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As advertisers are relying moreheavily on social media platforms tocreate buzz around new productsand services, a new settlement withthe Federal Trade Commission hascalled cutting edge promotionaltechniques into question. In Marchof this year, the FTC announced asettlement with department storechain Lord & Taylor for its allegedlydeceptive use of native advertisingin a multi-pronged online and socialmedia campaign. This article ex-plores how advertisers use socialmedia and native advertising toreach consumers and how the recentLord & Taylor settlement can assistadvertisers as they consider how tostructure social media advertisingcampaigns so as not to prompt theFTC to “dislike” the campaign – andbring an action.

How to avoid the FTC not“liking” your next campaign

The US Federal Trade Commission is clamping down on native advertising and theuse of endorsements on social media. A settlement with Lord & Taylor in Marchprovides a number of lessons for brands, as outlined by Meryl Bernstein

As the social media landscape evolves and broadenson a seemingly hourly basis, advertisers are relyingupon creative promotional techniques to reachpotential consumers. Once limited to posts toAOL chat rooms, social media now means posts,likes, tweets, hashtags, Instagrams, pins, and snaps,

thereby creating a forum for conversation and the promotionof an advertiser’s goods or services. Social media has burgeonedinto a virtual reality where consumers – particularly the youngconsumers that advertisers and brands are eager to reach –spend most of their time and can exert the kind of influenceover their peers that advertisers only dream about.

Marketing and advertising professionals are on a never-endingquest to devise new and exciting ways to engage with consumerson social media in a way that feels natural. It has become commonto use individuals with strong social media followings – dubbedsocial media “influencers” – to advertise new products and serv-ices. These influencers are often not celebrities, but regular folkwho have garnered the attention (and followers) of the socialmedia world. They are generally compensated either in dollarsor in free products or incentives to post about the advertisedproduct to build interest among their following. Using influencerscan be the full social media advertising campaign or only one di-mension thereof; social media campaigns might include imple-menting sweepstakes or contests on social media featuring abrand’s products, offering discounts or other incentives to thosewho engage with a brand’s social media page, or engaging in nativeadvertising, as we will discuss in more detail.

In implementing any kind of advertising campaign, advertisers andthe brands they represent must comply with the Federal Trade

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Commission guidelines which protect consumers from deceptivetrade practices. The Catch 22 is evident: brands want customersto see their social media influencers using their products and serv-ices in their everyday lives in a way that doesn’t feel like an adver-tisement. These types of “real” interactions go further towardinfluencing consumers than do the traditional approach (thinkpaid celebrity offering endorsements on television commercialsthat ring hollow). But are these “endorsements” under the FTCguidelines (see sidebar), and what is the obligation of advertisersto inform consumers that influencers are paid to use their prod-ucts? How far does the influencer need to go to disclose his or herconnection to the brand, and what is the sponsoring advertiser’sobligation to ensure the post sends the right message? Whensomething goes awry, who is responsible – the influencer, the mar-keting agency or the brand itself ? These questions are challengingand highly fact-dependent in and of themselves, and in the contextof an ever-changing social media landscape with evolving market-ing methods, they become even more difficult to answer.

The FTC steps in

Luckily, the FTC has stepped in over recent years to answersome of these questions. In 2009, the FTC issued its first updatesince 1980 to its Guides Concerning the Use of Endorsementsand Testimonials in Advertising (16 CFR Part 255), known col-loquially as the Endorsement Guidelines, to clarify the applica-tion of Section 5 of the FTC Act (15 USC 34), which generallyprohibits deceptive advertising, to the use of endorsements andtestimonials in advertising. The Endorsement Guidelines arenot regulations and do not have the force of law, but rather areintended to give practical information that advertisers shouldfollow and, if they do not, the FTC may investigate whether theirpractices are unfair or deceptive under the FTC Act.

