n March 20, 2014, the FTC issued a closing letter to Cole Haan that will affect all kinds of advertisers (and advertisements) on social media.  In particular, it will impact the way that brands interact with users on Pinterest and tell their users to use hashtags in contests and other types of promotions.  So advertisers, #listenup!

The FTC took issue with the shoemaker’s “Wandering Sole” contest on Pinterest, which called for people to create Pinterest boards with images of five Cole Haan shoes, along with pictures of the contestants’ “favorite places to wander.”  Whoever posted the most creative entry would win a $1,000 shopping spree.  Cole Haan told users to include the hashtag “#WanderingSole” with their photos, but—importantly—it didn’t tell participants they also needed to make it clear that they posted the pins in order to enter a contest.

The FTC was concerned because this material connection (the link between the pin and the contest entry) was not disclosed in entrants’ posts.  The letter states that “entry into a contest to receive a significant prize in exchange for endorsing a product through social media constitutes a material connection that would not reasonably be expected by viewers of the endorsement.”   The FTC observed that the participants’ pins featuring Cole Haan products were endorsements of the company’s products, and the #WanderingSole hashtag ineffectively communicated the financial incentive—a material connection—between Cole Haan and the entrant.

Nonetheless, while the FTC expressed concern that Cole Haan did not instruct contestants to label their pins and Pinterest boards to make it clear they had pinned the company’s products as part of a contest, it did not get into the specifics of what compliant labels might look like.  The Commission did say, however, that the fact that Cole Haan has now adopted a social media policy that addresses this type of disclosure was important.

Indeed, the fact that Cole Haan adopted a social media policy and addressing disclosures in pins and hashtags (and will monitor compliance) is part of the reason the Commission decided to issue a closing letter in the matter, rather than bring an enforcement action.  Another important factor was that the FTC had not previously addressed the issues raised.  (The FTC also said the contest didn’t run for very long and there weren’t very many entrants, but that’s not really a result you want to target with your promotion just to avoid regulatory attention.)

The letter is, in many if not most respects, an extension and elaboration of the FTC’s position on endorsements and testimonials on social media.  As Mary Engle, the FTC’s associate director for advertising practices and author of the Cole Haan letter, said in an interview with the New York Times last June, “when it’s not obvious that it is an ad,” she continued, “people should disclose that they are being paid.”

If you’re an advertiser and you are running #contests encouraging your followers to share something on social media using #hashtags to earn a chance to win, you need to think carefully about what those hashtags say and what kind of disclosures you are requiring from your entrants.  You should also take out your old social media policy and give it a dusting off—something that’s a good practice anyway—to add sweepstakes and Pinterest, as well as any other new platform that’s come down the pike since you last took it out for a spin.  (While you’re at it, keep in mind that that the FTC expects that you won’t just have a social media policy…you’ll monitor compliance as well.)  Because if past is prologue, we will see more enforcement activity involving #social media and #promotions—and if the FTC or a consumer thinks that posts associated with your campaign are natural content, rather than part of a marketing campaign, that post could be #deceptive and your brand could be #sued.