We frequently get questions about whether companies can be held liable for claims that appear in consumer reviews. Although it’s clear that there are instances in which a company can be held liable if it has a connection to the person who wrote the review, it has been less clear to what extent a company can be held liable for content in independent reviews. A new NAD decision sheds some light on where the line might be drawn.

APEC makes water filtration systems that it previously advertised as being “Made in the USA.” After an FTC inquiry, the company removed those claims from its ads, Reviewsupdated claims that appeared on third-party platforms, and made efforts to correct claims that were made by third-party marketers. That didn’t stop consumers from echoing the previous “Made in USA” claims in reviews, though. One of APEC’s competitors argued that APEC continues to benefit from those inaccurate reviews, and that the company should be required to take steps to correct them. This is especially true, the competitor argued, because APEC routinely responds to negative reviews from consumers.

NAD started by noting that an advertiser cannot make claims through consumer reviews that the advertiser can’t substantiate itself. Moreover, if an advertiser learns about inaccurate claims in third-party ads, the advertiser is responsible for taking steps to ensure that those claims are corrected. In this case, NAD determined that that responsibility did not extend to the challenged consumer reviews, though. Where do you draw the line?

According to NAD, the “critical question” is “whether the advertiser exercises control over the messages conveyed through customer reviews.” Although the lines can get blurry, “NAD determined that APEC did not exercise sufficient control over the messages conveyed by the product reviews at issue and that it is not responsible for the truthfulness of reviews . . . .” Notably, APEC did not respond to these reviews. The company’s “silence and decision to refrain from responding to reviews does not convey a message that the domestic origin claims are accurate.” And the company’s practice of responding to some reviews did not give rise to an obligation to correct unsupported claims in other reviews.

Although NAD did not hold APEC responsible for the consumer reviews that had been flagged by its competitor, “it cautioned APEC against interacting with any such reviews in any manner which may seem to validate an unsupported domestic origin claim.” This suggests that companies should exercise caution when responding, liking, or otherwise interacting with reviews that include claims that a company can’t support. A favorable interaction could be read as validation for those claims.

In the world of social media, a person’s power is often measured in terms of followers. Because more followers generally means more reach, companies who engage influencers often base their compensation on this metric. But follower counts may not always be what they seem. According to a New York Times report last year, influencers can buy fake followers (who are often bots) from companies like Devumi.

Robot HandsThis week, the New York Attorney General announced a settlement with Devumi over its practices. Among other things, the company is prohibited from selling fake followers, likes, and other types of social media interactions. And to the extent Devumi works with real influencers, it must take steps to ensure they clearly disclose any connections they have to the companies they endorse. The AG said that this settlement sends “a clear message that anyone profiting off of deception and impersonation is breaking the law and will be held accountable.”

Although this may be the first case that addresses the sale of fake followers, it’s not the first case that addresses companies using shady techniques to boost their reputations online. For example, in 2013, the New York AG announced settlements with 19 companies after a year-long undercover investigation into the reputation management industry. During the investigation, the AG learned that some agencies that promised to boost companies’ presence online did to so posting fake reviews.

What you should take away from these cases depends on your place in the industry. If you help companies boost their social media presence, take a close look at these settlements and make sure you’re not engaging in the practices that were challenged. If you’re hiring a company to boost your presence, ask that company some questions about how they plan to achieve results. And if you pay influencers based on the number of followers they have, investigate whether those followers are real people. Bots can lead to all sorts of trouble.

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

This morning, the FTC announced that it had reached a settlement in its first-ever complaint against individual social media influencers and that it had sent warning letters to other prominent influencers. In addition, the FTC announced that it had updated previous guidance on influencer campaigns.

Settlement

The settlement involves Trevor Martin and Thomas Cassell, owners of CSGO Lotto, an online multi-player game. Martin and Cassell are also social media influencers who have gaming channels on YouTube with millions of followers. Starting in 2015, both men posted videos of themselves playing the game and discussing how they had won money. They engaged in similar activities on other platforms, including Twitter and Instagram. None of the videos or posts, however, mentioned any connection to the company. Martin and Cassell also paid other influencers to promote the game on social media. Most of individuals did not disclose their connections to the company and the few who did only did so “below the fold.”

