About a year ago, the SEC issued a warning to celebrities and social influencers who promoted Initial Coin Offerings (ICOs) on social media, noting that such promoters are subject to federal securities laws. Apparently, at least two celebrities weren’t paying attention because they recently settled the SEC’s first cases regarding promoting ICOs without proper disclosures.

Khaled Khaled, better known as music producer DJ Khaled, and professional boxer Floyd Mayweather Jr. both allegedly promoted investments in ICOs for Centra Tech Inc. in 2017 without disclosing the compensation they received in exchange for their endorsements ($50,000 for Khaled and $100,000 for Mayweather). This triggered a violation of the anti-touting provision of the federal securities laws.

A few examples of these endorsements include Khaled referring to Centra’s ICO as a “Game changer” on various social media accounts, and Mayweather tweeting that Centra’s ICO “starts in a few hours. Get yours before they sell out, I got mine…”

Mayweather also allegedly failed to disclose his relationship with two other ICOs that paid him $200,000 for posts such as, “You can call me Floyd Crypto Mayweather from now on.”

In settling the charges, Khaled agreed to pay $152,725 in disgorgement, penalty, and prejudgment interest, while Mayweather agreed to pay $614,775 for the same. Mayweather and Khaled also agreed not to promote any securities, digital or otherwise, for three and two years, respectively.

Although proper disclosures in social media endorsements have been an area of concern for the FTC for years, this settlement indicates that the SEC is just as interested in making sure consumers understand when they’re seeing sponsored content in the marketing of financial products.

For more information on this topic, check out our earlier post on SEC activity and our webinar, “Advertising Under the Influence.”

Two companies and their principals have agreed to settle FTC allegations that they misled consumers by presenting paid endorsements as independent consumer reviews and ads as independent news stories.

Creaxion, a PR agency, was tasked with creating a campaign to promote a client’s new mosquito repellent product around the time the press was reporting about the mosquito-borne Zika virus during the 2016 Summer Olympics. As part of the campaign, the agency partnered with the publisher of Inside Gymnastics magazine to secure athlete endorsers and run stories about the product.

Together, the companies paid two gold medalists to promote the product, and the athletes posted endorsements on social media, without disclosing that they had been paid. The publisher re-posted those endorsements in its magazine, again without a disclosure. Inside Gymnastics also ran paid ads for the product that, in the eyes of the FTC, were made to look like independent news stories.

As part of the settlements, the companies are prohibited from misrepresenting that influencers are independent consumers. Any connections between an influencer and the companies whose products they endorse must be clearly disclosed. To that end, the companies agreed to institute procedures designed to ensure that influencers make these disclosures, including notifying influencers of their responsibilities, monitoring compliance, and terminating influencers who fail to comply.

The companies are also prohibited from expressly or implicitly misrepresenting that paid ads reflect the opinions of an independent or objective publisher or source. Although the settlement doesn’t go into details on this point, this requirement likely means that ads that appear near new stories need to be clearly labeled as ads, as the FTC has advised in its native advertising guidance.

Dalton Blog Post

As part of its routine monitoring, the NAD requested substantiation for various statements that a BuzzFeed staff member had made about a moisturizer in one of the site’s shopping guides. The NAD’s decision in the case sheds some much-needed light on various issues related to affiliate marketing.

BuzzFeed explained that the shopping guides include product recommendations by its writers, and that the companies mentioned in the guides don’t have any ability to influence the content. In some cases, BuzzFeed may receive compensation if a reader makes a purchase through an “affiliate link.” The writers, however, don’t know whether affiliate links may be available for the products they recommend. Those links are added by a separate group at BuzzFeed after the article is completed. Thus, the decision to recommend a product is not linked to the potential for compensation. Moreover, the potential for compensation is disclosed at the top of each shopping guide: “We hope you love the products we recommend! Just so you know, BuzzFeed may collect a share of sales or other compensation from the links on this page.”

BuzzFeed Links Disclosure

The FTC has noted that publishers who use affiliate links in conjunction with product reviews should clearly disclose their relationship with the companies or retailers whose products are reviewed. Although many companies get tripped up over this issue, BuzzFeed got the disclosure right, and the NAD did not focus on it. Instead, the case focused largely on the issue of whether the shopping guides constitute “national advertising,” as defined by NAD Policy and Procedures. More specifically, “the issue here is whether online publishers using affiliate links can use the aegis of editorial independence to avoid the requirement that it have substantiation for any product claims in the content.” As the line between editorial and commercial content gets increasingly blurred, it isn’t always easy to answer this question.

