The FTC takes aim at social media advertising


lcmm@melchionnalaw.com
The FTC takes aim at social media advertising

Social media advertising through “Influencers” is about to change. These personalities can bring in anywhere from $10,000 to $100,000 for each sponsored product recommendation or review. Typically, their posts are made to look objective, namely independent and reliable. This is so because, up until today, the market has largely evaded the FTC, leaving consumers unable to distinguish the account owner’s financial gain.

In 2017 the FTC sent notices to dozens of companies informing them that their social media advertising practices through influencers are illegal – mostly for failure to disclose financial incentives. A letter from March 20th, 2017 to Adidas Group North America stated: “The FTC’s Endorsement Guides state that if there is a ‘material connection’ between an endorser and the market of a product – in other words, a connection that might affect the weight or credibility that a consumer give the endorsement – that connection should be clearly and conspicuously disclosed, unless the connection is already clear from the context of the communication containing the endorsement.” Furthermore, “The [FTC] Endorsement Guides apply to marketers and endorses. FTC staff guidance makes clear that marketers should advise endorsers of their disclosure responsibilities and should monitor their endorsements to ensure that appropriate disclosures are made.” (source FTC)

A December 2018 report by the consumer watchdog organization Truth in Advertising claimed that, based on their analysis of approximately 1,400 social media posts, not even a single recipient heeded the FTC’s warnings. As a result, earlier this year, Truth in Advertising filed a formal complaint with the FTC.

The industry is about to turn a new page. Some issues that companies will need to address in the near future are their obligations to: 1) inform contracted influencers of FTC endorsement guidelines, including transparency and truth in advertising requirements; 2) introduce waiver, indemnification, confidentiality, and possibly insurance clauses in their contracts with influencers; 3) and supervise and monitor influencer behavior to ensure it complies with FTC Endorsement Guides. Violation of the Guides, if prosecuted, may result in orders requiring that a defendant turns in all profits generated from the illegal action.