This week, the Federal Trade Commission (“FTC”) announced that it had reached a settlement with Machinima, Inc. (“Machinima “) for charges of deceptive advertising in connection with paid testimonials of Microsoft’s Xbox One system and related games. Specifically, the FTC had alleged that Machinima failed to adhere to the FTC’s guidelines for advertisement endorsements, which triggered the investigation that ultimately led to the deceptive advertising charges.

What was the nature of the FTC allegations?

According to the FTC, Machinima had guaranteed to Microsoft’s advertising agency that Machinima’s influencer videos would be viewed at least 19 million times on YouTube. In connection with this guarantee, Machinima paid a group of influencers based upon the number of generated user views.   Further, the FTC alleged that the Machinima-hired influencers failed to properly disclose that their seemingly objective opinions had been paid for.  Under the terms of the settlement, Machinima will be prohibited from engaging in similar conduct in the future, and must ensure that future influencers adequately disclose that they are being paid in exchange for their endorsements. These requirements include prominently disclosing any material connection between the endorser and the advertiser, as well as a prohibition on payment to any endorser who has not made such a disclosure.

Avoiding Liability in Connection with Paid Testimonials

Broadly speaking, the FTC’s guidelines on the use of endorsements and testimonials require that online marketers fully inform unsuspecting consumers of any and all financial interests that their writers or testimonial-providers have in connection with the endorsements that they post online. While the use of online consumer reviews and testimonials can garner great benefits for businesses, it is important to be cognizant of the associated pitfalls, which may put marketers at legal risk.  As such, businesses should always consult with a knowledgeable attorney before commencing any online marketing campaign.