FTC Targets Retailers Offering Tweets for Pay

A recent settlement involving Lord & Taylor provides another important reminder that the FTC is scrutinizing social media campaigns and that proper disclosures are required, even if you only have 140 characters to do it in.

Disclosures in Social Media

Many brands are using social media to broaden the reach of their advertising campaigns. One popular technique is to enlist social media “influencers” to post about a brand’s products or services. A fashion company, for example, may pay a celebrity to post a photo on Instagram of her wearing the brand’s new shoes, or a tech company may ask prominent bloggers to tweet good things about the company’s new product.

Under FTC guidance, if the person endorsing a product on social media has a material connection with the company, including where the endorser is compensated for that endorsement, the post must disclose the connection between the endorser and the brand. The key under the FTC’s Endorsement Guides is whether consumers would understand that a particular post is a paid endorsement. If consumers would be surprised to learn that a brand paid (or otherwise compensated) the endorser for his or her post, then the post should include a disclosure such as “#sponsored”, or “Ad:” or “#ad” at the beginning of the tweet or post. On the other hand, if consumers know a particular individual is being paid to endorse a product (i.e., Michael Jordan and NIKE), then a disclosure may not be necessary.

Lord & Taylor Settlement

The FTC filed suit against Lord & Taylor after the company paid 50 online fashion influencers to post Instagram pictures of themselves wearing the same dress from the company’s new collection.  While the influencers could style the dress any way they chose, Lord & Taylor contractually obligated them to use the “@lordandtaylor” Instagram user designation and the hashtag “#DesignLab” in the caption of the photo they posted. The company also pre-approved each proposed post. In exchange, the influencers received the dress for free and were paid between $1,000 and $4,000 each.

The FTC alleged that these practices misrepresented that paid commercial advertising was from independent or objective sources. Such misrepresentation, according to the FTC, violates Section 5 of the FTC Act, which prohibits deceptive advertising.

Under the proposed consent order settling the FTC’s complaint, Lord & Taylor is prohibited from misrepresenting that paid commercial advertising is from an independent or objective source and from misrepresenting that any endorser is an independent or ordinary consumer. The company is also required to clearly and prominently disclose any unexpected material connection between itself and any influencer or endorser (i.e., #ad or #sponsored). Finally, the proposed consent order establishes a monitoring and review program for the company’s endorsement campaigns.

Takeaway

The Lord & Taylor settlement is just the most recent example of FTC enforcement in this area. The FTC has also brought actions against companies that require employees to post favorable comments about the company’s products on social media and against companies that fail to require disclosures in social media sweepstakes (see here). Although these disclosures may not be popular among advertisers and copywriters, we can expect more enforcement from the FTC down the road.