The Federal Trade Commission ("FTC") has settled two important enforcement cases concerning native advertising and using online influencers. These cases follow the FTC's Enforcement Policy which was published at the end of 2015 and outlined the FTC's intention to focus enforcement measures in the area of native advertising (as was reported in our Client Update).
The Lord & Taylor case concerning undisclosed native advertising
The national retailer, Lord & Taylor has settled with the FTC, the charges alleging that it had deceived consumers by paying for native advertisements, including an allegedly objective article in an online fashion publication and an Instagram post, without disclosing that the posts were in fact paid promotions for the company’s 2015 Design Lab collection.
The FTC’s complaint also stated that the company gave its product (a dress) to 50 online fashion "influencers" and paid them to post Instagram photos of themselves wearing the dress but without disclosing the payment, or that they had given each “influencer” the dress in exchange for their endorsement.
Under the terms of the settlement, Lord & Taylor is prohibited from presenting advertising which it pays for as deriving from an independent or objective source. It also prohibits the company from misrepresenting the independence of endorsers, and requires the company to clearly and conspicuously disclose material connection between itself and any influencer or endorser.
The Machinima case concerning undisclosed payments to online influencers
The FTC has confirmed a final consent order with Machinima, Inc., requiring the company to disclose when it has compensated “influencers” to post YouTube videos or other online product endorsements as part of “influencer campaigns.”
According to the FTC’s com plaint , Machinima and its influencers were part of an Xbox One marketing campaign conducted by Microsoft’s advertising agency, Starcom MediaVest Group. The FTC argued that the influencers had failed to adequately disclose that they were being paid for allegedly objective opinions.
The final order settling the charges brought against Machinima by the FTC, prohibits Machinima from misrepresenting in any influencer campaign that the endorser is an independent user of the product or service being promoted. Among other things, it also requires Machinima to ensure that all of its influencers are aware of their responsibility to make required disclosures and for the company to clearly disclose any material connection between the endorser and the advertiser, and prohibits Machinima from compensating any influencer who has not made the required disclosures.
The FTC's Endorsement Guides, which were published in May 2015, addresses this issue in detail and provides further regulatory guidance.
These two cases emphasize the various compliance requirements and the increased level of scrutiny in native advertising and the use of social media to endorse products or services.