FTC Steps Up Scrutiny of Social Media Marketing

by Wilson Sonsini Goodrich & Rosati
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The Federal Trade Commission (FTC) has settled its first-ever complaint against social media influencers for deceptive endorsements.1 According to the FTC’s complaint, Trevor “TmarTn” Martin and Thomas “Syndicate” Cassell, two influencers who have wide followings in the online gaming community, promoted an online gambling service called CSGO Lotto on YouTube and Twitter without disclosing that they jointly owned the company.2 The complaint also charges that they paid other gaming influencers thousands of dollars to promote the service on social media platforms, while prohibiting them from saying anything that might impair its reputation.3

The FTC’s Endorsement Guides set forth general principles that the commission uses to evaluate endorsements and testimonials and ensure that they do not mislead consumers.4 The guides require disclosure of any connection between an endorser and the seller of an advertised product that could materially affect the endorsement’s weight or credibility with a consumer.5 Since 2015, the FTC has also provided guidance that makes clear new forms of marketing, including paid or sponsored social media content and blog posts are subject to the principles outlined in the Endorsement Guides.6 That guidance instructs social media marketers, bloggers, and other influencers to clearly and conspicuously disclose material connections that would affect how consumers weigh or rely on their posts or endorsements.7 As of September 2017, FTC staff has expanded the guidance to cover an additional range of topics, including appropriate tagging of pictures, required disclosures on Instagram and Snapchat, where disclosures should appear in posts, and the adequacy of various specific disclosures such as “#advisor” and “#ambassador.”

The FTC’s complaint against Martin, Cassell, and CSGO Lotto alleges that they violated these endorsement guidelines by falsely representing their YouTube videos and social media posts about the CSGO Lotto website, and those of other paid influencers, reflected independent and impartial opinions, when in fact, Martin and Cassell owned and operated the service, and the other influencers were paid to promote the website and prohibited from saying anything negative about it.8 The complaint also charges that Martin and Cassell failed to make adequate disclosures that they were owners and officers of the service in their videos and posts about the CSGO Lotto website, or that other influencers received compensation to promote it.9

The FTC’s proposed order settling the charges prohibits the respondents from misrepresenting that any endorser is an independent or ordinary consumer of a product or service and requires clear and conspicuous disclosures of any unexpected material connections between CSGO Lotto and any endorsers.10 Martin, Cassell, and CSGO Lotto will also be required to provide all endorsers with a clear statement of their disclosure requirements and responsibilities, establish and maintain a system to monitor endorsers’ disclosures, terminate non-complying endorsers, and generate reports showing the results of the monitoring program.11 The respondents must also submit additional mandatory compliance reports to the FTC and adhere to specific recordkeeping requirements over a period of 10 to 20 years.12

While it is not surprising that the FTC took action against what they viewed as flagrant violations of the Endorsement Guides by CSGO Lotto and its owners, the FTC also sent warning letters to 21 social media influencers inquiring into their material connections and disclosure practices for various brands or businesses that they have tagged in Instagram posts.13 While the letters are not formal investigative demands, they do ask the recipients to provide additional information about their endorsement activities by a specified date. Any recipients who do not respond likely risk receiving formal investigation process from FTC staff. The FTC’s activity suggests that companies may start receiving more of these types of letters regarding their social media-based marketing in the future. It follows that any marketing that companies conduct through platforms like Instagram, Twitter, Facebook, or through blogs and podcasts, should be carefully reviewed for compliance with the FTC Endorsement Guides. As the FTC’s order settling the charges against CSGO Lotto shows, companies will not only be liable for their own conduct, but may also be held responsible for deceptive representations or omissions made by third parties whom they pay or hire to endorse their products.

1 Press Release, Fed. Trade Comm’n, CSGO Lotto Owners Settle FTC’s First-Ever Complaint Against Individual Social Media Influencers (September 7, 2017), https://www.ftc.gov/news-events/press-releases/2017/09/csgo-lotto-owners-settle-ftcs-first-ever-complaint-against.

2 Id.

3 Id.

4 16 C.F.R. § 255.0.

5 16 C.F.R. § 255.5.

6 Fed. Trade Comm’n, The FTC’s Endorsement Guide: What People Are Asking, https://www.ftc.gov/tips-advice/business-center/guidance/ftcs-endorsement-guides-what-people-are-asking.

7 See id.

8 Press Release, Fed. Trade Comm’n, supra.

9 Id.

10 Decision and Order at 4, In re CSGOLotto, Inc., No. 162-3184 (Fed. Trade Comm’n September 7, 2017).

11 Id. at 4-5.

12 Id. at 5-8.

13 See Letter from Mary K. Engle, Assoc. Director, Fed. Trade Comm’n (September 6, 2017), https://www.ftc.gov/system/files/attachments/press-releases/los-propietarios-de-csgo-lotto-resuelven-la-primera-demanda-jamas-entablada-contra-influyentes-de/instagram_influencer_warning_letter_template_9-6-17.pdf.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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