Expectations of Stricter Standards & More Aggressive Enforcement over Influencer Marketing?

Beauty bloggers. Make-up or skincare tutorial v-loggers. YouTube. Instagram. Twitter. No matter the platform, more and more cosmetic companies are turning to influencer marketing. Most companies are aware there are standards governing the use of social media and other online endorsements–particularly when the endorsement is given after the receipt of some benefit, such as free product samples.  Recent announcements from the Federal Trade Commission (“FTC”) suggests those standards may become stricter and the subject of more aggressive federal enforcement.

The FTC first issued endorsement guidelines in 1975 titled “Concerning the Use of Endorsements and Testimonials in Advertising.”  Those Guidelines were last amended in 2009. Among other things, the Guidelines provide that (1) advertising presenting endorsements by persons appearing to be typical consumers should use actual consumers, or disclose the endorser is not an actual consumer; (2) endorsements by entities must be reached through a process that ensures it is the actual collective judgment of the entity; and (3) any connection between an endorser and the seller of an endorsed product that might materially affect the weight or credibility of an endorsement must be fully disclosed. Although the Guidelines are advisory in nature, the FTC may take action if an endorsement is inconsistent with the Guidelines.

The FTC has also issued guidance as to how the Guidelines apply to online product reviews and social media endorsements.  For instance, in November 2019, the FTC made available a guidance brochure titled “Disclosures 101 for Social Media Influencers,” aimed at individuals with followings on social media who may receive incentives to make positive statements about products.  The brochure summarized its message as follows:

If you endorse a product through social media, your endorsement message should make it obvious when you have a relationship (“material connection”) with the brand. A “material connection” to the brand includes a personal, family, or employment relationship or a financial relationship – such as the brand paying you or giving you free or discounted products or services.

The brochure elaborates the implementation of that message with specific guidance, such as disclosures of the influencers receiving payments or products from the brands should be placed with the endorsement message itself, and superimposed over pictures containing such endorsements, in simple and unambiguous language.  The brochure also explains that endorsements can only be made of products that the endorser has actually used and must honestly reflect the endorsers experience with the product.

Besides issuing guidance, the FTC has engaged in enforcement actions against brands for their use of endorsements in online marketing.  For instance, in 2016, the FTC initiated a proceeding against Lord & Taylor for paying 50 fashion influencers to post pictures on Instagram wearing items from Lord & Taylor and using a Lord & Taylor hashtag, but not requiring the influencers disclose the payments. Similarly, the FTC brought an enforcement action against a cosmetics brand – Sandy Riley – for directing its employees to submit online reviews praising its products without disclosing their relationship to the company.  The FTC settled both enforcement actions for agreements to cease the practices at issue without admission of wrongdoing and without any financial penalties.

It appears the FTC may now be moving toward taking a more aggressive stance regarding social media and other online endorsements.  On February 12, 2020, the FTC announced a proposed Federal Register notice which would seek public comment on questions reflecting a concern that current practices regarding social media endorsements and online reviews may be misleading consumers and the existing Guidelines were inadequate.  Among the proposed questions are the following:

How well are advertisers and endorsers disclosing unexpected material connections on social media platforms? Does this depend on the type of material connection? What disclosures of material connections are sufficiently clear (i.e., understandable) to consumers when used in social media? What disclosures of material connection currently being used in social media are likely not understood by consumers? Does the sufficiency or insufficiency vary by platform, type of material connection (e.g., a paid post versus a free product), or other factors, and, if so, how? To the extent that these connections are not being adequately disclosed, do the problems tend to be in the substance of the disclosures or in their conspicuousness (e.g., placement, visibility, or audibility)? Should the Guides provide more detail on what disclosures of material connections are sufficiently clear or unclear in different social media formats?

. . .

Some marketers give incentives (e.g., free or discounted products) to consumers in exchange for posting reviews of their products or services without specifically requiring that the reviews be favorable. Do such incentives skew or bias the resulting reviews? Why or why not? If so, how and to what extent do incentives skew or bias the resulting reviews, and what factors may make such impacts more or less likely? Should such incentives be disclosed? Why or why not and if so, how? Does the nature or value of the incentive matter? If so, how? Do such incentives skew composite ratings? Why or why not and if so, how? Do such incentives impact the order in which products or services are presented to consumers on retail or other review platforms? Why or why not and if so, how?

. . .

Some consumer reviewers who receive incentives in exchange for their reviews disclose their material connections in their reviews. Are such disclosures adequate when incentivized reviews are included in composite ratings? Why or why not? Are composite ratings that are based in whole or in part on such incentivized reviews misleading? If such composite ratings are misleading: (1) are there disclosures that could adequately address this concern and if so, what disclosures; and (2) how should the Guides address composite ratings if disclosures are not sufficient or there is not an opportunity for the marketer to make adequate disclosures (e.g., when the reviews and composite ratings appear on a third party’s website)?

At the same time as the FTC announced the request for public comment, FTC Commissioner Rohit Chopra individually issued his own statement indicating his belief that the FTC needed to take action to curb deceptive online endorsements. According to Commissioner Rohit, “[f]ake accounts, fake likes, fake followers and fake reviews are now polluting the digital economy, making it difficult for families and small businesses looking for truthful information. . .  The FTC will need to be forward-looking to stop fraud from festering.”

It will be months before the FTC makes any revisions to its Endorsement Guidelines. Public comments in response to the request must be received within 60 days of publication in the Federal Register, which has not yet happened.  The agency will then need to spend time assessing those comments and reaching consensus as to what, if any, changes need to be made to the existing Guidelines.

Take aways…It is unclear whether in the interim the Commission will begin initiating additional action regarding online endorsements it sees as running afoul of the principles enunciated in the existing Guidelines, and whether it will continue to forego seeking monetary penalties. The comments of Commissioner Rohit suggest some willingness to move more aggressively without further delay.  As such, brands utilizing social influencer marketing would do well to be proactive and consult with counsel to make sure they are utilizing adequate disclosures to safeguard them from FTC scrutiny.

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