Ultimately, the NAD determined that the shopping guide did not constitute “national advertising” for a few key reasons. Firsts, the content was created by writers who did not know whether or not the company would receive any affiliate revenue based on purchases of the recommended products. Second, neither the retailers nor the brands mentioned in the guides had any input in what was said about the products. And, third, the links were added to the shopping guide after the content was written. “In sum,” the NAD wrote, “the content was created independently of and prior to the addition of affiliate links to the article.” Thus, the statements in the shopping guide weren’t ads and BuzzFeed wasn’t responsible for substantiating claims about the products that were reviewed.

This decision provides a roadmap for other companies that use affiliate links. Simply calling something “editorial” is not going to be enough to escape scrutiny under advertising laws. Instead, companies must have procedures in place to ensure that there is a clear separation between editorial decisions and revenue and that the companies whose products are being reviewed cannot influence the content. It’s also important to clearly disclose the affiliate relationship, as BuzzFeed did here. The NAD’s decision suggests that if companies get this wrong, they may be required to substantiate any claims they make about the products they review.

Most Popular Ad Law Access Posts of 2017

As reported in our Ad Law News and Views newsletter, Kelley Drye’s Advertising Law practice posted 106 updates on consumer protection trends, issues, and developments to this blog in 2017. Here are some of the most popular:

Ad Law News and Views is produced every two weeks to help you stay current on advertising law and privacy matters. You can subscribe to it and other Kelley Drye Publications here and the Ad Law Access blog by email or RSS feed.

2018 Advertising and Privacy Law Webinar Series 

Please join Kelley Drye in 2018 as we continue our well attended Advertising and Privacy Law Webinar Series. Like our in-person events, this series gives key updates and provides practical tips to address issues faced by counsel as well as CLE credit. This webinar series will start again in February 2018. Please revisit the 2017 webinars here.

Please join Kelley Drye in 2017 for the Advertising and Privacy Law Webinar Series. Like our annual in-person event, this series will provide engaging speakers with extensive experience and knowledge in the fields of advertising, privacy, and consumer protection. These webinars will give key updates and provide practical tips to address issues faced by counsel.

This webinar series will commence January 25 and continue the last Wednesday of each month, as outlined below.

January 25, 2017 | February 22, 2017 | March 29, 2017 | April 26, 2017 | June 28, 2017
July 26, 2017 | September 27, 2017 | October 25, 2017 | November 29, 2017

Kicking off the series will be a one-hour webinar on “Marketing in a Multi-Device World: Update on Cross Device Tracking” on January 25, 2017 at 12 PM ET. For more information and to register, please click here. CLE credit will be offered for this program.

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A growing number of consumers read reviews before they decide to purchase a product. Because of this – as we’ve posted various times – regulators and competitors are keeping a watchful on eye reviews that seem biased or inauthentic. The latest challenge comes from a world that isn’t known for its advertising challenges: the world of trampolines.

The Trampoline Safety website evaluates trampolines based on over 40 metrics and provides product reviews, videos, and articles. If you visit the site, you may notice that the top-rated trampolines are all made by a Trampolinecompany called JumpSport. But unless you look closely at the disclosure at the bottom of the page, you may not notice that the Trampoline Safety website is run by the same family that runs JumpSport.

The NAD determined that consumers who visit the website are likely to believe “that the content was independently generated editorial content, rather than content created by JumpSport.” The website is unbranded and there is “nothing to alert a consumer to the fact that this is an advertisement,” that the site is run by JumpSport, or that the tests were “devised and conducted by the company that produces the three trampolines that achieved, far and away, the best results.”

The disclosure at the bottom of the page did not cure the problem for two reasons. First, the NAD held that an advertiser can’t use a disclosure to contradict the main message of an ad. Here, the NAD thought the main message was that the reviews were independent. And, second, even if the disclosure hadn’t contradicted the main message, the NAD held that the disclosure failed to meet the “clear and conspicuous” standard. Because consumers wouldn’t see the disclosure unless they scrolled to the bottom of the page, it was ”not easy for consumers to notice, read, and understand.”

The decision covers a lot of ground. (For example, the NAD also took issue with JumpSport’s testing methodology and found that its tests were not sufficiently reliable to support the claims on the site.) But our focus for this post is the manner in which the reviews were presented. If your company has any connection to a product review – regardless of whether the review was written by your company or some third party who has received an incentive from you – that connection needs to be disclosed in a meaningful way. A fine-print disclosure is unlikely to help.

When the FTC issued its guidance on native advertising last year, the Commission emphasized the importance of ensuring that consumers are able to distinguish ads from editorial content. If the line between the two gets blurred, companies may need to label ads as such. Where the label is placed can be critical, because the FTC believes that consumers should know that something is an ad before they interact with it. Last week, the NAD issued a decision that addresses the placement issue.

