The FTC's Crackdown on Social Media #Ads

by Nossaman LLP
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In the ongoing effort to reach the hearts and minds of consumers, brands are increasingly looking beyond the traditional media outlets of radio, print and television.  The recent meteoric rise and diversity of social media platforms has paved the way for brands to engage with consumers in new and creative ways – and many are taking full advantage.  However, the Federal Trade Commission’s (FTC) recent trend of enforcement actions should give some pause to those looking to launch their own social media marketing campaigns.

The FTC released new endorsement guidelines in March 2013 and an updated enforcement policy statement on deceptively formatted advertisements in December 2015, specifically targeting digital media, as well as the use of branded content and sponsored promotions on social media.  Expanded from existing regulations, these guidelines address new media platforms, the types of disclosures required, and the proper placement of such disclosures so that consumers are fully informed and aware when they are viewing sponsored/branded content.  This year, a number of FTC enforcement actions illustrate how important this issue is for the FTC, and how meticulous companies must be in complying with these regulations to avoid liability.

The FTC has long held broad authority under Section 5 of the FTC Act to regulate any “unfair or deceptive practices in or affecting commerce.”  Such practices are declared “unlawful” under the Act.  To this end, all advertising must meet four basic principles:

  1. Advertisements must be truthful and not misleading;
  2. Advertisements may not be unfair or deceptive;
  3. Advertisers must substantiate all claims, whether express or implied; and
  4. Any disclosures necessary to make an advertisement accurate must be clear and conspicuous. 

In 2009, the FTC issued revised endorsement and testimonial guidelines, requiring disclosure of any blogs, social media or user-generated content that have a “material connection” to the advertiser.  A “material connection” is any information that could impact the weight or credibility a consumer gives to an endorsement.  Therefore, failure to clearly and conspicuously disclose a relationship between advertisers and online influencers/bloggers, who receive some form of benefit, is a deceptive trade practice. 

The FTC’s 2013 Digital Ad Guidelines and 2015 Enforcement Policy Statement reinforce this fact that online ads, including those on social media and embedded in user-generated content, must be disclosed and done so in a clear and conspicuous manner.  If the social media platform lacks sufficient space to properly list all relevant disclosures, the FTC guidelines dictate that such platform is not the proper place for sponsored content to appear.  The requirement of clear and conspicuous disclosures is “unavoidable.”

This year, the FTC issued several Consent Decrees highlighting these issues, including the Machinima, Inc. and Warner Bros. Home Entertainment, Inc. orders: 

The Machinima case involved an allegation of deceptive advertising in which the company paid “influencers” to post YouTube videos endorsing Microsoft’s Xbox One system and several games, without proper disclosures.  The influencers used the YouTube videos to tout the greatness of the system and games, but failed to disclose that they were being paid for these seemingly objective opinions.  In March 2016, the FTC issued a final consent order requiring Machinima to disclose when it has compensated influencers to post YouTube videos or other online product endorsements.  Specifically, the FTC’s order demanded that Machinima:

  • Provide printed publication disclosures in a “type, size and location sufficiently noticeable for an ordinary consumer to read and comprehend them, in print that contrasts with the background on which they appear;”
  • Provide oral disclosures “in a volume and cadence sufficient for an ordinary consumer to hear and comprehend them;”
  • Provide each influencer with a statement of his or her responsibility to clearly and prominently disclose any material connection to the advertiser;
  • Include such disclosure requirement in any influencer contract, with the caveat that such “statement shall be on a separate page by itself, and written in a manner reasonably calculated to be easily understood by the Influencer,” and which page must be signed and dated by the influencer;
  • Monitor influencer postings for compliance with the disclosure requirement;
  • Conduct an initial review of all endorsements for compliance with the disclosure requirement prior to compensating any influencer;
  • Monitor the online video endorsements by conducting another review “within ninety days of the date of the influencer’s final compensation, but not before two weeks after that date;” and
  • If such reviews reveal the influencer misrepresented or failed to disclose a material connection, Machinima must immediately suspend the influencer from the campaign and must withhold future payments to the influencer until the influencer “cures such misrepresentation or discloses, clearly and prominently, such material connection.”

The Warner Bros. case also involved an allegation of deceptive advertising.  This time, Warner Bros. paid influencers to post positive, user-generated gameplay videos of Middle Earth: Shadow of Mordor on YouTube, without adequate disclosures.  According to the complaint, not only did the company pay each influencer, it gave them a free advance-release version of the game, told them how to promote it, and demanded only positive reviews.  However, Warner Bros. did not instruct the influencers to include sponsorship disclosures clearly and conspicuously in the video itself, where consumers are most likely to see or hear them.  Instead, Warner Bros. instructed its influencers to place the disclosures in the description box appearing below the video.  Because the company required additional information in the description box, the vast majority of the disclosures were only visible if consumers clicked “Show More,” exacerbating the issue for the FTC’s concerns.  Further, because influencers were instructed to post their YouTube videos on other social media outlets such as Facebook or Twitter, such postings of the videos in these alternate platforms did not include the “Show More” button, further decreasing the likelihood consumers would notice the required sponsorship disclosures.

