In 2020, Cameo launched a service called Business Cameo that allows companies to pay celebrities to make videos endorsing their products. According to a bipartisan group of 30 state Attorneys General, though, Cameo failed to take steps to ensure the celebrities disclosed that their videos were paid messages. If your read this blog, you already know that’s required under the FTC’s Endorsement Guides and state laws.

To settle the AG investigation, Cameo agreed to implement procedures to ensure that endorsers “clearly and conspicuously” disclose any material connections they have to the companies they promote. (Like the FTC’s Endorsement Guides, the settlement goes into detail about how disclosures should appear so that they are easy to notice and difficult to miss.) The procedures that Cameo agreed to implement include:

• Maintaining a watermark or similar disclosure system to indicate that a video was paid for;
• Requiring users and endorsers to acknowledge that they need to comply with rules related to endorsements;
• Establishing detailed procedures for monitoring videos to ensure compliance; and
• Establishing a system that will allow third parties to report videos that don’t comply.

In addition to changing its practices, the company will pay $100,000 to the states, which was reduced from $600,000 because of their inability to pay the full amount.

Although there are some elements of the settlement that are unique to Cameo’s business model, most of the themes are broadly relevant to other influencer campaigns. For example, companies need to instruct influencers to clearly make the required disclosures. What’s clear to marketers is usually not the same as what’s clear to regulators, so pay attention to what ends up in settlements like this one and in warning letters.

Good instructions aren’t enough, though. You should also establish procedures to monitor posts and address problems. As part of the settlement, Cameo agreed to establish detailed procedures that include reviewing videos from problematic advertisers, as well as a random sampling of other videos. Those procedures may not make sense for you, but make sure you have something in place that’s reasonable for your campaign.

The world of influencer marketing is getting more complicated, but you can contact us if you need help figuring out the rules. You can also contact us if you’d like to see if our celebrity podcast narrator would be willing to record a Cameo message for you. According to Jimmy Kimmel, George Santos charged up to $500 per message. Be warned that our narrator is worth a lot more (and has access to better legal representation.)

Feeling betrayed, Mario and Alin filed a lawsuit against 21st Century Spirits (the makers of Blue Ice Vodka) alleging – among many other things we won’t cover in this post – that 21st Century Spirits and its influencers had made misleading health claims about the vodka and that the influencers hadn’t disclosed that they were being paid by the company to promote the vodka, as they are required to do under the FTC’s Endorsement Guides.

21st Century Spirits argued that they hadn’t made any health claims. An Illinois federal court rejected that argument, citing a post in which an influencer stated: “I make fit-friendly cocktails that have fewer calories than an apple.” The court noted that some consumers would surely interpret this to mean that the vodka is healthy, but that whether that interpretation is reasonable shouldn’t be decided by a judge at the motion to dismiss stage.

With respect to the plaintiffs’ arguments that the influencers didn’t comply with the Endorsement Guides, 21st Century Spirits countered that the Guides are “not law” but merely “advisory in nature.” The court noted that although the Guides are not the source of per se violations of statutes like Florida’s false advertising law, even “interpretations” under the FTC Act are entitled to “due consideration and great weight” when analyzing whether something is deceptive under the law.

21st Century Spirits argued that the influencer posts weren’t “endorsements” under the Endorsement Guides because the influencers merely mentioned the vodka. The court rejected that argument, noting that many influencers overtly promoted the vodka. For example, one influencer posted that “there’s nothing better than relaxing with a smooth @blueicevodkausa cocktail in hand after a long day,” that the vodka “can definitely help you stay fit during quarantine,” and that consumers should have some delivered.

21st Century Spirits also argued that, even if the posts were endorsements, a disclosure wasn’t necessary because a “reasonable consumer” wouldn’t interpret the posts as “honest consumer advice.” The court reframed the argument in a better way, suggesting the company meant that because consumers would reasonably expect that the influencers were paid, a disclosure wasn’t necessary. The court still rejected that argument because it’s not clear whether consumers would have that expectation.

This case isn’t over yet, but there are still some lessons you can learn at this stage. First, to save you the time Mario and Alin spent researching the issue, we’ll tell you that although it’s fine to enjoy vodka periodically, vodka probably shouldn’t form the foundation of your health and fitness plans. (If you remember this post from 2016, you may recall that gin shouldn’t either.) But we’re not just here to give you health tips – we’re here to give you some legal tips, too.

To save you the time that 21st Century Spirits has spent fighting this issue, you need to pay close attention to your influencer campaigns. You need to ensure that your influencers don’t make claims about your products that you can’t support. And you need to ensure that your influencers clearly disclose their connections to your company. Although courts may not interpret the Endorsement Guides as strictly as the FTC will, they’ll likely give some weight to the FTC’s interpretations.

Ms. Fatale posted a video on Instagram demonstrating how the product works and used the platform’s “Paid Partnership” tool, along with “#ad” and “#sponsored,” to indicate that she was working with Fenty Skin. In a recent inquiry, NAD determined that the post did not meet the FTC’s requirement that influencers “clearly and conspicuously” disclose when they are working with a brand.

NAD explained that the FTC has cautioned companies against relying on social media platforms’ disclosure tools and has stated that those tools should be used in conjunction with other disclosures. Although the post did include “#ad” and “#sponsored,” NAD noted that the hashtags appear on the fourth line of the post’s description and that consumers wouldn’t see them unless they clicked to expand the post.