In general, the Endorsement Guidelines apply to advertising inall forums – TV, print, radio, word-of-mouth – in addition to so-cial media promotions. In the social media context, an endorse-ment can take the form of various social media-related actions –a posted message on Facebook, a tweet, an Instagram photo –provided that the message reasonably appears to convey the beliefor experience of the person posting it (and not of the advertiser).

The principle is a simple one: endorsements must be truthful

and they must not mislead consumers. In the social media con-text, the first component of this principle can be applied easilyenough: the individual’s social media post must reflect his orher truthful view of the relevant product or service. He or shemust have actually tried the product and the social media postmust reflect his or her own opinions about that experience.

The second component – whether the social media post is mis-leading – triggers a more nuanced analysis. Consider the fol-lowing example. I purchase a new skin cream and tweet mypersonal view as to how it performed. Do I need to mention inmy tweet that I received the product for free? If your answer isyes, would it change if you generally understood me to postabout skin care products such that you already assumed that Iwas gifted the cream? Would your answer change if you weretold that I worked for the manufacturer that makes the cream?The response to each of these questions boils down to a con-sideration as to whether consumers, upon seeing my tweet, gen-erally understand my connection to the advertiser and whetherthey would feel differently about the endorsing tweet and theproduct if they knew about my connection.

Recognising that consumers, endorsers and advertisers alike wouldbenefit from additional clarity as to the meaning and scope of theEndorsement Guidelines, in May 2015 the FTC published “TheFTC’s Endorsement Guides: What People Are Asking”, a collectionof questions that the FTC has received with respect to the Endorse-ment Guidelines and containing the FTC’s responses thereto. ThisQ&A document makes clear that social media influencers mustadhere to the Endorsement Guidelines and that it is not commonlyunderstood by the public that influencers are paid or receive freegoods in exchange for their posts (such that some further disclosureis needed). The Q&A also made a few key concepts clear: • video posts (such as those on Instagram, Snapchat or

YouTube) are covered by the Endorsement Guidelines justas the Endorsement Guidelines apply to plain text that isposted to websites and blogs;

• an individual that is engaged on an ongoing basis to pro-mote a product or service cannot simply disclose that rela-tionship on his or her social media profile; rather, theparticular tweet or Facebook post must be individuallytagged as sponsored or paid;

• there is no magic language for making an adequate disclo-sure; rather, the disclosure itself should be clear and conspic-uous, in plain English – not in legalese – and must conveythe importance of the information (it cannot be hard to findor hyperlinked to another site or page);

• erring on the side of disclosure is safest. For instance, onequestion asked whether a famous athlete that is a well-known spokesperson for a product has to disclose he isbeing paid every time he tweets. The FTC stated that if thereis any risk that followers were not aware of the relationship,disclosure was recommended;

• social media users who receive rewards for promoting abrands’ goods likely should disclose their connection whenthey pin a photo, share a link, or otherwise post to socialmedia as part of the brand’s campaign.

Later in 2015, the FTC released its Enforcement Policy State-ment on Deceptively Formatted Advertisements. The PolicyStatement sets forth the FTC’s view as to the application of con-

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What is an endorsement?

An endorsement is any advertising message – including social mediaposts – that consumers are likely to believe reflects the personal be-liefs or experiences of a person other than the sponsoring advertiser.

BUT WAIT! An endorsement is not a message by a spokesperson orcelebrity who is generally understood to be paid for their participationin an ad campaign.

AND NOTE: The FTC Act only covers endorsements made on behalf of asponsoring advertiser – not endorsements where the person makingthe post has no relationship with the advertiser.

sumer protection law on native advertisements as well as its ex-planatory document, “Native Advertising: A Guide for Busi-nesses”. In the Policy Statement, the FTC notes that “manypublishers have begun to offer advertisers formats and tech-niques that are closely integrated with and less distinguishablefrom regular content so that they can capture the attention andclicks of ad-avoiding consumers”. These native ads – which looklike their surrounding non-advertising content – may be in-serted into a website’s content, embedded into entertainmentprogramming (such as a television show) or used in a socialmedia advertising campaign (as was the case in the Lord & Tay-lor campaign that we will next discuss).

