If you’re a business that uses paid-endorsers and social media influencers as part of its marketing strategy, are you ready for elevated scrutiny by the Federal Trade Commission? The recent settlement reached between the FTC and health-focused teas and skin care maker Teami, LLC offers some clarity and guidance for social media advertisers hoping to stay out of legal hot water.
Section 5 of The Federal Trade Commission Act (15 U.S.C. § 45(a)) makes “unfair or deceptive acts or practices” in interstate commerce illegal. When it comes to product or service endorsements, Section 255.0 of the FTC’s Endorsement Guides provides that the connection between advertiser and endorser must be “fully disclosed” where the connection between the endorser and the advertiser might “materially affect the weight or credibility of the endorsement.”
In other words, if the connection between you (the advertiser) and your social media celebrity or influencer is not reasonably expected by the audience of that endorsement, then that connection has to be clearly and conspicuously disclosed.
Teami, LLC, a marketer of teas and skincare products, paid celebrities (including popular artists Cardi B and Jordin Sparks) and social media influencers to endorse its products on Instagram. Problem was, several of these influencers routinely failed to clearly and conspicuously disclose that fact in their posts.
The FTC subsequently charged Teami with failing to adequately disclose to consumers that the influencers were paid to endorse Teami’s products, constituting a deceptive act or practice under Section 5.
Ultimately, Teami settled with the FTC and a Stipulated Order for Permanent Injunction and Monetary Judgment was approved by a Federal district court in Florida on March 17, 2020.
As part of the settlement with the Commission, Teami was required to pay $15.2 million (although the bulk of it would be suspended, pending its payment of $1 million of that to the FTC first). Moreover (and what should serve as a further cautionary tale to business owners utilizing paid- and celebrity endorsers), the Consent Order required Teami’s co-owners to allow the FTC to place liens on the various residential properties located in Oregon and Florida (ouch).
Why Businesses and Advertisers Using Influencers Should Take Notice
The Teami Consent Order is important because, at least until additional FTC rules and guidelines on paid social media endorsements are unveiled, it underscores best practices that social media advertisers can adopt and follow to hopefully avoid future allegations of deceptive trade practices from the FTC.
Best Practices for Businesses Partnering with Paid Endorsers
- Don’t misrepresent. Yes, it sounds glib and, frankly, I can’t believe I even have to lead off with this, but here we are. No, you cannot mislead your audience or consumers. The FTC even has a handy guide they made specifically for this called, “Disclosures 101 for Social Media Influencers”, a breezy 8-pager that describes what is and isn’t allowed with social media marketing and paid endorsements. You can view and download the guide here.
- Disclose “material connections”—and make sure your paid endorsers do, too. When you as an advertiser (or your paid endorser) make representations about that endorser, it must be done with a disclosure that is “clear and conspicuous” and “in close proximity” to that representation. In other words, not buried or hidden by the “More” button on the post.
- Have a “statement of disclosure responsibilities” drawn up or have such language included in your endorser agreements. Keep in mind that, in response to a 2018 FTC warning earlier, Teami had taken steps to craft a written social media influencer policy, that included specific do’s and don’ts for its paid-endorsers. It apparently wasn’t enough. For your social media celebs and paid endorsers, you will want to have an agreement at least as robust as the one called for in the Consent Order, or at a minimum review your current endorsement and “brand partner” agreements to make sure they include similar language. Have your paid-endorsers and celebs acknowledge it, sign it, date it, and return it back to you to keep in your “in case of emergency, break glass” FTC file. To this end, there are some other terms and goodies that advertisers might want to consider adding to their agreement with paid-influencers which I will cover in a future post.
- Cut ties with influencers and endorsers who are violating your terms. Many of you have probably heard of the expression, “Fire quick and hire slow”. Although I’ve become used to hearing this saying as part of my work with tech startups and their founders my Phoenix law firm works with, I can tell you that it is no less applicable to social media influencers and paid-endorsers that you might have on your payroll. If things weren’t trending that way already, the FTC made it clear earlier this year that they are coming for the advertisers and not so much the minor influencers and smaller paid endorsers on their payroll. However, as we saw with Teami, the non-disclosing actions (or, more accurately, omissions) of your paid influencers will be imputed to you by the FTC. Having to write a $1 million check to the Feds for the ongoing failures of your more lazy paid-endorsers is most likely not going to be worth it to your business. As I said earlier, Teami had a written policy in place (the content of which, in my opinion, wasn’t all that terrible) with its endorsers. However, as the case showed, even if you feel you’ve covered yourself through written agreements and policies, your less-than-diligent influencers can still be setting you up for an expensive confrontation with the FTC. To this end…
- Have a system in place to monitor your paid endorsers. The Consent Order requires Teami to establish, implement, and maintain a “system to monitor and review the representations and disclosures of endorsers with material connections to [Teami]”, including reviewing each specifically contracted online video and social media posting promptly after publication. Thus, even if you as an advertiser or business aren’t able to edit or review your endorsers’ postings in advance (which, admittedly, would be challenging and likely impractical), it appears that the FTC will be okay with such a review post-publication, so long as your business can show that it is part of an overall, documented paid-endorser monitoring regime. The Consent Order also calls for Teami to generate and submit regular reports showing the results of the monitoring required under the Order, so it would also be wise to make sure that any system your business does develop and adopt has this capability as well (See my reference to a “just-in-case” file above).
- Lastly, although not specifically an issue in Teami, I will throw in another “don’t” for advertisers and your paid-endorsers (and, again, too sheltered or naive to believe I even have to say these things): Don’t make false statements about third-parties or their goods and services. Doing so could not only get the FTC on your case, but also amounts to a giant, flashing “SUE OUR BUSINESS” sign to third-parties for business libel, unfair competition, and other personal or business injury claims that can be very expensive to defend, even with no actual evidence of harm to that third-party. I know some lawyers who argue that it is better or even okay(?!) if you or your paid-endorser couches or phrases the negative statement as “opinion” or “belief,” rather than as fact. In my opinion, this is not only unnecessarily risky but flat-out dumb—in addition to being bad business. Now, it’s possible that your business is a commercial speech crusader and has the free cash flow to spend on lawyers to litigate whether your influencer made such statements as “fact” versus as “opinion” but, if you’re like most businesses, trust me that you don’t want to go down that road.
If you’ve been following the FTC’s evolution on social media paid-endorsements and disclosures of late, there is little question in my mind that they’re done playing and are on the warpath. The days of self-policing with #sponcon and #partner hashtags buried in the post content or captions will no longer suffice. However, it’s only one Consent Order and time will tell if what happened with Teami was the FTC sending a message to social media advertisers and paid-endorsers or if this was an aberration. In the meantime, it behooves businesses and advertisers on social media to be proactive and to at least not make themselves an easy target for an FTC enforcement action.
Ben Bhandhusavee is the Managing Attorney for BHANDLAW, PLLC, a startup, technology, and e-commerce law practice advising founders and management teams on company startup, corporate and technology transactions, e-commerce, as well as Internet privacy concerns. The firm serves corporate and individual clients throughout Arizona, the United States, and internationally. Our offices are conveniently located along the Camelback corridor in Phoenix’s financial district. For more information about our E-Commerce/Internet Law practice, feel free to reach out using the contact form on the right or call us at (602) 222-5542 to schedule a meeting. Connect with Ben on LinkedIn or Avvo.