NAD recommended that Fenty Skin require Ms. Fatale to “modify the challenged post to include a clear and conspicuous material connection disclosure in the video demonstration itself.” This is consistent with guidance the FTC provided in warning letters to influencers last year in which staff suggested that the influencers superimpose a disclosure in “much larger text over the videos.”

As part of the same inquiry, NAD found that another influencer – Sarah Novio – had posted a video about the product on her Instagram and TikTok accounts. Ms. Novio wasn’t paid for the posts, but she did receive the product for free. Although she included a “gifted” disclosure on TikTok, she neglected to do so on Instagram, and when Fenty Skin re-posted the video on their account, they didn’t include any disclosure.

During the course of the inquiry, Fenty Skin advised NAD that it asked Ms. Novio to update her Instagram post to include a clear disclosure that she had received the product for free. In addition, Fenty Skin removed the post from its own Instagram page and promised NAD that it would only re-post it if and when Ms. Novio adds the disclosure.

When it comes to applying makeup, you can go for a subtle barely-there look or you can go for something more bold. We won’t judge. But when it comes to influencer disclosures, the barely-there look isn’t going to be enough. FTC and NAD want those to bold and prominent. Yes, some might call that garish and unattractive but, ironically, that will help you avoid unwanted attention.

Naked & Thriving, a family-owned skincare business, also runs The Bare Beauty Babes blog. One post on that blog started, much like this one does, with the question of whether hyaluronic acid can fight signs of aging. Unlike this post, though, that one included an answer to the question. In that post, a dermatologist claimed that she had “tested hundreds of hyaluronic acid serums” and found “5 that actually work.” A Naked & Thriving product came in first.

NAD wrote that endorsements from experts “must be supported by an actual exercise of the expertise that the expert is represented as possessing” in evaluating features which are relevant to an ordinary consumer’s use of a product. NAD requested information about the dermatologist’s expertise and the methodology she used to evaluate the “hundreds” of serums. Apparently, the advertiser didn’t provide it because NAD noted that there was “no evidence in the record” on either point.

The same claims that appeared on the blog also appeared in social media posts which were labelled as “sponsored.” Echoing concerns similar to ones FTC staff expressed in warning letters last year, NAD noted that a “sponsored” disclosure “might be insufficient if the viewer does not know who is the sponsor of the post. That is particularly true where, as here, a health professional is posting and endorsing a product.” The posts should have been more clear that Naked & Thriving was the sponsor.

On a related note, at the start of NAD’s inquiry, the bottom of each page of The Bare Beauty Babes blog included a disclosure in “very small print” stating: “The content on this site is sponsored and The Bare Beauty Babes may earn a portion of sales from products that are purchased through our site as part of our Affiliate Partnerships.” During the course of the inquiry, Naked & Thriving added a more prominent disclosure to the top of each page stating that it owned the blog. It also stopped recommending products.

If you asked us about how to fight signs of aging, we might give you some tips, but we’d probably direct you to consult a reputable health care professional. If you asked a reputable health care professional how to advertise an expert endorsement, they’d probably just direct you to consult us. In that case, we’d be happy to talk to you at length. For now, though, we’ll highlight two lessons you should take away from this decision.

• First, this decision demonstrates why it’s important to document the expertise your experts have and the methodology behind their recommendations. Simply saying that an expert is a doctor, for example, may not be enough.

• Second, this is the latest in growing line of cases in which NAD, FTC, and even competitors are challenging how endorsers (or influencers) disclose that they are working with the companies whose products they promote. Take a look at how your disclosure practices match up with these recent cases.

Keep visiting our blog for the latest in advertising and privacy tips (with occasional beauty tips thrown in for free).

Wonderbelly engaged a number of influencers to promote its Wonderbelly Antacids on social media. The challenger argued that many of these influencers failed to properly disclose their material connection to Wonderbelly and that even when the influencers did make the necessary disclosures, they were buried among other hashtags or “below the fold” such that consumers would have to click a link to see them.

In response, Wonderbelly agreed to revise its influencer agreements to comply with the FTC’s Endorsement Guides. More specifically, the company will require influencers to include hashtags such as #ad or #WonderbellyPartner at the beginning of each post. The company also promised to require its influencers to verbally disclose their connection to Wonderbelly in video posts. NAD was happy with these changes.

The challenger complained about a post by Demi Moore promoting Wonderbelly which she stated was “not an ad” and failed to disclose that she is an investor in the company. Wonderbelly responded that Ms. Moore almost always discloses that she is an investor in her posts, and that it had advised her to ensure she does that in every post going forward. NAD was happy with that, too, although it cautioned that Ms. Moore should not claim that a post is “not an ad.”

The challenger also complained that when Wonderbelly reposted influencer posts, the original disclosures weren’t carried over to the repost. Wonderbelly argued that the reposts did not require a disclosure, but NAD disagreed. In fact, in the revised Endorsement Guides, the FTC has stated that when reposting material from a paid influencer, an advertiser must clearly and conspicuously disclose its relationship to the influencer in the repost.

There’s nothing surprising in this decision, but it’s worth noting that the challenge was brought by a competitor, rather than having been initiated by the FTC. Companies that take shortcuts hoping that they will stay under the FTC’s radar should remember that competitors have their own radars. And companies that find their competitors aren’t complying with the law should remember that NAD provides a forum to address that.