The FTC makes clear in its Policy Statement that native ads – likeall advertising messages – must be identifiable as advertising andnot mislead the public. In determining whether the ad is mislead-ing, the FTC makes the rather vague statement that “the Com-mission will consider the particular circumstances in which theads are disseminated, including customary expectations based oncustomers’ prior experience with the media in which it appearsand the impression communicated by the ad’s format”. The FTCwill also consider the target audience of the ad and the way it isformatted in determining whether or not it is misleading.

Of course, the FTC could not within the confines of the Q&Adocument or its Policy Statement address each and every po-tential situation where social media is used as a vehicle for anonline advertising campaign, whether that campaign utilizes so-cial media influencers’ endorsements or native ads. Thus, ad-vertisers must fill in the gaps of their understanding of the FTC’sviews by examining the actions brought by the FTC in this con-text. One such recent enforcement action by the FTC provesespecially instructive in this regard.

The FTC doesn’t “Like” Lord &Taylor’s campaign

In May 2016, the FTC issued a three-count complaint againstLord & Taylor relating to an advertising campaign that it ran theyear prior to promote its private label Design Lab collection. Lord& Taylor sponsored a multi-dimensional ad campaign that em-ployed (1) its own social media posts on Lord & Taylor socialmedia accounts, (2) the social media posts of a team of social

media influencers, and (3) native advertising by online magazineNylon, each to promote one garment in the Design Lab collection,the Design Lab Paisley Asymmetrical Dress, pictured above left.

Lord & Taylor gifted the dress to 50 social media influencers andpaid them between $1,000 and $4,000 to post photographs ofthemselves wearing the dress on social media. The influencerswere contractually obligated to use the @lordandtaylor Instagramuser designation and the designated campaign hashtag #Design-Lab in the caption of the photo they posted. Critically, Lord &Taylor did not require that the influencers disclose in their poststhat they were paid to promote the dress or that they received thedress for free. Lord & Taylor did review the influencers’ posts inadvance, but did not edit them to include a disclosure as to therelationship between the influencer and Lord & Taylor or other-wise to signal that the post was part of a sponsored campaign. Animage of one of the influencers’ posts, which was included as anexhibit to the FTC’s formal complaint, is pictured above. Accord-ing to the FTC’s Complaint, the influencers’ posts reached 11.4million Instagram users and the dress quickly sold out.

The native advertising component of the campaign involvedLord & Taylor partnering with online magazine Nylon. Nylonpublished an article about the Design Lab collection andposted about the Paisley Asymmetrical Dress on its Instagramaccount. Lord & Taylor paid for and reviewed the article andInstagram post in advance without including (or requiring thatNylon include) any disclosure that the article or the social mediapost were paid promotions.

After review of these facts and giving the public an opportunityto comment, the FTC ultimately approved a consent order pro-hibiting Lord & Taylor from misrepresenting that an endorserof any product or service is an independent user or ordinarycustomer and holding Lord & Taylor responsible for disclosingmaterial connections between endorsers and itself in the future.In order to ensure continued compliance with the order, Lord& Taylor must:• provide its endorsers with clear instructions as to the re-

quired disclosures for any advertisements, including thoseposted to social media, and obtain signed acknowledge-ments of its instructions from its endorsers;

• implement a system to monitor the social media posts anddisclosures made by its endorsers;

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• after sending one prior notice of a failure to disclose, termi-nate its relationship with any endorser who has misrepre-sented his or her independence from the company or failedto make an adequate disclosure; and

• maintain reports to demonstrate that it is complying withits obligations under the settlement.

What’s next? Lessons to be learned

The Lord & Taylor settlement demonstrates that advertisersmust ensure that influencers adequately disclose their connec-tion with the brand and that native advertisements are not mis-leading. But the settlement points to other lessons foradvertisers and puts a spotlight on trends in social media mar-keting that require a closer look.

