Social media approvals can’t escape FTC scrutiny

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The Federal Trade Commission recently sent a letter to 700 major brands, retailers and advertising agencies. The communication came through Fed Ex. It came by surprise. And he cautioned recipients against interacting with those who endorse their products, especially social media influencers. Although they made no allegations, these communications unequivocally signal future application.

FTC Message to Advertisers

The FTC letter focuses on mentions and testimonials, saying it considers positive customer reviews to be mentions. It directs recipients to resources published by the FTC, including What people ask and Approval Guides and warns that endorsements that are “false” or that do not disclose an endorser’s connection to a trademark may result in civil penalties of $ 43,792 per violation.

The FTC letter also includes a Notice of criminal offenses listing seven things he considers misleading or unfair based on nine cases dating back to the 1940s. These boil down to ensuring that endorsements are true and adequately disclose material financial connections between the endorser and the Mark.

What is a notice of criminal offenses?

The primary method of enforcing the FTC is through administrative courts. Section 5 of the FTC Act, however, allows the agency to bypass this step for known violations of an FTC ruling. This is called autonomous authority.

A criminal offense notice serves as a “notice of conviction” for practices deemed to be abusive in previous FTC cases. Under due process principles, a business receiving a notice is considered to have actual knowledge of prior FTC determinations. This knowledge would allow the FTC to use its autonomous Section 5 authority to file a federal lawsuit and seek damages.

The concern of the FTC

The FTC is concerned that consumers could be misled if a company’s funding influences an influencer opinion or if the sponsorship is not disclosed. He considers this unfair competition.

For example, six years ago Lord & Taylor (now defunct) gifted 50 influencers a dress and paid them $ 1,000 to $ 4,000 each to post pictures of themselves wearing it. Their posts, which reached 11.4 million Instagram users, made no mention of payment or free products. The dress sold out in two days. The FTC was awarded a consent order.

Why now?

The enforcement authority of the FTC has long been contested. In 2015, the commissioners issued a Statement of application principles restrict the FTC’s ability to use its autonomous Section 5 authority in unfair competition cases.

After that, the agency began to seek damages through another avenue, Section 13 of the FTC Act. The agency used Section 13 to seek $ 1.27 billion in restitution and restitution for deceptive payday lending practices.

The defendants, however, appealed and argued that section 13 only contemplates injunctive relief. Earlier this year, the United States Supreme Court confirmed in AMG Capital v. FTC, that despite a desirable outcome, Section 13 did not authorize the court-ordered monetary relief that the FTC obtained. The FTC has asked Congress for a statutory solution.

Meanwhile, FTC Commissioner Rohit Chopra and FTC attorney Samuel Levine released a item in October 2020, arguing that the FTC could use its criminal offense reporting authority “as part of a broader strategy to resurrect the FTC as a vigorous control against corporate malfeasance.” After AMG Capital, the agency began to act on the plan described in the article.

The FTC gains momentum

In mid-June, President Biden appointed Lina Khan, a vocal consumer protection advocate and big tech critic, as FTC chair. On July 1, she led the commissioners in to cancel the 2015 declaration to restore the autonomous authority of article 5 of the agency.

In September, Khan appointed Levine director of the Bureau of Consumer Protection and outlined his priorities in a internal memo. On October 6, the FTC released notice to 70 for-profit educational institutions. Notices to advertisers came out the following week.

What does the FTC want?

According to the FTC Press release, “[t]The rise of social media has blurred the line between authentic content and advertising, leading to an explosion of misleading mentions in the market.

Chopra and Levine’s article appears to be the playbook, suggesting that the FTC wants:

  • Responsibility of the seller: So far, the FTC has focused on influencer transparency. The authors, however, characterize certain activities as “money laundering”.
  • Market-wide compliance: The authors argue that the FTC can use general notices to correct market-wide practices.
  • Deterrence: The authors say Article 5 violations can increase rapidly, suggesting the agency may seek heavy penalties.

Net profit for companies

Whether releasing a bulleted list of condemned practices gleaned from decades-old cases could resuscitate the FTC’s enforcement power is not a question. done. Challenges can ensue. Nonetheless, the FTC fired a shot across the arc. The application seems likely.

As this unfolds, businesses can review current compliance efforts. Good hygiene principles include:

  • Be clear with influencers: If you provide content, educate influencers on what they can and can’t say. Make sure they understand their disclosure obligations and direct them to FTC resources.
  • Be clear with your own employees: Have a social media policy for staff and educate them on interacting with influencers. Be clear about the materials they can share.
  • Consider reasonable monitoring: While a dishonest blogger is unlikely to trigger law enforcement, the FTC expects companies to take reasonable steps to monitor influencers. Watch them periodically and act when they are wrong.
  • Review your policies and procedures: Make sure they comply with FTC guidelines.
  • Watch this place: As this unfolds, the expectations of the FTC may change.

This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.

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Author Info

Marie Kohler is founder and director of Kohler Health Law PC. She advises life science companies on health law and compliance issues. Prior to founding Kohler Health Law, she was a lawyer and compliance professional in the biopharmaceutical industry.

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