NAD assessed whether the posts were ads or editorial content and concluded that they fell into the former category. If you want to learn more about how NAD came to that conclusion, you can read the decision. In this post, we’re going to focus on the “sponsored” label. Although advertisers have long thought that to be a “safe” option for a disclosure, this decisions demonstrates that’s not always the case.

Here, NAD was concerned that “while the posts were labeled ‘Sponsored,’ it is not clear whether the posts are sponsored by the publisher or by Cariuma, the brand promoted in the posts.” NAD noted that recent FTC guidance suggests that a “Sponsored” disclosure may not always be enough and in some cases “it would be clearer if the post identified the brand that sponsored the social media post.”

FTC echoed that guidance in November when it sent warning letters to two trade associations and 12 influencers over their posts. Some of the letters expressed concern that although posts were labeled as “sponsored,” it wasn’t clear who sponsored them. “Without knowing who the sponsor of the post is, viewers might not be able to adequately evaluate the weight and credibility to give [the] endorsement.”

In many influencer campaigns, it should be obvious who is sponsoring a post, so it’s likely that a “sponsored” label will be sufficient. But this case demonstrates that using “sponsored” isn’t a “safe harbor,” as some have thought. It needs to be clear who is behind the post. This case also demonstrates that advertisers don’t just have to worry about the FTC – the NAD is focused on this issue, as well.

In 2022, Ferragni announced that she had partnered with Italian pastry company Balocco to create a limited edition pandoro – a traditional Italian Christmas dessert similar to a panettone – and launch a campaign to “support a research project for new therapeutic treatments for children suffering from Osteosarcoma and Ewing Sarcoma” at the Regina Margherita Hospital in Turin.

Last month, the Italian Competition Authority (or “AGCM”) announced that it had concluded that social media posts and press releases promoting the campaign misled consumers by suggesting that purchasing the limited-edition pandoro for around €9 – instead of the non-branded pandoro for around €4 – would result in a charitable donation. In reality, although Balocco had made a fixed donation to the hospital in 2022, proceeds of the sales did not benefit the hospital.

AGCM announced that it would fine Balocco €420,000 and Ferragni’s companies over €1 million over the misleading campaign. Ferragni announced that she is appealing the fine as disproportionate and unfair, but she also acknowledged that she had made “un errore di comunicazione” – a communication error – and promised to donate €1 million to the Regina Margherita Hospital.

This case unfolded in Italy, but the results could have been similar in the US. As we’ve noted before, charitable campaigns – including commercial co-ventures, in which companies suggest that the purchase of a product will benefit a charity – are highly-regulated, and companies can face regulatory scrutiny for getting things wrong. Make sure you ads are clear so that you avoid any communications errors.

Also remember the FTC has noted that anyone who plays a role in disseminating misleading messages could be held liable for those messages. For example, the FTC recently sent warning letters to two associations and their influencers reminding the recipients – including the influencers – that they are ​“on notice that engaging in conduct described therein could subject you to civil penalties of up to $50,120 per violation.”

The letters start with a reminder that influencers must “clearly and conspicuously” disclose any “material connection” they have to a brand (unless that connection is otherwise clear from the context) and then summarize the FTC’s view of what constitutes a “clear and conspicuous” disclosure. With that background, FTC staff goes on to express specific concerns about the posts. Here are some of the highlights about what caught their attention:

• Some of the posts didn’t include any disclosure or any other indication that the influencer was connected to the association.
• Some posts included a disclosure in the description, but not in the video. The letters state that because viewers can watch the videos without reading the descriptions, “there should be clear and conspicuous disclosures in the videos themselves, for example, by superimposing much larger text over the videos.” Audible endorsements require audible disclosures and visual endorsements require visual disclosures.
• Some of the disclosures in the descriptions weren’t sufficiently clear or conspicuous since they were truncated on TikTok and Instagram, such that viewers wouldn’t see them unless they clicked on the text. Staff also wrote that they “do not think that disclosure in a TikTok or Instagram Reels post’s text description is clear and conspicuous.”
• Some influencers relied upon the “paid partnership” disclosure tool offered by the platforms in making their disclosures. Staff reiterated previous “concerns about the conspicuousness of such built-in disclosure tools alone” and think it is “too easy for viewers” to miss them. Those tools are not a substitute for the other disclosures the FTC wants to see in the posts.
• Even if viewers read the “Paid partnership,” “#sponsored,” and “#ad” disclosures, FTC staff thought they might be inadequate in the context of the posts, because some of the influencers did not identify the sponsor of the posts. Viewers should know who is sponsoring the posts, not just that a post was sponsored.

The letters “strongly urge” the associations and influencers to review their posts to ensure they comply with FTC requirements and ask the recipients to respond within 15 business days. The letters also included the FTC’s Notice of Penalty Offenses Concerning Deceptive or Unfair Conduct Around Endorsements and Testimonials with a warning that the recipients – including the influencers – are “on notice that engaging in conduct described therein could subject you to civil penalties of up to $50,120 per violation.”

As we noted in our original post, making disclosures in the way the FTC outlines in the revised Endorsement Guides (and now in these warning letters) may be a departure from common industry practice, which usually involves an influencer making a single disclosure in the first few lines of a post. Companies and influencers who were waiting for FTC action before changing their practices may want to factor these warning letters into their decisions.

This morning, the FTC announced the final version of the Guides. The final version largely mirrors the version proposed last year, with minor modifications that generally serve to further constrain the discretion that companies have when working with endorsements and reviews.

