Online ‘influencer’ rules

FTC is reining in failure to provide disclaimers for endorsements

In today’s marketplace, online endorsements are valuable tools to convince consumers to purchase products or services. Like everything on the internet, however, it can be difficult to discern whether the endorsement is genuine or not.

The Federal Trade Commission is one regulator that has actively investigated and prosecuted false or misleading endorsements. A recent settlement obtained by the FTC against two “social media influencers” highlights the trouble companies can face without proper disclaimers. While the fact pattern of this case is on the egregious side, the concepts can be applied to any industry and situation.

The FTC brought a complaint against Trevor “TmarTn” Martin and Thomas “Syndicate” Cassell, two men with significant followings in the online gaming community. The FTC alleged that they deceptively endorsed an online gambling service without disclosing that they jointly owned and were officers of the company, CSGO Lotto, that owned and operated the service.

Martin and Cassell used their YouTube channels, Twitter and other social media accounts to promote the gaming site, bragging of their winnings to their followers. Cassell’s video posts alone were viewed more than 5.7 million times. Although some posts indicated that it was “sponsored” by the gaming site itself, neither Martin nor Cassell communicated their close connection to the site when endorsing it.

The FTC also alleged that Martin and Cassell paid other well-known “social media influencers” to promote the gaming website on YouTube, Twitch, Twitter and Facebook, without requiring them to disclose they had been paid for their social media posts. Martin and Cassell contractually prohibited these influencers from making negative statements about the site and paid them between $2,500 and $55,000 for their posts. These influencers did not communicate in their posts that they had a financial connection to the site owners.

Shortly after it became publicly known that Martin and Cassell had ownership interests in the site, it ceased operations.

Martin and Cassell subsequently settled with the FTC. The consent agreement provides a roadmap for navigating the laws and regulations regarding online endorsements.

First, an endorser cannot, expressly or by implication, misrepresent independence. If the endorser has a connection to the company that produces the product or service, that relationship must be stated conspicuously.

Second, “unexpected material connections” must be disclosed. In the consent decree, this term means “any relationship that might materially affect the weight or credibility of a testimonial or endorsement and that would not reasonably be expected by consumers.”

The contractual arrangement and money paid by Martin and Cassell to the other social media influencers are examples of unexpected material connections. One could imagine other instances of such connections, such as discounts or free products or services in exchange for favorable endorsements.

There are resources to aid companies in navigating the regulations governing endorsements. One is the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising. One of their key considerations is that an endorser must be a bona fide user of the product or service at the time of the endorsement.

Another trap is inducing users of a product or service to write a blog about their experience. The manufacturer or advertiser can, under certain circumstances, be held liable for misrepresentations of the blogger. The guides provide other examples of common advertising situations that might expose companies to liability.

There are also resources to protect consumers from falling into fake advertisement traps.

Along with the press release regarding the FTC’s settlement with CSGO Lotto, the FTC also announced that it has sent warning letters to 21 social media influencers and updated staff guidance for social media influencers and endorsers.

On its website, the FTC also has a fairly user-friendly Complaint page in which an individual can file a complaint about anything from unwanted telemarketing to the dreaded online shopping scams.

Until October 2016, Amazon allowed sellers to give free or discounted products in return for reviews so long as the reviewer disclosed that it had received the product for free or discounted in exchange for the review. Since then, Amazon has cracked down on these incentivized reviews. There are even websites that now help consumers identify which products or services have fake reviews.

In the digital age, online endorsements and recommendations are valuable commodities to both companies and consumers. But companies should take care to ensure they are truthful and accurate. In turn, consumers must be conscious that reviews and endorsements should be viewed with a critical eye.

Attorney J.P. Harris, a shareholder of Sheehan Phinney, represents clients in a variety of industries in civil litigation. Bryanna Devonshire, also an attorney with Sheehan Phinney, is a member of the firm’s Business Litigation and Environmental Groups.

Categories: Law