Forty years after it first released its “Guides Concerning the Use of Endorsements and Testimonials in Advertising” and just over 10 years after it revised it, the Federal Trade Commission (“FTC”) says that it is looking for “public comment” on whether to make changes to that guidance – which was among the first of its kind to specifically address endorsement-centric marketing and the legal obligations that come with it – as part of a larger review of the current rules and regulations of the government agency that is tasked with promoting consumer protection, and eliminating and preventing anticompetitive business practices.
Among the specific issues that the FTC has revealed that it is seeking public comment on are “whether [its] Guides should address the use of affiliate links by endorsers,” “what, if any, disclosures advertisers or operators of review sites need to make about the collection and processing of publication of reviews to prevent them from being deceptive or unfair,” and “whether children are capable of understanding disclosures of material connections and how those disclosures might affect children,” among other topics related to the publication of endorsements and testimonials by brands.
Maybe most interestingly, though, is the FTC’s attention to “how well advertisers and endorsers are disclosing unexpected material connections in social media,” which speaks directly to the legal requirements that surround the burgeoning field of influencer marketing.
In its Endorsement Guides, the related “FTC’s Enforcement Guides: What People Are Asking,” and the recently published “Disclosures 101 for Social Media Influencers,” the FTC sets the base line for disclosures that should accompany the sponsored content that is so prevalent on social media. For instance, the government agency’s various guidelines make it clear that brands, celebrities, influencers – and media companies, alike – have a responsibility to disclose their relationships with other entities when making endorsements outside the context of traditional ad campaigns. It is within its power, as established by the FTC Act that the commission has the authority to regulate this segment of the market.
While the specific focus on endorsements in the digital sphere is a relatively novel issue, as the FTC states in its various guides, the Washington, DC-based agency has long required advertisers and endorsers to disclose their material connections so consumers can be made aware of them and make purchasing decisions accordingly – regardless of whether this information actually changes their buying behavior. It is in this same vein that the FTC can call foul when a celebrity or influencer has been paid to endorse a product or service – and/or has a “material connection” with a brand which he/she endorses, whether that be by way of a family connection or investment stake, for example – and he/she fails to disclose that fact, both the advertiser and endorser may be liable.
As such, influencers, brands, and media outlets are required to use “clear and conspicuous” disclosure language – such as “#ad”, “ad:” or “#sponsored” – in social media posts and/or in articles to indicate when content has been born from a “material connection” that would not be obvious to the average consumer and that “could affect the weight or credibility of the endorsement.”
In light of rampant undisclosed sponsored content, the FTC has taken action in recent years: in 2015, for example, it entered into a settlement with Lord & Taylor. The retailer caught the agency’s attention after it paid for an article to be run in fashion publication Nylon Magazine, while also paying 50 influencers between $1,000 and $4,000 each to post a photo on Instagram wearing the same dress from a specific Lord & Taylor collection, without requiring Nylon or the influencers to disclose that payment had changed hands.
After the FTC charged Lord & Taylor with deceiving consumers in violation of the FTC Act, the parties settled the case. Under the terms of the settlement, Lord & Taylor was formally barred from presenting advertising that it pays for as coming from an independent source, such as a magazine. The company also agreed to require any fashion influencers that it hires to disclose that they have been paid or otherwise compensated.
More recently, the FTC turned its attention to celebrities and brands. In April 2017, it sent over 90 letters to brands, celebrities, and influencers from J.Lo., Scott Disick, Emily Ratajkowski, the business partner of influencer Chiara Ferragni, and Victoria Beckham to Chanel, adidas, Yves Saint Laurent, and Puma to educate them as to the labeling requirements for sponsored posts. It followed up a few months later with more strongly worded letters, but never took formal action against any of the recipients.
That same year, the FTC approved a final order requiring Warner Bros. Home Entertainment to disclose payments made to online influencers to post endorsement videos. Under the terms of the original complaint, which centered on a late-2014 Warner Bros. online marketing campaign designed to generate buzz within the gaming community for the new release of Middle Earth: Shadow of Mordor, Warner “deceived consumers during a marketing campaign for Middle Earth: Shadow of Mordor.”
Even with such enforcement efforts in mind, a lack of proper disclosure, on the one hand, and an all-out lack of disclosures altogether, on the other, continue to be the norm on social media when it comes to endorsements, which encompass explicit promotions of a brand or product, as well as less straightforward things, such as simply posting of a photo of a product or tagging a brand in an Instagram post. The same is true for most traditional media outlets, as well, which regularly engage in paid-for travel on brands’ dimes without disclosing that fact in related coverage and/or accept compensation for include endorsements and affiliate links without alerting consumers to this fact.
If at least one Commissioner is any indication of what is to come, it appears as though the FTC is readying to crackdown on big-name influencers, brands, and the platforms that facilitate the $8 billion and growing influencer economy. In a statement released on Wednesday, FTC Commissioner Rohit Chopra did not mince words in saying, while he is not interested in penalizing small-time influencers who published sponsored content in order to “earn extra money on the side,” when companies “launder advertising by paying an influencer to pretend that their endorsement or review is untainted by a financial relationship, this is illegal payola.”
Chopra – who was one of two Commissioners who called for a tougher settlement for Sunday Riley after the cosmetics brand was found to have engaged in a years-long scheme to publish fake reviews in promotion of its products – says that he is “concerned that companies paying for undisclosed influencer endorsements … [and] also pressuring influencers to post in ways that disguise that their review or endorsement is paid advertising.” Those involved have “not held fully accountable for this illegal activity,” he says.
With such “illegal activity” in mind, Chopra says that the FTC needs to develop “requirements for technology platforms (e.g. Instagram, YouTube, and TikTok) that facilitate and either directly or indirectly profit from influencer marketing, codify elements of the existing endorsement guides into formal rules so that violators can be liable for civil penalties,” and “specify the requirements that companies must adhere to in their contractual arrangements with influencers, including through sample terms that companies can include in contracts.”