Advertising Law

FTC Emphasizes Disclosures in Letters to Influencers, Marketers

By Jesse M. Brody, Partner, Advertising, Marketing and Media

Influencers and marketers must clearly disclose their relationships, the Federal Trade Commission reiterated in more than 90 letters sent by the agency after it reviewed social media posts by celebrities, athletes and other influencers.

The letters were “informed” by petitions filed by Public Citizen and mark the first time the agency has reached out directly to educate social media influencers themselves, the FTC said. Each of the letters cited a social media post that concerned the agency, which expressed the desire to educate the recipient about existing standards.

“The FTC’s Endorsement Guides state that if there is a ‘material connection between an endorser and the marketer of a product—in other words, a connection that might affect the weight or credibility that consumers give the endorsement—that connection should be clearly and conspicuously disclosed, unless the connection is already clear from the context of the communication containing the endorsement,” wrote Mary K. Engle, associate director of the FTC’s Division of Advertising Practices. “Material connections could consist of a business or family relationship, monetary payment, or the provision of free products to the endorser.”

To be “clear” and “conspicuous,” the disclosure should use unambiguous language and stand out, the FTC advised, so that consumers can easily notice the disclosure and not have to search for it.

In an example specific to one social media platform, the agency noted that consumers who view posts in their streams or on mobile devices typically see only the first three lines of a longer post unless they click “more,” which many consumers do not do. “Therefore, an endorser should disclose any material connection above the ‘more’ button,” Engle wrote. “In addition, where there are multiple tags, hashtags, or links, readers may just skip over them, especially where they appear at the end of a long post.”

Some of the letters addressed particular disclosures that the agency declared “not sufficiently clear,” such as “#sp,” “Thanks [Brand],” and “#partner.” “[M]any consumers will not understand” that such a post is sponsored, the FTC said.

For marketers, the FTC also suggested that they review their written social media policies to ensure compliance with the Endorsement Guides (or implementation of such a policy if they lack one) and conduct an appraisal of their social media marketing to ensure that all posts contain the necessary clear and conspicuous disclosures.

To read a sample letter to an influencer, click here.

To read a sample letter to a marketer, click here.

Why it matters: The letters serve as warnings to influencers and marketers that the FTC is keeping a close eye on social media to ensure compliance with the Endorsement Guides. The agency emphasized three important tips: Keep disclosures unambiguous (avoid vague terms that won’t explain the nature of the relationship between an influencer and the brand), make disclosures hard to miss (by disclosing material connections above the “more” button) and don’t bury disclosures in a string of hashtags that readers are likely to skip.

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Net Neutrality Continues to Divide

By Jeffrey S. Edelstein, Partner, Advertising, Marketing and Media

In the latest developments with regard to net neutrality, just days after the U.S. Circuit Court of Appeals for the D.C. Circuit held that it would not reconsider its ruling upholding the net neutrality rules, a group of Republican lawmakers filed a bill to rescind them.

Introduced by Sen. Mike Lee (R-Utah), the Restoring Internet Freedom Act would nullify the Federal Communications Commission’s 2015 Open Internet Order and prohibit the agency from issuing a similar rule in the future, pursuant to the Congressional Review Act.

Specifically, the legislation would ban the FCC from categorizing broadband access as a utility service regulated under Title II of the Telecommunications Act. The 2015 order also established restrictions on common carriers’ practices. They cannot accept payments to prioritize some sites over others, and they cannot block access to legal content or throttle any Internet traffic.

Covered entities challenged the order, but a three-judge panel of the D.C. Circuit held last year that the rules were within the scope of the FCC’s power. Broadband providers sought en banc review from the appellate panel, but the judges denied the request, leaving the decision in place.

In addition to the new bill, FCC Chair Ajit Pai—who dissented in the vote to pass the 2015 order—has vowed to do away with at least some of the rules, and unveiled a plan that would reverse the decision to classify broadband as a utility service. The proposed Notice of Proposed Rulemaking (NPRM) also asked for public comment on the rules that prohibit ISPs from blocking or degrading traffic and creating paid fast lanes.

Opponents responded to both efforts to reverse the rules. Sens. Brian Schatz (D-Mich.) and Cory Booker (D-N.J.) sent an open letter to Pai, stating that the “public does not accept Republicans taking away their rights online in the name of corporate profit.” They were joined in their criticism by Rep. Frank Pallone (D-N.J.), who argued that without the net neutrality rules, “large corporate interests can begin to choke off conversations they don’t like and they can speed up the ones they do.”

