The Federal Trade Commission ("FTC") has once again vowed to crack down on undisclosed sponsored posts following widespread inaction in the past. According to WWD, “The FTC will soon begin holding media companies accountable for deceptive practices.” In particular, the trade publication cited Mary Engel, head of the FTC’s Advertising Practices Division, as stating: “If they are creating the sponsored content, then yes, we will begin looking at them.”
In furtherance of the FTC's new interest in enforcing its guidelines in connection with undisclosed online content and social media posts, Engel stated, “The Lord & Taylor case gave notice to the fashion industry, which maybe wasn’t paying too much attention before. It’s important to everyone to understand their legal obligations.” You may recall that Lord & Taylor came under fire with the FTC last year after the retailer enlisted (and paid) Nylon magazine and 50 influencers to promote its Design Lab collection without ensuring that they disclosed that the content at issue was, in fact, sponsored.
The Federal Trade Commission
For the uninitiated, the FTC is the government agency that that is tasked with promoting consumer protection, and eliminating and preventing anticompetitive business practices. In this role, the FTC issues guidelines (which are legally binding) that govern “Endorsements and Testimonials in Advertising,” among other things. According to the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising, both advertisers and endorsers must disclose material connections (think: payments or free products in exchange for representation of the brand) that they share.
As we have told you in the past, posting endorsements – that have come about as a result of a connection between the endorser and the underlying brand – without proper disclosure are violations of the Federal Trade Commission Act. The same is true for the posting of sponsored content (regardless of the medium). In particular, the FTC has held that in order to avoid violating the FTC Act by way of misleading or deceptive social media or native posts, promoting parties should use "clear and conspicuous" disclosures (think: “#Ad”, “Ad:”, or “Sponsored”) to indicate that a post or link within a post includes compensated content.
Hardly a novel requirement, the FTC has long required advertisers and endorsers to disclose their material connections so consumers can be made aware. Thus, when an influencers and/or celebrity has been paid to endorse a product or service and they fail to disclose that fact, both the advertiser and endorser may be liable. The most novel aspect of all of this is social media. Yet, the FTC has adapted to development of social media advertising. In March 2013, the FTC updated its “DotCom Disclosures” Guidelines, in which it emphasized that consumer protection laws apply to both traditional media and social media.
Inaction on the Part of the FTC
To date, the FTC has been notably lax in coming down on companies and influencers for violating its disclosure guidelines, which make it clear that celebrities and influencers have a duty to disclose their relationships with advertisers when making endorsements outside the context of traditional ad campaigns. In fact, as Bloomberg reported in August 2016, the FTC announced that it would begin to crack down on undisclosed celebrity endorsements, but we have yet to see any ramifications come about as a result.
Moreover, the FTC has seemingly failed to act on the requests of third parties to investigate such improper advertising models. In August 2016, after notifying the Kardashian/Jenner family of an array of FTC disclosure violations and thereafter giving them over a week to remedy such disclosure failures, Truth in Advertising, Inc., a Madison, Connecticut-based organization, filed a complaint with the FTC. As confirmed to TFL and according to the letter from Truth in Advertising to the FTC, “TINA.org reviewed the Instagram accounts for Kim Kardashian-West, Khloe Kardashian, Kourtney Kardashian, Kylie Jenner, and Kendall Jenner and found a plethora of posts that do not clearly or conspicuously disclose the individuals’ material connections to the companies featured or promoted in the posts or that the posts are advertisements as is required by law.”
Still yet, in September 2016, the FTC was asked to investigate advertisers who are compensating "influencers" to endorse products on Instagram. According to a complaint filed with the FTC by Public Citizen, the Center for Digital Democracy, Commercial Alert and the Campaign for a Commercial-Free Childhood, advertisers and influencers - including everyone from the Kardashians and Rihanna to models Emily Emily Ratajkowski and Chrissy Teigen - are failing to meet their obligations under federal law by not disclosing their connections. The parties' complaint stated: "A longstanding, core principal of fair advertising law in the United States is that people have a right to know when they are being advertised to.”
The groups sent a follow up request in November, stating that the FTC had failed to act their request, and including upwards of 100 new examples of undisclosed sponsored posts, including posts by David and Victoria Beckham; Pretty Little Liars actresses Ashley Benz, Shay Mitchell, and Lucy Hale; Heidi Klum; Kris Jenner; Kourtney Kardashian; Scott Disick; and Jennifer Lopez.
Practically Speaking ...
In case you are not convinced that increased attention to disclosure violations will come into fruition anytime soon, consider the current political state in the U.S., namely the dealings of the Trump administration, which certainly would not stand to benefit from increased scrutiny in terms of transparency of endorsements. Both President Trump and First Daughter Ivanka, in particular, have been subject to criticism for allegedly engaging in ethically questionable endorsement behavior. Ms. Trump's company first drew flak after sending a “style alert” to journalists promoting a gold bracelet that Trump wore during an interview on CBS Corp.’s “60 Minutes.” The piece at issue was part of the Ivanka Trump Fine Jewelry collection.
Her company has since been named in a class action suit, alleging that the First Daughter’s company has engaged in unfair business practices and conspiracy as a result of the Trump administration’s “favoring” of the brand.
Still yet, consider that President Trump’s pick to lead the Federal Communications Commission, Ajit Pai has already begun aggressively moving to roll back consumer protection regulations created during the Obama presidency. There is no saying that similar action will not take place at the FTC in the near future.
Regardless, for tips on how to properly disclose sponsored materials, see our how-to guide here.