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Ranging from fashion bloggers, to athletes, to actors and musicians, celebrities and non-celebrities alike, influencers receive compensation from advertisers in return for positive posts about the brand’s goods and services as part of the influencer’s social and digital presence. This compensation often takes the form of free products, a monetary fee, or a combination of both. In the past, the focus has been on more direct endorsements by third-parties and celebrities, as opposed to the more subtle and less prevalent influencers.
However, recent activity by both the Federal Trade Commission (“FTC”) and the National Advertising Division of the Better Business Bureau (“NAD”) suggests that regulators are watching the rising use of influencers, and placing the burden of regulatory compliance upon both advertisers and influencers.
Most recently, and as discussed in more detail below, the FTC recently sent 90+ letters to potentially infringing influencers and advertisers,outlining the relevant advertising regulations and the potentially infringing posts of the recipients, effectively placing influencersand the brands with which they work on notice.By sending letters to advertisers and influencers alike, the FTC has reinforced that it will attribute compliance responsibilities to both.
The FTC regulations with regard to endorsements and testimonials are found in the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising (“Endorsement Guidelines”). The Endorsement Guidelines state, in part, that any material connection existing between the endorser and the seller of the advertised product must be clearly and conspicuously disclosed.
A material connection is one where knowledge of the connection might affect the weight or credibility that the consumer attributes to the endorsement. A revised version of the Guidelines was released in 2009.Since then, the FTC’s Enforcement Policy Statement on Deceptively Formatted Advertisements (“Policy Statement”), issued in December 2015, provided greater clarity with regard to the way in which influencers and advertisers are required to disclose material connections within paid social medial posts.Issuance of the Policy Statement served as an early indication that the FTC was diving deeper in its examination of paid endorsements on social media.
The Policy Statement sought to provide an explanation as to how conventional consumer protection principles would apply to new forms of advertising, addressing the established requirements of the Endorsement Guidelines with greater specificity. The Policy Statement discussed the way in which advertising regulations would impact native advertising, a form of sponsored content where the ad appears amongst surrounding non-advertising content.
Undisclosed paid social media posts are a prevalent example of contemporary native advertising, and the FTC’s Policy Statement attempted to address this growing advertising strategy.
In the wake of the release of the Policy Statement, the FTC pursued brands for violating native advertising regulations. Notably, in March 2016, the FTC filed an administrative complaint against Lord & Taylor for deceiving consumers. In this case, Lord & Taylor paid 50 fashion influencers to post Instagram pictures of themselves wearing the same paisley dress as a way of promoting their 2015 Design Lab Collection.
Each of the 50 influencers were given the dress for free, and Lord & Taylor paid them between USD1,000 and USD 4,000 for each picture posted on Instagram showing the influencer wearing the dress. Contractually, Lord & Taylor required each post to include the Instagram handle “@lordandtaylor” and the hashtag “#designlab.” Further, Lord & Taylor pre-approved each potential post. The FTC alleged that by failing to disclose that the posts were paid promotions, Lord & Taylor was in breach of federal advertising regulations.
Ultimately, the FTC and Lord & Taylor agreed to settle the matter by way of a consent order. The consent order stipulated that Lord & Taylor must clearly and conspicuously disclose material connections with endorsers, in addition to providing each endorser with “a clear statement of his or her responsibility to disclose, clearly and conspicuously… the endorser’s material connection…” to Lord & Taylor, and obtain “from each such endorser a signed and dated statement acknowledging receipt of that statement and expressly agreeing to comply with it.”
In addition, Lord & Taylor agreed to establish and maintain a system to monitor the endorsers they are engaged with on an ongoing basis, ensuring that the endorser’s posts remain compliant.Notably, the consent order is silent with respect to the 50 influencers, who were not held independently accountable for their role in failing to disclose that the postswere effectively paid endorsements. Rather, it was Lord & Taylor, the advertiser, that consented to ensuring the compliance of the influencers with which they engage.
The shift toward holding influencers and endorsers directly accountable for violations of advertising regulations was a subject of NAD’s actions against Fit Tea in late 2016 and early 2017. Regular and widespread Instagram users are likely familiar with the highly promoted detox product, Fit Tea.
A number of high profile influencers and celebrities have uploaded promotional posts for this product to their social media sites, including members of the Kardashian/Jenner family, Vanessa Hudgens, Lindsay Lohan, and Sarah Hyland.
Following an investigation into Fit Tea’s promotion and advertising practices, on December 28, 2016, NAD released a decision as to Fit Tea’s reposting of paid endorsements in the absence of a specific disclosure as to the material connection between the influencer and Fit Tea. Prior to this decision, Fit Tea voluntarily adopted a new compliant Social Media Policy.
