Under the Federal Trade Commission's (FTC) authority to prohibit unfair or deceptive practices in commerce, the FTC requires those who endorse a product or service to disclose any material connections between the endorser and the endorsed product, service, or company. This obligation extends to the companies who incentivize the endorsement through payment, product samples, or even by offering entry into a sweepstakes. Companies that run sweepstakes on social media sites have increasingly considered their obligations to disclose material connections between sweepstakes entrants and the company itself. And while companies have become more aware of the issue, the FTC has as well.
On March 20, 2014, the FTC closed an investigation into whether Cole Haan's activities on Pinterest violated the FTC Act's prohibition on unfair or deceptive acts in commerce. As described in the FTC's closing letter, Cole Haan ran a contest on Pinterest in which it asked entrants to pin images from one of Cole Haan's Pinterest boards and promised a $1,000 prize to a winner. The FTC determined that the entrants' pins constituted endorsements and further determined that contest-specific hashtag (#WanderingSole) did not adequately disclose the material connection between the entrants and Cole Haan. However, the FTC did not recommend enforcement action 1) because it had not previously addressed whether a contest entry is a material connection or whether a pin on Pinterest is an endorsement, and 2) the contest was not very large. At a minimum, if Cole Haan had required entrants into this contest to identify the interested third-party (@ColeHaan) and provide some disclosure of the connection (#Ad, #ContestEntry, etc.), then the FTC would have been much less likely to investigate.
With the publication of this letter, the FTC has taken a clear position that providing a relatively minor benefit to a consumer on a social media site (here, a contest entry) can constitute a material connection between the company and the consumer. And as a material connection, it must be disclosed. Despite its decision not to recommend enforcement in this case, it is more likely that the FTC will recommend an enforcement action in similar future cases. This would likely extend beyond Pinterest and beyond sweepstakes. Companies should carefully consider whether the incentives they provide to consumers on social media sites constitute material connections that must be disclosed and also consider how to provide – or make the consumers provide – appropriate disclosure.
While the FTC wants companies to disclose these material connections, it can be a tricky prospect in practice. Our next installment will discuss why it is often difficult to provide adequate disclosure and provide recommended approaches for disclosing material connections on some of the more frequently-used social media platforms.