FTC and State AGs Continue Focus on Deceptive Social Media Marketing

FTC and State AGs Continue Focus on Deceptive Social Media Marketing

Jan 27, 2020

Client Alert

Brownstein Client Alert, January 27, 2020

Social media is ever present in the daily lives of the majority of Americans. It has also become one of the main advertising vehicles for companies in recent years. These advertisements and, more specifically, marketing via “influencers,” video, posts, and the use of company reviews, have drawn and continue to draw the attention of regulators. Section 5(a) of the FTC Act prohibits “unfair or deceptive practices in or affecting commerce.” 15 U.S.C. § 45. Similarly, the majority of states have “baby FTC Acts” that impose the same or similar standards, and some allow for a private right of action in addition to state attorney general enforcement. As social media marketing continues to increase, so does enforcement seeking to curb online deceptive practices.

The FTC has focused on deception in social media endorsements targeting both the company and the influencer. Compliance is a responsibility that falls on both the company’s and the influencer’s shoulders alike. As a brief recap of the rules that continue to trip up influencers and companies, the FTC requires a “clear and conspicuous” disclosure each time an “influencer” is marketing a product and has a “material connection” with the company advertising the product. A “material connection” is found when someone has a relationship with the company that could affect the weight or credibility the consumer may give the endorsement, particularly where the relationship would not be expected by the consumer. For example, if the company sent a product for free to the influencer in the hope that the influencer would mention it in a post or video, the fact that the product was free should be disclosed. Other “material connections” could include a paid relationship (such as a sponsorship deal), employee relationship, familial relationship, or having some ownership of the company marketing the product. This standard applies to more than just traditional “influencers” such as well-known actors, singers or athletes. It applies to social media influencers that have a large following on platforms such as YouTube and Instagram, as well as any consumer that receives a benefit in exchange for posting a customer review.

The FTC issued an updated guidance in November 2019 regarding disclosure requirements in online endorsements. A full copy of the FTC’s latest influencer guidelines is available here. In sum, the wording of the disclosure should be clear and unambiguous, and consumers should be able to notice it easily without having to hit the “more” expansion button. On social media platforms that requires careful consideration. For more information about the FTC’s November 2019 guidelines, you may review a tandem client alert summarizing those guidelines here.

Companies that do not yet have social media policies in place to address the disclosure issues surrounding endorsers should take particular note of the FTC’s action against Urthbox last April. The FTC settled charges against the snack box company for misrepresenting that customer reviews on its website had no connection with the company when, in fact, the company had provided customers free products to post positive customer reviews on its Better Business Bureau website, TrustPilot.com website, and on consumers’ personal social media accounts. The FTC complaint alleged that Urthbox “had no procedures or policies in place to educate or monitor their endorsers’ posts on social media or other third-party websites.” The settlement included a $100,000 payment to the FTC for the company’s conduct in violating the FTC Act.

In June of 2019, the FTC and the FDA jointly issued warning letters to four companies selling vaping products. These letters highlighted the requirements to adequately disclose “material connections” with social media influencers and confirmed that the disclosures must be upfront and not buried. The letters also confirmed that companies should maintain social media policies that address the disclosure of material connections by endorsers, as well as review social media marketing efforts to ensure compliance with FTC requirements.

Sunday Riley Skincare, a cosmetic company that sells a variety of products at Sephora, also caught the attention of the FTC for deceptive social media activity in October of last year. The FTC complaint against Sunday Riley alleged that over nearly a two-year period of time, employees of the cosmetics company, including the CEO and owner, Sunday Riley, posted reviews of the company’s products on Sephora’s website using fake accounts, attempting to look like unbiased reviewers. The settlement with Sunday Riley resulted in non-monetary provisions including requiring clear and conspicuous disclosure in close proximity to any representation made by an endorser where there was any unexpected material connection between the endorser and the company. The fact that no monetary penalties were issued was criticized by two of the FTC commissioners, especially given the conduct at issue.

The FTC and state attorneys general have taken action against additional deceptive online marketing practices. Both the FTC and state attorneys general in Colorado, Florida and New York investigated and settled with Devumi, LLC as well as its CEO for selling false indicators of social media influence to make its customers appear more influential and popular than they really were. According to the allegations in the FTC settlement, Devumi and others “sold over 800 orders of fake LinkedIn followers,” “fulfilled over 58,000 purchases of fake Twitter followers,” and “had over 4,000 sales of fake YouTube subscribers and over 32,000 sales of fake YouTube views,” among other allegations. The FTC approved a proposed stipulated final order that imposed monetary and non-monetary provisions. Importantly, the Devumi CEO had a monetary judgment of $2.5 million imposed against him personally. The Colorado, Florida and New York settlements with Devumi also required the company to cover each state’s investigative costs. As a result of both the state and federal settlements, Devumi, its CEO and the other named parties were banned from selling or assisting others in selling social media influence, as well as from making misrepresentations or assisting others in engaging in such conduct. In a press release announcing Colorado’s settlement in September 2019, Colorado Attorney General Phil Weiser affirmed that “companies should not—and will not—be allowed to use fake social media activity to enhance their brand deceptively and unfairly to achieve a leg up over their competitors. In an era of increased use of social media for commerce, it is important that we not allow deceptive marketing tactics to trick consumers.”

These enforcement actions demonstrate that companies advertising online need to take particular care in creating comprehensive policies governing social media marketing, including endorsements and customer reviews. Experienced consumer protection counsel can and should review these policies, examine any online marketing content, and help with diligence in these areas. Failure to work through these issues with counsel can lead to being the subject of an FTC or state attorney general investigation.

 
This document is intended to provide you with general information regarding actions by the FTC and state attorneys general targeting deceptive social media marketing. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.

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Allison L. Gambill Of Counsel T 303.223.1175 agambill@bhfs.com
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