On September 7, 2017, the U.S. Federal Trade Commission (FTC) announced that it had entered into a proposed consent agreement with two individuals and their company that allegedly ran an online gaming community website that allowed users to gamble virtual currency. According to the FTC complaint, the two individuals promoted the gaming site and not only failed to disclose their ownership interest in the site or that they were playing with company money, but they also paid other social media influencers between $2,500 and $55,000 to promote the site.
As we had previously written, in the Spring of 2017, the FTC issued 90 letters to social media influencers and the companies they may have endorsed on Instagram. The letters reminded the recipients that the FTC expects any “material connection” between an influencer and the provider/service/company to be conspicuously disclosed. A “material connection” is a “a connection that might affect the weight or credibility that consumers give the endorsement,” which can be a direct payment, free products, an ownership interested in the company, or even a family connection to the company. As part of the FTC’s September 7 announcement, the FTC also stated that it sent warning letters to 21 social media influencers who had received the Spring letters. (The FTC did not disclose the names of the influencers or companies that received the warning letters.) Consequently, the FTC may be bringing additional actions in this area.
The FTC Complaint
In the case involving the online gaming community, the FTC claimed that the two defendants, who owned 85% of the company, promoted their company via online videos and social media announcements regarding their online gaming winnings. The FTC complaint also claimed that the defendants paid certain other social media influencers to promote the site, but prohibited them from saying anything negative about the site. The FTC complaint alleged that neither the company owners nor the social media influencers made any compliant disclosures to consumers about their connection to or payments by the company—and in many cases, no disclosures at all.
The FTC complaint stated that consumers would believe that the social media comments were the independent opinions of impartial users of the company’s services. According to the FTC, the failure to disclose that the defendants were owners and officers of the company and were using company funds, as well as the failure to disclose the other influencers had received compensation to promote the site, meant that the defendants deceived consumers in violation of Section 5 of the Federal Trade Commission Act. As part of the consent agreement, the defendants did not admit or deny any of the allegations in the complaint except facts necessary to establish the FTC’s jurisdiction.
The FTC Proposed Consent
The draft consent between the FTC and the defendants is open for public comment through October 10, 2017. The 20-year consent requires the defendants to disclose material connections between an endorser and any “individual or entity affiliated with the product or service” or between the endorser and “the products or services.” These disclosures must be “clear and conspicuous,” which the draft consent defines, with respect to “any communication using an interactive electronic medium, such as the Internet or software, the disclosure must be unavoidable.” The FTC also would require that any disclosure must comply with all requirements whenever a consumer views the endorsement, “including all electronic devices.”
The proposed consent also has several requirements for the defendants relating to arrangements with endorsers. The defendants would be required to:
- Provide each endorser “a clear statement of his or her responsibilities to disclose clearly and conspicuously, and in close proximity to the endorsement in any . . . social media posting . . . the endorser’s reasonably expected material connection.”
- Obtain a signed and dated statement from each endorser acknowledging receipt of the statement described in #1 above, and agreeing to comply with it.
- Establish and maintain a system to monitor and review the endorsers’ representations and disclosures, including “at a minimum, monitoring and reviewing the endorsers’ online videos and social media postings.”
- Immediately terminate and cease payment to any endorser the defendant “reasonably concludes” has misrepresented his/her independence or impartiality or has failed to make the required disclosures clearly and conspicuously and in close proximity to the endorsement. The FTC consent would permit the defendants to issue an endorser a notice and opportunity to cure if the defendant believed that the failure was inadvertent.
- Create reports showing the results of the monitoring of the endorsers.
In the same press release describing the proposed consent, the FTC also announced that it had updated its endorsement guidance, to add more than 20 FAQs regarding social media. Among the additions:
- On image-only social media platforms, “superimpose disclosures over the images.”
- “Don’t assume disclosures built into social media platforms are sufficient”
- The following terms and hashtags are ambiguous and should not be considered adequate: “Thanks” #collab #sp #spon #ambassador
- “Don’t rely on disclosures that people will see only if the click ‘more’”
- Tagging a brand is an endorsement of the brand
- “A disclosure on a profile page isn’t sufficient because many people in your audience probably won’t see it.”
- “Advertisers shouldn’t encourage endorsements using [social media] features that don’t allow for clear and conspicuous disclosures.”
- “A single disclosure on your home page” is not sufficient
- A hyperlink that is labeled “Disclosure” or “Legal” in a post “isn’t likely to be sufficient. It does not convey the importance, nature, and relevance of the information to which it leads . . .”
- Don’t simply append “ad” to the end of a hashtag with your company name because there is “a good chance that consumers won’t notice and understand the significance of the word ‘ad’ at the end of a hashtag.”
Anyone on social media—regardless of whether you contract with endorsers, are a social media influencer, or simply praise great goods or services on occasion—should review the revised FTC endorsement guidance and act accordingly.