Sauron’s Newest Deception

The recent push against undisclosed sponsored content may bring the sting of civil penalties.

In the constant battle for attention, companies can only go so far.

Scrolling through Facebook is a unique skill nowadays.  You attempt to dodge the barrage of ads, click bait, and posts by those annoying friends in order to hone in on the nuggets of people’s lives you care about.  In fact, many of us have become quite good at zoning out content that does not interest us.

Hence the constant surge by companies to better market their product to attract our attention, if only for a minute.  Commercials get funnier, more emotional, and persuasive.  Closable pop-up windows have become website sidebars. Short advertisement blurbs fill the pauses between our music.  In what is called native advertising, companies attempt to better integrate their sales pitches into content we consume.

In the constant battle for attention, companies can only go so far.  They can be creative, but agencies such as the Federal Trade Commission (FTC) prevent companies from passing into the realm of outright deception.  Created by President Woodrow Wilson in 1914, the Federal Trade Commission is a federal agency tasked with “protecting consumers and promoting competition” by preventing deceptive trade practices and enforcing antitrust law.

Deceptive endorsement is one such strain of deception that has become prevalent recently as corporations attempt to hone in on the content we trust to be honest, genuine, and objective opinions of the friends and people we admire.  There lies a chasm of difference between the friend that touts the best gaming system based on personal preference versus the friend who makes a commission off each system sold.  As corporations attempt to get your friends to sell stuff to you, there have been repeated failures to disclose that important distinction.

[A] deceptive endorsement is one that materially misrepresents or an omission likely to mislead reasonable consumers.

Under section 5 of the Federal Trade Commission Act, the FTC has the discretion to investigate cases involving deceptive endorsements.  A deceptive endorsement is a statement that materially misrepresents or an omission likely to mislead reasonable consumers.  In order to avoid the possibility of misrepresenting or misleading, the corporations must clearly and conspicuously disclosure the relation between endorser and marketer.

To aid in applying section 5, the FTC developed guides to provide examples to further clarify what violation entail.  For example, a celebrity selling a particular food in an advertisement would not require a disclosure because a reasonable person would assume they are being paid. On the other hand, an athlete talking about the benefits of their recent LASIK surgery on a talk show would be required to disclose if they had a relationship with the LASIK company.

With little or no indication… influencers were paid up to hundreds of thousands of dollars… to post positive reviews.

Earlier this year, Warner Bros. Home Entertainment Inc. came under fire by the FTC after Warner Bros. paid private individuals to promote its new game Middle Earth: Shadow of Mordor.  This resulted in 30 videos, viewed over 5.5 million times, with minimal or no indication that the influencers were working for Warner Bros.  These “influencers” were paid up to hundreds of thousands of dollars and given free advance copies of the game.  They were instructed to post positive reviews and gameplay videos on social media and YouTube, avoid discussing any bugs or glitches, and push viewers to check out the game’s website.  While some videos included disclosures, they were not readily visible to the normal viewer as they could only be accessed if the viewer clicked the “see more” link.

Following a 30-day comment period, on November 17th, the FTC issued a final order requiring Warner Bros. to (1) cease any misrepresentation of influencers as independent users, (2) disclose such material connections between Warner Bros. and their hired influencers, (3) provide future influencers with instructions on how to disclose their partnership with Warner Bros., (4) monitor and break ties with influencers that do not disclose, and (5) document interactions with influencers sufficient to indicate compliance.

This is not the first time the FTC has cracked down on the gaming industry. Last year, Machinima got in trouble for a similar situation. Influencers were paid to produce 300 videos promoting the Xbox One. The FTC approved its final consent order on March 17 of this year in which it laid out regulations that parallel those issued against Warner Bros.

While the heightened guidelines were approved back in 2009, the last couple years have seen an increase in the number of complaints issued by the FTC. It is predicted that many other companies, and even individual social media gurus, are likely to be next.  The Fashion Law did a series of pieces over the summer about Instagram icons such as Aimee Song, who is in a half-a-million dollar deal with Laura Mercier, whose blanket posts and hit or miss disclosures are not likely enough to shield her from violations under FTC guidelines. Kristina Bazan, another Instagram star with 2.3 million followers, is in the same boat after her one million dollar deal with L’Oreal and complete lack of disclosures.

Other bloggers and Instagram icons have already been called out by the FTC for their failure to disclose, including those aligned with Lord & Taylor who were asked to post a picture on their Instagram accounts wearing a certain dress.  Each influencer was compensated between one and four thousand dollars.  All of the posts failed to have disclosures.  The final order was approved on May 23, 2016.

While no fines have been levied to this point against such companies as Warner Bros., Machinima, and Lord & Taylor any future violations could result in a civil penalty up to $16,000.

The FTC has… not rule[ed] out certain circumstances where actions against the private individuals would be appropriate.

With as many as 70% of websites currently violating FTC regulations, and the lack of awareness among private endorsers, is it fair for the FTC to pursue individuals?  Especially when the standard of sufficient disclosure is so vague.  For example, #sponsored could be adequate disclosure while #spon or #sp would not be.  Putting a hashtag disclosure at the beginning of your post would be sufficient, while at the end might not be.  However, all of this is subject to consideration of the particular circumstances present.

While the FTC has indicated that they mainly will focus on the advertisement agencies and corporations selling the products, they do not rule out certain circumstances where actions against the private individuals would be appropriate.  The FTC website strongly encourages disclosures often and clearly, regardless of medium, whenever there is a chance that the genuineness of your message could be questioned.

The next knock on your door could be the FTC.

Facebook can be a good tool to stay connected with friends and the outside world.  It can also be a useful for business or self-promotion purposes.  But, when economic interests come into play, individuals should be aware of the new duties placed upon them if they plan on reaping the benefits.  If you are profiting and not disclosing, the next knock on your door could be the Federal Trade Commission.

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About Taylor Dougherty (5 Articles)
Taylor Dougherty is a third year law student and serves as a Senior Staff Writer for the Campbell Law Observer. He is originally from Raleigh, but lived in Wake Forest for 10 years prior to coming to Campbell. Taylor graduated from Thomas Edison State University with a BA in History. He currently works at the Law Office of Christopher Mann.