On November 5, 2019, the Federal Trade Commission (FTC) issued an eight-page guide specifically targeted at social media influencers and sponsored endorsements. "Disclosures 101 for Social Media Influencers" echoes the same guidance the FTC has provided since publishing the Guides Concerning the Use of Endorsements and Testimonials in Advertising (Endorsement Guides) in 1980:
Where a connection exists between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience), such connection must be fully disclosed. Material connections include financial, familial, and employment relationships, including when a brand provides free products or money in exchange for a post. Disclosure of material connections should be "hard to miss," including in immediate proximity to the post, or on the post itself, and not hidden behind a link. In social media channels with limited space, hashtags such as #ad, #sponsored, and #[brand]partner are generally sufficient.
While previous guidance has instructed brands that it is their responsibility to promote and monitor influencers' compliance, the new guide makes clear that the influencers themselves are also responsible for compliance: "As an influencer, it's your responsibility to make these disclosures, to be familiar with the Endorsement Guides, and to comply with laws against deceptive ads. Don’t rely on others to do it for you." (emphasis in original.)
History of FTC Endorsement Guidance
Disclosures 101 is just the FTC's latest reminder that it is following brands' online endorsements and social media activity. The Endorsement Guides were updated in 2009 to include examples of how this rule might apply to consumer-generated media, such as blogs and online message boards. Soon thereafter, the Commission published What People are Asking, an informal staff publication focused on answering advertisers' frequently asked questions (FAQs). The FTC updated these FAQ's again in May 2015 and September 2017, to specifically address how the Endorsement Guides apply to sponsored social media content. (For a more detailed history of the FTC's activity in this area, see our article for Bloomberg, here.)
In response to the question "What are an advertiser's responsibilities for what others say in social media," the FAQ's provide:
Advertisers need to have reasonable programs in place to train and monitor members of their network. The scope of the program depends on the risk that deceptive practices by network participants could cause consumer harm – either physical injury or financial loss. For example, a network devoted to the sale of health products may require more supervision than a network promoting, say, a new fashion line. Here are some elements every program should include:
1. Given an advertiser's responsibility for substantiating objective product claims, explain to members of your network what they can (and can't) say about the products – for example, a list of the health claims they can make for your products, along with instructions not to go beyond those claims;
2. Instruct members of the network on their responsibilities for disclosing their connections to you;
3. Periodically search for what your people are saying; and
4. Follow up if you find questionable practices.
It's unrealistic to expect you to be aware of every single statement made by a member of your network. But it's up to you to make a reasonable effort to know what participants in your network are saying. That said, it's unlikely that the activity of a rogue blogger would be the basis of a law enforcement action if your company has a reasonable training, monitoring, and compliance program in place.
Brands should consider sharing Disclosures 101 with ambassadors and other influencers to help inform them of their disclosure obligations. However, the FTC has not indicated that providing the guide is sufficient for a brand to meet its obligations above.
The FTC's Pivot to Influencers
2017 was a big year in this area. In addition to updating its guidance for disclosing sponsored content, the FTC, for the first time, reached out directly to social media influencers to educate them about the requirements related to endorsements. In April 2017, the Commission sent more than 90 letters to celebrities and brands regarding the need to follow the Endorsement Guides. In September 2017, the FTC sent follow-up warning letters to 21 of the original recipients. Subsequent to issuing the letters, the FTC held a question and answer session on Twitter to educate influencers and brands about their obligations to disclose sponsored posts.
In 2017, the FTC brought what it described as "FTC's First-Ever Complaint Against Individual Social Media Influencers." Notably, the targeted influencers were not typical paid influencers—instead, they owned the online gambling website at the center of the campaign, and had failed to disclose their relationship to the company in their social media posts touting the company's services. The complaint highlights the potential for actions against owners and employees of companies that use social media individually to promote their business, and should also put influencers on notice that their content must be FTC compliant.
FTC Enforcements Concerning Fake Reviews
On October 21, 2019, the FTC announced settlements with two companies relating to their use of fake endorsements.
In the first case, now-defunct Devumi, LLC and its owner and CEO, German Calas, Jr., agreed to settle the FTC's first-ever complaint challenging the sale of fake indicators of social media influence (such as "followers" and "likes"). In January 27, 2018, The New York Times published an exposé finding that Devumi created at least 3.5 million fake accounts in order to create social media activity, which it in turn sold to a range of businesses and celebrities. In its complaint, the FTC alleged that by selling and distributing fake Twitter followers, YouTube subscribers, YouTube views, and LinkedIn followers, Devumi and its CEO provided customers with the means and instrumentalities to commit deceptive acts or practices, which is itself a deceptive act or practice in violation of the FTC Act. The proposed court order imposes a judgment of up to $2.5 million against the CEO, and also bans the Devumi defendants from selling or assisting others in selling social media influence to users of third-party social media platforms.
The FTC's second action is against beauty brand Sunday Riley Modern Skincare, LLC and its CEO, Sunday Riley, for allegedly soliciting and posting fake reviews for their products on Sephora.com. The complaint quotes from emails from the CEO to her staff, instructing them to create multiple fake accounts in order to create more positive reviews, to use a VPN to hide their identities, to always leave 5-star reviews, and to dislike any negative reviews in order to minimize their prominence on the product page. The FTC's proposed administrative order prohibits Sunday Riley and its CEO from misrepresenting the status of any endorser or person reviewing the product, and requires all connections be disclosed in accordance with the Endorsement Guides.
In a press release for the two settlements, Andrew Smith, the Director of the FTC's Bureau of Consumer Protection, stated, "Posting fake reviews on shopping websites or buying and selling fake followers is illegal. It undermines the marketplace, and the FTC will not tolerate it."
Disclosures 101, as well as the Devumi and Sunday Riley actions, are the FTC's most notable public moves since its flurry of activity in 2017. Influencers and brands alike should ensure that their sponsored social media practices comply with the FTC's guidance—or risk becoming its next target.