Thirteen months ago I wrote about how Deutsch LA employees’ tweets gave rise to a complaint and settlement with the Federal Trade Commission (FTC). Back then, the FTC held Deutsch LA liable for the tweets of employees made in order to advertise the Sony PS Vita game console. Now, the FTC has recently published another settlement regarding another advertising firm’s activities that have run afoul of the FTC’s endorsement guidelines. Significantly, the FTC also included a warning to companies that they too may be liable if the advertising firms retained by them violate the endorsement guidelines.
Refresher of FTC’s Endorsement Guidelines
The FTC issued endorsement guidelines in 1980 and issued updated guidelines in 2009 to address social media and the evolving marketing world. As former Maximize Social Business contributor Kyle-Beth Hilfer wrote in her December 10, 2014, post “Twelve Laws for Social Media Holiday Campaigns”, “advertisers must disclose ‘material connections’ between themselves and endorsers, and those endorsers, themselves, may bear legal liability for their statements. . . [I]f an employee posts reviews of his employer’s product on an online discussion board, the employee should conspicuously disclose his employment connection or the employer and employee could run afoul of the guidelines.”
To put it another way, an endorsement must come from an actual user of the service or product if any “material connection” between the endorser and advertiser would affect the weight given to the endorsement. The disclosure must be clearly worded and in plain sight.
The Activities Giving Rise To The FTC Complaint
Machinima, Inc. promoted the Xbox One system by Microsoft. The FTC complaint against Machinima alleged, in part, that Machinima paid video bloggers (“influencers”) to promote the gaming system by producing and uploading to YouTube videos of themselves playing various Xbox One games. According to the FTC in its letter to Microsoft’s attorney, “the videos were uploaded by the influencers to their individual YouTube channels, where they appeared to be independently produced by and to reflect the personal views of, the influencers.” The FTC alleged that Machinima did not require the influencers to disclose the compensation they received for producing and uploading the videos, and in fact, many of the videos did not have such disclosures. The FTC further alleged that the lack of such disclosures was deceptive to consumers, and thus, a violation of the endorsement requirements.
Why Advertisers, Employers And Employees Should Be Wary
While the FTC did not break new ground with the enforcement action against Machinima, one of the important takeaways from this case is what the FTC said about Microsoft’s role in this situation. Here, the FTC clearly articulated that a company whose products are promoted (like Microsoft here) “bears responsibility for the influencers’ failure to disclose  material connections.” Simply, companies must take responsibility for the actions and shortcomings of the advertising agencies and the agencies’ influencers/employees.
In the letter to Microsoft’s attorney, the FTC declined to find Microsoft liable for any violations. This is so because the FTC found the incidents here to have been “isolated” and occurred “in spite of, not in the absence of, policies and procedures designed to prevent such lapses.” The FTC noted that Microsoft had a “robust” compliance program which included: 1) specific legal and marketing guidelines concerning the FTC’s Endorsement Guides; 2) relevant training for employees and vendors; and 3) “additional safeguards regarding sponsored endorsements,” including “requiring their employees to monitor influencer campaigns conducted by subcontractors in the future.” Finally, the FTC was favorably impressed that Microsoft “took swift action to require that Machinima insert disclosures into the campaign videos once [it] learned that Machinima had paid the influencers and that no disclosures had been made.”
Advertisers and ad agencies should look to the FTC’s examination of Microsoft’s actions as a starting point for compliance. Both advertisers and the ad agencies that support the advertisers should develop internal legal and marketing guidelines to ensure compliance with the FTC guidelines. Next, employees and vendors must be trained to follow the guidelines, and the advertiser’s employees must be trained on how to monitor the activities of the ad agencies retained to promote the products or services. Additionally, policies should be in place to address the situation when required disclosures are not made, and what the company and/or ad agency will do to swiftly rectify the deficiencies. Companies and ad agencies should review these contracts with each other, and consider inserting/identifying key language regarding compliance with the FTC guidelines. And, in the future, if not already in the contracts, the parties should require each other to have comprehensive policies, training and supervision to decrease the likelihood of an FTC complaint.
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