In this day and age, consumers have become more and more reliant on personal reviews and opinions – as opposed to traditional ads and marketing materials – when making decisions. Whether it be where to vacation, what hotel to stay at, what video game to buy, what clothes to purchase, what restaurants to eat at, etc., user reviews and comments on the seemingly infinite social media platforms and apps are usually the first place users turn to for advice. The reason we do this is obvious: authenticity is all the rage and we trust and value the honest opinions of others more than packaged glossy marketing materials or commercials. Given this change in the natural order of marketing, companies have become more and more adept at using the platforms users turn to as promotional channels – either via social media influencers, celebrity endorsements, native advertising, or similar means. Also, “native ads” have been used more and more by companies to catch consumers’ eyeballs. Native ads are paid content that blends seamlessly with editorial content to give the impression of an unbiased review of a product or a service.
The US regulatory authorities are attuned to these trends. In 2009, the US Federal Trade Commission (FTC) updated its Guides Concerning Use of Endorsements and Testimonials in Advertising (the Guides) and, in May last year, provided answers to frequently asked questions – mainly on social media advertising. The Guides stress that disclosure of any material connection between the advertiser and the poster, blogger, pinner, influencer, celebrity (in certain cases), etc. is required and, to be effective, that disclosure must be clearly and conspicuously displayed. If sufficient disclosures are not made, the ad may be deceptive and constitute false advertising. In December, the FTC concurrently issued an Enforcement Policy Statement on Deceptively Formatted Advertisements as well as a native advertising guide providing tips to businesses for effective disclosures and formatting of digital ads. These actions by the FTC were clearly meant to put marketers on notice that the FTC was “watching this space” – and indeed they were.
Over the past year or so, we have witnessed a considerable uptick in enforcement actions taken by the FTC with respect to lack of adequate disclosures by paid endorsers or insufficient disclosures as to native advertisements. While the facts differ from case to case, there is a common thread in these enforcement actions: when a company hires – either directly or via an affiliate marketing company – social media influencers and others to post comments, videos and reviews of its products or services, and those people are being paid or compensated in some way, there must be a clear and conspicuous disclosure, such as "#ad", “Company X gave me a free product to try” or “Paid ad”. Similarly, for any native ads, both the formatting of the ad and sufficient disclosures must be present to pass FTC muster. And always remember, at the end of the day, the advertiser is always responsible for ensuring the ads, endorsements, etc. comply with the relevant laws. So even if your company hires a third party PR or marketing firm to solicit reviews, etc. for online platforms, it is incumbent upon the company to carefully monitor the format and nature of the ads and endorsements being made.