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FTC's Native Advertising Settlement With Lord & Taylor Highlights Commission's Enforcement Priorities Under Its Recently Issued Guidance

On March 15, 2016, the Federal Trade Commission (FTC) announced a settlement with department store Lord & Taylor ("L&T") relating to native advertising for its Design Lab collection of clothing in various online materials, including a social media "influencer" campaign, branded blog posts, photos, video uploads, and advertorials in online fashion magazines. (FTC Press Release, March 15, 2016)

Key Take-Away

Only a few months after issuing its Enforcement Policy Statement on Deceptively Formatted Advertisements and Native Advertising: A Guide for Businesses, the FTC has announced its first significant enforcement action under those policies. This is an indication of the FTC's continuing focus on the area and the need for companies to pay close attention to the FTC's guidance on digital advertising and marketing activities. 

Of particular note, the FTC alleges that L&T paid 50 online fashion "influencers" or "endorsers" to post Instagram photographs of themselves wearing a dress from the Design Lab collection. According to the FTC's complaint, the influencers and endorsers failed to properly disclose that L&T had given each influencer the dress, and in some cases, thousands of dollars, in exchange for their social media endorsements. L&T contractually required the influencers to include "#DesignLab" and "@lordandtaylor" in their posts, but did not require them to disclose that L&T had provided the free dress and compensated them for the endorsement. According to the complaint, L&T reviewed and approved the influencers' social media posts with respect to the required wording (but not with respect to the FTC's endorsement or native ad requirements). L&T also paid for, reviewed and pre-approved articles in the online fashion magazine Nylon, but the articles failed to disclose those facts. L&T's online ad campaign was a significant success, with the advertised dress selling out.

Many aspects of the FTC's allegations and order are not surprising, but rather are reminders of established policies. For example, the FTC has long required endorsers to disclose any "material connection" to advertisers (i.e., any relationship that may affect the weight or credibility of the endorsement, not reasonably expected by consumers, such as money or free products) under its Endorsement Guides. And for years, the FTC has required advertisers to disclose that advertorials or similar editorial-like content are paid ads, as confirmed in the recent native ad guidance. Similarly, it is not particularly surprising that the attempted disclosures included in the influencers' social media posts (i.e., "#DesignLab" and "@lordandtaylor") were not sufficient to identify their material connection to L&T or that the content was paid advertising. (For example, including "Ad:" at the beginning of each influencer Instagram post may have sufficed under the FTC's .com Disclosures: How to Make Effective Disclosures in Digital Advertising guide.)

Perhaps the most interesting aspect of the settlement is the detailed education, monitoring and compliance program requirement. The FTC order requires L&T to implement a system to educate its endorsers on their responsibility and to monitor and review endorsers' representations. Specifically, L&T must ensure that each endorser signs a statement acknowledging his or her responsibility to disclose any material connection to L&T in any endorsements going forward. L&T must terminate any endorser that fails "to disclose, clearly and conspicuously, and in close proximity to the representation, a material connection between such endorser" and L&T. The endorser may receive "one notice of a failure to disclose and an opportunity to cure the disclosure" if L&T reasonably determines the failure was inadvertent. L&T must also maintain reports sufficient to show its compliance with these monitoring requirements.

Although this order would only bind L&T, it is instructive for all social media mavens. Many commentators expect that the FTC will continue increasing its enforcement actions in the native advertising arena, especially in the social media environment.

The agreement and consent order are subject to public comment through April 14, 2016.

©2020 Katten Muchin Rosenman LLP

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About this Author

Noah R. Balch, Katten Muchin, publicly traded commercial matters lawyer, real estate companies attorney
Partner

Noah focuses his practice on litigation and intellectual property disputes, with a substantive concentration in the fields of real estate, banking, complex business disputes, sports and entertainment. Noah represents commercial banks and lenders, sports teams, entertainers, artists, publicly traded commercial real estate companies, telecommunications companies, government agencies, toy companies, cartoonists, screenwriters, authors, book publishers, studios and content producers.

Noah handles litigation arising out of distressed loans,...

310.788.4516
Roger P. Furey, Intellectual Property Attorney, Katten Muchin Law Firm
Managing Partner

Roger P. Furey is the managing partner of Katten’s Washington DC office and is a member of the firm’s Executive Committee and Board of Directors. He has more than 25 years of experience protecting and enforcing intellectual property rights on behalf of his clients. Roger concentrates his practice on resolving disputes involving copyrights, trademarks and advertising and he protects his clients’ intellectual property rights around the globe by supervising a network of IP litigators in every region of the world.

His IP litigation experience includes trademark and trade dress infringement, copyright infringement and trade secret misappropriation for clients across a wide range of industries, including telecommunications and information technology, automotive parts, industrial batteries, aviation and aerospace, flooring products and defense contracting.

202-625-3630
Doron Goldstein, Katten Muchin Law Firm, Intellectual Property Attorney
Partner

Doron S. Goldstein's practice primarily deals with intellectual property, information technology and advertising, marketing and branded entertainment transactions and counseling, including privacy and information security, trademark, copyright, software and technology matters, and he is co-head of Katten's Advertising, Marketing and Promotions practice and of the firm's Privacy, Data and Cybersecurity group.

Doron regularly advises on various aspects of integrated marketing campaigns, including talent and production agreements, advertising agency...

212-940-8840
Susan A. Grode, Katten Muchin, intellectual property licensing attorney, merchandising matters lawyer
Partner

Susan A. Grode focuses in entertainment, intellectual property, licensing, merchandising and interactive games and apps, social media, Internet and media law.

Susan is recognized as one of the nation’s leading authorities on domestic and international animation, licensing and merchandising. She represents domestic and international motion picture studios, film and television production and distribution companies and entrepreneurs as well as book publishers, toy, game and online companies, and theater and arts institutions. Susan advises the...

310.788.4410
Michael R. Justus, Katten Muchin Law Firm, Intellectual Property Attorney
Associate

Michael R. Justus is a trademark and advertising attorney. He helps clients create, protect and promote global brands.

He maintains a comprehensive trademark practice, including US and international clearance, counseling, prosecution, enforcement and litigation. Mike also handles advertising counseling and disputes, including proceedings before the National Advertising Division of the Better Business Bureau.

In his trademark prosecution and counseling practice, Mike guides clients through the entire registration process...

202-625-3575