Last year, various media outlets broke the news that Martin and Cassell ran the CSGO Lotto site. Many fans who had assumed that the men’s reviews were unbiased became upset, controversy followed, and the game shut down. Now we know that the FTC got involved, as well. As part of the proposed settlement with the Commission, Martin and Cassell are prohibited from misrepresenting that any influencer is an independent user. Instead, any connection between an influencer and the product being promoted must be disclosed in a “clear and conspicuous manner.”

Warning Letters

In April, we noted that the FTC staff had sent “educational letters” to more than 90 social media influencers, reminding them of their obligation to disclose any connection they have to the companies whose products they promote. Today, the FTC announced that they had sent new “warning letters” to 21 of those influencers.

The new letters cite specific posts that concerned the FTC staff and explained why those posts might not comply with the Endorsement Guides or the FTC Act. For example, some of the letters noted that the staff believe that tagging a brand is an endorsement of the brand. “Accordingly, if you have a material connection with the marketer of a tagged brand, then your posts should disclose that connection.” Other letters stated that simply thanking a brand is not a sufficient disclosure. And others reminded influencers that disclosures must be easy to find, and that consumers shouldn’t be required to click a link in order to find them.

Updated Guidance

The FTC also released an updated document with answers to frequently asked questions. This version includes more than 20 new answers addressing specific questions that marketers and influencers may have about whether and how to disclose material connections in their posts. For example, the document covers topics such as including tags in pictures, disclosures on Instagram, disclosures on Snapchat, how to disclose free travel, and terms that can be used in disclosures.

Stay tuned for more coverage of these developments.

In November, we posted that four consumer groups had sent letters to FTC, encouraging the agency to investigate and bring enforcement actions regarding the use of influencers on Instagram. In April, the FTC responded by sending more than 90 letters to companies and influencers, reminding the recipients of their legal obligations. Now, the consumer groups have again contacted the FTC to complain that the agency needs to do more.

According to the latest letter, the groups tracked the 46 influencers who received letters from FTC to determine if the letters had been effective. According the survey, only one of them consistently used “proper disclosures” for paid posts. Although some influencers did occasionally post sponsored content using proper disclosures, some posts allegedly failed to comply with legal requirements. The groups concluded that the FTC’s letters were ineffective and pushed for more regulation.

The groups want the FTC to “bring enforcement actions and seek penalties for posting nondisclosed sponsored content, especially for influencers and brands that are repeat offenders.” In addition, the groups want the FTC to “work with Instagram to develop a system that makes it easy to denote paid posts consistent with FTC guidelines.” We noted last month that Instagram is already working on such a system, but the groups don’t think that it’s sufficiently robust.

As we’ve noted before, both the groups’ letters to the FTC and the FTC’s warning letters swept too broadly and included a number of posts that were not incentivized. (Click here for a BuzzFeed article with some examples.) Nevertheless, there are various examples in the latest letter that are potentially problematic and potential targets for enforcement.

If you haven’t evaluated how your company works with influencer recently, now may be a good time to do that.

Late last year, the Consumer Fairness Review Act became law, placing new restrictions on what companies can include in form contracts that impede consumers’ ability to communicate honest reviews of products, services, and companies in any forum. Quietly last month, the Federal Trade Commission released non-binding business guidance on how organizations can comply with the Act.  Given the widespread use of such terms in form agreements, such as online terms of use, it’s a good idea to determine whether any of your company’s contract terms are covered, and, if so, what changes you will need to make to such agreements.

Time is of the essence: as of March 14, 2017, the Act voids and makes unlawful such agreements containing the triggering terms.  By December 14, 2017, the FTC and State Attorneys General and other state consumer protection officials can enforce such violations as unfair and deceptive trade practices.

Who Should Pay Attention?

The law applies to organizations that use form contracts when selling or leasing that party’s goods or services, and do not provide the other contracting party with a meaningful opportunity to negotiate the terms of that contract. Standard term sheets and website agreements come immediately to mind, but given the broad scope of the law, the statute also could apply to various codes of conduct and other agreements that apply to commercial activity, both on- and offline.

What Kind of Form Contract Terms Are Prohibited?

The law prohibits and voids form contracts if they:

  • Prohibit or restrict the ability of an individual who is a party to the form contract to engage in a covered communication;
  • Impose a penalty or fee against an individual who is a party to the form contract for engaging in a covered communication; or
  • Transfer or require the other party to the contract to transfer any intellectual property rights in review or feedback content except for certain non-exclusive licenses.