Tech companies also weighed in, with more than 1,000 startups signing a letter asking Pai to reconsider. “Without net neutrality, the incumbents who provide access to the Internet would be able to pick winners or losers in the market,” companies including Etsy, Foursquare and Reddit said. “They could impede traffic from our services in order to favor their own services or established competitors. Or they could impose new tolls on us, inhibiting consumer choice.”

To read the order in U.S. Telecom Association v. FCC, click here.

To read the Restoring Internet Freedom Act, click here.

To read the FCC’s NPRM, click here.

To read the letter from tech groups, click here.

Why it matters: The battle over net neutrality has been contentious for years, and the current political climate ensures continued debate. All eyes will be on the FCC on May 18, when it is scheduled to vote on Pai’s proposal.

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NAD: Decisions Not to Be Used for Promotional Purposes

By Richard P. Lawson, Partner, Advertising, Marketing and Media

The National Advertising Division (NAD) provided advertisers with a reminder not to use decisions for promotional purposes in an action involving the North American Insulation Manufacturers Association.

The industry group, which represents makers of fiberglass insulation products, challenged certain advertising claims made by Applegate Insulation, the manufacturer of cellulose insulation. NAIMA objected to comparative performance claims in Applegate’s advertising that cellulose insulation provides superior energy savings over fiberglass insulation and provides a cost savings for consumers.

After reviewing the ads, the NAD recommended that Applegate discontinue certain unsupported claims (including “Applegate Cellulose helps keep your home warmer in the winter, cooler in the summer, blocks air infiltration, and saves you money!” and “Applegate Cellulose insulation can reduce your utility bill by up to 40%.”).

Subsequent to the decision, a public relations company working on behalf of NAIMA commissioned articles in three separate publications, using the decision to promote fiberglass insulation, a violation of the procedures that govern the self-regulatory system, the NAD said in a new press release.

“NAD procedures make clear that parties to an NAD case are prohibited from using NAD decisions for promotional purposes,” the self-regulatory body wrote. “Participating companies agree at the outset to abide by that rule and parties are reminded of the prohibition when a case is closed. The prohibition was put in place to encourage participation and to better assure NAD decisions are not used by parties either to promote their own products or implicitly criticize competitors.”

NAIMA violated the procedures by “directly promoting” the outcome of an advertising challenge case decided by the NAD. “Effective self-regulation requires that participants adhere to both the letter and the spirit of the self-regulatory system,” the NAD noted.

To read the NAD’s press release, click here.

Why it matters: The NAD provided an important reminder to advertisers to follow the self-regulatory procedures and refrain from using decisions for promotional purposes.

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Fyre Festival Flameout Includes False Advertising

By Jesse M. Brody, Partner, Advertising, Marketing and Media

The Fyre Festival’s catalog of errors includes the failure to disclose sponsored promotions, according to one of the multiple class actions filed against the organizers.

Touted as a one-of-a-kind destination music festival, the stories of travel problems, lack of housing and struggles to find food on an island in the Bahamas unprepared for the onslaught of visitors went viral, resulting in a high-profile flameout for the Fyre organizers.

Breach of contract and fraud lawsuits quickly followed, as well as a California state court complaint that alleges the defendants also tricked consumers into attending by paying celebrities and social media influencers to promote the festival, while failing to disclose the sponsored endorsements.

Bella Hadid, Kendall Jenner and Emily Ratajkowski, among others, created buzz for the event, the suit alleged, yet did not disclose they were paid in violation of FTC regulations. “These ‘influencers’ posted content to social media, with captions and language that promoted the Festival and hashtags such as #FyreFestival that made it readily accessible to consumers,” according to a trio of attendees. “Social media ‘influencers’ made no attempt to disclose to consumers that they were being compensated for promoting the Fyre Festival.”

This failure to disclose stands “in direct violation of the Federal Trade Commission Guidelines on disclosing material connections between advertisers and endorsers,” the plaintiffs told the court.

Other false advertising for the event included promotional materials depicting “breathtaking Caribbean locations, stunning beach-side villas, yachts with models draped over the top, and other luxurious amenities,” although when festival attendees arrived on Exuma Island, “they found the actual conditions to be horrific. The festival grounds were barren and disorganized. Luggage was haphazardly thrown from shipping crates onto the beach. The villas that were billed as upscale beach tents were tents that resembled those used by the Federal Emergency Management Agency in times of disaster. The tents themselves were empty and did not include any furnishings.”

“As Plaintiffs began to grasp the dire nature of the situation, upon witnessing the complete lack of infrastructure necessary to host such an event, a panic enveloped the crowd,” the complaint detailed. “Plaintiffs were stuck on the island, with no way off.”

The defendants knew at least a month before the event that they would not be able to deliver on their claims, the suit alleged, and yet made no effort to warn attendees or mitigate the situation.

