The Federal Trade Commission ("FTC") has accepted, subject to final approval, agreements with consent orders ("Consent Orders"), settling false advertising charges against a public relations firm, its CEO, a magazine publisher and its owner ("Respondents") relating to an advertising campaign they created to take advantage of the Zika virus scare in connection with the Rio Olympics. The FTC announced the agreement on November 13, 2018 and, after the 30 day public comment period, the FTC will decide whether to make the Consent Orders final.
So what exactly happened here? The public relations firm was hired by a consumer health products company to design a campaign for mosquito repellant by using Olympic gold medal gymnasts for social media posts and advertorials. The public relations firm also conducted a consumer review program that reimbursed the public relations firm's own employees and friends for buying the mosquito repellant and reviewing it online. The magazine publisher reposted messages and published advertisements that were formatted to look like the news articles next to which the advertisements appeared. According to the complaint, the fact that these were paid endorsements or advertising was not disclosed to readers.
The FTC's Endorsement Guides require that a material connection between the endorser and the product that is being endorsed must be clearly disclosed and its Enforcement Policy Statement on Deceptively Formatted Advertisements explains that messages that are "not identifiable as advertising to consumers are deceptive if they mislead consumers into believing they are independent, impartial, or not from the sponsoring advertiser itself." According to the complaint, the Respondents were not in compliance with either of these guides and therefore were in violation of Section 5(a) of the FTC Act.
The Consent Orders prohibit the Respondents from:
- Misrepresenting the status of any endorser as an independent user or ordinary consumer of the product;
- Failing to disclose, clearly and conspicuously, and in close proximity to the endorsement, any unexpected material connection between such endorser and the product; and
- Misrepresenting that paid commercial advertising is a statement or opinion from an independent or objective publisher or source.
The Consent Orders also require the Respondents to take the following steps to monitor their endorsers and to make sure their endorsements comply with the requirements:
- Provide each endorser with a clear statement of their responsibilities to disclose clearly and conspicuously, and in close proximity to the endorsement, the endorser’s unexpected material connection to the product, and obtaining from each such endorser a signed and dated statement acknowledging receipt of that statement and expressly agreeing to comply with it;
- Establish, implement, and maintain a system to monitor and review the endorsers’ advertising communications;
- Immediately terminate and cease payments to any endorser with non-complying advertising communications. Although Respondents may provide an endorser with notice of failure to adequately disclose and an opportunity to cure the disclosure prior to terminating the endorsement relationship if the failure to disclose was inadvertent. Any subsequent failure to disclose will result in immediate termination; and
- Create reports showing the results of the monitoring required by this provision.
This recent FTC enforcement action highlights the importance of monitoring your endorsers. The guiding principles set out in the Consent Orders discussed above illustrate the sort of contractual provisions you will want to have in place, namely, that your social media influencer agreements should clearly communicate an endorser's responsibility to disclose the endorser's relationship to the endorsed product and should allow you to cancel the contract if the endorser does not comply. It is acceptable to allow an endorser to cure its non-compliance, but only if the endorser's non-compliance was inadvertent.
If you have any questions about how this recent enforcement action may impact your company’s use of social media influencers, its contracts with endorsers or its use of advertorials, please contact your Baker McKenzie attorney or any of the contacts below