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June 29, 2015 -

FTC Provides New Guidance on Social Media Marketing and Native Advertising

The Federal Trade Commission (FTC) has recently taken steps to clarify online marketers’ disclosure obligations in social media marketing and native advertising.  On June 1, 2015 the FTC updated its Frequently Asked Questions to its updated Guides Concerning the Use of Endorsements and Testimonials in Advertising (available for download here) to state how and when disclosures should be made when an employee, blogger, reviewer or other person has been incentivized to publish about a company’s products.

The basic principle used by the FTC in the Endorsement Guides is that an endorsement (which the FTC essentially defines as any statement about a company or product that a consumer could interpret as positive) must reflect the honest opinion of the endorser and can’t be used to make a claim that the company or product marketer couldn’t legally make itself.  If a significant minority of consumers might not realize that an endorser has a relationship with a company or marketer and knowing about this relationship would impact the weight or credibility consumers give to an endorsement, then the relationship must be disclosed in a “clear and conspicuous” manner.  The FTC considers content that fails to comply with these requirements to be deceptive advertising in violation of Section 5 of the FTC Act, which could trigger an FTC enforcement proceeding and the assessment of restitution penalties, among other consequences.   According to the new FAQ’s, the FTC’s enforcement “focus usually will be on advertisers or their ad agencies and public relations firms.”  However, individual endorsers may also be held liable in certain circumstances.

When are disclosures required?

To give some examples of common online marketing situations where disclosure of a material relationship may be necessary, a marketer may provide unsolicited samples of its products to members of a blogger network who sign up for the network so that they can review the products on their sites.  Or a marketer may supply a product, such as a video game, to one particularly well-read blogger known as an expert or authority in her area in the hope of gaining a positive review.  Or the marketer may institute a word-of-mouth or viral marketing scheme where participants receive something of value (such as a payment or an entry in a sweepstakes) to e-mail their friends or send out tweets about the marketers product.  All of these relationships may be characterized by the FTC as endorser-advertiser relationships, wherein both the “endorser” (i.e., the person generating the content about the product) and the “advertiser” (the marketer) must ensure the absence of unsubstantiated or misleading statements and the “clear and conspicuous” disclosure of connections that are not reasonably expected by the target audience and are likely to influence consumers’ perceptions of credibility.

Among other things, “clear and conspicuous” means that burying disclosures in terms of service or legal disclaimers (or making them available through a button titled DISCLOSURE or LEGAL) is not sufficient.  The FTC wants plain communication, not legalese.  Furthermore, to be “clear and conspicuous,” a disclosure must be in close proximity to the endorsement with which it is associated, or else a significant minority of users may not notice the disclosure and be misled.  Additionally, font, shading and cadence (for audio disclosures) are important to ensure that the disclosure stands out and is easy to follow.

It is also clear from the new FAQ’s that the explosion of so-called native advertising multiplies the scenarios and parties to which the FTC’s disclosure (and other truth-in-advertising) requirements apply. There is no consensus definition of “native advertisement” yet, but a common theme is that the advertiser’s influence is somehow fused with a website or app’s editorial content (as in an “advertorial” or “flog,” the latter being a “fake blog”).  (You can find a more detailed discussion of native advertising and the potential legal and regulatory implications on our blog here.)

The new FAQ’s reveal that it does not take much of a relationship or an incentive to trigger the disclosure requirement.  For example, a $1-off coupon offered to a blogger to post about a product may be too insubstantial, but a chance to appear in a TV ad or other advertising may be attractive enough to trigger the need for a disclosure.  Furthermore, if the person making an online post or statement is an employee of the company marketing the product or works for its ad agency or other marketing firm, and the individual’s connection to the product is not readily apparent (since a large company may sell a wide variety of products), the employee must provide additional disclosure beyond simply listing the employer on his or her profile or bio page.   An endorsement does not even have to be verbal to be an endorsement covered by the Endorsement Guides – posting a picture of a product on Pinterest or video of the endorser using it could require a disclosure if a relationship with the product or company exists and the audience may discern a positive message and believe it reflects the endorser’s opinion or beliefs about the product.

