FTC Endorsement Guide Settlement Provides Lessons for Digital Marketers
Monday, April 20, 2020

The Federal Trade Commission recently announced that Teami, LLC, a marketer of teas and skincare products, has agreed to settle allegations that it utilized well-known social media influencers who failed to clearly and conspicuously disclose that received compensation in exchange for the promotion of Teami’s products.  The FTC also alleged that Teami made misleading and unsubstantiated weight loss and disease prevention health claims.  Without reliable scientific evidence that their Teami 30 Day Detox Pack would help consumers lose weight, and that its other teas fight cancer, clear clogged arteries, decrease migraines, treat and prevent flus, and treat colds.

According to the FTC’s complaint, Teami’s allegedly deceptive influencer practices continued despite the company receiving a warning letter from FTC staff in April 2018 stating, among other things, that all disclosures on Instagram must be viewable without consumers having to click a “more” link.  The FTC alleges that followers who read social media posts promoting the products could not see disclosures that the endorsements were paid-for.  The agency also alleges that video endorsements did not include any disclosures in the videos themselves, but rather, possessed inadequate disclosures below the “more” button.

The FTC also alleges that while paid influencers were contractually required to obtain approval from Teami for their Instagram posts prior to publication, numerous influencers failed to do so. 

The FTC has sent letters to some of Teami paid influencers.

Influencers must ensure that all posts for which they receive free product or any type of compensation as an inducement to make the post use hashtags or words that clearly let the public know of the connection between them and brand advertisers, and must ensure that disclosures are prominently made in the first part of posts without clicking anything else.  Disclosures may never be hidden amongst tags, hashtags or Instagram handles, and must be included in each social media post.

The FTC Endorsement Guides provide that “[w]here the connection between the endorser and the product seller might ‘materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience)’ the connection must be ‘fully disclosed.’”  The FTC has also published an Endorsement Guide FAQ.

“Social media is full of people peddling so-called detox teas, promising weight loss,” said FTC lawyer Andrew Smith, Director of the FTC’s Bureau of Consumer Protection.  “Companies need to back up health claims with credible science and ensure influencers prominently disclose that they’re getting paid to promote a product.”

The settlement prohibits defendants from making the types of alleged unsupported weight-loss and health claims cited in the agency’s complaint.  The order imposes a $15.2 million judgment - the total sales of the challenged products - which will be suspended upon payment of $1 million, based on the defendants’ inability to pay the full judgment.

In an accompanying statement, the FTC expresses that “[t]he internet is an important mechanism for facilitating the flow of information between businesses and consumers, so combatting the spread of misinformation online is critical.  The relief obtained in this matter demonstrates the Commission’s commitment to battling digital misinformation” … and that FTC orders “adequately ensure that advertisers under order take responsibility for monitoring their marketing.” 

For advertisements involving influencers or other endorsers, the FTC has again expressed that “clear and conspicuous disclosure” of unexpected material connections is required.  On Instagram, the disclosure must be visible to followers viewing the post on an Instagram feed without having to click “more.”  Video disclosures must comply with Dot Com Disclosure Guidance.  In this case, because use the video could be viewed without anyone seeing a disclosure, the material connection needed to be disclosed in the video itself rather than just the text portion of the post.

While the settlement offers insight into the FTC’s expectation that brands under order reasonably train and monitor endorsers, utilize written social media policies, take appropriate remedial action and document all efforts, prudent preventative advertising compliance measures dictate that marketers proactively implement the foregoing, whether or not under order.  Importantly, recent investigations and enforcement actions illustrate that the scope of the FTC’s efforts and remedial theories are  broadening.  For example, marketing agencies and product manufacturers have recently found themselves in the crosshairs.

In an blog post about the settlement, the FTC discusses the legal obligation for influencers to disclose their connections to the products they promote.  “Both advertisers and influencers can draw some unmistakable inferences from the action against Teami,” the FTC lawyer states. 

For example, weight loss and disease-related claims need solid, scientific substantiation.  Advertises should also clarify expectations.  Before bringing an influencer on board, advertisers should set forth the dos and don’ts in detail and in writing.  “A contract provision is a fine start, but it’s probably not enough.  Educate influencers about the standards for clearly disclosing material connections and the possible legal ramifications if they don’t.  If a prospective influencer doesn’t strike you as the type willing to listen and learn, consider whether that person is the best representative for your brand.”

The FTC blog post also sets forth that “[a] written policy for influencers without effective monitoring and follow-through suffers from the same deficiency.  Keep an eye on what influencers are doing on your behalf.  If you pre-approve your influencers’ posts, don’t give them the OK unless they have adequate disclosures.  And if your influencers don’t follow your rules, bid them buh-bye.”  “People in the fashion, fitness, or entertainment world may think legal compliance isn’t their thing.  But by accepting compensation for endorsements, influencers have taken on certain legal obligations.  That includes clearly and conspicuously disclosing when they have a material connection to a product.”

In November 2019 the FTC released “Disclosures 101 for Social Media Influencers.” 

By diligently adhering to the principles set forth in the Teami Settlement and Consent Order, in addition to applicable regulatory guidance, brands may potentially create a safe harbor and avoid FTC action.

 

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