Here are the key changes appearing in the new Guides:

“Clear and Conspicuous” Definition

Unlike the 2009 Guides, the new Guides include a strict definition of what constitutes a “clear and conspicuous” disclosure. Among other things, the FTC wants disclosures to be “unavoidable.” In the examples, the Guides clarify that disclosures at the bottom of a social media post, where consumers have to click “more” in order to see them, are not unavoidable. (This mirrors the position the FTC has taken in recent settlements.) The Guides further caution companies against simply relying on a social media platform’s built-in disclosure tools if those tools are not sufficiently prominent, legible, or unavoidable. (FTC staff has previously cast doubt on those tools.)

The revised definition also provides that a disclosure must appear through the same means as the triggering claim – i.e., if the triggering claim is made both visually and audibly, then the disclosure must also appear both ways. (We’ve seen the NAD take similar positions in recent cases.)

Express Liability for Endorsers and Intermediaries

While it’s obvious that advertisers can be on the hook for deceptive endorsement practices, the new Guides clarify that all parties in an advertising transaction could share liability for problematic conduct. Intermediaries – such as advertising agencies, public relations firms, and reputation management companies – may be liable for their roles in creating or disseminating what they knew or should have known were deceptive endorsements. And endorsers (such as influencers) themselves can be liable for their representations. (See, for example, the FTC’s recent order against two real estate celebrity endorsers.)

Focus on Consumer Ratings and Reviews

The new Guides focus extensively on companies’ practices surrounding procuring, suppressing, boosting, organizing, editing, and publishing consumer ratings and reviews. Specifically, companies may not treat reviews in any way that distorts or misrepresents consumers’ opinions. Examples of misleading conduct include deleting or suppressing negative reviews, offering incentives in exchange for positive reviews, review gating (i.e., encouraging positive reviews and discouraging negative reviews), and falsely reporting negative consumer reviews as “fake” on a third-party platform without substantiation.

Companies may edit unlawful, harassing, abusive, obscene, vulgar, or sexually explicit content from consumer reviews, but such editing criteria must be applied uniformly to both negative and positive reviews.

In addition, if a company incentivizes consumers to provide numerical/star ratings and then includes those incentivized ratings in the average ratings, such inclusion could be deceptive if the incentivized ratings materially increase the average rating. In such a situation, the company will likely need to provide a clear and conspicuous disclosure regarding the incentivized ratings.

Although the FTC acknowledges that companies generally aren’t responsible for reviews written by ordinary consumers without any connection to the company, companies can be responsible for those reviews if they feature, highlight, repost, retweet, share, or otherwise adopt the reviews as part of their own marketing efforts. In those cases, a review becomes an endorsement and must follow all endorsement requirements. For example, they must be truthful, claims must be substantiated, and the reviews must include any necessary disclosures.

Expanded Disclosure Requirements for Atypical Results

The new Guides add additional guidance regarding atypical results disclosures, specifying that the disclosure used to qualify an atypical result should not itself misrepresent what consumers can expect. The new Guides also include new and revised examples, which reflect more stringent expectations related to disclosures of results that consumers can generally expect.

For example, the FTC uses a hypothetical testimonial in which a consumer claims to have lost 50 pounds in six month. The company adds a disclosure stating: “The typical weight loss of QRS Weight-Loss users who stick with the program for 6 months is 35 pounds.” However, in the FTC’s scenario, only one-fifth of consumers who start the program stick it for six months. Accordingly, “disclosure is inadequate because it does not communicate what the typical outcome is for users who start the program.”

The new Guides also strengthen the FTC’s view that “Results not typical” types of disclaimers are unlikely to be effective in conveying what consumers may generally expect to receive. Specifically, the new Guides delete a previous reference in a footnote stating that “the Commission cannot rule out the possibility that a strong disclaimer of typicality could be effective in the context of a particular advertisement.” The modification sends a clear signal that general disclaimers that do not tell consumer what results they can generally expect to receive are likely to be viewed as insufficient.

Additionally, the new Guides clarify that in order to be effective, disclosures for atypical results “must alter the net impression of an advertisement so it is not misleading.”

Expanded Definition of “Endorsement”

The new Guides expand the definition of “endorsement” to clarify that simply tagging a brand could constitute an endorsement (though the FTC acknowledges that isn’t always the case). In addition, the new Guides specify that a “fake” positive review is considered an endorsement.

Additional Examples for Influencer and Affiliate Marketing

While the Guides have long specified that material connections must be clearly and conspicuously disclosed, the revised provisions include new examples of material connections that necessitate disclosure, including the provision of free or discounted products or the possibility of winning a prize, of being paid, or earning money through affiliate links. Even things with no monetary value – such as the opportunity to appear on television or in media promotions – could constitute a material connection that requires a disclosure.

Increased Scrutiny of “Independent” Review Sites

The new Guides address so-called “independent review sites” that have material connections to various companies, or that offer a pay-to-play ranking system of products or services. The Guides are clear that sites connected to a company cannot be described as “independent” and that sites purporting to rank products or services based on objective criteria must ensure that a company’s payment does not influence its rank. Indeed, the Guides states that marketers could be liable if they pay to advance in the rankings of such purportedly “objective” ranking sites.

Statement of Special Concern Regarding Child-Directed Endorsements

The new Guides include a new section addressing endorsements in advertisements addressed to children. The section states that “[p]ractices that would not ordinarily be questioned in advertisements addressed to adults might be questioned in such cases.” The Guides don’t provide further insight on how such endorsements might be questioned or evaluated, but the FTC claims it is “exploring next steps.”

