By Jenna Andrews
What do Rihanna, Cristiano Ronaldo and Kim Kardashian all have in common? They are three of the largest social media influencers in the world. Collectively, they have the ability to influence the purchasing decisions of over 500 million people through their social media activity. Products such as Nike sneakers, Apple Watches, and Fit Tea are endorsed through their accounts. But are these practices of advertising unreasonably misleading? Are they legal?
Since the 1980’s the Federal Trade Commission has barred dishonest or misleading product endorsements. In recent revisions to the FTC’s Endorsement Guide, the commission has indicated that its regulations apply to endorsements made on social media platforms. In order to adhere with FTC guidelines, a celebrity or social influencer who receives free products, commission, or any form of compensation from a company, must disclose that information to their followers. Failure to disclose the influencer’s connection with the seller many result in liability not only for the influencer but for the promoted brand as well.
To prevent deceptive practices, the FTC specifies that material connections between a brand and an endorser must be disclosed to the public. A material connection is defined as any connection between the endorser and sponsor that might “materially affect the weight or credibility of the endorsement”. The rationale behind the FTC’s disclosure mandate is that there is a heightened level of trust between consumers and social influencers, as opposed to traditional forms of advertising. Knowing that an influencer is paid to promote a product will likely impact a consumer’s decision to purchase.
A recent example of the FTC’s crack down on misleading marketing is a claim brought against luxury fashion retailer, Lord & Taylor, for deceptive advertising practices. As part of a social media campaign for one of the retailer’s private collections, the company contracted with fifty of Instagram’s top “fashion influencers” to post photos wearing a Design Lab dress and including the hashtag #designlab. The photos were pre-approved by Lord & Taylor representatives and the influencers were paid between $1,000 and $4,000 for each post. FTC records indicated that the endorsement contracts did not require the influencers to disclose that they were compensated. The FTC claimed that these practices amounted to deceptive advertising because the endorsements of the influencers would be material to their followers in deciding to purchase the Design Lab dress. Shortly after the FTC’s investigation, a settlement was reached with Lord & Taylor.
The most important takeaway from the FTC’s recent focus deceptive social media marketing is that disclosure is key. Whether a brand pays for a celebrity’s endorsement or sends free merchandise to influential social media figures, companies must require disclosure in order to be in compliance with FTC regulations. According to Michael Ostheimer, a deputy in the FTC’s Ad Practices Division, “We’ve been interested in deceptive endorsements for decades and this is a new way in which they are appearing . . . .we believe that consumers put stock in endorsements and we want to make sure they are not being deceived.”
Student Bio: Jenna is a staff member of the Journal of High Technology Law and 2L at Suffolk University Law School with a concentration in Business Law. She holds a B.S. in Marketing from Johnson & Wales University.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.