Attorneys Holland & Knight hosted Michael Ostheimer, a senior attorney for the Federal Trade Commission (FTC), for a webinar presentation on Feb. 16, 2021. Ostheimer has been with the FTC for three decades, currently serving as a senior staff attorney with the FTC’s Division of Advertising Practices.
During the interview, Holland & Knight Partners Anthony DiResta and Da’Morus Cohen asked Ostheimer dozens of questions covering a broad range of topics concerning social media advertising and marketing practices, including:
- trends in social media advertising
- what regulations govern social media advertising
- the role of disclosures and disclaimers
- the use of blogs, celebrities and influencers in social media advertising
- revisions to the FTC’s Guides on Testimonials and Endorsements
- employee posts on social media platforms
- product and service reviews
- concerns relating to sweepstakes and similar promotions in social media
- conduct by tech companies and user-generated content
- law enforcement actions, warning letters and other initiatives by the FTC concerning inappropriate social media advertising
- risk management, including understanding liability and available relief to consumers and the government as a result of an enforcement action, and
- recommended policies and procedures, including social media policies and training practices
Importantly, these compliance issues touch upon every industry sector in the U.S. economy, including financial services, healthcare and life sciences, retail, technology, hospitality and tourism, transportation, education, media, technology, telecommunications and manufacturing.
The webinar is chock-full of best practice tips and “inside information” that can help companies enhance their regulatory compliance programs and minimize their risks associated with social media advertising and marketing.
Impact of Administration Change
It is too early to tell what impact the Biden Administration and the president’s appointees will have on the FTC and its enforcement priorities. However, it is likely that Acting Chair Rebecca Slaughter will seek monetary penalties in almost all cases, utilize analytics and artificial intelligence to determine potential outcomes of investigations and the likelihood of success, focus on e-commerce, and uncover how fake reviews contribute to consumer appetite for product and how these reviews contribute to the importation of counterfeit product from abroad.
Standards of Review
From the FTC’s regulatory and legal perspective, social media advertising is not substantively different from traditional advertising, such as television and radio. In fact, social media advertising is subject to the same rules and standards as traditional advertising. The FTC’s focus is on the integrity of the communications from the marketer to the consumer – whether the communications are accurate, transparent and nondeceptive. In other words, brands must tell the truth, not exaggerate any claims, and be transparent through disclosures and disclaimers.
Educating the Public
To enforce FTC regulations and educate marketers and the consuming public, the FTC has launched several initiatives concerning social media advertising, which include:
- filing law enforcement actions, which are seeking both injunctive and monetary relief
- issuing warning letters to marketers, including product manufacturers and influencers, especially those regarding health claims, Made in USA claims and COVID-19 claims
- issuing updated guidance for marketers, specifically focused on social media advertising and marketing, including revisions to the Guides on Testimonials and Endorsements and the publication of Disclosures 101 specifically targeted to influencers themselves
- conducting workshops and webinars, and
- disseminating educational materials for consumers
Key Legal Issues in Advertising
From the FTC’s perspective, the key issues of interest relating to social media advertising and marketing are:
- correctly identifying social media posts as advertising and marketing
- including appropriate, clear and conspicuous disclosures in those advertising and marketing materials that not only identify a social media post as an advertisement but also include disclosures relating to any material connections, including from employees of the company or brand, and
- ensuring that beyond sufficient disclosures, social media advertising and marketing generally complies with the FTC’s regulations, including the Guides on Endorsement and Testimonials
Social Media Policies
Social media policies are a must. Every business that engages in social media advertising must have a formal social media policy. Those policies should be implemented with management oversight and must be effective. The policies should be communicated to third-party vendors as well as employees. The FTC also expects marketers to train employees on proper social media use. This obligation may extend beyond employees to third-party agents depending on the underlying relationship between a third-party agent and the marketer. Finally, some form of monitoring is expected to ensure compliance with the marketer’s social media policy and the FTC’s regulations and guidance.
Social Media Disclosures
Disclosures are required no matter the social media platform – this includes high-profile platforms such as Facebook, Instagram and TikTok as well as YouTube and Twitter. This list is clearly not exhaustive. The rule is simple: If your company is advertising and disclosures would otherwise be required, include disclosures. Visual disclosures and audible disclosures may be required – this requirement may not be limited to only videos. Disclosures should also be prominent and appear first. For instance, on Instagram, disclosures should appear in the first two to three sentences of the caption to be truly conspicuous and they should not appear within a “more” link, but should appear above.
Should gifts and other free items be disclosed? Absolutely. It is critical for companies to disclose the “material connection” between the influencer or speaker and the brand/company so that consumers know when there is an incentive that underlies the promotion. A free sample provides such a material connection, as does an invitation to a party.
Conduct by Tech Companies
Tech companies are big fish. In December 2020, the FTC issued notices to large tech companies requesting that they “provide data on how they collect, use, and present personal information, their advertising and user engagement practices, and how their practices affect children and teens.” While it is not known whether these companies have complied, it is clear that the FTC is turning its focus to the tech giants leading the way in social media advertising and marketing.
