidance on how to set up aFacebook fan page for some new HIV drug?

Not surprisingly, the medical community is exasperated. Joel Selzer, the co-founder of the physicians online network Ozmosis has issued a call to action demanding the regulators resolve this matter soon. “While holding the public hearings was a great step forward, the FDA needs to augment its social media expertise and it needs to do so quickly,” he argues.

The solution here need not be a complicated one. Instead of focusing on what cannot be communicated, what about trying the opposite approach? What about putting all the information – the promising, the worrisome and the unknown – out there in one place for a discerning public to consider? Regulators are always a few steps behind new technological innovations. That’s a given. But in this case it’s not the technology that needs to be better understood by regulators, it’s the public. Consumers are already combing patient forums, online support groups or physician networks to find and relay medical advice to others. Why deny them this?

Meanwhile, drug makers like Clinuvel see this revolutionary shift in the patient-doctor dynamic and are joining this discussion, not waiting for regulators to decide on the industry standard for aPharma Tweet or Facebook page. The clock is ticking. As one member of a Facebook Porph yria support group (where EPP is at times discussed) posted this week, “I’m 34 and just been diagnosed with HCP. Does anyone know of any specialists that treat porphyria in Canada? I can’t find anyone. Thanks for your help.”

Should drug makers be required to disclose up-front all the potential harmful side effects of new medications within a single, 140-character Tweet? And what about guidance on how to set up a Facebook fan page of some new HIV drug?

It’s amazing to think that regulators in the U.S. and Europe still haven’t figured out how Big Pharma can use social media to engage with potential patients, not to mention the friends and families of those afflicted with serious medical conditions. All too often, niche online medical forums are the first place people turn to learn more about new treatments when confronted with a confounding new malady. And still, regulators are forcing drug makers to remain on the periphery, forbidding most kinds of interaction with the public. To be sure, many of the world’s largest drug makers monitor healthcare social media forums to better understand how their customers or potential customers feel about certain types of treatment, but it’s just that: listening. Most forms of engagement are still verboten.

Under this backdrop, the Food and Drug Administration in America has convened hearings and is seeking input from the industry to determine rules of engagement. It’s been a slow process, indeed.

As Ad Age , the citing trade association Pharmaceutical Research and Manufacturers of America wants the FDA to speed up the decision-making process. It quotes the PhRMA as saying:

“At a time when more than half of adults first turn to the internet to find health information, the extraordinary volume of dangerous and inaccurate information about medicines on the web makes the FDA’s leadership on this topic all the more essential.”

It’s not just drug makers that want some guidance. Doctors too want clearance to use social media channels to start talking about novel new treatments. In a strongly worded post last November, Joel Selzer, the co-founder of the physicians online network Ozmosis issues a call to action demanding the regulators resolve this matter.

With thousands of physicians actively using social media every day to access and share medical information (see Rohit Bhargava’s post on “How Doctors Are Using Social Media“, one would expect pharmaceutical and medical device firms to salivate at the engagement possibilities…While holding the public hearings was a great step forward, the FDA needs to augment its social media expertise and it needs to do so quickly.

The Twitter advertizing platform isn’t even live yet and the UK’s advertizing standards watchdog already wants tighter controls. The same goes for Facebook.According to The Guardian, the ASA wants oversight of all forms of social media advertising, not just the digital remit it has today of banner and web site display ads. The ASA says tighter controls of social media marketing – i.e. governing how user profiles may be used by advertisers wishing to incorporate their fresh faces in real time into their promotions – is designed to protect children and minors on social networks.

The ASA’s push into social media marketing comes as little surprise. Any time members of the public knowingly (hopefully, knowingly) participate in a brand campaign it opens up a whole new set of advertising standards issues. For privacy scaremongers, take heart: most major brands tread with extreme caution when it comes to incorporating the public into their brand campaigns. Still, the sting of an ASA sanction/fine should make all marketers even doubly cautious.

Tag this one “kettle,” “pot,” “black.” The growing prospects of a Google antitrust probe on both sides of the Atlantic has drawn into the fray the search giant’s biggest nemesis: Microsoft. Not surprisingly, what’s shaping up to be the first major tech antitrust battle of the Twitter era is being fought in the public — and, yes, your input is wanted. Within hours of word leaking that Europe competition watchdogs were looking into Google’s dominance in the search market, Google fired back on its corporate blog, defending its image as the benign and innovative force in search. Its blog readers were largely supportive of Google, suspiciously seeing Microsoft’s fingerprints all over this complaint. Among the 15 replies left, one reader writes:

I do think this is backed by Microsoft, they are loosing ground because they have lost the competitive edge. I remember a company named Netscape that had similar complaints about Microsoft and unfair business practices. If I create a better mouse trap and people like it, then why would I change it. People have choices.

On Friday, it was Microsoft’s legal counsel Dave Heiner turn to weigh in on Microsoft’s corporate blog, saying, yes, they’ve been discussing with regulatory authorities Google’s dominance and even bemoaning that some of Google’s businesses “appear to raise serious antitrust issues.”

Three times as many people responded to Heiner’s blog post, nearly all with incredulity. Microsoft, a champion of the little guy?, they sputtered.

Make no mistake, antitrust battles are fought with high-powered lawyers and PR teams that spin, attack, then spin and attack some more. Fascinating to see these two giants to draw the public so quickly into the debate. Courting public opinion will be crucial as this titanic clash plays out. Where do you stand?

