April 3rd, 2014

FTC Pursues False Endorsement Allegations Against “Intermediaries” and Social Media Contests

We recently reported on the FTC's settlement with home security company, ADT LLC ("ADT") for their use of paid endorsers presented to look like impartial experts. As five recent investigations show, the ADT investigation extended to other parties. In addition, the FTC's interest in monitoring endorsements has expanded to include social media promotions. Below are summaries of the most recent actions involving the FTC's Endorsement Guides.

FTC Takes ADT Settlement Four Steps Further

It is now clear that the ADT investigation extended to Pitch Public Relations, LLC (the public relations firm), Village Green Network (the advertising network that published the blog posts), News Broadcast Network (the booking agency), and even one of the experts herself, Alison Rhodes-Jacobsen. The FTC had not previously publicly addressed the obligations of an intermediary - i.e., a party facilitating payments from a marketer to an endorser - for the failure of endorsers to disclose material connections with marketers. Yet in its closing letters to these parties, the FTC made clear that any party that actively participates in the marketing of products through paid endorsers "has a responsibility" to "make sure" that material connections (e.g., compensation) between advertisers and endorsers are clearly and conspicuously disclosed in the communication that contains the endorsement when that relationship is not otherwise apparent from the context.

Promotion Entries as Endorsements

A recent Pinterest promotion sponsored by fashion brand Cole Haan also caught the FTC's attention, leading to the first public FTC action involving a social media contest. Cole Haan's "Wandering Sole Pinterest Contest" instructed entrants to create Pinterest boards with images of Cole Haan shoes and pictures of their "favorite places to wander." The brand also asked entrants to include a specific hashtag in their entries, in this case "#WanderingSole." The winner of the contest would receive a $1,000 shopping spree.

In its closing letter concluding the investigation, the FTC stated that "pins" of Cole Haan products constituted endorsements of the brand. Moreover, said the FTC, the opportunity to win a significant prize was an incentive for entrants, and one that would not reasonably be expected by consumers who saw the pins, thus requiring additional disclosure. Consequently, the FTC concluded that Cole Haan's failure to instruct contestants to label their pins and Pinterest boards to make clear they were pinning Cole Haan products in exchange for a contest entry could constitute a violation of Section 5 of the FTC Act. The FTC did not believe that the hashtag "#WanderingSoul" adequately communicated the financial incentive - i.e., the material connection - between the contestants and Cole Haan.

As highlighted in the closing letter, the FTC ultimately decided not to initiate an enforcement action against Cole Haan, given that the Commission has not yet publically addressed whether entry into a promotion is a form of material connection or whether a pin on Pinterest could constitute an endorsement. The FTC also noted that the Cole Haan contest ran for a short period of time and did not garner a large number of contestants. Also, the brand instituted a social media policy in the interim to address the FTC's concerns. So while the FTC closing letter does not constitute a finding of a Section 5 violation, it does serve as an important notice to advertisers of the Commission's point of view.

What to Do?

It remains to be seen what other social media activities will be considered "endorsements" by the FTC in future actions. In the meantime, advertisers and their agencies should be mindful of the FTC's expansive perspective of endorsements and should ensure that appropriate disclosures are used in their promotions. In sum, brands must adequately disclose when consumers are incentivized to endorse their products, whatever form that endorsement takes. While every situation is unique, hashtags like "#Contest" or "#Sweeps", or well crafted plain language disclosures, may suffice.

For more information about these actions, the FTC Endorsement Guides, or any other advertising or marketing law issues, please contact Terri Seligman at (212) 826 5580 or tseligman@fkks.com, Claudine Wilson at (212) 705 4842 or cwilson@fkks.com, Hannah Taylor at (212) 705 4849 or htaylor@fkks.com, or any other member of the Frankfurt Kurnit Advertising, Marketing & Public Relations Group.