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Earlier this month, the Securities and Exchange Commission (SEC) issued a warning to celebrities and social influencers who use social media to encourage consumers to invest and/or purchase stocks. Recent celebrity endorsements for investment in Initial Coin Offerings (ICOs) were highlighted as examples in the SEC’s warning. In the future, if celebrities and social influencers do not disclose the nature, source, and amount of compensation paid, directly or indirectly, by the company in exchange for the endorsement, they may face action for violations of the anti-touting and anti-fraud provisions of the federal securities laws, participating in an unregistered offer and sale of securities, and for acting as unregistered brokers.

This warning follows a wave of enforcement brought by the SEC earlier this year. In April 2017, the SEC filed civil fraud actions against 27 companies for the fraudulent promotion of stocks. These included three public companies, seven stock promotions/communications firms, two company CEOs, six individuals at the firms and nine writers. The actions were filed under Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act, as well as Rule 10b-5, which prohibit fraudulent conduct in the offer or sale of securities and in connection with the purchase or sale of securities. In an effort by public companies to generate publicity for their stocks, defendants allegedly hired communications firms that paid writers to publish articles endorsing the company’s stocks. In one case, a firm allegedly had its writers sign non-disclosure agreements preventing them from disclosing that they were compensated.

More than 250 articles were published allegedly without proper disclosures regarding compensation received by the companies they were promoting. Seventeen parties have agreed to settlements with penalties ranging from $2,200 to $3 million based on the frequency and severity of the actions. One example of the kind of advertising that was targeted is shown here: It is a post on Seeking Alpha, an online forum dedicated to financial discussion, in which the post encourages investment in a particular Alzheimer’s therapy. The author’s name and picture allegedly were false as was a statement in the article that indicated that it was not sponsored content.

Here’s the lesson: The FTC is very much interested in ensuring that advertisers and their agents disclose when they disseminate sponsored content (as we’ve repeatedly written about here), but the FTC isn’t alone. The SEC clearly shares this concern, as does FINRA, which issued this notice in April 2017 addressing disclosure obligations relating to native advertising. For more information about how advertising standards apply to influencers and native advertising, check out our recent webinar here.

Associate Lauren Myers contributed to this post. She is practicing under the supervision of principals of the firm who are members of the D.C. Bar.

In June, we posted that Instagram users would start seeing a new “Paid partnership with” tag on certain posts. The company explained that this was part of a tool designed to “help creators more clearly communicate to their followers when they are working in partnership with a business.” (It also allows users to better track the performance of their posts.) Until recently, the tool was open only to a small group of users.

Last week, Instagram announced that they were going to expand the “availability of the tool to Instagrammers with high levels of engagement.” In addition, the company noted that people with access to the tool will receive in-app notifications when Instagram’s “systems find content that falls outside of our policy. In these cases, the content’s creator will be notified through the Instagram app and will have the option to tag a business.”

Although Instagram’s tool is intended to make it easier for influencers to comply with the FTC’s Endorsement Guides, it’s not clear to what extent the tool will have the desired effect. For example, in a Twitter chat hosted by the FTC in September, the FTC staff cast some doubt on whether the tools offered by Instagram, Facebook, and YouTube are sufficient to enable influencers to comply with their legal requirements.

There hasn’t been any enforcement on this issue yet, so it’s too early to tell whether the FTC will challenge companies and influencers who rely solely on these tools to make their disclosures. But if you do plan to do that, you may want to first discuss the risks with your legal counsel.

Social media influencers help drive consumer engagement with the brands they love. Better reviews, more “likes,” and thousands of re-tweets can all add up to a bigger bottom line and greater insight into what sells and what doesn’t. When the line between advertising and objective content isn’t made clear, though, it can also prompt legal scrutiny and enforcement from the FTC. Partner Kristi Wolff and Richard Cleland, Assistant Director in the FTC’s Advertising Practices Division held a webinar discussion of recent enforcement and key “rules of the road” for your company’s next influencer campaign on Thursday, November 9. Please click here for a copy of the slides and here for a copy of the recording. As a courtesy, we are also including a list of links to the FTC’s native advertising guidance, a checklist for review of native advertising, and a summary of the SEC’s enforcement on native ads for financial products. We hope that you find these materials useful.

This week, the news broke that tweets are likely getting longer.  Twitter plans to extend the maximum length of a tweet from 140 to 280 characters, and has already rolled this feature out to selected users.  What are the implications for advertisers, especially those struggling to cope with the need to disclose material connections to endorsers, qualifications to advertising claims, and other information in their marketing tweets?

