By Shannon Byrne, University of Maryland Law School
OVERVIEW
Since its inception in 1914, the Federal Trade Commission (FTC) has enforced the law of unfair advertising to protect consumers from unjust business practices. Through the FTC Act, the FTC has adopted rules and defined what constitutes unfair trade practices and misleading advertising. With the expansion of new media, companies have begun utilizing consumers' mobile-media centered universe as an advertising tool. However, this new media has brought challenges to protecting consumers through advertising regulations. As early as 2000, the FTC began issuing guides relevant to this new online media. But when the FTC released Dot Com Disclosures, the agency was attempting to narrow the gray area of how marketing and advertising would work on the Internet post-2001. Technology has progressed since the late 1990s when the research was conducted to creating the original guides.1 Since then, the Internet and social media have continued to evolve, and businesses, in turn, have adapted their strategies accordingly to better reach their consumers.2
In response to these commercial business changes, the FTC provided new guidelines to advise businesses on appropriate online advertising and endorsements practices. However, these 2009 guides caused confusion regarding how and when to effectively make disclosures of endorsements and advertisements on social media sites. In its March 2013 guide, .com Disclosures, the FTC addressed some of the unique issues that arise through advertising on mobile devices and social media applications, and how businesses can modify their practices to comport with fair advertising. With some businesses failing to comply with the guides, the FTC has decided to take more drastic actions. Recently the FTC sent notifications to numerous businesses warning that their current online disclosures fall short of the articulated standard. Those warnings, coupled with a recent enforcement action, have proven that the FTC is on top of the ever-evolving conundrum that is regulating fair advertising in the online era.
FTC Authority & Early Guidance
Through the 1914 FTC Act, the agency was empowered and directed to prevent persons, partnerships, or corporations from using unfair methods of competition.3 In 1938 Congress amended the Act to include the prohibition of unfair and deceptive advertising practices. According to the FTC, "an advertisement or business practice is unfair if it causes or is likely to cause substantial consumer injury that consumers could not reasonably avoid and that is not outweighed by the benefit to consumers or competition."4 In an effort to clarify some of the ambiguously broad laws regarding deceptive practices and to encourage voluntary compliance, the FTC has composed a set of guides to illuminate its' interpretation of the FTC Act. Although guides have been issued as early as the 1970's, the guides from 2000 to present provide direction focused on online advertisements and endorsements.
The FTC's enforcement of advertising law works to ensure that deceptive advertising does not mislead consumers. It believes that endorsements can be misleading if material connections are not disclosed. The FTC has established that any advertising message that consumers believe reflects the opinions or beliefs of a party other than the sponsoring advertiser constitutes an endorsement. In our world of expanding media, social networking sites like Facebook, Instagram, and Twitter are also forums that host endorsements. In order to combat unfair advertising schemes, the FTC specified that material connections between a sponsor and endorser must be disclosed to the public.5 The FTC defines a material connection as any connection between the endorser and sponsor of the advertised product or brand that "might materially affect the weight or credibility of the endorsement." In short, when an endorser is compensated and is not presented as an expert or known to a substantial part of the viewing audience, the advertiser must disclose either the payment or promise of compensation in advance of and in exchange for the endorsement. The FTC in its 2000 and 2009 guides required that disclosures of material connection must be clearly and conspicuously stated; however, the FTC failed to address, or provide examples of, exactly how those disclosures should be made on new social media sites and in space-constrained advertisements.
2013 Guides' Affect on Social Media Endorsement Policies
After growing concerns from practitioners regarding how to adequately make clear and conspicuous disclosures, the FTC sought to clarify the clear and conspicuous requirement in its 2013 .com Disclosures. In .com Disclosures the FTC further expanded its authority over multimedia messages and campaigns, which include online advertisements and video clips promoting a company or product. In issuing the 2013 guidance, the FTC announced that space-constrained advertisements (like Twitter) are not immune from FTC disclosure requirements. The 2013 .com Disclosures reiterated earlier guidance that advertisers should consider certain factors to determine whether a particular disclosure is clear and conspicuous.6
While .com Disclosers focuses on all advertising mediums, it provides specific recommendations regarding disclosures made on advertisements on social media platforms. "Many space-constrained ads displayed today are teasers. Because of their small size and/or short length, space-constrained ads, such as banner ads and tweets, generally do not provide very much information."7 But the FTC is not sympathetic to space constraints. It instead requires that disclosures of material connections must still be made in space-constrained advertisements. Most notably, it provided guidance on how best to make disclosures of material connections on such space constrained platforms.