For example, if your website terms of use prohibits customers from posting a review of your product or service as a condition for using the Site, or cites a consequence if they do, such terms are prohibited by the law. It also pays to closely look at Site terms that allow the company to remove postings for any reason, and what type of criteria is used operationally to remove offensive reviews.

What Communications Are Protected?

The law’s main intent is to protect honest reviews of goods, services, and the conduct of the contracting party. It thus broadly protects written, oral, or pictorial reviews, performance assessments of, or other similar analyses of the goods, services, or conduct of the party that issues the form contract in the course of selling or leasing the person’s goods or services.

What Communications Are Not Covered?

The Act has a number of exemptions and does not apply to:

  • Employer-employee or independent contractor contracts, including photographs or videos owned by a party that are subject to such contracts;
  • False and misleading content;
  • Content that is defamatory, libelous, slanderous, or similar;
  • Content containing personal information, or another person’s likeness;
  • Content that is libelous, harassing, abusive, obscene, vulgar, sexually explicit, or is inappropriate with respect to race, gender, sexuality, ethnicity, or other intrinsic characteristic;
  • Content that is unrelated to the goods or services offered by or available on the party’s website; or
  • Content impacting a party’s duty of confidentiality imposed by law, including via agency guidance.

For websites that host online consumer reviews and comments, the Act also does not prohibit the website host from reserving the right to remove:

  • Privileged or confidential trade secrets, commercial, or financial information;
  • Personnel, medical, and similar files, which, if disclosed, would constitute an unwarranted invasion of privacy;
  • Law enforcement records, which, if disclosed, would constitute an unwarranted invasion of privacy;
  • Unlawful content; or
  • Content that poses security risks, such as viruses or worms.

Does This Law Preempt State Laws?

Notably, the law does not preempt state laws, so businesses will still need to comply with states that regulate this space, such as California’s similar law, which lacks the long list of exceptions in the federal statute, and carries its own civil penalties for non-compliance.

Conclusion

Given the common use of these terms in a variety of agreements, a little Spring (contract) cleaning is in order for most organizations. Proactive efforts on this front can prevent expensive lawsuits and government investigations in the future.

The NAD recently announced a decision that touches upon various issues related to consumer reviews, including how paid endorsements should be disclosed, a company’s responsibilities regarding the content of endorsements, and the presentation of aggregate reviews.

FitTea

The FitTea website includes a “Results and Reviews” page. At the top of the page are a series of Instagram posts that the company itself re-posted on its site. Some of these posts come from paid endorsers, while others are independent. Below the Instagram posts is a section entitled “Customer Reviews,” followed by a list of reviews with star ratings. Some of these reviews were collected by a survey company who contacts purchasers to solicit their opinions, while others were submitted directly be consumers themselves.

As we’ve discussed in various posts, if a company provides people with an incentive to review its products, the reviewers must disclose their connection to the company. That didn’t happen here, and the NAD was concerned that website visitors wouldn’t be able to differentiate between the paid Instagram posts and the independent ones. To address this concern, the company agreed to establish a policy requiring paid endorsers disclose their connection to FitTea and to monitor compliance with that policy. Moreover, the company agreed to tag existing posts from endorsers on its site with the hashtag #ad.

The FTC has advised that paid endorsements can’t include claims that would be deceptive if made directly by the advertiser. However, the FitTea website featured posts with claims that the company couldn’t support itself, such as claims that drinking FitTea would boost metabolism, boost immunity, or burn fat. As a result, the NAD recommended that the company not re-post Instagram endorsements that include claims the company can’t substantiate on its own. Notably, the NAD did not address reviews posted directly by consumers that may have included problematic claims.

The NAD appeared to have some initial concerns about whether the reviews posted on the site might be skewed, but the company advised that they posted all collected reviews, that the reviews were un-edited, and that none of the reviewers had received an incentive. Accordingly, the NAD was comfortable that the company’s “process for collecting reviews ensures that the reviews are authentic and representative of reviews of the product from all purchasers from the FitTea website.”

The NAD noted that as more consumers come to rely on product reviews to make purchasing decisions, the NAD views its mission as helping to ensure that ad campaigns featuring these reviews are truthful and that they don’t mislead people about the products or the nature of the reviews themselves. As we’ve noted in previous posts, the FTC, state regulators, and consumer groups have also joined that mission.