In addition, Fit Tea edited prior paid Instagram posts to include “#ad” as an indication that it was a paid endorsement. NAD found these voluntary acts to remedy any wrongdoing on the part of Fit Tea with respect to paid endorsements. Notably, this action was taken against the advertiser only, placing the burden squarely on the advertiser to ensure that the influencers and promoters that they are engaged with are sufficiently disclosing their material connection.
However, on 18 January 2017, NAD released a subsequent related decision addressing the continued failure ofseveral celebrity endorsersto disclose their business relationship with Fit Tea within promotional social media posts. Importantly, the implied claim of this NAD action stated that in failing to disclose their business relationship with Fit Tea, that the endorserswere violating federal advertising regulations and that the endorsers should be held accountable for non-compliance in the same way that advertisers are.
Prior to NAD reaching a final decision on the merits of the case, the endorsers at issue voluntarily amended their social media posts to disclose the material connection between advertiser and promoter, adding “#ad” to the offending posts, and NAD accepted this as remedying any wrongdoing.
That said, even though NAD did not review the matter on the merits of the case, both the endorsers and the advertiser were implicated, arguably reflecting a discernible shift toward holding influencers and promotors accountable for disclosing any material connection that exists between promoter and advertiser.
This momentum toward a focus on holding influencers independently accountable to federal advertising regulations culminated in the aforementioned FTC decision to send 90+ letters to influencers, celebrities, and advertisers alike. The letters, sent in April 2017,plainly informed their recipients of their obligations to disclose material connections under the Endorsement Guidelines. Recipients of these letters included celebrity influencers, advertisers, and lesser known influencers with large social media followings.
By sending letters to such a wide range of influencers and advertisers, the FTC has unambiguously indicated that social media influencers are on their radar, and that the regulations apply equally to high profile celebrities as they do to influencers that are not necessarily widely recognized in the mainstream media.
The content of the letters, together with a press release from the FTC, provides valuable insight into what the FTC deems to be sufficient disclosure of material connections in social media posts, and what falls short. Specifically, the FTC advised that vague terms like “Thank you,” “#sp” to indicate that post is sponsored, and “#partner” are not likely to sufficiently alert the consumer as to the existent relationship between the endorser and the advertiser.
In addition, the FTC advised that including sufficient disclosures, like “#sponsored” below the “more” button on Instagram posts also fails to meet the disclosure standards, asserting that many consumers choose not to click on “more” thereby remaining uninformed as to the material connection.
Finally, the FTC advised against including requisite disclosures amongst a myriad of additional hashtags. The FTC stated that it is less likely that consumers will read disclosures if they are intertwined with a myriad of other hashtags.
Both the form and content of these letters provides a clear indication as to the position of the FTC with regard to social media advertising. It is clear that paid endorsements on social media are subject to the same regulatory standards that govern more traditional forms of advertising. More specifically, however, influencers and endorsers have been put on the notice that they will no longer fly under the FTC’s radar, and all influencers, not just the advertisers, are responsible for sufficiently disclosing material connections in social media post in which any remuneration is received.
Social Media Influencers Cautioned by the FTC to Comply with Existing Regulatory Standards
Written by Tamara Carmichael,
Olshan Frome Wolosky
Given the rising use of social media by the consuming public, it is inevitable that there has been a corresponding and dramatic increase in brands’ outreach to that audience by using social media as a, if not the,platform for promotion of their goods and services. Social media influencers, a relatively more recent phenomenon, have become integral cogs in the marketing initiatives of many companies.
Tamara Carmichael Tami’s practice focuses on litigating and counseling clients in the areas of trademark, advertising and unfair competition law. She assists clients in the commercialisation, exploitation and protection of their branding, marketing and intellectual property assets, including advising companies on compliance with FTC and other regulatory agencies, and representing clients in deceptive or unfair advertising disputes in state and federal court and before the Better Business Bureau’s National Advertising Division. Tami also handles all stages of trademark and copyright prosecution, IP licensing, portfolio management, U.S. Trademark and Trial Appeal Board proceedings, and U.S. Federal Court litigation. She oversees trademark clearance and domestic and foreign portfolios related to a myriad of consumer products and services, with particular focus in the new media, entertainment, retail, textile and apparel industries. Prior to joining Olshan, Tami was a partner at Loeb & Loeb, LLP. Previously she was a partner in the New York office of Holland & Knight LLP and served as head of the intellectual property group at Broad and Cassel in Florida