United States: Brands Beware: FTC Continues Campaign On Social Media Influencer Disclosures

Last Updated: November 8 2017
Article by Julie O'Neill and Adam J. Fleisher

With much fanfare, the Federal Trade Commission (FTC) continues to take actions relating to so-called "social media influencers" who allegedly fail to disclose material connections to the products or brands they endorse. Recurring enforcement actions and guidance—and the FTC's ongoing promotion of its own efforts, such as through Twitter chats—make it clear that the FTC believes that its message has still not been heard by all of the players in this advertising ecosystem, including influencers themselves.

In short, any endorsements in any medium where the endorser has a material connection of any kind to the endorsed advertiser must be disclosed.

The most recent developments include an enforcement action against a company—and two of its officers—in connection with endorsements of the company made by the officers in YouTube videos and in social media.  Before turning to this case, however, we provide a brief overview of how the FTC has gotten here.

A Brief History of the FTC and Social Media Influencers

The FTC's activity in the endorsement and influencer space is grounded in its Guides Concerning the Use of Endorsements and Testimonials in Advertising (the "Endorsement Guides"), 16 CFR Part 255, which outline how the FTC believes a business may lawfully use consumer and other endorsements in its advertising.

Specifically, the Endorsement Guides provide, in relevant part, that any "material connection" between an endorser and an advertiser—in other words, a connection that might affect the weight or credibility that consumers give the endorsement—must be clearly and conspicuously disclosed.

The scope of a material connection, as stated in the Endorsement Guides and as interpreted by the FTC, including in its Endorsement Guide FAQs, is quite broad.  It includes, for example, a business relationship, a payment, a gift, or a sweepstakes entry.

The scope of actors subject to the rules is also quite broad:  it includes endorsers or influencers, marketing companies that facilitate campaigns including endorsements, and the advertisers themselves.

The FTC has now brought enforcement actions against brands, marketing companies, and individuals, and it seems poised to continue seeking high-profile cases until it is satisfied that endorsers' material connections are being clearly and conspicuously disclosed in all social media, from YouTube videos to Tweets to Instagram posts. The trend started in late 2014 when the FTC brought its first enforcement action specifically related to social media promotional activity. In that case, the FTC settled with the advertising firm Deutsch LA, Inc. in connection with its allegedly deceptive activities relating to the promotion through Twitter, on behalf of its client Sony, of the PlayStation Vita handheld gaming console. Leading up to last month's announcements, follow-on FTC developments included:

  • Settling in September 2015 with Machinima, Inc., an online entertainment network that allegedly paid video bloggers to promote the Microsoft Xbox One system.
  • Issuing a closing letter, at the same time as the Machinima settlement, indicating that the FTC had investigated Microsoft and Microsoft's advertising agency, Starcom, in relation to the influencer videos at issue in Machinima. The closing letter was significant because it suggested that the FTC was primed to take the position that a company whose products are promoted bears responsibility for the actions of its ad agencies, as well as the actions of the endorsers engaged by its ad agencies.  Later developments affirm this position.  The recently updated Endorsement Guides FAQs, for example, state that "[a]dvertisers need to have reasonable programs in place to train and monitor members of their network."
  • Releasing a policy statement  and guidance on native advertising in late 2015, which warned companies—again—that the FTC believes it is deceptive, in violation of Section 5, if reasonable consumers are misled as to the true nature or source of an advertisement.
  • Announcing a settlement with Lord & Taylor in early 2016 relating to practices including allegedly having gifted a dress to 50 "fashion influencers" and paying them to post photos of themselves wearing the dress on their Instagram accounts.
  • Announcing a similar settlement with another company in July 2016 relating to an alleged failure to disclose that the company had paid online influencers to post positive reviews in YouTube videos and on social media. Here, while the company allegedly instructed influencers to provide a written disclosure that videos were sponsored, they did not "require that the YouTube influencers be instructed to place a sponsorship disclosure clearly and conspicuously in the video itself."

