On Notice: Disclosing Unexpected Material Connections In Advertising – Media, Telecoms, IT, Entertainment – United States

Written by corres2

In this final installment of our “On Notice” series
about the FTC’s Notice of Penalty
Offenses Concerning Endorsements
, we discuss when and how to
properly disclose the existence of a material connection between an
advertiser and an endorsing party.

Per the FTC’s Notice of Penalty Offenses, “[i]t is an
unfair or deceptive trade practice to fail to disclose a connection
between an endorser and the seller of an advertised product or
service, if such a connection might materially affect the weight or
credibility of the endorsement and if the connection would not be
reasonably expected by consumers.” In support, the FTC cited
Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984), a case
where “[n]one of the testimonials used in the respondents’
advertisements and promotional materials indicate that at the time
of their writing, the testimonialists personally knew the
manufacturers or various marketers.or were connected with them in
any way.” The FTC’s Endorsement Guides contain the
same guidance. See 16 C.F.R. § 255.5.

The FTC does not require that every connection be disclosed -
only connections that are material to a consumer’s perception
of the endorsement, and that consumers would not reasonably expect.
A “material connection” can include payment, free
product, or a family or employee relationship with the advertiser.
As for whether a consumer would reasonably expect such a
connection, the Endorsement Guides provide an example where an ad
for an anti-snoring product features an endorsement from a
physician. The FTC notes that while consumers would expect the
physician to be reasonably compensated for his appearance in the
ad, consumers would be unlikely to expect that the physician
receives a percentage of gross product sales or that he owns part
of the company – and knowing this would materially affect the
weight and credibility of the endorsement. Accordingly, the FTC
advises that the latter two connections should be disclosed.

Where consumers would not reasonably expect a particular
material connection, the FTC’s Endorsement Guides instruct that
the person making the advertisement must “clearly and
conspicuously disclose” (i) either the payment or promise of
compensation prior to and in exchange for the endorsement, or (ii)
the fact that the endorser knew or had reason to know or believe
that they would receive some benefit if they favored the advertised
product. The Endorsement Guides provide an example where a college
student who has earned a reputation as a video game expert receives
a free gaming system from the manufacturer, in exchange for
reviewing the product on his personal website or blog. Noting that
because his review is disseminated via “a form of
consumer-generated media in which his relationship to the
advertiser is not inherently obvious,” the FTC recommends that
the blogger should clearly and conspicuously disclose that he
received the gaming system free of charge.

Overall, the primary question is whether knowing about the
compensation or other benefit would affect the weight or
credibility the audience would ascribe to the recommendation. These
requirements apply equally across different platforms and types of
media, whether the endorsement appears in a television commercial,
YouTube video, or Instagram post.

So what does it mean for a disclosure to be “clear and
conspicuous?” While there is no special wording that must be
used, the disclosure must effectively communicate that the
endorsement was provided in exchange for some benefit. For example,
if an endorser is sent free product in exchange for providing a
video review, it would be appropriate to say something like
“Company X gave me this product to try,” or “Company
X gave me [name of product] and I think it’s great.” For
video reviews, the FTC requires an audio disclosure as well as a
written disclosure in the description or caption for the video. For
sponsored social media posts, hashtags such as #sponsored, #ad, or
#[Brand]_Ambassador can be used, but vague or ambiguous hashtags
like “#sp,” “#spon,” “#thanks,” or
the word “#ambassador” standing alone are not sufficient.
As with any disclosure, the hashtags must be unambiguous and easy
to find. A hashtag that is buried in a string of other hashtags, or
that is not visible unless the viewer clicks to see
“more” would not be considered an adequate

Factors the FTC considers in determining whether a particular
disclosure is clear and conspicuous include:

  • The placement of the disclosure in the advertisement and its
    proximity to the claim it is qualifying;

  • The prominence of the disclosure;

  • Whether the disclosure is placed so prominently that a consumer
    will invariably see it;

  • The extent to which items in other parts of the advertisement
    might distract attention from the disclosure;

  • Whether the disclosure needs to be repeated several times in
    order to be effectively communicated, or because consumers may
    enter the site at different locations or travel through the site on
    paths that cause them to miss the disclosure;

  • Whether disclosures in audio messages are presented in an
    adequate volume and cadence;

  • Whether visual disclosures appear for a sufficient duration;

  • Whether the language of the disclosure is understandable to the
    intended audience.

The FTC has been particularly active in monitoring this space in
recent years as partnerships between advertisers and social media
“influencers” have become increasingly common. The FTC
has issued warning letters to and brought enforcement actions
against both advertisers and influencers for their alleged failures
to comply with FTC regulations concerning undisclosed material

In one recent example, the FTC brought an enforcement action
against Teami, LLC, the maker of various diet and detox tea
products, and issued warning letters to several of Teami’s
influencers. We referenced this action in a previous “On Notice”
. In addition to allegations of unsubstantiated
testimonials, the FTC’s complaint cited a failure to
disclose that Teami paid well-known Instagram influencers to
promote its products. Though Teami implemented a social media
policy in May 2018 that specifically instructed its paid
influencers to make clear and conspicuous disclosures, the FTC
found that subsequent sponsored Instagram posts clearly flouted
these directives. This case underscores that simply instructing
influencers to comply with disclosure requirements is not enough;
an advertiser should actively monitor its influencers’
advertisements, and take proactive steps to take down any
advertisements that do not comply.

Following FTC guidance, NAD and ERSP, too, have made failure to
disclose material connections a priority. For example, in one case,
ERSP was concerned social media influencer advertising for athletic
apparel did not contain sufficiently clear or conspicuous
disclosures. Alo, LLC (Alo Yoga), ERSP Case #429 (2019).
In particular, ERSP identified certain posts where the disclosure
was not visible until viewers hit the “more” button,
where the disclosure was couched between several hashtags, and
where the disclosure was made in a different language from the
original post. Although Alo provided its influencers with
“Ambassador Program Guidelines,” which instructed
influencers to comply with the FTC’s disclosure requirements,
ERSP found this to be insufficient because the company did not
follow up with social media influencers engaging in questionable

Additionally, NAD recently rolled out its Fast-Track
“SWIFT” process, expediting the process for singe-issue
disputes that do not require complex evidence or argument.
NAD’s SWIFT process can only be used for three types of cases -
one of which is cases involving the prominence or sufficiency of
disclosures, including disclosure issues in influencer marketing,
native advertising, and incentivized reviews. We will monitor if
and how the NAD uses the SWIFT program to consider issues of
influencer advertising.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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