The FTC has already asserted that endorser disclosures within a tweet, not merely on your profile page, are necessary.  The Commission’s recent spate of cautionary letters to Instagram advertisers and endorsers has stressed that, when required, disclosure of the material connection has to be in a form understandable by average users, who may not be familiar with conventions such as an #sp tag for “sponsored.”  In prescription drug advertising, the FDA similarly declined to give advertisers much of a pass in omitting or shortening necessary side-effect disclosures, stating in its 2014 Draft Guidance for Industry on Internet/Social Media Platforms with Character Space Limitations that such information still has to be squeezed comprehensibly into that 140 character limit, though with a limited allowance for abbreviations not permitted in other contexts. 

Double-sized tweets will make the agencies even less likely to forgive inadequate disclosures on Twitter or to cock a sympathetic ear at the excuse of character limitations.  More than ever before, Twitter marketers and endorsers should be attentive to compliance with required disclosures.  The silver lining on this cloud is that the extra characters will give marketers a little more room to do this, while still putting out effective marketing messaging.

 

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.

We have blogged about the FTC’s barrage of letters when they were originally released in April and again last week.  Back in May, in response to a Freedom of Information Act request by the National Law Journal, the FTC released the entire set of letters set out in April.  A close review of the letters is instructive about the FTC’s priorities, the types of ancillary issues it is concerned about, and what your letter might look like if you are a company or a social media influencer who comes to the FTC’s attention.

Altogether, the FTC sent 99 letters dated between March 20 and April 1.  All of them concerned one social media channel, Instagram.  Of the letters, 45 went to the companies whose products were endorsed on Instagram, and the other 54 went to the endorsers.  The endorser letters matched the company letters; there were more endorser letters because some of the letters to companies referenced more than one endorser.

By way of recipient characteristics, the 45 companies that received the letters spanned the size spectrum from prominent, large companies such as Adidas, Chanel, Johnson & Johnson, Hasbro, and the Popeyes restaurant chain down to much smaller and less known companies.  Industry sectors included fashion, sportswear, food, dietary supplements, fitness products, cosmetics, and toys.

Endorsers that received letters generally were celebrities.  While not all of their names were familiar to this generation-X writer, the Instagram posts attached to the FTC’s letters generally received at least several thousand and often hundreds of thousands of likes, indicative that the endorser had at least a significant social media following.  As has been reported elsewhere, the prominent endorsers included Jennifer Lopez, Allen Iverson, Lindsay Lohan, Heidi Klum.  At least one, Vanessa Hudgens, was notified about endorsements for two different companies.  Letters to almost all of the endorsers were addressed in care of their agents or attorneys, again indicating their status as public personae.  This focus on high-profile endorsers is consistent with the FTC’s past statements that it does not intend to go after every small hobbyist blogger who happens to recommend a product now and then.

The letters were based on 2-page form letters (one for companies and another for endorsers) with certain additional boilerplate paragraphs inserted where appropriate and with a few lines of individually customized text describing the specific Instagram post, which was also attached to the letter as the third page.  Starting with the company form letter, the letters identified the FTC and described the purpose of the letter as “educating marketers about their responsibilities under truth-in-advertising laws and standards.”  After identifying the problematic Instagram post, the letters described the FTC’s “material connection” standard under the Endorsement Guides and provided guidance on the required “clear and conspicuous” disclosures of material connections.  All letters advised that the disclosure be within the first three lines of an Instagram post so that the viewer would see it without having to click “more,” and cautioned against burying the disclosure among multiple tags and links.  The Endorsement Guides and a FAQ about them were included with each letter.

Of interest was the extra content added to some of the company letters.  While most of the letters prefaced the information about required disclosures with, “If your company has a business relationship with [endorser], ten out of the 45 letters went farther and asserted, “It appears that [endorser] has a business relationship with your company.”  It was not always evident how the FTC reached this conclusion, but one apparent tip-off was the offer of a discount code in some Instagram posts.  Seven of the 45 letters pointed to the presence of a statement such as “Thanks @[company]!” in the post and stated that for the endorser merely to thank the company is “probably inadequate to inform customers of a material connection because it does not sufficiently explain the nature of the endorser’s relationship to your company; consumers could understand it simply to mean that the person is a satisfied customer.”  In several letters, the FTC also rejected the use of the “#sp” hashtag to identify sponsored content, claiming that consumers do not understand this hashtag, and disapproved of ambiguous hashtags containing words like “partner” or “ambassador.”