The primary clarification the 2013 .com Disclosers guidelines provide is that proximity and placement are key for an effective disclosure on a space constrained social media platform. For example, endorsements made on a celebrity's social media site-Twitter, for instance-must have a disclosure that it is an advertisement or endorsement. It is not a sufficient disclosure if a celebrity posts on his or her profile page: "I am an endorser of X company." Further, it is insufficient for a disclosure to appear so far down a page or post that the reader must scroll to discover the disclosure. Additionally, hyperlinks on a social media platform leading to a disclosure are generally insufficient. The disclosure must occur within the each endorsement post in order for it to not be considered deceptive. The .com Disclosures guide provides that for space-constrained ads, it is sufficient to begin the post with the word "Ad." By including a number of check points for advertising on online social media's space-constrained ads, the FTC addressed some lingering questions about how to make adequate disclosures on these mediums.
Operation Full Disclosure
In addition to issuing guides, the FTC has more aggressively stepped up to make companies and advertisers realize they mean business. Although the guides are recommendations of how to comply with the FTC Act, the FTC is still making it clear that non-compliance in this Internet era is unacceptable. Operation Full Disclosure is the FTC's latest effort to ensure that advertisers and companies obey federal law and do not mislead consumers. Operation Full Disclosure, which came out eighteen months after the updated 2013 guides, emphasized that the FTC's consumer protection laws apply to advertisements across all different types of media. By now the fact that disclosures must be clear and conspicuous to prevent an advertisement from being deceptive should not be surprising to any advertisers, especially not the sixty or more companies - including twenty of the top one-hundred biggest advertisers in the United States - that received warning letters as part of the FTC's Operation Full Disclosure.
The inadequate disclosures that appear in the reviewed advertisements fell into many different categories. The FTC identified a number of deficiencies with the advertisements, including that they were easy to miss, hard to read, or in fine print. Some disclosures that would be essential to avoid misleading consumers, like disclosures of material connections, were simply absent altogether. For those advertisers who have harped on the lack of specific instructions, like required font and size for disclosures, the FTC countered by asking advertisers if they really wanted the FTC staff to dictate the specifics of their advertising campaigns. Instead of issuing very specific instructions, the FTC instead reminded advertisers and businesses that aside from some specific rules that mandated detailed disclosure standards; it is up to the advertisers to conform their advertisements to appropriately meet the clear and conspicuous standard. The FTC believes it would be a mistake to impose a one-size-fits-all approach. Currently, companies and advertisers have substantial leeway in how they communicate marketing messages, as long as they ensure that consumers walk away with an accurate understanding. This flexibility allows advertisers and businesses continued creativity and ingenuity in their advertising campaigns.
Even though a company may not have received a warning letter, that does not necessarily mean all of its disclosure practices are adequate. Smart marketers will take Operation Full Disclosure as a chance for a refresher on the clear and conspicuous standard, and if their advertising practices fall short, make revisions. Prominent law firms across the nation have echoed those same recommendations since the newest pronouncement of the guides - some have even predicted additional enforcement actions to follow the Operation Full Disclosure warning letters. Inevitably, companies and marketers should make haste in reviewing internal disclosure practices before the FTC takes a more drastic step than issuing a warning letter to ensure compliance.
Recent Enforcement Action
Businesses that believe the FTC does not take any serious action against deceptive online advertisements are sorely mistaken. Shortly after Operation Full Disclosure was announced, an enforcement action against two prominent companies, Deutsch LA, Inc. and Sony, was released. In the recently announced complaints, the fraudulent advertising practices involve endorsements posted on social media missing necessary disclosures. This is yet another action taken by the FTC to signal to companies that advertisement through social media must comply with Section 5's disclosure requirements. In light of the .com Disclosure updates and the recent Operation Full Disclosure, the FTC enforcement actions against Deustch LA, Inc. and Sony are not surprising. Although the FTC has brought actions based on deceptive advertising before,8 this appears to be the first action taken by the FTC against deceptive endorsements made on social media.
The complaint alleged against Deutsch LA, Inc. asserts that the advertising company failed to disclose material connections when it represented its then-client, Sony, during the advertising promotions for the PlayStation Vita handheld gaming console. The crux of the complaint for both companies related to deceptive advertising of the gaming console's capabilities, but it also included a count relating to Deutsch LA, Inc.'s use of Twitter to promote Sony's gaming console. Specifically, the complaint alleged that Deutsch LA, Inc.'s employees followed a directive from assistant account executives to use their personal social media accounts to post positive feedback about the Sony gaming console using the specific hashtag, "#gamechanger." These posts were deceptive because the employees did not disclose their material connection to Deustch LA, Inc, or its then-client Sony. The material connection would have been important to consumers when making the decisions about whether or not to purchase the Vita handheld gaming console. This FTC enforcement action reaffirmed that any social media posts must clearly and conspicuously disclose all material connections between employees, advertising agencies, and the agencies' clients. Companies continuing to deceive consumers by omitting disclosures of material connections could ultimately face similar enforcement actions.