To recover on the unfulfilled promise of an unrivaled music festival experience, the plaintiffs requested injunctive relief as well as costs, restitution, damages (including punitive damages) and disgorgement.

To read the complaint in Chinery v. Fyre Media Inc., click here.

Why it matters: As the debacle unfolded, Vanity Fair managed to get its hands on a pitch deck for the Fyre Festival marketing campaign, which revealed that the organizers recruited more than 400 “Fyre Starters” to promote the event. Influencers were offered packages including free flights, rooms and event tickets, with a value of up to $12,500. In return, social media followers provided more than 300 million impressions in just the first two days of the promotional campaign, the publication found. The alleged violations of the FTC’s guidelines could not have come at a worse time, as the agency recently cracked down on marketers and influencers alike in more than 90 letters.

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Free App User Can't Sue Under VPPA, Eleventh Circuit Confirms

By Jeffrey S. Edelstein, Partner, Advertising, Marketing and Media

The U.S. Court of Appeals for the Eleventh Circuit ruled that a Video Privacy Protection Act (VPPA) plaintiff was not a “subscriber” as defined by the statute and therefore could not sue when an app shared his data without his permission.

Ryan Perry downloaded the CNN app in early 2013 to read news stories and watch video clips. The CNN app maintains a record each time a user views a news story, video clip or headline. When a user closes the app, a complete record of the user’s activities and a media access control address is sent to a third-party data analytics company that specializes in tracking the behaviors of individual users via the Internet and mobile applications.

When Perry learned about the data sharing, he filed suit under the VPPA, asserting that CNN contravened the statute by not obtaining his consent to disclose any of his personally identifiable information to third parties by transferring his viewing history and MAC address.

CNN countered with a motion to dismiss, arguing that Perry was not a “subscriber” as defined by the statute, nor was the data passed along “personally identifiable information.” A district court agreed with the defendant, granting the motion.

While the Eleventh Circuit found that Perry had established standing to file suit because his alleged injury was sufficiently concrete, the unanimous panel affirmed dismissal. The court has previously interpreted the term “subscriber” to require “some sort of ‘ongoing commitment or relationship between the user and the entity which owns and operates the app,’” the court said, and the plaintiff failed to meet that standard.

“Perry is not a ‘subscriber’ of CNN because he has not demonstrated an ongoing commitment or relationship with CNN,” the court wrote. Perry did not sign up for or establish an account with CNN, provide any personal information to CNN, make any payments to CNN in using its app, become a registered user of CNN or its app, receive a CNN ID, establish a CNN profile, sign up for any periodic services or transmissions, or make any commitment or establish any relationship that would allow him to have access to exclusive or restricted content.

To strengthen his position, Perry argued that he was also a cable subscriber to CNN’s television network and therefore had a relationship that involved commitment and indirect payments to the defendant. But this relationship “shows a commitment to only his cable television provider, rather than to CNN,” the panel found. Even if Perry were entitled to special features on the app, that fact was due to his separate relationship with the cable television provider.

“Perry’s argument that CNN indirectly receives a monetary benefit by virtue of Perry’s direct payments to his cable television provider similarly misses the mark,” the court added. “Perry’s distinct financial relationship with his cable television provider does not shed light on his commitment to CNN because, for instance, if his cable television provider removed CNN from Perry’s cable package, it would not affect Perry’s ability to use the CNN App for free video content.”

Finally, the panel distinguished a decision from the First Circuit, where the court found a plaintiff to be a subscriber under the VPPA because he provided his mobile device identification number and GPS location to the app. “That fact was sufficient to ‘establish a relationship’ with the proprietor of the app,” the Eleventh Circuit explained. “Perry admitted before the district court that he was never required to register for the CNN App, even stating that the CNN App did not request his email address, his credit card number, or his GPS location.”

“We decide that the ephemeral investment and commitment associated with Perry’s downloading of the CNN App on his mobile device, even with the fact that he has a separate cable television subscription that includes CNN content, is simply not enough to consider him a ‘subscriber,’” the court concluded. “Perry still ‘is free to delete the app without consequences whenever he likes, and never access its content again.’”

The panel did not reach the question of whether the information at issue met the definition of “personally identifiable information” under the statute, finding it sufficient that Perry was not a “subscriber” under the VPPA as a basis for dismissal.

To read the opinion in Perry v. CNN, click here.

Why it matters: Courts continue to struggle with the application of the VPPA—enacted in 1988—to 21st-century technology. While the Eleventh Circuit reiterated its position in the Perry case, the First Circuit has reached a contrary decision, and a California federal court recently determined that Vizio could be liable under the statute for allegedly installing software on smart TVs and collecting viewing data on millions of consumers without their knowledge and consent.

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