Current Developments

Recent activity reinforces the trend.  The FTC's newest enforcement action, announced in early September, involved a company called CSGOLotto, Inc. that runs an online virtual currency gambling website ("CSGO Lotto"). The FTC alleged in its complaint that the company provided two individuals (who were also owners and officers of the company) with free virtual currency to gamble on CSGO Lotto and that the two did not disclose their material connections to the company when they promoted it online. For example, both of the individuals created YouTube videos promoting CSGO Lotto and disseminated tweets linking to their videos and directly promoting the site (e.g., "Bruh . . . I've won like $8,000 worth of CS:GO Skins today on @CSGOLotto I cannot even believe it!").

The FTC also alleged that CSGOLotto paid others to participate in a social media influencer program on YouTube, Twitter, and other social media channels. These social media posts allegedly did not include any sponsorship disclosures, and the videos, according to the FTC:

[D]id not include any sponsorship disclosure in the videos themselves and if they included sponsorship disclosures in the description boxes below the videos, they only did so "below the fold."

The FTC thus alleged three sets of unfair or deceptive acts or practices in violation of Section 5:

  • falsely claiming that the reviews of CSGO Lotto posted by the two owner/officers were independent;
  • failing to disclose that they were owners/officers of the company, which "would be material to consumers in their decisions regarding using CSGO Lotto"; and
  • failing to disclose that other endorsers were paid by CSGO Lotto.

Perhaps most significantly, as the FTC touted in its press release announcing the action, the complaint named the two individuals and alleged that their actions as influencers were in violation of Section 5.

This case marks the first time that the FTC has brought an enforcement action against individual influencers, though this move is only incremental, because the influencers were also the owners and officers of the company. It is likely, however, that the CSGO Lotto action presages an action against a standalone influencer (that is, an influencer who is paid to endorse a brand but is not otherwise affiliated with the brand).

Continuing these themes, the FTC also recently announced that it has updated its FAQs on Endorsements. The FAQs describe, among other things, specific aspects of the programs that advertisers should have in place to train and monitor bloggers and social media influencers that promote their products.

Specifically, companies must make "a reasonable effort" to know what social media endorsers acting on their behalf are saying. Companies can mitigate the risk of liability by having in place a "reasonable training, monitoring, and compliance program." These particulars align with the requirements that the FTC has imposed in its three settlement orders in the above-discussed enforcement actions and include such obligations as instructions on disclosing connections to the advertiser and a process for monitoring influencers' statements.

Separately, the FTC also announced that it has sent follow up letters to 21 influencers who received letters from the FTC in April 2017 regarding brand endorsements. This time, the FTC noted, it has asked the recipients to tell the FTC whether "they have material connections to the brands" in the social media posts the FTC has flagged and, if so, "to spell out the steps they will be taking to make sure they clearly disclose their material connections to brands and businesses."

Taking these developments together, the components of a compliance framework for using social media influences is becoming clearer. The activities that may be covered are broad and include not only direct payments but also the provision of free goods and services or even incentives. And the FTC's expectations for disclosures are becoming more specific, such as that disclosures for videos should be in the videos themselves. Thus, some practical considerations for advertisers include:

  • Implementation of a process for obtaining signed and dated acknowledgements of disclosure and related obligations from each influencer with a material connection (which may include a paid relationship, a professional relationship, or free goods or services);
  • An explicit requirement that the endorser make clear and prominent disclosures of the material connections between the endorser and the advertiser;
  • A process for monitoring and reviewing social media influencers for compliance; and
  • Maintaining the right to immediately terminate the arrangement in light of non‑compliance.

All companies that use social media influencers as part of their marketing and advertising strategies should consider what policies and procedures they have in place or need to develop to ensure that they, their influencers, and any other parties they work with in this space are meeting the FTC's expectations.

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.

© Morrison & Foerster LLP. All rights reserved

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