The World of Influencers
As with traditional media, a disclosure of material connections is required for influencer posts. Those disclosures must be “clear and conspicuous.” The hashtag – #ad – may be sufficient if the consumer understands that the communication is an advertisement. There are instances when the hashtag should include capital letters if the capitalization would make the hashtag easier to read. Relying solely on a “See More” link is likely to be insufficient, as consumers routinely ignore or fail to click on such links.
While the FTC’s focus remains on brands themselves and not individual influencers, brands should give guidance to their influencers on what they should and should not say in terms of making material connections disclosures and in terms of not making deceptive claims. Brands should train and monitor influencers on the brand’s policies and ensure compliance with those policies through pre-review or post-review of influencer posts. This goes for brands large and small – regardless of size, each brand is held to a strict scrutiny standard to be transparent and tell the truth.
In fact, the FTC released its Disclosures 101 guide in November 2019 specifically aimed at providing a user-friendly summation of the Guides on Testimonials and Endorsement to influencers themselves.
Finally, virtual influencers pose their own host of issues. But any company using a virtual influencer to push a product should ensure that sufficient disclosures or information is available for the consuming public to know: 1) the communications are advertisements; 2) the influencer is virtual or artificial intelligence and not a real person; and 3) the virtual influencer does not have the ability to try or test out a product – even the product being advertised.
Consumer reviews are essential but come with their own set of obligations. It is important for marketers to understand what’s required when a brand induces consumers to leave reviews, including material disclosures and giving consumers the ability to leave accurate, truthful and nondeceptive reviews. Also, there is the question of whether brands are required to perform some diligence to determine that a review is from a consumer who actually purchased the products (e.g., verified purchaser reviews). While this point is subject to debate, there remains an obligation on brands to cure any reviews that are not accurate, truthful and nondeceptive. This includes removing fake reviews (if possible, depending on the platform), not discouraging posting of negative reviews and not buying fake reviews. Consumers should be able to trust and rely upon brand reviews to make an informed decision.
As with consumer reviews, employee reviews are also subject to regulation and must comply with the general notion that they are accurate, truthful and nondeceptive. In addition, it may not be adequate to merely state “staff review” before an employee’s review. A more fulsome disclosure is likely required. Failure to do so may subject the company to liability. Specifically relating to social media posting, hashtags such as #employee and #myemployer may be sufficient under certain circumstances. But brands are reminded that certain “trendy” marketing campaigns using employees may be disfavored by the FTC if a consumer is unable to immediately ascertain that the marketing communications are being delivered by an employee of the brand.
Brands may also not pay or solicit their employees to leave misleading, deceptive, fake or untruthful reviews. The FTC has recently enforced and received hefty monetary relief against several brands whose employees were instructed to leave fake reviews for the brand’s products.
Brands cannot censor less than favorable reviews. That is the law, as outlined in the Consumer Review Fairness Act.
When a user simply likes or loves a product for what it is, there is no need for that user or the brand to disclose a connection when that user truthfully and genuinely posts or comments on the product. If the review is organic and not incentivized, then there is nothing that needs to be disclosed.
Brands must carefully manage their promotional devices in social media, such as sweepstakes and contests. Promotional devices are useful tools to engage consumers and trigger clicks. But brands are reminded that information disseminated relating to the promotional device must be accurate, truthful and nondeceptive. In addition, state law also provides various requirements for promotional devices, including registration depending on the approximate value of the prize to be awarded or the frequency with which a brand is conducting such promotional devices. In addition, best practices dictate the preparation of official rules and other documents to inform consumers of the material terms of the promotional device, including method of entry, promotional period and applicable limitations. Lastly, social media platforms have their own unique requirements relating to using their platforms to promote promotional devices, including very specific disclosures.
When does the FTC enforce? There are several factors that lead the FTC to commence an investigation, including consumer complaints, monitoring by FTC staff, a high number of reviews, whistleblowers, competitors, news stories, congressional inquiries, sweeps of industry practices by the FTC, and claims that are not likely to be substantiated and referrals from nonregulatory bodies such as the National Advertising Division (NAD) and the Better Business Bureau (BBB). The FTC considers whether health and safety is involved, whether egregious conduct is at play, the method of dissemination of deceptive advertising and whether the deception entails an emerging industry. Because the NAD conducts its own investigation and due diligence into claims, the FTC weighs the NAD’s decisions and conclusions heavily and will investigate any referral from the NAD.
Remember, it is not enough to merely have a social media policy in place. That policy must be implemented, monitored for effectiveness and enforced.
The FTC has education materials and emails where brands may inquire about compliance. This includes compliance with the “all or virtually all” standard for Made in USA claims (MUSA@ftc.gov).
The FTC is very concerned about native advertising, as detailed in its Enforcement Policy Statement on Deceptively Formatted Advertisements.
Monetary relief is considered in almost every investigation. Brands are subject to hefty monetary penalties for noncompliance, and the FTC looks into what various civil penalties are available. This includes determining whether the conduct at issue violates a civil rule, whether new rulemaking should be had, including with Made in USA claims, and whether Section 205 synopses should issue to brands notifying them of potentially illegal conduct.
The FTC actively works with other law enforcement partners to monitor social media advertising and enforce compliance, such as state attorneys general and other federal agencies, including the Consumer Financial Protection Bureau.