United States: Lord & Taylor Settles With FTC Over Influencer Native Advertising Campaign On Social Media And Online Magazine

Last Updated: March 17 2016
Article by Keri Bruce and Sulina Gabale

We've seen native advertising take many forms, from paid celebrity Tweets to advertisements masked as editorial content to paid influencers promoting brands on social media. With a growing number of companies engaging in native advertising, in particular those involving social media influencers, the relationship between independent bloggers and corporate brands has become a sticky issue as sites like Instagram and Twitter have become increasingly influential platforms.

This week, Lord & Taylor agreed to settle charges brought by the FTC that it allegedly deceived customers by paying for advertisements on influencer Instagram accounts and Nylon online magazine without revealing that the posts were – in fact – paid promotions by the company.

The commission's complaint alleges that, as part of a media campaign to introduce Lord & Taylor's 2015 Design Lab clothing collection, the retailer paid 50 fashion influencers to post Instagram photos of themselves wearing a paisley dress from the new collection. However, in doing so, the FTC alleges that Lord & Taylor's campaign was deceptive because it represented that the influencer images reflected independent impartial statements, when they were really part of an ad campaign and that Lord & Taylor failed to disclose that the influencers were the company's paid endorsers – a connection that would have been material to consumers. The complaint alleges that Lord & Taylor pre-approved each post, required the retailer's social media handle @lordandtaylor and hashtag #DesignLab to be included in the posts, and gave each influencer had been given the dress for free – as well as payment of between $1,000 to $4,000 — in exchange for their endorsement. The FTC says that while these social media influencers were instructed how to reference the dress in their posts,"the contracts did not require the influencers to disclose in their postings that Lord & Taylor had compensated them."

The influencers' posts reached 11.4 million individual Instagram users over a span of two days, leading to 328,000 brand engagements with Lord &Taylor's own Instagram handle. And the dress quickly sold out. The campaign's success was highly touted in the media at the time, with many publications asking whether the campaign and its lack of disclosures violated the FTC Endorsement Guidelines.

The complaint also alleges that Lord & Taylor wrote and paid for a seemingly objective article for the clothing campaign in Nylon, a pop culture and fashion publication. Nylon also posted a photo of the same Design Lab dress on its Instagram account. However, neither the Instagram post nor the article gave any indication to consumers that they were paid promotions placed by Lord & Taylor.

The proposed consent order with the FTC prohibits Lord & Taylor from misrepresenting that paid commercial advertising is from an independent or objective source or that any endorser is an independent or ordinary consumer and requires the company to disclose any material connection between itself and any influencer or endorser. The order establishes a clear and conspicuous standard for disclosures by which Lord & Taylor must comply.  It also requires Lord & Taylor to obtain written acknowledgement from influencers that they must disclose their material connection to Lord & Taylor and establishes a strict monitoring and review program for the company's endorsement campaigns.

In December 2015, the FTC published an enforcement policy statement on native ads and a guide for businesses on native advertising in an effort to clarify when native advertising may cross the line and become deceptive to consumers.  In the guidance, the FTC reiterated that, advertisers cannot use "deceptive door openers" to induce consumers to view advertising content. Thus, advertisers are responsible for ensuring that native ads are identifiable as advertising (typically, through some sort of disclosure) before consumers arrive at the main advertising page. In addition, no matter how consumers arrive at advertising content, it must not mislead them about its commercial nature. In this case, deliberately failing to disclose that a social media post — or an apparent piece of editorial content — is in fact a paid ad would be a violation of Section 5 of the Federal Trade Commission Act, prohibiting deceptive or unfair business practices.

The consent order also reinforces an advertiser's need to disclose material connections and comply with the FTC's testimonial and endorsement guidelines and Com Disclosures.

Although the negotiations of the Lord & Taylor settlement were probably in the works before the FTC released its most recent native advertising guidance, the FTC's proposed settlement is further evidence that preventing deceptive native ads is an on-going priority for the FTC.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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