The Ninth Circuit recently reaffirmed the protection afforded to website providers and users under Section 230 of the Communications Decency Act. In that case, a locksmith sued Yelp over a bad review and one-star rating that had been posted by a consumer. The locksmith accused Yelp of being responsible both for creating the review and for “transforming” it into an ad by republishing it on Google. The Court rejected both arguments, holding that Yelp was immune under Section 230.

Section 230 generally states that websites cannot be held liable as a publisher or speaker for content provided Yelpby someone else. The law does not provide a blanket immunity, however. Website owners can be held liable as a publisher or speaker when they are “responsible, in whole or in part, for the creation or development” of unlawful content. The question in many CDA cases is at what point a website crosses the line between simply allowing others to post content and playing a role in the creation of that content.

In this case, the Ninth Circuit rejected the plaintiff’s attempt to “plead around” Section 230’s grant of immunity, and held that Yelp’s development of content-neutral tools that used or collected user-generated input did not make the website the “creator” or “developer” of unlawful information supplied by its users. You can read our article with a more detailed analysis of the case here. (And click here for a recent case in which a court held that Yelp was not entitled to Section 230 immunity.)

This week, four groups – Public Citizen, Commercial Alert, the Campaign for a Commercial Free Childhood, and the Center for Digital Democracy – sent a joint letter to FTC encouraging the agency to “investigate and bring enforcement actions related to the practice of non-disclosed advertising through influencer user profiles on Instagram.”

As we reported last month, paid endorsements are a big issue for the FTC, and press reports had suggested that the agency might soon “crack down on paid celebrity posts.” But the crackdown is coming fast enough for some. The letter asks the FTC to move “promptly and aggressively” in order to stop a problem that “has reached epidemic proportions” and is putting children at risk. Dramatic claims.

The groups attempt to support these claims by reporting the results of an internal “investigation of the disclosure practices among movie stars, reality TV personalities, famous athletes, fitness gurus, fashion icons, and pop musicians.” According to the letter, the investigation revealed 113 influencers who endorsed a product without disclosure. Is a disclosure necessary? Public Citizen doesn’t seem to know for certain whether the celebrities were compensated, but presumes so, “based on industry norms.”

Despite not being certain, the groups present examples of over 100 Instagram posts that could be problematic. And they ask the FTC to “take aggressive enforcement action against companies and agencies that engage in the practice of non-disclosed ‘influencer’ endorsements.” (They even suggest two companies that should be at the top of the FTC’s list.) Although the groups believe that the FTC should continue to focus on the companies, they also urge the agency to take action against prominent influencers.

KK Instagram Post

Regardless of whether the allegations in the letter are accurate, this development highlights the potential risks in this area. Not only do companies have to worry about the FTC itself – they also have to worry about being called out by “watchdog” groups.

Traditionally, when companies wanted to advertise that consumers preferred their product over another product, the companies would substantiate their claim by running a survey. Consumers would be stopped in a mall, called, or contacted online, and asked their opinions. Now that many consumers freely post their opinions online, though, some companies are wondering whether they can simply base preference claims on those opinions. Perhaps, but it’s easier said than done.

We’ve posted about one company’s attempts to support a “most recommended” claim and a “more 5-star online reviews” claim based on online reviews. In each of the cases, the NAD expressed concerns with the advertiser’s methodology and questioned whether the evidence was reliable. Now, a recent case involving Vapore’s “more 5-star reviews than any other steam inhaler” claim illustrates the NAD’s continued concerns in this area.

Vapore based its claim on a snapshot of reviews on various websites. The NAD was satisfied with parts of the company’s Inhalermethodology. For example, Vapore had taken steps to ensure the data was comprehensive and that the reviews were from verified purchasers. However, the NAD had other concerns. For example, the NAD worried that Vapore didn’t account for potential double-counting of reviews across sites. And it noted that some of the reviews were dated and may no longer be accurate.

The NAD has shot down several attempts by advertisers to use crowd-sourced data to support claims. That doesn’t mean it’s not possible to make a claim based on consumer reviews, but advertisers face an uphill battle when it comes to convincing the NAD that they’ve controlled all of the variables that could affect the reliability of the data.