The Federal Trade Commission (FTC) continues to pursue companies for failing to disclose material connections in endorsements. In a recent action, the FTC settled with Machinima, Inc. a marketing company that paid gamers to post YouTube videos endorsing Microsoft’s Xbox system and games. The gamers posted the videos without informing viewers that they had been given pre-release access to the games and paid to produce the videos.
Under the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising (the Guide), “material connections” between advertisers and endorsers – those that consumers would not expect – must be fully disclosed. Such connections may involve payments or free products, or any other benefit that might materially affect the weight or credibility of the endorsement.
The FTC learned through its investigation that some gamers were paid up to $30,000 to produce the videos. Other gamers were paid $1.00 for every 1000 views up to a maximum of $25,000 in compensation. Under the FTC settlement, Machinima, Inc. is prohibited from running marketing campaigns in the future that do not require disclosures of material connections, is prohibited from paying anyone who has not made the required disclosures, and must conduct an audit within 90 days of the campaign to make sure disclosures were made.
The FTC also investigated Microsoft and its advertising agency Starcom MediaVest Group. The FTC closed both of those investigations without taking enforcement action because: (i) the incidents appeared to be isolated; (ii) Microsoft had a compliance program in place, including advertising and marketing guidelines addressing endorsements; and (iii) Microsoft and Starcom MediaVest Group both took action to require the disclosures be included once they learned payment had been made.
While the marketing company was unable to avoid liability, this case highlights the fact that an advertiser may be able to avoid FTC liability for the actions of its marketing company if it has a robust advertising and marketing compliance program in place and it acts swiftly to remedy problematic conduct.