In a July 2016 consent order, the FTC required the company to “clearly and conspicuously” disclose when it compensated influencers to post positive, user-generated content about its products online.  Specifically, the FTC’s order demanded that Warner Bros.:

  • Provide disclosures in the same means through which the communication is presented (i.e. print = print; audio = audio; video = visual text in video and audible audio).  [In video content, where communication is made through both visual and audible means, the disclosures must be presented simultaneously, by being visually embedded in the video content as well as concurrently mentioned in the audible portion of the video, near the time the promotional statement is made.];
  • Provide each influencer with a statement of his or her responsibility to clearly and prominently disclose any material connection to the advertiser, and demand a signed and dated acknowledgement of this requirement;
  • Establish and implement a system to monitor and review the representations and disclosures of influencers with material connections to Warner Bros. to ensure influencer compliance with the disclosure requirements;
  • Immediately terminate and cease payment to any influencer with a material connection to Warner Bros. who has misrepresented his or her independence and impartiality or has failed to clearly and conspicuously disclose, in close proximity to any representation/promotion, the material connection between such influencer and Warner Bros.

In addition to the Consent Decrees issued by the FTC, the agency’s updated endorsement guide FAQs (publicly posted on the FTC website) are particularly helpful in guiding advertisers in the proper use of social media to avoid regulatory liability.  These FAQs recommend adopting “a formal program to remind employees periodically of [the company’s social media sponsorship] policy, especially if the company encourages employees to share their opinions about [its] products.” 

According to the FTC, social media policies and sponsorship programs should include the following:

  1. Employee and contractor regulatory compliance training and corrective actions;
  2. Explanations to materially connected influencers on what can and cannot be said about products or services;
  3. Explanations to materially connected influencers on their responsibilities for disclosing the material corporate connections;
  4. Periodic and systematic searches on the postings of materially connected influencers;
  5. Follow-up procedures with respect to questionable practices by materially connected influencers.

As illustrated by the Machinima consent order, the best practice is to include these policies as an exhibit to any contract with online influencers, so that the influencers are fully aware of such instructions.  These policies should not be buried in the middle of a long-form contract, as the FTC could find such practice deceptive if an influencer fails to properly disclose its material connection.

While the FTC has said that disclosures in the form of “#Ad,” “#Advertisement,” “#Sponsored,” and “#Contest” are likely acceptable disclosures on their own, not all advertisers feel this model fits with their marketing plan or specific promotion, particularly when the goal is to utilize “native advertising.”  “Native advertising” is the practice of designing ads mirroring the look and feel of the natural editorial content of a website or social media page.  The Machinima case, in which paid influencers posted content appearing to be their own editorial commentary, is an example of an attempt at native advertising.  As illustrated by the Machinima consent order, disclosures in such advertising formats are unavoidable.  However, a company may not need to include a large banner indicating “PAID SPONSORSHIP” or “#Advertisement,” which may detract from the overall look and feel of the content, potentially turning off some consumers. 

Instead, companies utilizing native advertising methods may have the influencer state its relation to the advertiser in its own language.  For instance, an online blogger may say something akin to, “I’ve teamed up with COMPANY X to bring you this latest review.  I’d like to thank COMPANY X for partnering with me on this review and allowing me to provide you with a sneak peek into the latest version of PRODUCT X.”  Such disclosure, if provided clearly and conspicuously at the beginning of the promotional message, may not violate the FTC regulations on unfair or deceptive trade practices, while also helping to maintain the original look and feel of the influencer’s standard posts in an effort to preserve consumer engagement.

As illustrated above, the types of required disclosures often depend on the medium in which the promotional message is conveyed.  Below are some important FTC and platform-specific guidelines and best practices to consider for some of the most widely used social media platforms:

Facebook:

  • When posting sponsored content, the platform requires advertisers to use its Branded Content tool to tag the featured brand/sponsor;
  • Each sponsored post should include “Sponsored by @brand” or “#Advertisement” or other FTC compliant disclosure copy;
  • Disclosures in the post should not be hidden, and the text of a post should be brief enough that followers do not overlook the “#Sponsored” or “#Advertisement” portion;
  • The “About” section should contain a short disclosure message acknowledging any material connections between the influencer and advertiser.

Instagram:

  • Each sponsored post should include “Sponsored by @brand,” “#Sponsored,” “#Ad” or other FTC compliant disclosure copy within the text;
  • Post text should remain brief and disclosures should not be hidden in any way;
  • Instagram stories must clearly include “#Sponsored”/“#Ad” disclosures embedded in the images or doodles of each post.

YouTube:

  • Disclosures must be displayed clearly and prominently in the video itself – the “description field” alone is insufficient;
  • Disclosures should appear at the beginning of videos (both verbal and graphic overlay) and at the top of the video description; longer videos should have recurring, multiple disclosures;
  • Disclosures must be long enough to read, or if spoken, at an understandable cadence;
  • Graphic overlay disclosures should feature a color and font size that stands out and is easily read and understood.

Twitter:

  • Each sponsored tweet and retweet must include “#Sponsored,” “#Ad” or other FTC compliant disclosure copy;
  • Disclosures may not be hidden or abbreviated within the tweet (i.e. proper disclosure for a sweepstakes promotion is “#Sweepstakes,” not “#Sweeps”);
  • Character limitation is no excuse to not include the required disclosures.

Finally, aside from the FTC’s guidelines, advertisers should remember to check each social media platform’s unique rules regarding the use of sponsored content on that specific platform.  While failure to follow these rules may not land advertisers in regulatory court proceedings, it could result in the entity’s social media account being terminated on that platform.  Such an outcome would prevent the existence of a brand landing page for interested consumers utilizing that specific social media platform, bringing its own negative repercussions.

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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