***

The FTC has also updated its guidance document, “FTC’s Endorsement Guides: What People Are Asking” to respond to additional questions related to the new Guides.

Although the new version of the Guides includes some big changes compared to the previous version, we’ve seen most of this in enforcement actions, warning letters, and various types of business guidance in recent years, including in the proposed edits the FTC announced last year. (One surprise is a new example involving “dog influencers,” which has some of us considering additional revenue streams, but that’s a topic for another day.)

If you’ve been following our tips on this topic, you may already be on your way to compliance with the new Guides. If not, now is the time to evaluate your practices before the FTC does.

Last week, Mikayla posted a sponsored video in which she applied L’Oreal’s Telescopic Life mascara to her eyelashes and invited her followers to judge the results. And judge, they did. Some followers seemed skeptical that the product could achieve those results and many accused the influencer of wearing false eyelashes in the “after shot.” Mikayla responded: “Noooo omg loreal would never allow that in a partnered post!!! But ya’ll proving my point.”

Within hours, other influencers popped up all over the internet determined to disprove Mikayla’s point. They posted close-up photos of Mikayla’s eyelashes and explained to their own followers why those results couldn’t be achieved with mascara alone. Others defended Mikayla and felt confident that the product might just be that good. While forensic beauticians continue to debate the limits of what mascara can achieve, let’s consider this from an Ad Law standpoint.

Would the FTC allow an influencer to enhance the results of a product? “Noooo omg they would never allow that in a partnered post!” Although most recent enforcement actions have focused on whether influencers clearly disclose their connections to the companies they endorse, the FTC has noted that advertisers and influencers can be held liable for misleading or unsubstantiated representations regarding a product’s performance or effectiveness.

In the UK, the Advertising Standards Authority has addressed this more directly in guidance related to the use of filters for beauty products. “The use of filters in ads is not inherently problematic but is likely to become an issue if a filter exaggerates the efficacy of the product being advertised, and it will be the advertiser’s responsibility to demonstrate that is not the case.” The same would be true in the US (whether the efficacy is exaggerated through a filter or other means).

For more tips on how to manage influencer campaigns, click here. And for more beauty tips, click here.

One of the central themes in the 94-page complaint involves an alleged plot in which Yuga Labs and Oseary engaged celebrities to promote Yuga Labs’ Bored Ape Yacht Club NFTs without disclosing their connection to the company. For example, on a November 11, 2021 episode of the Tonight Show, Jimmy Fallon announced that he “did his homework” on how to purchase an NFT and found MoonPay, which was “like the PayPal of crypto.” Using MoonPay, he “bought an ape.”

Later that day, MoonPay posted a clip from the show on Twitter, suggesting that it was surprised by Fallon’s on-air announcement. Over the next few days, Fallon tweeted about his NFT and MoonPay’s CEO responded, congratulating Fallon on his purchase. The plaintiffs argue that although these exchanges were designed to look spontaneous, Fallon was actually compensated for his promotion. Nevertheless, neither he, MoonPay, or YugaLabs disclosed that.

The complaint includes examples of collaborations with other celebrities. For example, the plaintiffs allege that a wallet owned by Post Malone received over $1.4M in ether cryptocurrency from MoonPay, in addition to a Bored Ape Yacht Club NFT, around the same time Malone released a music video that included a clip of him using the MoonPay app phone to purchase an NFT. Again, MoonPay tweeted its surprise. Neither the video nor the tweet mentioned that the video was sponsored.

The plaintiffs claim, among other things, that they wouldn’t have purchased Bored Ape Yacht Club NFTs had they known that the celebrity endorsements were sponsored, “as opposed to being the result of an organic and genuine interest.” Although the complaint doesn’t mention the FTC’s Endorsement Guides, it certainly echoes themes that are central to the Guides, including the idea that influencers should disclose the connections they have to the companies whose products they promote.

This case covers a lot of ground – ranging from alleged violations of consumer protection laws to alleged violations of securities laws – and it will be interesting to see how it plays out. For now, it’s worth noting that although the FTC, state AGs, and other regulators have taken the lead in ensuring that companies and influencers comply with the Endorsement Guides, plaintiffs’ attorneys are also paying attention to paid promotions that are disguised as “organic and genuine interest.”

According to the FTC and states, Google hired iHeartMedia and other radio networks in 2019 to have DJs read ads for the Pixel 4 phone. Google provided scripts that included endorsements written in the first-person. For example: “It’s my favorite phone camera out there, especially in low light, thanks to Night Sight Mode;” “I’ve been taking studio-like photos of everything;” and “It’s also great at helping me get stuff done, thanks to the new voice activated Google Assistant that can handle multiple tasks at once.”

Despite the first-person endorsements, the FTC and states allege that most of the DJs who made these statements had never used a Pixel 4 phone. Apparently, iHeartMedia recognized the problem and asked Google to provide phones for its DJs. Google responded that it couldn’t provide the phones, and instead provided a link to a webpage about the phone’s features. Although Google ultimately provided five phones, more than 40 DJs recorded endorsements using Google’s scripts.