Most interestingly from this author’s perspective as a claim substantiation buff, in 10 of the 45 letters, the FTC included a paragraph hinting that it suspected the content of the Instagram post to be deceptive, separate from the failure to disclose the endorser’s material connection to the company.  This paragraph noted that the FTC’s review of the post was limited to endorser disclosures and did not attempt to determine whether the post might be deceptive in other respects, but reminded the company that it is responsible for substantiating all claims.  This language appeared in cases where the Instagram post made a performance claim, generally about weight loss, health or nutrition benefits.  This raises an important point for companies:  Inadequately disclosed endorsements that bring your advertising to the attention of the FTC may alert the agency to problems with your product claim substantiation that it might otherwise not have noticed.

The 54 letters to endorsers adhered more closely to the basic form letter.  Like the company letters, they usually said, “If there is a material connection between you and [company]” but on some occasions asserted “It appears that you have a business relationship with [company.”  They echoed the advice sent to the relevant company about the inadequacy of ambiguous hashtag disclosures and “thanks.”  Unlike the company letters, the endorser letters never commented on the possible lack of substantiation for claims made by the endorsers.

So the takeaways from the FTC’s spring Instagram endorser broadside are:

  • The FTC views this campaign as an educational initiative rather than an enforcement measure – at least for now.
  • The FTC looks at companies of any size in a variety of industries, but so far is focusing on endorsements by high-profile influencers.
  • Several commonly used short cuts for disclosing a material endorser connection in social media are not favored by the FTC.
  • Inadequate endorser disclosure can cue the FTC to other problems with advertising, including claim substantiation issues.

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.

Last year, we posted that four consumer groups had sent letters to FTC, encouraging the agency to “investigate and bring enforcement actions related to the practice of non-Instagram Paid Partnershipdisclosed advertising through influencer user profiles on Instagram.” Earlier this year, the FTC responded by sending more than 90 letters to companies and influencers, reminding recipients of their obligation to disclose when posts are sponsored. Some of the letters addressed how the disclosures should appear on the Instagram platform. Now, Instagram is testing a tool designed to make the disclosures easier.

Instagram recently announced that that users will soon start to see a new “Paid partnership with” tag on posts and stories. This feature is intended to “help creators more clearly communicate to their followers when they are working in partnership with a business.” In addition to helping companies comply with FTC requirements, this tool is expected to offer other benefits. For example, when “partners use this tag, they will both have access to Insights to track exactly how their branded content posts and stories are performing. Creators will continue to see metrics in their Instagram Insights, and business partners will see shared reach and engagement metrics in their Facebook Page Insights.”

Currently, the tool is only available to a select number of users, but Instagram plans to collect feedback and to make the tool – along with an official policy – more widely available in the coming months.

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 secretsInstagram. In what may be a response to that encouragement, the FTC just announced that it had sent more than 90 letters to companies and influencers, reminding the recipients of their legal obligations.

The letters state that consumers need to know if there is a material connection between a company and an influencer who promotes the company’s products or services. Unless the connection is otherwise evident from the context, the influencer is required “clearly and conspicuously” disclose the connection.

There are at least four noteworthy aspects to these letters:

  • Thus far, the FTC’s enforcement efforts have been focused primarily on companies. Some of these letters, though, were sent to celebrities, athletes, and other influencers. This could signal broader enforcement in the future.
  • The letters address some issues that are unique to Instagram. Consumers who view Instagram posts on mobile devices typically see only the first three lines of a longer post, unless they click “more.” When making endorsements on Instagram, influencers should generally disclose any material connection above the “more” button, so that the disclosure is less likely to be missed.
  • The letters also noted that when posts include multiple tags, hashtags, or links, readers may just skip over them, especially when they appear at the end of a long post. It’s important to ensure that important disclosures don’t get lost in the mix. This might require leading with the important disclosures or making sure that they otherwise stand out.
  • Some of the letters addressed particular disclosures that the staff believes are not sufficiently clear. For example, some letters pointed out that consumers may not understand a disclosure like “#sp,” “Thanks [Brand],” or “#partner” in an Instagram post to mean that the post is sponsored. Although there’s no one-size-fits-all way to make that disclosure, a term that is subject to multiple interpretations may not be sufficient.

These types of letters are often a precursor to more formal action, so this might be a good time to revisit your influencer agreements and campaigns.

Did you know Kelley Drye’s Advertising Law practice produces a newsletter, Ad Law News and Views, every two weeks to help you stay current on ad law and privacy matters? Click here to access our Publication Sign Up and select Advertising and Marketing to subscribe. Find contents from the latest issue below:

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Spotlight On Our New Texas Offices

Kelley Drye & Warren LLP recently merged with Jackson Gilmour & Dobbs, P.C., a highly respected Texas law firm best known for success in environmental litigation matters. The team also brings substantial experience in sophisticated regulatory and commercial litigation matters. The merger strengthens Kelley Drye’s litigation and environmental practices, as well as extends our national presence.