Some real-world examples

In  the FAQ’s the FTC also provides the following concrete guidance:

  • If someone is being compensated or otherwise incentivized to share her interests with friends and followers by clicking a button (e.g. “liking” something on Facebook) or sharing a link to show she is a fan of a product or company, this is an endorsement that requires a disclosure.
  • Advertisers (who are ultimately responsible for ensuring that their marketing campaigns are designed to promote compliance) are advised not to encourage endorsements like the one described above, i.e., on platforms (like Facebook’s “like” button) that don’t allow disclosures. (However, the FTC also states that it does not know at this time how much stock consumers actually put into “likes,” meaning a lack of disclosure may not be material.)
  • Incentivizing fake “likes” (e.g., from persons who have no experience using the product) is “clearly deceptive,” and both the buyer and the seller of the fake likes could face an enforcement action.
  • Disclosures have to be adequate and convey the essential information. So, while someone who is being paid to post doesn’t have to disclose the amount of the payment, she should say she is being paid.  Likewise, if someone is receiving several different incentives to post (e.g., money and a sneak peek at a product), the disclosure shouldn’t be selective and mention just one of the incentives.
  • If someone uploads a video to YouTube which requires a disclosure, the disclosure must appear clearly and prominently in the video itself (not just in the description page) so that it’s noticed. At the very least, the disclosure should appear at the beginning of the video, and multiple disclosures might be necessary if viewers are likely to skip the beginning.  Furthermore, if YouTube has been enabled to run ads during the video, these must not obscure the disclosure.
  • As stated above, disclosures of relationships or material incentives should not be linked to a DISCLOSURE or LEGAL button. To be compliant, a link must convey the importance, nature and relevance of the information to which it leads.
  • When making disclosures using a platform like Twitter, starting a tweet or other message with “Ad:” or “#Ad,” or using “Sponsored,” “paid ad,” or “promotion,” will likely be effective. The FTC does not consider 140 characters an insufficient limit to accommodate both desired message and disclosure.
  • If the endorsement is via live streaming, people should see a disclosure whenever they tune in.
  • An endorsement must represent the endorser’s accurate experience and opinion. An endorser can’t talk about her experience with a product if she hasn’t tried it, and she can’t say it’s terrific if she thought it was terrible.  She also can’t make unsubstantiated claims about a product or say anything else the advertiser itself couldn’t say.
  • According to the FTC, “it’s not a good idea” to give consumers a discount or other incentive for a positive online review, because it could cause them to make up positive reviews even if they haven’t used the product. If a company offers a discount or other incentive to encourage the posting of reviews, it should tell potential reviewers that the incentive will be conditioned on their making the necessary disclosures.

Monitoring and oversight

Advertisers must also exercise adequate oversight over bloggers and social media influencers they use to ensure that they aren’t making unsubstantiated claims and are making the proper disclosures.  While the FTC acknowledges that an advertiser will not know every single statement made by a member of its network, it must have in place a reasonable educational and monitoring program.  The scope of the required program will be a function of the physical injury or financial loss that deceptive practices by network members could cause.  Implementing such a compliance program should immunize the advertiser from an enforcement proceeding due to the non-compliance of a rogue blogger or influencer.  Similar principles apply when management of an online or social media marketing program is outsourced to an agency; the advertiser is still responsible for ensuring that the agency has the proper controls in place.  Intermediaries (like operators of marketing networks) are similarly responsible for monitoring the compliance of influencers and others they recruit to post on behalf of advertisers.   Finally, employers should establish a program to remind their employees of their compliance policy and should not encourage employees to say anything they don’t believe or to endorse a product they haven’t used.

Affiliate marketers who use review sites and other forms of native advertising to drive traffic to online retailers should disclose the compensation (e.g., commissions) they receive when Internet users click on their affiliate links to make a purchase.  Users should be able to see both the disclosure and the affiliate link at the same time (a simple “buy now” button “would not be adequate”).

What is a “significant percentage”?

In addition to the new FAQ’s, Mary Engle, the FTC’s Associate Director of Advertising Practices, on June 3 told the Clean Ads I/O conference that it will start holding publishers along with advertisers liable if they have a role in creating misleading “advertorials” and other native advertising.  Thus, from the FTC’s standpoint, publishers, when they are not merely serving as passive distributors of advertising content, have an equal obligation to ensure that the requisite clear and conspicuous disclosures are made.   Furthermore, simply following the common practice of labeling an advertorial or other native ad as “sponsored” may not suffice for compliance if the font is too small and a significant percentage of consumers are unlikely to notice the disclosure.  According to Engle, if a threshold of 10-15% of consumers are misled based on consumer surveys, this counts as a “significant percentage” for purposes of the FTC’s prohibitions against deceptive advertising.

Engle’s statements, together with the detailed and assertive comments in the FAQ’s concerning the FTC’s disclosure expectations for various types of native advertising and social media marketing, upend a number of common  assumptions in the online advertising world and mean that some current practices are either non-compliant or borderline non-compliant.  The enhanced compliance requirements together with the widening net of liability make it crucial for participants to stay abreast of these developments.

In light of this topic’s importance for our clients, Baer Crossey McDemus will present a free webinar on advertising compliance in native advertising and social media marketing on September 15, 2015.  Please email mpolitz@baercrossey.com for more information, or stay tuned to this blog.