FTC Hits Lord & Taylor Over Native Advertising, Social Influencer Campaign12 Apr, 2016 By: Linda A. Goldstein, Lauren B. Aronson
In December 2015, the Federal Trade Commission (FTC) issued its long-awaited enforcement policy statement and a guide for businesses on the topic of native advertising. Native advertising refers to various advertising formats, appearing principally on publishing sites and in social media, which are designed to look and feel like the organic content surrounding them. The FTC considers such ads to be deceptive because consumers often cannot tell that they are ads and mistake them for editorial content.
For direct response marketers, this should be déjà vu as this blurring of the distinction between commercial and editorial content is precisely what prompted the FTC to require the “paid programming” disclosures in infomercials. The native advertising guidance imposes similar disclosure requirements on these new advertising formats.
Less than three months since the FTC’s issuance of these guides, the Commission announced its first enforcement action and settlement under them – with department store chain Lord & Taylor. The action stems from a highly successful social media campaign launched by Lord & Taylor to promote its private-label clothing brand, Design Lab. The campaign included branded blog posts, photos, video uploads, native advertising editorials in online fashion magazines, and online endorsements by a team of specially selected “fashion influencers.”
According to the FTC, Lord & Taylor failed to disclose that the native articles and posts were paid commercial content, and the fashion influencers failed to disclose that they had been paid by Lord & Taylor and received free products. The case thus involves compliance with both the FTC’s native advertising guidelines and with its “Testimonial and Endorsement Guides.” It provides important lessons for marketers utilizing any form of native advertising or more broadly engaging in social influencer campaigns.
According to the FTC’s complaint, Lord & Taylor engaged fashion magazines to produce native content designed to promote Design Lab – and, in particular, a paisley asymmetrical dress. As part of the campaign, online magazine Nylon posted a photograph to its Instagram account of this Design Lab dress, along with a caption. Lord & Taylor edited and approved the post without disclosing that it was a paid post. In addition, Nylon also ran an article regarding Design Lab, pre-approved by Lord & Taylor, without disclosing that the article was paid advertising content.
In addition to challenging the native advertising campaign, the FTC also alleged that Lord & Taylor violated the its Testimonial and Endorsement Guides by engaging fashion bloggers with significant followings to promote Design Lab and the dress without disclosing that they had a material connection to the company. According to the FTC’s complaint, Lord & Taylor engaged fashion bloggers to promote Design Lab on Instagram and paid them between $1,000 to $4,000 to post stylish photographs of themselves wearing the same dress.
While the influencers were contractually obligated to mention and tag the company by using the user designation @lordandtaylor and to add the hashtag #DesignLab to the caption, they were not contractually obligated to disclose that they had been paid by Lord & Taylor or received the dress for free – and none of the fashion bloggers disclosed this in their posts.
In what must be viewed as a clear signal to the industry that the FTC is serious about its enforcement of both its native advertising and testimonial guidelines, the FTC did not let Lord & Taylor off with a slap on the wrist closing letter, but rather required the company to enter into a formal consent order. The consent order prohibits Lord & Taylor from failing to disclose in the future that native advertisements are commercial content and from failing to ensure that its paid social influencers disclose their material connection to the company. The consent order imposes detailed monitoring requirements that the company must follow when engaging in social influencer campaigns in the future.
While marketers often delegate responsibility for these campaigns to third parties, this case is a stark reminder that advertisers are responsible for ensuring that material disclosures by endorsers – social media influencers and publishers – are clearly and conspicuously disclosed and will be held strictly liable if the necessary disclosures are not made. Advertisers should take particular note of the compliance and monitoring obligations imposed on Lord & Taylor and ensure that they have proper procedures in place to ensure that all necessary disclosures are made in their social media campaigns – even if those campaigns are being executed and administered by third parties.
For more information on the Lord & Taylor case, take a look at these links:
- Complaint: https://www.ftc.gov/system/files/documents/cases/160315lordandtaylcmpt.pdf
- Consent Order: https://www.ftc.gov/system/files/documents/cases/160315lordandtaylororder.pdf
- Machinima Order: https://www.ftc.gov/system/files/documents/cases/150902machinimaorder.pdf
Linda A. Goldstein is chair and of the Advertising, Marketing and Media division of Manatt Phelps & Phillips LLP, based in the firm’s New York office. Lauren B. Aronson is counsel at the firm. Goldstein can be reached at firstname.lastname@example.org, while Aronson can be reached at email@example.com.