November 16, 2018
Creaxion Corporation, Inside Publications, LLC and their respective principals (“Respondents”) have entered into a consent decree with the Federal Trade Commission (“FTC”), settling accusations of false and misleading endorsement claims, failure to disclose material connections with endorsers and deceptively formatted advertising. The FTC alleges that the Respondents violated the FTC Product Endorsement and Testimonial Guidelines (“FTC Product Endorsement Law”) by: 1) paying two gold medalists to endorse their FIT Organic Mosquito Repellant without disclosing the paid relationship; 2) compensating employees and friends for reviewing their product on Walmart.com; and 3) running paid ads that were disguised as featured product articles.
How should Respondents have properly featured the product endorsements?
Product Endorsement Law: Full Disclosure Required
Receiving an endorsement from a celebrity or a social media influencer can have significant commercial benefits. Whether that endorsement needs to be disclosed to the public is dependent on if the endorser has a “material connection” with the seller of the product or service. Section 255.5 of the Code of Federal Regulations requires that “when there exists a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement . . . such connection must be fully disclosed.” According to the FTC Product Endorsement Law, if a celebrity or a social media influencer is promoting a product without getting paid or receiving any quid-pro-quo, there is no relationship that would trigger a requirement to disclose. Additionally, if it is obvious that the audience should know that the celebrity or social influencer is getting paid for her/his services, there is no need to disclose the relationship between the endorser and seller (i.e., Michael Jordan appearing in a Nike commercial).
In the case at hand, the Respondents paid several thousand dollars to Olympic gold medalists Carly Patterson Caldwell and Jake Dalton to endorse their FIT Organic Mosquito Repellent. Per the terms of the agreement, the athletes posted social media endorsements, which were then reposted by the Respondents, without either parties disclosing that the posts were paid endorsements. Because the endorsements were not the independent opinions and experiences of impartial users, the FTC alleged that failing to disclose the material connection between the athletes and the Respondents misled consumers.
As part of their consent decree with the FTC, the Respondents are: 1) prohibited from misrepresenting that any endorser or reviewer is an independent user of the product; 2) required to clearly and conspicuously disclose all material connections between the endorsers and Respondents; and 3) barred from misrepresenting that native advertising is from an independent source.
What Needs to be Disclosed
As previously reported, product endorsement disclosure should be carefully tailored to the applicable product, platform and compensation structure in question. Additionally, businesses should: 1) never assume that consumers are aware of an endorsement relationship; 2) avoid ambiguous disclosures, such as #thanks, #collab, or #ambassador; and 3) never place disclosures after a “click more” link or in any other hard-to-see location.
Last year, the FTC sent more than 90 letters to influencers and brands to warn them of their duties to properly disclose their relationships. Marketers should ensure that their advertising practices comply with applicable state and federal regulations. Discussing your marketing plan with an experienced attorney can help avoid the risk of violating product endorsement law (each violation alleged by the FTC can result in a civil penalty of up to $41,484).
If you are interested in learning more about this topic, or if you are providing or soliciting product endorsements, please e-mail us at firstname.lastname@example.org or call us at (212) 246-0900.
The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.
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