What do Cardi B, Jordin Sparks and Alexa PenaVega have in common? If you guessed they each received warning letters from the Federal Trade Commission ("FTC") last week, you are correct. The FTC sent letters to these three celebrities as well as seven other social media influencers warning that their Instagram posts about a detox tea did not adequately disclose that the endorsements were paid-for. The disclosures were inadequate because they were not visible without specifically expanding the text of the post beyond the "more" button and videos associated with the posts did not separately include the disclosure. The FTC letters specifically reminded the celebrities that their failure to make adequate disclosures about their connections to marketers may subject them to legal enforcement action by the FTC. The FTC letters require a written response from the celebrities by March 30 to explain what actions they are taking to ensure that their social media posts endorsing brands clearly and conspicuously disclose their relationship to the brand.
The FTC also announced that the manufacturer of the detox tea, Teami, LLC and its owners (collectively, "Teami"), had agreed to settle a lawsuit brought against it by the FTC in the Middle District of Florida for USD 15.2 million (the amount of the total sales of the products). Because of Teami's inability to pay the full judgment, so long as Teami pays USD 1 million, the rest of the amount would be suspended. The proposed settlement agreement requires Teami to maintain a system to monitor and review how endorsers make their disclosures.
Teami had received a warning letter in 2018 about its need to adequately monitor its social media influencers, including the requirement that disclosures appear before the "more" button. Thereafter, Teami instituted a social media policy with its influencers that the disclosures must appear before the "more" button and stated that the influencers needed Teami's approval in advance for posts. In practice, however, these non-complying posts were not prevented and clearly, the contractual provisions were not enough to prevent these influencers from making posts that did not adequately disclose that the endorsements were purchased. Either the pre-approval process was not followed in all instances or the non-complying posts were not caught during the pre-approval process.
The FTC Complaint explains how the posts look different on different devices and that the disclosures must be clear and conspicuous even if the post is viewed on a tiny telephone screen.
Under the agreement, Teami is required to, at a minimum:
- Provide each endorser with a clear statement of his or her responsibilities to disclose and obtain from each such endorser a signed and dated statement acknowledging receipt of that statement and expressly agreeing to comply with it, except in the case of endorsers participating in a program through which they only receive free or discounted products or referral payments not to exceed USD 20 per month, an email signature acknowledging the endorser's receipt of the statement of responsibilities and agreement to comply with it will be sufficient.
- Establish, implement and maintain a system to monitor and review the representations and disclosures of endorsers, including reviewing each specifically contracted online video and social media posting promptly after publication, except in the case of endorsers participating in a program through which they only receive free or discounted products or referral payments not to exceed USD 20 per month, it will be sufficient to conduct monthly reviews of the fifty endorsers generating the highest levels of product sales, in dollars, in the prior month.
- Immediately terminate and cease payment to any endorser who has failed to adequately disclose that it has been paid, except that Defendants may provide an endorser with notice of failure to adequately disclose and an opportunity to cure the disclosure prior to terminating the endorser if Defendants reasonably conclude that the failure to adequately disclose was inadvertent. Defendants shall inform any endorser to whom they have provided a notice of a failure that any subsequent failure to adequately disclose will result in immediate termination.
- Create reports showing the results of the monitoring.
If you have any questions about how this decision may impact your use of social media influencers, please contact your Baker McKenzie attorney.