The fast-forward button on a DVR and other advancements make it easier for consumers to avoid advertisements on traditional media platforms, leading more and more businesses to rely on endorsements, testimonials and reviews on social media platforms to market their products and services. While favorable reviews of an advertiser’s product on Twitter or a picture of a celebrity holding the advertiser’s product in an Instagram message can benefit the advertiser, recent Federal Trade Commission enforcement actions, including the recent settlement with Warner Bros. Home Entertainment, Inc., should serve as a reminder and a warning that the FTC will continue to undertake enforcement activity against businesses, their advertising agencies and public relations firms that fail to comply with the Commission’s rules governing advertisements.
The FTC is the federal agency tasked with the responsibility of enforcing consumer protection laws. The primary statute relied upon by the FTC in this area is the FTC Act, a federal law that contains a very broad prohibition of the use of “unfair or deceptive acts or practices” in sales methods, advertising claims, and marketing and promotional activities. However, the FTC is not alone. Consumer advocacy groups are also monitoring advertisements on social media sites for unfair and deceptive practices, and reporting the responsible parties to the FTC.
As with other forms of advertising, endorsements and testimonials must be truthful and not misleading, and they must contain claims that are substantiated. Endorsements and testimonials must also reflect the honest findings, opinions and experiences of the endorser.
The FTC has taken, and will continue to take, action against advertisers who fail to clearly and conspicuously disclose any material connection between the advertiser and the endorser that would affect how the consumer evaluates the endorsement or testimonial. A material connection can involve an advertiser paying for an endorsement, offering free merchandise or providing early access to its products. A material connection can also arise from the expectation of some benefit in the future, such as receiving a sweepstakes entry for a chance to win a cash prize in exchange for a favorable endorsement made in a social media post.
A material connection that may be less obvious, but equally important, involves statements made on social media sites by an advertiser’s employees or by the employees of its ad agency or public relations firm. For example, if a company encourages its employees to promote its product, or that company’s ad agency asks its employees to generate excitement on social media sites about its client’s product, then the company and the ad agency must inform their respective employees to clearly and conspicuously disclose their connections to the company to comply with the disclosure requirements.
Failure to disclosure material connections is what triggered the FTC’s action against Warner Bros. According to the FTC’s complaint, Warner Bros. deceived consumers during a marketing campaign for its video game by failing to adequately disclose that it paid online “influencers” thousands of dollars, provided the influencers with a free advance copy of the video game, and told the influencers how to promote the game.
An advertiser can be held liable for false or misleading statements its employees or other individuals make about the advertiser’s products or services on social media sites. To mitigate potential liability, an advertiser should establish policies to educate its social media affiliates, endorsers and employees on proper advertising standards to ensure that all advertisements are truthful, not likely to mislead, substantiated, and contain clear and conspicuous disclosures, including disclosures regarding any material connections between the advertiser and the endorser.
Finally, the advertiser should monitor and review its social media affiliates, endorsers and employees to ensure they comply with the advertiser’s policies, and take appropriate action to correct any non-compliance.
The FTC’s 2009 Guides Concerning the Use of Endorsements and Testimonials in Advertising and the Commission’s Endorsement Guides: What People Are Asking (updated in 2015) provide helpful information for advertisers and endorsers. Both guides are available on the FTC’s website.
This article is intended to be an overview of the issues discussed herein. It is not intended as legal advice and should not be relied upon as such. It is recommended that individuals or businesses engaged in, or considering, a digital advertising campaign consult with legal counsel who is familiar with the relevant legal requirements of the given industry and, specifically, the advertisement of the given products or services.
Vojtek “VK” Karpuk is an attorney with Jennings, Strouss & Salmon, P.L.C. He focuses his practice on corporate and securities law, intellectual property law, government relations and advertising law.