This Tuesday, the Federal Trade Commission (the “FTC” or “Commission”) announced that it has prospectively reached a settlement with Lord & Taylor, LLC (“Lord & Taylor”) over charges of deceptive advertising in connection with alleged paid Instagram product endorsements for Lord & Taylor’s 2015 Design Lab clothing collection.
What legal precautions should sellers take before seeking out third-party endorsements on social media?
Lord & Taylor’s Design Lab Collection and Related Product Endorsements
Lord & Taylor manufactures and sells luxury women’s, men’s and children’s apparel, accessories, cosmetics and other retail merchandise. In fall 2014, Lord & Taylor purportedly began planning the release of its new private label Design Lab clothing line, including a comprehensive social media campaign.
According to FTC records, Lord & Taylor provided its Design Lab Paisley Asymmetrical Dress – and payments of $1,000 to $4,000 each – to fifty “fashion influencers.” The Commission alleges that the influencers were contractually obligated to post a photo of themselves wearing the Lord & Taylor dress to the social media platform Instagram during the weekend of March 27–28, 2015, and include the @lordandtaylor user designation and #DesignLab hashtag with their posts. Lord & Taylor representatives purportedly pre-approved each of the influencers’ Instagram posts and made certain other stylistic edits to the influencers’ proposed associated text.
The Design Lab Instagram campaign appears to have reached 11.4 million individual Instagram users, resulting in 328,000 brand engagements with Lord & Taylor’s own Instagram account. The subject dress ultimately sold out.
FTC Investigation and Administrative Complaint
After conducting an internal investigation into the foregoing matter, the FTC initiated an administrative complaint against Lord & Taylor alleging that the retailer’s product endorsement contracts did not require influencers to disclose in their postings that they had been compensated by Lord & Taylor, nor did Lord & Taylor otherwise obligate the influencers to make such a disclosure. The Commission had reason to believe that Lord & Taylor’s actions amounted to deceptive advertising because the product endorsements would be material to consumers in their respective decisions to purchase the subject dress.
This Tuesday, the FTC announced that Lord & Taylor has agreed to settle the Commission’s deceptive advertising claims. Under the terms of the prospective consent order, for a period of twenty years, Lord & Taylor and its officers must (among other things):
- refrain from misrepresenting that an individual providing a paid product endorsement is an independent user or ordinary consumer of the product;
- clearly and conspicuously disclose all material connections between Lord & Taylor and its endorsers;
- advise each endorser in writing of his or her responsibility to disclose the endorser’s material connection to Lord & Taylor; and
- submit reports to the FTC of Lord & Taylor’s compliance with the foregoing.
The draft FTC consent order is subject to public comment through April 14, 2016.
Paid Social Media Product Endorsement? Disclose Before You Post
Broadly speaking, FTC regulations require sellers and advertisers to disclose all financial interests that individuals may receive in connection with providing testimonials or product endorsements. Sellers must ensure that paid endorsers and testimonial-writers (and, in some instances, the sellers themselves) include prominent disclosures adequately detailing the prospective benefits that such parties receive in connection with their endorsements, testimonials or other promotional efforts. Failure to do so could result in regulatory action or other adverse legal consequences. As such, businesses should always consult with a knowledgeable attorney before commencing a marketing campaign involving paid product endorsements.