United States: FTC Brings First Action Alleging Deceptive Native Advertising Practices

Just months after issuing an Enforcement Policy Statement on Deceptively Formatted Advertisements and an accompanying Native Advertising Guide for Businesses (to read a previous D&G Alert on this topic, please click here), the Federal Trade Commission (FTC) brought its first action against an advertiser (Lord & Taylor) involving allegations that it deceived consumers with its misleading native advertisements.

The FTC also claimed that Lord & Taylor violated the FTC Endorsement Guides by paying influencers to post photos of themselves wearing the retailer's dress on social media without disclosing that they were paid by the retailer.

Allegations

In early 2015, Lord & Taylor launched a comprehensive social media campaign to promote its new Design Lab collection, a private-label clothing line targeted to women between 18 and 35 years old. The retailer's market plan included the dissemination and placement of branded blog posts, photos, video uploads, native advertising editorials in online fashion magazines, and online endorsements by a team of specially selected "fashion influencers" over one "product bomb" weekend, focusing on a specific Design Lab paisley dress.

The FTC's complaint alleged that Lord & Taylor paid Nylon, a pop culture and fashion publication, to place an article online about the Design Lab collection, which included a photograph of the paisley dress. Lord & Taylor also paid Nylon to post a photo of the dress on the publisher's Instagram site, along with a caption that Lord & Taylor had reviewed and approved.

Over the same weekend, Lord & Taylor incentivized 50 select fashion influencers to post a photo of themselves wearing the dress, styled according to their choice, on Instagram, in exchange for giving the influencers the dress for free and paying them an amount between $1,000-$4,000.

The social media campaign was immensely successful, reaching 11.4 million individual Instagram users in just one weekend and leading to 328,000 brand engagements with Lord & Taylor's Instagram handle. Moreover, the dress quickly sold out.

While Lord & Taylor contractually obligated influencers to use the "@lordandtaylor" Instagram handle and the hashtag "#DesignLab" in the caption of the photo they posted, Lord & Taylor notably did not require any influencers to disclose that the retailer had compensated them to post the photo. Ultimately, neither the article nor any of the influencer posts included any disclosure of their paid nature.

According to the FTC, Lord & Taylor engaged in deceptive advertising practices in violation of Section 5(a) of the FTC Act by paying a publisher to place content about the retailer's clothing line without disclosing or requiring the publisher to disclose that the posts were paid advertising content and by failing to disclose that its influencers had been compensated for their endorsements.

Proposed Settlement

As part of its settlement with the FTC, Lord & Taylor agreed that it would not misrepresent its paid advertisements as the statements or opinions of independent, editorial publishers or sources. Further, Lord & Taylor must ensure that its influencers clearly disclose when they have been compensated in exchange for their endorsements and that they not misrepresent themselves as ordinary consumers when endorsing Lord & Taylor or its products. The retailer also agreed to establish a monitoring and review program of its endorsers and to immediately terminate any endorsers who failed to clearly and conspicuously disclose their relationship with the retailer (subject to a possible exception and opportunity to cure for an inadvertent failure to disclose).

Conclusion

Advertisers and their agency partners who are in charge of developing and deploying similar campaigns should ensure that the appropriate disclosures are being made in a clear and conspicuous manner, keeping context and the net impression of the content in mind. Further, influencers, affiliates, marketing partners, and internal teams alike should be trained by advertisers not only with respect to the content they are disseminating (e.g., ensuring support for product claims) but also with respect to their ongoing disclosure obligations. Finally, advertisers, agencies and publishers should all affirmatively monitor whether appropriate disclosures continue to be made and take steps to remedy the situation or terminate the relationship if partners or influencers fail to disclose.

Bottom Line

Expect the FTC to continue to enforce the principles of transparency, monitoring and enforcement as they apply to both native advertising and endorsement relationships going forward. While the FTC has stated in the past that advertisers, publishers and marketing partners are all responsible for ensuring compliance, in this case, the FTC specifically targeted the advertiser responsible for orchestrating the campaign and managing contractual relationships with publishers and spokespeople.

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