First, not just any disclosure will do. It is important to realisethat not all disclosures are created equal, and that the FTC hasand will continue to bring actions against advertisers that, in itsview, have not required social media influencers to disclose theiraffiliation with the marketer in clear enough terms or in a suffi-ciently prominent position. In order to be effective, a disclosuremust be clear and conspicuous. The FTC’s Decision and Orderin the Lord & Taylor matter provides helpful guidance as towhat qualifies as a sufficiently clear and conspicuous disclosure(see box).

Next, if the campaign uses native advertising techniques,the advertiser should pay even closer attention. It is nowclear that the FTC has its eye on native advertising, particularlywhere native ads are used in the context of social media pro-motions. As a result, the sponsor of an ad campaign must ex-amine the advertisement from the perspective of a consumerand through that lens, ensure that the ad is clearly disclosed assuch (and does not blend into the platform’s content).

Advertising and social media marketing companies needto seek out more information and counsel regardingcompliance with FTC guidance.Oftentimes, brands utilisethird-party advertising and marketing firms to launch ad cam-paigns. Those retained advertising firms have a responsibilityto be well acquainted with FTC guidance and think througheach stage of the marketing campaign that is being imple-mented to ensure that no stage could lead to consumer con-fusion. For instance, it may well be that a sufficient disclosureis included when a social influencer first posts a message, butthat the disclosure is not included when that post is subse-quently shared by other users or onto other social media plat-forms. Marketers should work side by side with their brandclients and with social media platform providers to ensure thatthey understand how messages appear at all stages through thead campaign’s life cycle and that a disclosure is appropriate inthe context of each platform. Although the FTC brought anaction only against Lord & Taylor and not against Nylon or theinfluencers themselves, the FTC may take another course inthe future such that social media marketing firms would bewise to pay attention to FTC enforcement actions and followthe endorsement guidelines.

By the same token, brands cannot “pass the buck” to ad-vertisers in terms of compliance with the EndorsementGuidelines.Brands need to be aware of FTC guidance whenthey utilize their in-house marketing professionals and whenthey retain advertising companies. As the Lord & Taylor set-tlement teaches, the brand sponsoring a misleading promotionwill bear primary liability should a Section 5 violation be al-leged. As a result, brands should exercise caution when hiringmarketing agencies and social media and should monitor theiragencies and influencers closely. They should have guidelinesin place for influencers to follow and develop (and use) formcontracts with influencers that include provisions requiringthat influencers disclose their relationship and comply withthe Endorsement Guidelines. The compliance obligations setforth in the FTC’s order in the Lord & Taylor matter otherwiseprovide helpful guidance to advertisers that they should be, ata minimum, reviewing and approving social media content be-fore it is posted to ensure that disclosures are adequate, imple-menting monitoring procedures, and taking corrective actionwhen needed.

Finally, social media platform operators might considerproviding enhanced technological solutions to advertis-ers seeking to make adequate advertising disclosures. Ifthe time constraints of a Snapchat video, the character limita-tions of a Tweet or the very nature of a Facebook “like” do notallow the individual making the post to make a clear disclosure,then at some point it would seem that social media platformsshould work to build tools that enable brands to implement so-cial media advertising campaigns in a way that allows clear andconspicuous disclosures to be made.

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What makes an advertising disclosure in a social media ad clearand conspicuous? The FTC’s Decision and Order in the Lord & Tay-lor settlement explains that, in addition to other requirements, adisclosure:

• must be noticeable – not hidden in fine print or in an inconspicu-ous part of a website, for instance

• must be “unavoidable” – harkening back to the notion that the dis-closure must be conspicuous and not hidden

• cannot contradict anything else in the communication – meaning,you can’t confuse the public

• must be “in a volume, speed and cadence sufficient” to be under-stood by an ordinary consumer (think an audible disclosure embed-ded within a video posted to YouTube)

• must be in close proximity to the endorsement or representation(such that disclosures through hyperlink or pop ups are not in closeenough proximity)

© 2016 Meryl Bernstein. The author is a seniorassociate at Hogan Lovells in Northern Virginia

MerylBernstein