3 Takeaways from the FTC’s First Deceptive Marketing Case Under New Native Ad Rules

Originally published by DMN sister publication PR Week US. Reprinted with permission.

In late March, the Federal Trade Commission (FTC) entered into a significant consent decree with Lord & Taylor. This is important for every marketer and PR and social media agency because it is the FTC’s first case under its recently issued native advertising guide for businesses, which I predicted would lead to more enforcement activity by the FTC. The FTC asserted that a Lord & Taylor social media campaign violated both the FTC’s native advertising guide and its endorsement guidelines. As a result, Lord & Taylor has entered into a 20 year consent decree.

Successful, but misguided

In early 2015, Lord & Taylor launched a comprehensive social media campaign to promote its new Design Lab collection, a private-label clothing line targeted to women between 18 and 35 years old. The retailer’s market plan included the dissemination and placement of branded blog posts, photos, video uploads, native advertising editorials in online fashion magazines, and online endorsements by a team of specially selected “fashion influencers” over one “product bomb” weekend. These efforts focused on a specific Design Lab paisley dress. The FTC’s complaint alleged that Lord & Taylor paid Nylon, a pop culture and fashion publication, to run an article online about the Design Lab collection, which included a photograph of the paisley dress. Lord & Taylor also paid Nylon to post a photo of the dress on the publisher’s Instagram site, along with a caption that stated Lord & Taylor had reviewed and approved the content.

Over the same weekend, Lord & Taylor incentivized 50 fashion influencers to post a photo of themselves wearing the dress — styled according to their choice — on Instagram, in exchange for giving the influencers the dress for free and paying them an amount between $1,000 and $4,000. The social media campaign was immensely successful, reaching 11.4 million individual Instagram users in just one weekend and leading to 328,000 brand engagements with Lord & Taylor’s Instagram handle. The dress quickly sold out.

Lord & Taylor contractually obligated influencers to use the “@lordandtaylor” Instagram handle and the hashtag “#DesignLab” in the caption of the photo they posted. However, Lord & Taylor did not require any influencers to disclose that the retailer had compensated them to post the photo. Ultimately, neither the article nor any of the influencer posts included any disclosure of their paid nature. The FTC strongly contended that Lord & Taylor engaged in deceptive practices in violation of Section 5 of the Federal Trade Commission Act in two ways. First, Lord & Taylor paid a publisher to place content about the retailer’s clothing line without disclosing or requiring the publisher to disclose that the posts were paid advertising content. Second, Lord & Taylor failed to disclose that its influencers had been compensated for their endorsements.

The FTC’s Consent Decree

Lord & Taylor entered into a 20 year consent decree with the FTC to settle the charges. In doing so, Lord & Taylor agreed that it would not misrepresent its paid advertisements as the statements or opinions of independent, editorial publishers, or sources. Lord & Taylor also agreed to ensure that its influencers clearly disclose when they have been compensated in exchange for their endorsements and that they not misrepresent themselves as ordinary consumers when endorsing Lord & Taylor or its products.

Significantly, Lord & Taylor is also required to establish a monitoring and review program of its endorsers and to immediately terminate any endorsers who failed to clearly and conspicuously disclose their relationship with the retailer (subject to a possible exception and opportunity to cure for an inadvertent failure to disclose). Lord & Taylor blamed its social media agency for many of the actions which the FTC challenged. However, whatever actions Lord & Taylor may choose to pursue against its social media agency still do not absolve Lord & Taylor of either responsibility or liability in the eyes of the FTC.

There are three key takeaways from this case:

  • Marketers and their agency partners in charge of developing and deploying similar campaigns should ensure that the appropriate legal disclosures are being made in a clear and conspicuous manner, keeping context and the net impression of the content in mind.
  • Influencers, affiliates, marketing partners, and internal teams alike should be trained to ensure they have legal support for product claims—as well as their ongoing disclosure obligations.
  • Marketers, agencies, and publishers should all affirmatively monitor whether sufficient disclosures continue to be made and take prompt steps to remedy the situation or terminate the relationship if partners or influencers fail to make the necessary disclosures.

Michael Lasky is a senior partner at the law firm of Davis & Gilbert LLP, where he heads the PR practice group and co-chairs the litigation department. He can be reached at [email protected].

Originally published by DMN sister publication PR Week US. Reprinted with permission.

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