The proposed FTC orders and the state settlements with Google and iHeartMedia bar both companies from misrepresenting that an endorser has owned or used a product and from misrepresenting their experience with certain products. In addition, the settlements impose ongoing recordkeeping, cooperation, compliance monitoring and recordkeeping on the companies. Collectively the settlements also require the companies to pay $9.4 million in penalties. Texas settled with iHeartMedia, but their case against Google seems to be ongoing.

This case holds valuable lessons for companies using influencers or other endorsers. It’s common for companies to provide talking points for their endorsers. There’s nothing inherently wrong with that – in fact, it can help companies and endorsers steer clear of misleading claims. But keep in mind that endorsements must reflect an endorser’s honest opinions, beliefs, or experiences with the products, so you need to avoid scripting those too much.

In 2013, Adidas entered into a relationship with Kanye West to create Yeezy-branded shoe and clothing collections. Although it was a lucrative relationship, Kanye has said and done some things in the years since then that must have had the brand cringing. After Kanye made a series of anti-Semitic tweets and comments, Adidas decided it had had enough and called its divorce lawyers. The relationship officially ended this week.

Although we don’t know the details about how the relationship ended, it’s possible that Adidas had to rely on a morals clause in its agreement with Kanye. Morals clauses generally give companies the right to terminate an agreement, if a celebrity commits an act that falls within the scope of the clause. Given what’s at stake, the scope of that clause can be one of the most-negotiated provisions in these agreements.

Celebrities naturally want the clauses to be as narrow and specific as possible. (For example, a clause might only kick in if a celebrity is convicted of, or pleads guilty to, a felony.) This type of clause, though, won’t necessarily help if a celebrity just makes offensive statements. Thus, companies want more flexibility. (For example, they may push for a clause that allows termination if the endorser’s actions would reflect negatively on the company.)

Although these type of clauses can be helpful in cases when you want to break up with a celebrity, it’s better to avoid that situation. Think carefully before you get into bed with a celebrity, so to speak. Check them out on social media; get the scoop from their previous partners; know what you’re getting into. Hopefully, when the relationship ends, you’ll look back fondly at the good times and you won’t feel the need to go back and cut that celebrity out of all the pictures you took together.

If you read this blog, you know that the FTC requires celebrities, influencers – and even regular people – to clearly and conspicuously disclose when they have been paid to promote something. It turns out, though, that the FTC is not the only federal agency to require this. Today, the SEC announced that it had reached a settlement with Ms. Kardashian over the post, which allegedly violated the anti-touting provision of the federal securities laws.

Even though the post included #ad – which can, if clearly disclosed, satisfy the FTC’s requirements – that wasn’t enough to satisfy the SEC. Section 17(b) of the Securities Act requires an influencer to disclose the receipt of “consideration and the amount thereof.” SEC Chair Gary Gensler noted that the case “serves as a reminder to celebrities and others that the law requires them to disclose to the public when and how much they are paid to promote investing in securities.”

Ms. Kardashian agreed to settle the SEC’s charges, pay $1.26 million in penalties, disgorgement, and interest, and cooperate with the Commission’s ongoing investigation. She also agreed to not promote any crypto asset securities for three years. So if you do look to Ms. Kardashian for financial advice, note that the scope of that advice will temporarily be limited. In the meantime, you can click here to learn more about our crypto practice and here to read about how the FDA has kept up with the Kardashians.

According to the complaint, the parties negotiated and finalized a term sheet by December 21, 2021 for a one-year deal under which Handler would exclusively promote the brand. The parties exchanged drafts of the full agreement, and were allegedly close by the time the term started on January 1, 2022. In anticipation of the deal going through, Handler started preparing for the campaign by starting an exercise program, participating in meetings, attending wardrobe fittings, and preparing for a shoot.

In addition to preparing for the campaign, Handler alleges that she turned down opportunities to work with competing companies based on the exclusivity provision in the draft agreement with ThirdLove. For example, she passed on inquiries from various athletic-wear brands, she turned down the opportunity to have another athletic-wear company purchase ads on her podcast, and she was forced to discontinue ads from an existing sponsor.

On January 26, 2022, the night before the scheduled campaign shoot, ThirdLove cancelled the agreement. Handler believes that the creative team in charge of her campaign never obtained approval from the company’s Board, and when the Board learned of the campaign right before the shoot, it didn’t want to move forward with it. Handler alleges that she tried to reach a reasonable settlement with the company, but that they ignored her requests.

Last week, Handler filed a lawsuit in California alleging breach of contract and promissory estoppel. She seeks full payment under the agreement (which is over $1 million), recovery of the expenses she incurred while preparing to perform her obligations under the agreement, and the loss of income from the brand deals she was forced to turn down pursuant to the exclusivity clause.

It’s likely that anyone who works on these types of deals will recognize some elements of this fact pattern. To the discomfort of the lawyers involved, it’s not uncommon for the parties to start work on a campaign before the agreement is signed. Although the parties usually manage to work things out in the end, this case demonstrates that not every story has a happy ending.

What is an endorsement? The FTC provides new guidance on what constitutes an “endorsement.” In one example, an influencer uses a product that a manufacturer sent him for free and comments on it favorably in a video. It’s no surprise that the FTC concludes that the comments constitute an endorsement, but it’s important to note that even more subtle plugs could qualify. For example, the FTC proposes updating the definition of “endorsement” to indicate that “tags in social media posts can be endorsements.”

