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Originally Posted by DiapDealer
This has me all kinds of curious about its basis in fact. "Legally" implies a law of some kind. Now I can understand that someone might be bound by a contract they are expected to abide by in exchange for the free book (depending on the publisher), but I just can't imagine any law being "on the books" pertaining to book reviews and free review copies. I could be wrong, though. It certainly wouldn't be the first time. 
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IANAL, and I'm not sure what level of "law" an FTC guideline is, but the FTC guidelines were recently updated saying that bloggers and reviewers shall disclose (a) when they receive a product free in exchange for a review or (b) if they were paid in exchange for the review.
More info here:
http://www.ftc.gov/opa/2009/10/endortest.shtm
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The revised Guides also add new examples to illustrate the long standing principle that “material connections” (sometimes payments or free products) between advertisers and endorsers – connections that consumers would not expect – must be disclosed. These examples address what constitutes an endorsement when the message is conveyed by bloggers or other “word-of-mouth” marketers. The revised Guides specify that while decisions will be reached on a case-by-case basis, the post of a blogger who receives cash or in-kind payment to review a product is considered an endorsement. Thus, bloggers who make an endorsement must disclose the material connections they share with the seller of the product or service.
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It was big news in the reviewing circles for awhile as everyone adjusted to the new rules. Before, a free review copy (even the ones that expire, like time-limited eBooks) wasn't always called out as such (I mean, it's free if you get it from the library, so what's the difference?), but now nearly everyone has their own boiler-plate tag to paste in.