When You’re Living in a Material World: FTC Demands Disclosure of Material Connections between Advertisers and Paid InfluencersApril 2016
In March the Federal Trade Commission (FTC) settled an enforcement action against national retailer Lord & Taylor for an advertising campaign that allegedly violated the FTC's Endorsement Guidelines, Native Advertising Guidelines, and constituted deceptive advertising under Section 5 of the FTC Act, 15 U.S.C. § 45(a). This action should serve as a wake-up call to advertisers that intend to use endorsements and native advertising in their campaigns.
According to the FTC's Complaint, the Lord & Taylor "Design Lab" advertising campaign involved the compensation of 50 selected fashion "influencers" in the amount of $1,000-$4,000 apiece, as well as a free Design Lab Lord & Taylor dress, in exchange for the influencers posting preapproved photos of themselves wearing the dress to their social media accounts with specified tags and captions (e.g., @lordandtaylor, #DesignLab). The FTC further alleged that Lord & Taylor arranged for Nylon Magazine to run a preapproved article and Instagram post about the Design Lab collection. According to the FTC, the campaign was largely successful, reaching 11.4 million Instagram users and causing the advertised dress to sell out. However, the FTC considered it illegal.
In its Complaint, the FTC alleged that the campaign, in its failure to disclose its material endorsement arrangements, misrepresented that the posted images and captions reflected independent statements of impartial fashion influencers, rendering these advertisements false, misleading, and deceptive. The same reasoning was used in the FTC's allegation that Lord & Taylor's arrangement with Nylon magazine was false or misleading, and thereby unfair or deceptive and in violation of Section 5(a) of the FTC Act.
Pursuant to proposed the settlement agreement, Lord & Taylor would be prohibited from misrepresenting that paid advertisements are from an independent source, and are required to ensure that disclosures are included to show that influencers have been paid. Realistically, such precautions should be utilized by all advertisers seeking to use endorsements and native advertisements to ensure compliance with the FTC's Native Advertising Guidelines, Endorsement Guidelines, and the FTC Act.
If you have questions regarding the legal implications of your advertising campaigns, please contact an attorney in our Advertising, Promotions & Social Media practice group.