What must be disclosed? Over the years, there has been debate over what words influencers should use to disclose their connections. The FTC’s proposed edits don’t touch on that, so we’ll have to rely on existing guidance (like this). The FTC notes, however, that although the disclosure of a material connection doesn’t require the “complete details of the connection, it must clearly communicate the nature of the connection sufficiently for consumers to evaluate its significance.” That’s somewhat helpful, but it’s still not clear exactly how much detail the FTC expects.

How must the disclosure be made? The general standard is that disclosures must be “clear and conspicuous.” Marketers who have lamented that the standard is vague will likely not be happy with the FTC’s proposed specificity. For example, the FTC addresses things like font size, placement, contrast, and time on screen. In general, though, disclosures should be easy to see and understand. The FTC also provides a few examples that shouldn’t come as a surprise to those of us who have been following the Commission’s actions in this space.

Is a disclosure always required? Some commenters have asked the FTC to acknowledge that for some famous influencers, sponsorships are expected and, therefore, that a disclosure may not be necessary. “Without accepting or rejecting that proposition,” the FTC proposes stating that an endorser’s material connection need not to be disclosed “when it is understood or expected by all but an insignificant portion of the audience.” Although that comment suggests some flexibility, it’s likely that marketers and the FTC are likely to disagree over what “all but an insignificant portion of the audience” are likely to understand or expect.

What about claims made by influencers? Although the FTC investigations involving influencer campaigns over the past decade have generally focused on the issue of whether influencers have adequately disclosed their connection to the companies they endorse – and most of the proposed edits touch on that same issue – it’s also important to keep in mind that companies can be held liable if influencers make claims that the companies couldn’t otherwise substantiate themselves. The FTC urges advertisers to provide guidance to influencers and monitor their compliance.

For a deeper dive on these (and other) issues, see my Law360 article.

Initially proposed in 1972, the Guides have long set guardrails for the use of endorsements and testimonials in advertising, at the time focusing on mediums such as TV, radio, and written publications. The Guides were revised in 1980 and 2009 to address new advertising law principles and reflect more recent uses of endorsements and testimonials. Though the Guides themselves are not trade rules that carry civil penalties, they provide a roadmap of how the FTC will approach enforcement under its Section 5 authority for endorsements and testimonials. Back in February 2020, we reported that the FTC was seeking public input on potential changes to the Guides to better address the current advertising landscape, including social media influencers. The FTC reviewed over a hundred comments from individuals, academics, trade associations, and companies and presented their proposed revisions during last week’s open meeting.

The proposed changes demonstrate the FTC’s interest in addressing evolving advertising practices and methods targeting consumers of all ages, especially on the internet and through social media. The proposed changes also suggest that this FTC will continue to push the envelope from prior standards in evaluating when advertising will be considered unfair or deceptive under the FTC Act. While not expressly proposed in the revised Guides, the preamble expresses skepticism that existing disclosure tools offered by social media platforms are adequate, for example, where the tools create superimposed disclosures on images that are unlikely to be seen or where disclosures appear above, rather than below, a picture or video where a consumer may not look.

Interested parties have 60 days to comment from publication in the Federal Register, which should occur shortly. Changes proposed include:

• Define “clear and conspicuous.” The Guides would include a stricter definition of “clear and conspicuous” which would require disclosures to be unavoidable, particularly by social media users. The revised definition would also provide that a disclosure must appear through the same means as the triggering claim (i.e., if the triggering claim is made both visually and audibly, then the disclosure must also appear both ways).
• Expand Liability to Advertisers, Endorsers, Intermediaries, and Platforms. The proposed Guides clarify that all parties in an advertising transaction may be liable for their role in endorsements. Intermediaries, such as advertising agencies, may be liable for their roles in disseminating what they knew or should have known were deceptive endorsements. Additionally, platforms could also be liable for facilitating misrepresentations if they lack appropriate built-in disclosure tools. And as we know from recent FTC actions and guidance, endorsers (such as influencers) themselves can be liable for their representations.
• More Detailed Guidance on Consumer Reviews. Building on recent FTC guidance and enforcement regarding misleading consumer review practices, the revised Guides would clarify that businesses are responsible for the presentation of their consumer reviews and that companies may be liable for moderating consumer reviews in a way that overstates positive reviews while discouraging or disfavoring negative reviews. Proposed examples of misleading conduct include deleting or not publishing negative reviews, buying “fake” reviews, and review gating (i.e., encouraging positive reviews and avoiding negative reviews).
• Expand Disclosure Discussion on Atypical Results for Consumer Endorsements. The FTC is proposing to add to existing section 255.2(b) to clarify “that the disclosure of the generally expected performance should be presented in a manner that does not itself misrepresent what consumers can expect.” The proposed changes also include new and revised examples, which reflect more stringent expectations related to disclosures of generally expected results where such disclosures qualify a consumer endorsement promoting an atypical result. Moreover, while not expressly acknowledging the change, the FTC also appears to be proposing to delete an existing reference in a footnote stating that “the Commission cannot rule out the possibility that a strong disclaimer of typicality could be effective in the context of a particular advertisement.”
• Expand the Definition of Endorser. The FTC proposes that the Guides expand the definition of “endorser” to encompass the emerging trends of advertisers relying on artificial or virtual influencers.
• Provide Additional Examples for Influencer Marketing. While the Guides have long specified that material connections must be clearly and conspicuously disclosed, the proposed revisions provide new examples of material connections that necessitate disclosure, including the provision of free or discounted products or the possibility of winning a prize, of being paid, or of appearing on television or in media promotions.
• Include the Targeted Audience in Evaluation of Disclosure. When assessing whether a disclosure is clear and conspicuous, the revised Guides would evaluate whether a specific targeted audience would have understood the disclosure. As part of this proposal, the FTC is also considering a section that addresses advertisements specifically targeted to children and the elderly. The FTC announced it will host a workshop to address this issue on October 19, 2022.

