06633 - Royall, M. Sean ( Dallas )Featured Expert Column: Antitrust & Competition Policy — Federal Trade Commission

By M. Sean Royall and Richard H. Cunningham, Partners with Gibson, Dunn & Crutcher LLP, and Andrew B. Blumberg, an Associate in the firm’s Dallas, TX office.  The authors would like to thank Philip Jacob Spear, who is also an Associate in Gibson Dunn’s Dallas office, for his substantial contributions to this post.

Social media “influencers” are individuals with large followings on social media platforms, including Facebook, Instagram, YouTube, Twitch, Twitter, and Snapchat, among others.   Influencers include various members of the Kardashian family, a wide array of professional athletes, and individuals whose broad following is home-grown online and on social media. Influencers may tout products or services on their social media pages or feeds in exchange for compensation, effectively turning themselves into an advertising channel.

For advertisers, one perceived benefit of influencer marketing is “authenticity,” meaning that products or services are presented in a less scripted, more natural manner.  Influencer marketing often blurs lines between independent online blogging, the use of social media for self-promotion, product placement, and endorsement.  Influencer marketing has grown very rapidly, in part as a result of influencers’ creativity and entrepreneurship in establishing mutually beneficial relationships with advertisers.

The rise in the significance of influencer marketing has spurred the Federal Trade Commission’s (FTC) Bureau of Consumer Protection to embark on a multi-faceted enforcement program that, in FTC’s view, is designed to apply the principles and standards developed for traditional advertising media to influencer marketing.

The mainstream news media—including the Wall Street Journal—have noted FTC’s focus on influencer marketing and the advertising law compliance issues raised by influencers promoting goods and services in exchange for various forms of compensation.  As overviewed below, FTC’s initiative in this area began with public guidance, and is increasingly shifting towards formal enforcement actions, including lawsuits against both advertisers and individual influencers.

FTC Guidance

For many years, FTC has maintained Endorsement Guides.  These guides, most recently updated in October 2009, specify several rules that apply to testimonial endorsements, which FTC defines as “any advertising message . . . that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser.”  Under the Endorsement Guides, material connections, including any form of compensation or a financial interest in the product or service, must be disclosed in a “clear and conspicuous” manner, such that the disclosure “stand[s] out” and is easily noticeable.

FTC has specified that these disclosures should be:  (1) close to the endorsement; (2) easy to read; (3) in a shade that stands out; (4) for videos, shown long enough to be read and understood; and (5) for audio, read at an understandable speed and volume.

FTC has also issued an array of supplemental guidance to further clarify its views with respect to emerging forms of advertising and promotion.  In March 2013, the agency released a supplemental .com Disclosure Guide which specified that icons, abbreviations, and symbols could be adequate disclosures of material connections (and other information an advertiser may be required to disclose) in limited circumstances where consumers “understand their meaning.”  Helpfully, the agency included a few examples of abbreviations it views as compliant, including those which use the terms “ad” or “sponsored.”

In December 2015, the agency released a Guide for Business on Native Advertising. This document, which was released simultaneously with the agency’s Enforcement Policy Statement on Deceptively Formatted Advertisements, expresses concern about advertisements that “bear[] a similarity to the news, feature articles, product reviews, entertainment, and other material that surrounds it online.”  In particular, the guide notes the risk of paid-for content blending in with other content, such that consumers are unable to distinguish advertisements.

This guidance is in keeping with the agency’s warnings to influencers that disclosures that do not clearly stand out so as to denote the relevant content as sponsored are likely inadequate.  The guidance also cautions that influencers should be vigilant about making disclosures in such a way that they are preserved when republished or shared by others.

In February 2017, the agency released guidelines related to the Consumer Review Fairness Act (CRFA).  While mainly meant to protect independent consumers who review products or services online, the Act, and the guidelines, apply to companies’ contracting or otherwise restricting influencers in their commentaries on provided products or services.

In September 2017, FTC updated its Endorsement FAQs—a set of answers to common questions on what constitutes an endorsement under the agency’s rules and regulations—to more thoroughly address how preexisting FTC guidelines apply to social media.  The updated FAQs address how disclosures should be made on newer social media platforms such as Instagram and Snapchat and whether built-in features disclosing paid endorsements are sufficient.

The update eschews bright line rules, instead promoting a “common sense” approach focused on clarity to consumers and revealing all relevant information.  It provides examples illustrating that disclosures should not be solely included in the video descriptions of YouTube videos or below the “more” line in Instagram posts, since consumers are likely to miss them.

It also casts doubt on the ability of companies and influencers to rely on built-in disclosure tools provided by social media platforms, because such tools may vary or otherwise fail to meet FTC’s standards for clarity and conspicuousness.  The update reflects FTC’s preference for emphasizing broad principles in this area, over straightforward prescriptions for what terms and practices are acceptable.

