As we saw in a prior post regarding Kim Kardashian and Instagram, the FDA pays attention to how brand companies use paid celebrities to endorse their products. Likewise, the FTC closely scrutinizes how brand companies use paid or sponsored endorsers. Be it digital influencers or bloggers, brand companies must be mindful of the disclosures required to be made in connection with any advertisement or promotion disseminated by an endorser for the brand company. If the brand company provides compensation of any kind to the endorser in exchange for the promotion, FTC regulations require disclosure of this fact. Per the FTC’s 2013 .com Disclosures guidelines, the disclosure must be “clear and conspicuous.” If the brand company uses an advertising agency, the company must ensure that the agency is complying with the FTC’s regulations. Ultimately, the brand company can be held liable for FTC violations by its advertising agency.

Beware of Bloggers Receiving Gifts

As recent enforcement actions demonstrate, the FTC has become more stringent in its requirements to comply with this disclosure rule. A review of a few cases is illustrative.

  • In 2010, the FTC investigated Ann Taylor for failing to adequately disclose the fact that it provided gifts to bloggers to post content about its LOFT Summer 2010 collection. As the letter states, the FTC was concerned because “bloggers who attended a preview [of the Summer 2010 collection] on January 26, 2010 failed to disclose that they received gifts for posting blog content about that event.” The FTC decided not to recommend an enforcement action, however, because its investigation revealed that the preview was only the first of its kind according to Ann Taylor’s LOFT division, only a small number of bloggers posted content about the preview (and some of the bloggers did disclose receipt of the gift), and LOFT adopted a written policy in February 2010 stating LOFT will not issue a gift of any kind to a blogger without first informing the blogger of the disclosure requirement.
  • Later, in 2012, the FTC investigated Hewlett-Packard and its public relations firm, Porter Novelli, Inc. for violations of the disclosure requirement. Similar to the Ann Taylor case, Hewlett Packard provided gifts to bloggers in exchange for posting content to promote use of HP printer ink and other HP products. The bloggers received two $50 gift certificates—one to keep and one to give away to a reader, as well as other low-end printable items. The FTC was concerned that HP’s bloggers “failed to disclose that they received the $50 gift cards to keep for posting blog content about HP Inkology.” Ultimately, the FTC again decided not to recommend an enforcement action as its investigation revealed that only a small number of bloggers posted content about Hewlett-Packard’s Inkology campaign after receiving the gifts (and again noted some of the bloggers did adequately disclose the material connection), and both Hewlett-Packard and Porter Novelli revised their social media policies to address the FTC’s concerns.

At this point in time, the FTC disclosure requirements generally comprised the following:

  1. Brand company must reasonably disclose that endorser was compensated.
    Whether the endorser receives monetary compensation or a gift to post blog content or provide some kind of endorsement of the brand company, the brand company must disclose this relationship. Section 5 of the FTC Act, which prohibits entities from engaging in unfair or deceptive acts or practices in interstate commerce, requires the disclosure of a material connection between an advertiser and an endorser when such a relationship is not otherwise apparent from the context of the communication that contains the endorsement. As explained in the FTC’s Deception Policy Statement, an ad is deceptive if it contains a statement—or omits information—that is likely to mislead consumers acting reasonably under the circumstances and is “material” or important to a consumer’s decision to buy or use the product.
  2. The brand company must inform the endorser that he or she must disclose that he or she received compensation in connection with the endorsement.
    As can be seen in both the Ann Taylor and Hewlett-Packard closing letters, the FTC seemed satisfied that the brand companies had implemented written policies that they would inform the endorser of the disclosure requirement which addressed the FTC’s concerns.
  3. Brand companies should take reasonable steps to monitor compliance with the policies.
    The FTC warned at the end of both the Ann Taylor and Hewlett-Packard closing letters that it expected the brand companies to take reasonable steps to monitor the bloggers’ compliance with the obligation to disclose compensation they receive from the brand companies.

Captured on Video
More recently, however, the FTC appears to have expanded the requirements. In 2013, Microsoft hired Starcom MediaVest Group to run an advertising campaign for its Xbox One. Starcom hired gaming video network Machinima to promote through YouTube videos. Machinima owns and operates multiple YouTube video channels that employ personalities who star in both scripted and unscripted content about video games. According to terms of the deal, in 2014, Machinima paid five of its YouTube personalities to promote the campaign. According to the FTC complaint, YouTuber Adam Dalhberg (SkyVSGaming) was paid $15,000 for the two videos, while Tom Cassell (TheSyndicateProject) received $30,000 for his two videos. In a second phase of the campaign, Machinima offered its YouTube influencers $1 for every 1,000 views their promotional Xbox One videos received, up to $25,000 for the entire campaign. Those videos could contain no negative or disparaging remarks about Machinima, Xbox One or the campaign. The terms required the parties to keep the relationship confidential and the fact that the YouTubers were paid endorsers was not disclosed. The closing letter notes “Machinima did not require the influencers to disclose in their videos that they were being compensated for producing and uploading the videos, and when the videos were uploaded, many (if not most) of the influencers failed to make any kind of disclosure.”

The FTC decided not to pursue enforcement action because it found that the failures appeared to be “isolated incidents that occurred in spite of, and not in the absence of, policies and procedures designed to prevent such lapses” and noted that “Microsoft had a robust compliance program in place when the Xbox One campaign was launched, including specific legal and marketing guidelines concerning the FTC’s Endorsement Guides, 16 C.P.R. Part 255, and relevant training made available to employees, vendors and Starcom personnel.” The FTC also stated that Microsoft and Starcom both reacted quickly to require Machinima to insert disclosures into the campaign videos once they learned that Machinima had paid the influencers and no disclosures had been made.

As part of the settlement, Machinima will be required to monitor and review its partners’ content for appropriate disclosures. Machinima also has to review every video tied to a promotion before issuing compensation. If the mandatory disclosures are not present, Machinima must reject the video and inform the influencer he or she will be ineligible for future promotional opportunities until the offending video is fixed. Machinima must also perform a surprise re-review of content from its paid influencers within between 14 and 90 days of posting. If during the re-review, the YouTuber isn’t accurately and visibly disclosing the paid endorsement, the YouTuber receives a single warning. Repeat offenses will disqualify them from future earning opportunities. Per the agreement, Machinima must keep five years of review records and the FTC may ask the company to produce evidence of compliance.

The Machinima case seems to suggest that now brand companies not only have to inform their paid endorsers of the obligation to provide proper disclosures, but also try to monitor compliance with the disclosure requirement, including re-reviews of the posted content during the campaign. This seems more stringent than prior cases where the FTC merely noted that brand companies should try to monitor compliance with such disclosures. As use of paid endorsers such as digital influencers continues to evolve, the FTC’s oversight will likely continue to become more invasive and requirements for complying with the disclosure rules more strict.