Best Practices
Although the guides discussed in this paper do not have the force and effect of law, non-compliance by advertisers or businesses may lead to enforcement actions brought by the FTC alleging unfair or deceptive practices in violation of the FTC Act. The FTC's guides are a nonbinding attempt to articulate rules of conduct that will keep businesses from deceptive advertising. The duty to comply rests ultimately with the businesses; and businesses should take compliance seriously since the FTC periodically joins with other law enforcement agencies to monitor the Internet for potentially false or deceptive online advertising claims. While disclosures may mar a business' ideal advertising campaign, it is in a businesses best interest to conform to FTC standards.9
Although the various guides are not clear about which party is liable in a circumstance where an advertising disclosure is omitted, it appears that the advertiser bears the bigger burden. To safeguard from potential liability, companies should modify practices to ensure that endorsers receive instructions to provide disclosures in all social media endorsements. Hogan Lovells advised that it "should be standard practice for companies to review the transparency of material disclaimers and disclosures in their advertising before every ad campaign."10 Operation Full Disclosure is that latest indicator companies should be concerned, in that it "serves as a reminder that organizations review their disclaimers and disclosures to ensure compliance with 'clear and conspicuous' disclosure standards and seek guidance where appropriate."11 In light of Operation Full Disclosure and the enforcement action against Sony and Deutsch LA, advertisers and companies should review and revise their advertising disclosure practices. If a company does not require the user to disclose material connections, then both the company and the user run the risk of being subject to a charge of deception. Consequently, businesses that hire advertising agencies should also make sure that the agencies practices and policies are up to date and compliant with the most recent guidance of the FTC.
Conclusion
New media has brought challenges in regulating advertising in the sphere of consumer protection. But despite the changing climate of advertising, the FTC has prudently taken strides to provide guidance to businesses and advertisers of how to comply with the FTC Act. Although there will always be critics of the effectiveness of federal and state agencies, the FTC has continued to regulate advertising practices to protect consumers in this rapidly evolving high technology era. Furthermore, it has provided guidance to companies through its Guides, while not completely chilling the imagination and creativity in advertisement visions. With updated guidance, Operation Full Disclosure, and new enforcement actions spurred from social media advertising, the FTC has asserted itself as a regulatory agency that continues to be effective. Thus businesses and advertisers alike should take care to maintain compliance with the FTC updates in this progressing, technology based society.
Additional Resources
Lesley Fair, Full Disclosures, BUS. CTR. BLOG (Sept. 23, 2014, 10:32 AM), http://business.ftc.gov/blog/2014/09/full-disclosure
McDermott Will & Emery, FTC Updates Guidelines for Making Proper Disclosures in Digital Advertising (April 22, 2013), http://www.mwe.com/FTC-Updates-Guidelines-for-Making-Proper-Disclosures-in-Digital-Advertising-04-22-2013/.
David F. McDowell, D. Reed Freeman, Jr., & Aramide O. Fields, FTC Warns Advertisers to Check the Fine Print in "Operation Full Disclosure"; Shot Across the Bow Could Signal Law Enforcement Actions to Come, MORRISON FOERSTER CLIENT ALERT (Sept. 26, 2014), http://www.mofo.com/~/media/Files/ClientAlert/2014/09/140926FTCOperationFullDisclosure.pdf.
Alston & Bird LLP, [Your Ad Here]#Sponsored The FTC's New Guidance for Digital Advertising, INTELLECTUAL PROPERTY ADVISORY (Mar. 26, 2013), http://www.alston.com/Files/Publication/913e5596-c77a-41e5-bfd4-ef2396fa5390/Presentation/PublicationAttachment/5a0fa202-5e18-42fe-8b90-efba4b51d033/FTC-New-Guidance-Digital-Advertising.pdf.
Julie O'Neill & Adam Fleisher, FTC Enforcement Action Confirms That Ad Disclosure Obligations Extend to Endorsements Made in Social Media, MORRISON FOERSTER SOCIALLY AWARE (Dec. 3, 2014), http://www.sociallyawareblog.com/2014/12/03/ftc-enforcement-action-confirms-that-ad-disclosure-obligations-extend-to-endorsements-made-in-social-media/.