November 20, 2017

November 20, 2017

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November 17, 2017

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FTC Reaches Settlement with Influencers; Issues Updated Guidance

The FTC recently announced that it reached a settlement with two social media influencers, Trevor Martin and Thomas Cassell, for deceptively endorsing their owned and operated online gambling service “CSGO Lotto” without disclosing that they were the owners of the site, as well as paying other well-known social media influencers to promote the site without requiring them to disclose the payments in their posts. In addition, the FTC issued warning letters to 21 out of the 90 social media influencers it had sent educational letters to earlier this year, citing specific social media posts that they felt still failed to “clearly and unambiguously” disclose a material connection between the influencers and the brands or products they were promoting. The letters asked them to respond in writing, by September 30th, advising staff of whether they do, in fact, have a material connection with the brands/products cited in the letters and, if so, describing how they will ensure such relationship is clearly disclosed going forward. Finally, the FTC updated its guidance on its official Endorsement Guidelines with additional examples featuring common social media advertising mechanisms such as Instagram, Snapchat, and Facebook.

Complaint and Settlement

The FTC’s complaint charged Martin and Cassell with three counts: (1) Falsely claiming independent reviews—in which Martin and Cassell allegedly created videos and social media posts of their website in ways that suggested they were impartial users of the service; (2) Deceptively failing to disclose they, as endorsers, were owners and officers—in which Martin and Cassell allegedly suggested that their videos and social media posts reflected the opinions of individuals who used the service, rather than disclosing adequately that they were the service’s owners and operators; and (3) Deceptively failing to disclose their other endorsers were paid—in which Martin and Cassell allegedly failed, on numerous instances, to disclose that their influencers received compensation to promote CSGO Lotto (in fact, the contracts with their paid influencers expressly prohibited influencers from making “statements, claims or representations . . . that would impair the name, reputation, and goodwill of” CSGO Lotto). Among other things, the settlement requires Martin and Cassell not to make any misrepresentation that a paid endorser (or an endorser who also owns/operates the site) is an independent, ordinary customer of the service. In addition, the settlement reiterates the FTC’s requirement that they disclose “clearly and conspicuously, and in close proximity” to the endorsement, any influencer’s “material connection” with the service that may be unexpected to consumers.

In addition, the settlement requires Martin and Cassell to monitor their influencers for compliance, which suggests the FTC may expect other entities that run influencer-based marketing campaigns to do the same. According to the settlement, such monitoring should include: (1) providing a clear statement to endorsers of their responsibilities to disclose their material relationship with their endorsements; (2) establishing and maintaining a system to monitor and review influencers’ representations for compliance; (3) terminating and ceasing payment to any endorser who misrepresents their impartiality, unless it appears such misrepresentation was inadvertent (in which case a notice will suffice); and (4) creating reports showing the results of such monitoring. As part of the settlement, Martin and Cassell are required to provide a copy to the FTC of such reports for the next ten years, along with a copy of each ad or other marketing material.

The agreement is subject to public comment through October 10, after which the Commission will decide whether to make the proposed consent order final. Each violation of such an order can lead to civil penalties of up to $40,654.

Implications & New Guidance

Although some coverage of the settlement has emphasized that it is the first time the FTC has reached a settlement with individual influencers (Martin and Cassell) on the subject of endorsement disclosures, the fact that Martin and Cassell both owned CSGO Lotto appears to make this settlement only the latest in a string of FTC enforcement actions cracking down on entities that run endorsement campaigns without clearly disclosing a material connection between endorsers and the product/brand in question. However, the settlement, coupled with the 21 warning letters to specific influencers and updated guidance, does demonstrate that the FTC is willing to continuously review ways that new and evolving social media platforms are being used for promotional purposes, and to revise its guidelines for clearly and conspicuously disclosing material relationships to consumers accordingly. For example, the updated guidelines (which were also updated two years ago, in 2015) cover topics such as:

  • Adequacy of certain disclosures: The guidelines call out specific examples of what types of “disclosures” are too ambiguous or confusing to consumers—for example, “#ambassador” is probably insufficient, whereas “#[brand name]-ambassador” is probably more understandable. In addition, simply thanking the company that paid the influencer (e.g., “Thanks, [brand]”) likely is insufficient because thanking a company or brand could appear to come from a mere satisfied customer. However, providing additional information that indicates some benefit was conferred (e.g., “Thanks, [brand], for the free product”) would be good enough, according to the guidelines.

  • Instagram tags: The guidelines definitively state that an influencer’s tagging of a brand counts as an endorsement of that brand, which could require a disclosure if that influencer has a material connection with that brand.

  • Snapchat/Instagram stories: The guidelines suggest that paid influencers should superimpose their disclosures on Snapchat/Instagram Stories, just as they can superimpose any other words or images on those platforms.

  • “Likes,” “pins,” and other subtle endorsements: the guidelines acknowledge that some platforms—such as Facebook’s “like” buttons—make it difficult for paid influencers to adequately disclose their material relationships, and noted that advertisers therefore shouldn’t encourage endorsements using such features. However, the guidelines note that whether or not the Commission would take enforcement action for such influencer campaigns would depend on the overall impression, including whether “likes” have a material impact on consumers’ decisions to patronize a business or buy a product.

© 2017 Covington & Burling LLP

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About this Author

Associate

Jadzia Butler is an associate in the firm’s Washington, DC office. She is a member of the Communications and Media and Data Privacy and Cybersecurity practice groups. Before joining the firm, she was the Privacy, Surveillance and Security Fellow at the Center for Democracy & Technology.

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