The collective environmental practices broaden Kelley Drye’s nationwide capabilities in site remediation, cost recovery, natural resource damages, and related insurance litigation, creating a powerhouse firm for businesses contemplating sales and acquisitions, debt and equity financings, and real estate development and construction where environmental issues may be present.

Please read more about our Environmental Law and Environmental Litigation capabilities, as well as our new offices in Houston and Austin

Analysis 

Marketing in a Multi-Device World: Update on Cross Device Tracking

On January 25, Kelley Drye hosted a webinar on maintaining transparency and respecting consumer choice while achieving marketing objectives. Megan Cox, Attorney at the Federal Trade Commission, J. Jurgen Van Staden, Vice President, Policy & Technology at the Network Advertising Initiative, and partner Dana Rosenfeld discussed recent law enforcement activity, such as the FTC’s recent settlement with Turn Inc., as well as self-regulatory guidance and enforcement issues surrounding cross device information tracking and uses. For a copy of the slide deck, please click here.

Our next webinar will be on “Litigation is Inevitable: Update on Recent Advertising Class Actions” February 22. Please click here for more information and to register.

To sign up to receive future webinar invitations, please click here and sign up to receive communications from the Advertising and Marketing practice group.

Suing over Empty Space: Why Lawsuits over Slack Fill in Packaging Are Growing

Partner Kristi Wolff co-authored the Nutritional Outlook article “Suing over Empty Space: Why Lawsuits over Slack Fill in Packaging Are Growing.” The article discusses the rise in lawsuits regarding slack fill, or the difference between the capacity of a container and the volume of the product inside. Read more…

ABA Section of Antitrust Law Presidential Transition Report

Partner Bill MacLeod addressed the American Bar Association’s Section of Antitrust Law with an introductory note to the Section’s 2017 Presidential Transition Report. The American Bar Association Section of Antitrust Law released its 60-page eighth sequential Presidential Transition Report, which offers a retrospective of current state and federal antitrust and consumer protection law and policy, as well recommendations for ways the new Trump administration might consider further strengthening policy and enforcement to deal with new antitrust challenges on the horizon. Read more…

Has the Supreme Court’s Resolution of Spokeo Played Out as Expected?

Partner Lee S. Brenner co-authored the Bloomberg BNA article “Has the Supreme Court’s Resolution of Spokeo Played Out as Expected?” On May 16, 2016, the United States Supreme Court held in Spokeo Inc. v. Robins that a consumer cannot satisfy the injury-in-fact demands of Article III by alleging only a bare procedural violation of a statute, divorced from any concrete harm. The article examines the Spokeo decision and how that case impacted litigation in various contexts, including data privacy, the Truth in Lending Act (TILA), the Fair and Accurate Credit Reporting Act (FACTA), and the Telephone Consumer Protection Act (TCPA). Read more…

Fifty Countries and Counting, Sixty Sessions and More – at Spring Meeting: A Message From Bill MacLeod, Chair, Section of Antitrust Law

Partner William MacLeod authored his monthly address to the American Bar Association’s Section of Antitrust Law. This month’s message features The Spring Meeting of the Section of Antitrust Law. Read more…

Upcoming Events and Speeches

Toys for Sale: IoT Devices and Connected Kids
 February 15, 2017 |WEBINAR
American Bar Association
Dana B. Rosenfeld

Litigation is Inevitable: Update on Recent Advertising Class Actions
February 22, 2017 | WEBINAR
Jeffrey S. Jacobson

Regulation of Cosmetics
March 3, 2017 | WASHINGTON, DC
Introduction to U.S. Food Law and Regulation
Kristi L. Wolff

Doing Data Right: Legal Best Practices for Making Your Data Work
March 16, 2017 |SAN JOSE, CA
Strata + Hadoop World 2017
Alysa Zeltzer Hutnik

Eyes on the 1-800 Prize: IP Restrictions and Online Competition
March 29, 2017 | WASHINGTON, DC
65th Antitrust Law Spring Meeting
David H. Evans

Multi-State Privacy/Security Investigations: Expert Roundtable
April 20, 2017 |WASHINGTON, DC
Global Privacy Summit 2017
Alysa Zeltzer Hutnik

Impact of the 2016 Election on Antitrust and Consumer Protection Class Actions
April 27, 2017 |SEATTLE, WA
Law Seminars International’s Litigating Class Actions
Jeffrey S. Jacobson

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