While some of the principles embodied in the proposed revisions have been articulated in previous guidance and enforcement, other principles are new. We encourage you to review the proposed changes and assess how they impact your practices related to endorsements and testimonials. Before the proposed changes to the Guides are finalized, the FTC is required to consider and respond to comments submitted in writing, which as noted above are due within 60 days of publication in the Federal Register.

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The AG alleges that Google engaged iHeartMedia DJs to promote the Pixel 4 on air before the phone had been released. According to the complaint, Google provided scripts for the ads, which included statements describing the DJ’s personal experiences with the phone, even though they had never used it. Although iHeartMedia allegedly expressed concerns about the scripts to Google, Google refused to make changes and insisted that the DJ’s record their “first-hand testimonials.”

The AG is seeking more than $1 million in damages and also has requested the court to grant injunctive relief that would bar Google from continuing to “create and broadcast advertisements which contain false endorsements and deceptive information.” Google hasn’t responded to the complaint yet, but a spokesperson said the complaint “appear to misrepresent what occurred here.”

While we wait to see what happens, keep mind that advertising on mediums like radio and podcasts presents some unique opportunities and challenges. For example, having a trusted DJ or podcaster read an ad can help add an air of credibility to the claims, but making claims in the first person, rather than the third person, will likely turn the ad into an endorsement. You also need to worry about what happens if the speaker goes off-script.

We’ll keep monitoring this case. In the meantime, check out our 2018 article on podcast advertising in which we previewed some of these issues.

Last week, Jessica Rich wrote about the FTC’s rulemaking plans for 2022. Make sure you read that post for a detailed analysis of what the Commission is planning. As we looked at which of those topics have generated the most interest on Ad Law Access recently, we wanted to point you to where you can find additional information.

• The FTC will review its Guides Against Deceptive Pricing and its Guide Concerning Use of the Word “Free” and Similar Representations. Although most of the activity in these areas has taken place at the state level, it will be interesting to see what the FTC adds to the ongoing conversation. (Click here for more coverage on pricing claims.)
• The FTC will review its Guides for the Use of Environmental Marketing Claims. A lot has changed since the Guides were last updated in 2012 and, as we’ve noted before, the lack of clarity in certain areas is leading to an increase in lawsuits and other challenges. (Click here for more coverage on green marketing.)
• The FTC is still analyzing and reviewing the public comments it has received as part of its review of the Children’s Online Privacy Protection Rule (or “COPPA”). That hasn’t stopped the FTC and other regulators for brining enforcement actions, though. (Click here for more coverage on children’s privacy.)
• The FTC is still analyzing and reviewing the public comments it has received as part of its review of the Endorsement Guides. As we’ve noted, this has been a hot topic, and the FTC recently sent out 700 warning letters, which could signal upcoming enforcement. (Click here for more coverage on endorsement issues.)

We’ll keep you posted, as these develop. In the meantime, rest up over the holidays because 2022 could be a bumpy year.

That provision, which has rarely been used, authorizes the Commission to seek civil penalties against other parties where (1) a final cease and desist order has been entered against a party in an administrative proceeding under Section 5(b) of the FTC Act, (2) there is a Commission determination that a specific practice is unfair or deceptive, as part of that order, and (3) a party with actual knowledge that the practice is unfair or deceptive has engaged in that practice after the order became final. Civil penalties can add up quickly – potentially nearly $44,000 per violation.

Earlier today, the FTC sent warning letters to more than 700 companies recommending that recipients review their practices related to endorsements and reviews to ensure that those practices comply with the law. The warning letters are explicitly meant to serve as a predicate for what could be a sweep of civil penalty investigations of advertisers. In the Commission’s announcement of the warning letters, it emphasized that, in the Commission’s view, the blanket warning letter to over 700 companies in nearly every industrial sector “puts those businesses on notice that deceptive practices in the future could result in penalties of up to $43,792 per violation.”

The warning letters outline a broad array of purportedly deceptive practices the FTC has determined to be unfair or deceptive in prior administrative cases, including:

• claiming – directly or by implication – that a third party has endorsed a product or its performance when that’s not the case (this includes fake reviews);
• misrepresenting that an endorsement reflects the experience, views, or opinions of users or purported users;
• misrepresenting an endorser as an actual, current, or recent user of a product;
• continuing to advertise an endorsement unless the advertiser has good reason to believe the endorser continues to subscribe to the views presented in the endorsement;
• using testimonials to make unsubstantiated or otherwise deceptive performance claims – even if the testimonial is genuine;
• failing to disclose a connection between an endorser and seller of a product if that connection might materially affect the weight or credibility of the endorsement or review and if consumers wouldn’t reasonably expect that connection; and
• misrepresenting – explicitly or implicitly – that the experience of an endorser represents the typical or ordinary experience of users of the product.

These types of letters are usually precursors to investigations. The FTC recently passed resolutions giving staff wide latitude in issuing Civil Investigative Demands, so now may be a good time to review your practices. Be sure to read our other posts on endorsements, reviews, and influencers for tips on how to comply with the law.