It’s a double-whammy day for Google in Europe. Less than 24 hours after the European Commission asked Google to respond to complaints lodged by three other search engines, an Italian court convicted three Google executives for breach of privacy, relating to a 2006 Google Video post (before Google acquired YouTube) of a bullying attack by schoolmates on a Turin boy with Down Syndrome.

David Carl Drummond, senior vice president and chief legal officer, George De Los Reyes, former chief financial officer, and Peter Fleischer, Google’s chief privacy counsel, all received six-month suspended sentences.

Yes, the trio stay out of prison, but it points yet again to Italy’s near hostile approach to new media. As Reuters points out, “Censoring of web sites has become a hot issue in Italy in recent months, following a spate of hate sites against officials including Berlusconi.”

It was bound to happen sooner or later: Google’s search engine, which has a market share of between 80% and 90% in Europe faces its first major antitrust challenge. Late Tuesday, the European Commission asked Google to respond to complaints lodged by three other search engines: Foundem, Ciao, and Ejustice.fr. Not surprisingly, one of those companies, Ciao, is owned by Microsoft. As the Telegraph points out: “the bigger picture here is the battle between the two multi-billion pound internet giants for web supremacy.”

The details are not so complex: Foundem claims Google was rigging its algorithms to give competing search engines short shrift in the rankings. Google, predictably, says no way, before playing the sympathy card:

We are also the first to admit that our search is not perfect, but it’s a very hard computer science problem to crack. Imagine having to rank the 272 million possible results for a popular query like the iPod on a 14 by 12 screen computer screen in just a few milliseconds. It’s a challenge we face millions of times each day.

On tech issues, the EU’s Competition Commission is famously hard to predict: during the Mario Monti years it nailed Microsoft, forcing it to cleave off Internet Explorer from Windows, but then it let the Google-DoubleClick deal through with little fuss while Neelie Kroes was in charge there. The new man of the hour at the Commission is Joaquín Almunia Amann.

Will he do a better job of understanding Google’s complex search algorithm in meting out justice? Let’s hope so. An EC judgment on the this matter could do more to affect digital commerce and advertising than any of the preceding cases.

Is Red Bull up to its renegade ways again? Has Verizon climbed on its back for the ride? The power of Twitter is in play again as these two companies – who are not Olympic sponsors – have been posting congratulatory tweets to U.S. Olympic athletes like Shaun White, Lindsey Vonn and Shani Davis.

International Olympic Committee rules say only official sponsors can associate themselves with the games or with the athletes during the events.  This “ambush behavior” hurts the athletes, a U.S. Olympic official told The Wall Street Journal, before making them delete the incriminating tweets.

But do tweets and other social media communiques – arguably, a form of editorial from brands wishing to remain topical to its followers – really constitute ambush marketing? Or is this yet another example of the heavy-handed IOC denying non-sponsors their right to talk about the Games. And, more to the point, what harm could this possibly bring to the Olympics if Red Bull is talking up an event sponsored by a rival?

In the past, ambush marketing incidents involved non-sponsors prominently plugging its brand at or around Olympic venues as Nike did in Barcelona in 1992. Surely, those were more flagrant than simply Tweeting a few encouraging words about athletes.

The IOC has a track record for shortsightedness when it comes to new media technologies. In 1956, then IOC President Avery Brundage famously declared the telly would be the ruin of the sport. Nearly 60 years ago, he said “we in the IOC have done well without TV for 60 years and will do so certainly for the next 60 years too.”How’d that prediction work out? Broadcaster NBC has paid billions for exclusive broadcast rights in the U.S., bankrolling the event for the past two decades.

To be sure, the IOC’s track record is usually to censor first, then allow new technologies to play their part in boosting the visibility of the Games. It should tread lightly with Red Bull which has long supported “extreme” athletes in a way few companies have.

A look at this video and you might just hear the IOC chanting “Go Red Bull, Go…”

As the Facebook “dirty coal” protest builds steam, we take a look at the thorny question: when should a company, in the face of revolt, change course and give in to the demands of the public, and when should they merely watch from the sidelines?

To be sure, this is one of just thousands of ongoing protests and boycotts of major brands, both big and small, circulating today on Twitter, Facebook and on blogs. When the public grows restless online, big brands have two simple choices: do nothing and hope it blows over or intervene. As social networking grows more influential, the latter course of action will occur much more frequently.

Here then are some examples from the past when companies decided to act and why:

Risk of alienating a core customer group: In 2007 recent graduates in the UK came together on Facebook to protest HSBC’s overdraft charges policy. Why? Smartly, the company did not want to risk alienating an important segment of its customer base, one whose earning potential is just about to mature.

Risk of punishing regulation: Goolge and Facebook share the stage here. Privacy advocates have taken Facebook and Google to task for introducing, respectively, Beacon and Google Buzz, following howls of protest from users. Caving to users’ demands here is always less painful than a dose of medicine from regulators.

Risk of a tarnished brand image: A classic example occurred in 2008, when the foremost British technologist Tim Berners-Lee took to task Phorm, a creepy adware technology backed by, among others, Britain’s most visible technology company, BT. If the father of the World Wide Web is against it how can any well-meaning technology company risk crossing him? BT and others walked away from Phorm and their reputation among geeks was preserved.

In the case of the green backlash now facing Facebook, the company faces two of the three big decisions above: when to jump in to avert alienating a core user group and when to step in to preserve its brand reputation?

It also calls into question a larger issue for Facebook. Its de-facto corporate motto “Move fast and break things,” may have served it well in the early days, but eventually Facebook will need to define what – if anything – it stands for. Otherwise, it will be facing accusers on a regular basis.