Joyus is an e-commerce platform for various lifestyle products including fashion, beauty, personal care, fitness, and home products. Many of these products are featured in the “Stuff We Love” section of People magazine, which appears in the Style Watch section of the magazine’s website. Consumers can read a description of each product and watch a video – which is jointly produced by Joyus and People – that advertises the product. If consumers like what they see, they can easily purchase the product on the same screen.

Joyus and People took various steps to separate the magazine’s editorial content from Joyus’ advertising content. For example, the product videos all include the Joyus logo in the upper-left corner of the video player’s frame. This logo – along with a discount offer – can be seen before the video is played, as well as during the entire time the video is played. Joyous argued that these labels clearly let consumers know that the videos were ads, rather than editorial content.

Joyus

Although the NAD agreed that the videos themselves were clearly labeled as ads, the NAD was concerned that the pages leading up to the videos were less clear. For example, the “Style” page link to “Stuff We Love” doesn’t disclose that the feature is a partnership with Joyus and promotes products for sales. As a result, the NAD opined that consumers could believe these pages represent selections by people’s editors, rather than paid ads. Thus, the NAD recommended that Joyus (in collaboration with People) revise the link so that it is clear that by clicking on the “Stuff We Love” link, a consumer will be taken to a list of items for sale by Joyus.

Although the FTC’s guidance on native ads is helpful, it’s often useful to see “real life” examples. We expect to see more of them from the NAD in the coming months.

The FTC recently released two new guidance documents: Enforcement Policy Statement on Deceptively Formatted Advertisements and Native Advertising: A Guide for Businesses. The Policy Statement seeks to address the broad area of “advertising and promotional messages integrated into and presented as non-commercial content.”  The Business Guide more narrowly addresses native advertising, which the FTC defines as online content “that bears a similarity to the news, feature articles, product reviews, entertainment, and other material that surrounds it.”

The two new guidance documents are important developments as they provide a road map for how the FTC is likely to enforce in the area in the future.  The following are a few key takeaways.

  • In determining whether an advertisement is misleading as to its nature or source, the FTC will consider the overall net impression of the ad from the perspective of a reasonable member of the target audience.  Factors the FTC will consider include “the similarity of [the ad’s] written, spoken, or visual style to non-advertising content offered on the publisher’s site” and “expectations based on consumers’ prior experience” with the particular medium.
  • If an ad is likely to deceive as to its nature or source, the FTC expects clear and conspicuous disclosures clarifying the nature or source of the ad.
  • According to the FTC, disclosures in native advertising must often appear at the outset, before a consumer clicks on a link leading to the ad.
  • The FTC is unlikely to consider headings, such as “More Content for You” and “From Around the Web,” to be sufficient disclosures.
  • The FTC recognizes that not every ad that appears in a format similar to surrounding content is likely to deceive.  The FTC provides the following example: “[I]f a natively formatted ad with an image of a particular sports car and the headline ‘Come and Drive [X] today’ were inserted into the news stream of a publisher site, that ad likely would be identifiable as an ad to consumers, even though it was presented in the same visual manner as news stories in the stream.”

Our recent Advisory provides analysis of the new guidance documents.

In January 2014, AdAge interviewed me about news reports that Machinima had hired influencers to create videos promoting Microsoft’s Xbox One gaming console and games. In a native advertising campaign, the influencers posted positive reviews, but didn’t disclose that they had been paid to do so. During the interview, we speculated about whether the FTC might take action against the campaign and what the result might be. Now, almost 20 months later, we have the answer. This week, the FTC announced a settlement with Machinima.

According the to the FTC, Machinima, the operator of a popular YouTube network, paid two influential gaming bloggers to create videos promoting the new Xbox One console and three new games, but didn’t require the bloggers to disclose that they were paid for the reviews. The bloggers posted four videos that had more than 1.6 million views. To capitalize on this success, Machinima later recruited and paid more people to upload positive reviews, again without requiring a disclosure. This generated another 300 videos and 30 million views in a five-week period.MachinimaXB1

If you follow our blog, you can already guess the problem. As Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, said: “When people see a product touted online, they have a right to know whether they’re looking at an authentic opinion or a paid marketing pitch. That’s true whether the endorsement appears in a video or any other media.” Under the proposed settlement, Machinima is required to ensure its influencers clearly disclose when they have been compensated in exchange for their endorsements.

Whether you refer to this as an “influencer” campaign or “native advertising,” the answer is always the same. If your company pays people to review or promote your products in a way that could confuse viewers into thinking the reviews come from independent consumers, you need to take steps to ensure that the reviewers clearly disclose that they have some connection to your company. Make sure you educate reviewers about their responsibilities and take steps to monitor their compliance. If you don’t, you could end up as one of future blog posts.