Shortly after promulgating the updated Endorsement FAQs, FTC released an article summarizing and analyzing “[t]hree FTC actions of interest to influencers”:  (1) the agency’s informal outreach to a number of influencers to alert them to advertising compliance issues; (2) an enforcement against CSGO Lotto and associated individuals (described below); and (3) the updates to the Endorsement FAQs.

In December 2017, the agency sent letters to 21 influencers, asking them to disclose any financial arrangements with brands mentioned in recent social media posts.  FTC has a track record of closely monitoring the conduct of the recipients of such letters, and has been known to open investigations if the recipient remains noncompliant in the agency’s view. 

Enforcement Actions

Although to date FTC has brought only four influencer-marketing enforcement actions, its dedication of resources to this area is clearly growing.  In March 2016, the agency and Machinima, Inc. entered into a consent decree on a proposal the company’s made to Microsoft.  Machinima proposed that its group of YouTube influencers promote a Microsoft video game system and related products without including proper disclosure requirements.

In May 2016, the agency entered into a consent decree with Lord and Taylor concerning a social media campaign in which the retailer had failed to require compensated influencers to disclose their connection.  And in December 2016, the agency and Warner Bros. entered into a similar consent decree on its 2014 attempt to pay YouTube personalities to promote an forthcoming video game without adequately disclose.  Each decree requires that the respondents avoid misrepresenting or failing to disclose material connections and institute monitoring policies in their use of influencer marketing.

In September 2017, FTC expanded its enforcement program to include individual influencers when the agency required Trevor “TmarTn” Martin and Thomas “Syndicate” Cassell, two owners of CSGO Lotto, to disclose their material connections to the company in social media posts.  CSGO Lotto allows users to win digital products for the popular online game Counter Strike:  Global Offensive.

The influencers promoted the site and presented themselves as users of the site without disclosing that they were, in fact, the owners.  FTC’s consent decree requires Martin and Cassell to “disclose clearly and conspicuously” all material connections, monitor other endorsers to “ensure compliance” with agency guidelines, and “immediately terminat[e]” any endorsers who “misrepresent [their] independence” or fail to make the appropriate disclosures.

Particularly in combination with FTC’s extensive guidance, four enforcement actions in a little more than eighteen months reflects a conscious decision by the Commission to devote significant resources to policing this area.

Tips for Compliance

Several take-aways may be drawn from FTC’s influencer-marketing guidance and enforcement program:

  • The Agency Broadly Construes Material Connections. It may be unsurprising that FTC considers cash payments, profit sharing rights, and company ownership as creating a material connection between the influencer and the advertiser that must be disclosed.  But the agency also considers arguably much lesser forms of compensation, such as free samples, comped rooms, coupons, and sweepstakes entry as creating a material connection. Under FTC’s guidelines, these material connections must also be disclosed when discussing or opining on these products on websites or other social media outlets.
  • The Agency’s Focus Is Not Confined to Influencers with Millions of Followers. As the CSGO Lotto case reveals, FTC may select enforcement targets based in part on the perceived egregiousness of the violation or companies or individuals who operate in niches where consumers may be particularly susceptible to confusion between advertising and native content.
  • Disclosures Should Not Be Vague. The agency has stated that neither a “thank you” note nor tagging of the related company suffices under its standards as a disclosure of a material connection.  And agency guidance states that disclosures including “#thanks, #collab, #sp, #spon, or #ambassador” are also likely insufficient.  For instance, FTC has stated that an Instagram post by actress Shay Mitchell that included the phrase “thank you @epicroad” failed to adequately disclose her connection with a luxury travel company.  FTC has, by contrast, approved the use of disclosures like “#ad” “#sponsored” and “#sweepstakes.”
  • Disclosures Integrated Within a Platform May Be Insufficient. FTC staff attorney Michael Ostheimer recently expressed doubt that an organic template for sponsored posts on Instagram would meet the agency’s requirements.  Ostheimer stated that the template, which includes the phrase “paid partnership” at the top of the post, may not be sufficiently noticeable to readers to qualify as a valid disclosure.  Although Mr. Ostheimer did no officially speak for the agency on this subject, it is likely many at FTC question the efficacy of template disclosures, particularly where they are arguably inconspicuous.
  • Demonstrated Compliance Efforts Reduce the Risk of Enforcement. FTC’s guidance includes a recognition that social media formats are ever-shifting, and that a measure of flexibility and common sense in crafting effective disclosures is necessary and appropriate.  Thus, in situations where the agency’s guidance is not directly on-point, the agency is likely to credit good faith compliance efforts, especially in circumstances where the influencer or advertiser can demonstrate knowledge of, and efforts to comply with, FTC’s guidance.
  • Advertisers and Operators of Influencer Networks May Be Held Responsible for Influencers’ Compliance. The agency’s prior enforcement activity suggests that companies may be held responsible for an influencer’s failure to disclose a material connection where it has not taken steps to ensure that such disclosures are made.