Advertising on the Cutting Edge:
Do’s and Don’ts Regarding
Native Advertising and Social
Media
Theodore C. Max
Sheppard Mullin Richter & Hampton LLP
[email protected]
© Sheppard Mullin Richter & Hampton LLP 2016
The Background
Your Company has hired a new Director of Marketing
and Social Media Coordinator. They want to revamp
your Company’s approach to Social Media and
Marketing. They have called a meeting with you to
discuss their next steps:
Creating Buzz for the New Collection
Let’s get folks within the Company who love everything we do
to “Like” the new Collection. The Spring 2017 Collection will
be shown on September 9, 2016. We will circulate digital
runway images and have our employees send “Likes” on the
Facebook page to create buzz. This is a no brainer, right?
FTC v. Deutsch LA
FTC v. Sony and Deutsch LA
 FTC alleged Sony misled consumers about the PlayStation Vita gaming
console;
 Sony claimed the features were “game changing” when the claims made
regarding the console’s capabilities were not true;
 FTC alleged Deutsch LA knew or should have known advertisements
were misleading about the console’s capabilities;
 FTC alleged Deutsch LA mislead consumers by having its employees
promote PS Vita in Social Media without disclosing they were
employees of Deutsch.
FTC v. Deutsch LA
FTC v. Sony and Deutsch LA
 FTC Order barred Sony from making misleading claims re handheld
consoles in the future and Sony gave consumers who purchased
prior to June 1, 2012 $25 in cash or credit or $50 voucher for
merchandise;
 Deutsch LA was barred from making similar misrepresentations,
bars misrepresentations that an endorser of any game console or
video game product is an independent user;
 Deutsch LA required to disclose material connection between
endorser of game console product and Deutsch LA or any company
involved in the manufacturing or marketing of the product.
The Takeaway
FTC’s Endorsement Guides and Revised Endorsement Guides
(“Endorsement Guides”) apply to “any advertising message…that
consumers are likely to believe reflects the opinions, beliefs, findings, or
experience of a party other than the sponsoring advertiser.”
Basic Rules:
 Endorsements must reflect the truthful experience of the endorser.
 You can’t make claims that require proof you don’t have.
 Clearly disclose any material connection between the endorser and the
advertiser.
 Social Media is no exception.
The Takeaway
FTC Guides: Social Media Best Practices for
Employees and Vendors
 Have a company policy regarding employee use of Social
Media;
 Institute robust compliance program, including specific
training and guidance relating to the FTC’s Enforcement
Guides;
 Make training available to employees, vendors and personnel
at respective advertising agency; and
 Have response and remediation program in place and take
immediate action when given notice of improper or lack of
proper disclosure
How About Videos for YouTube?
We have a new denim line that is fabulous? The fit is incredible!!!
What if we give bloggers a gift certificate for creating videos that they post
on YouTube? We would want them to upload videos and say how great
the fit and wear of the clothing is? The videos could go viral and really help
get the word out about the new jeans line?
FTC v. Machinima
FTC v. Machinima, Inc.
 Machinima paid bloggers to promote Microsoft’s Xbox One by
producing and uploading YouTube videos of themselves playing
Xbox One games.
 No disclosure of compensation was required and many videos
lacked disclosure;
 FTC issued closing letter but did not take action against Microsoft
and Starcom (Microsoft’s advertising agency) because of “robust”
compliance program, specific guidance and training relating to the
FTC Enforcement Guides for employees, vendors and Starcom
personnel;
 Microsoft and Starcom installed other safeguards and, once put on
notice, took swift action to require Machinima to insert proper
disclosures.
FTC v. Machinima
Machinima paid “Influencers” to provide
“advertisements” as part of its Influencer Program.
Celebrity Giveaways
Ok, what if we give celebrities our latest it bag?
Can we ask them to take a selfie and say how
much they love the bag?
The Kardashians do it all the time!!!!
 Kourtney Kardashian
 ✔ @kourtneykardash
 Oh yeah! Love the ugg collection too!RT @HALESyah: I had to
wear Kardashian Kollection on my 25th Birthday! ...
http://m.tmi.me/iZInG
 2:58 PM - 4 Dec 2011
 34 34 Retweets
 32 32 likes
Celebrity Giveaways
Is this alright?
Celebrity Giveaways
What if we just use their picture on our
online virtual store? Can we do that if
they accepted the bag?
It is ok if they wear the
bag and we photograph
them, right?
Do Not Assume You Have Permission!
Sarah Jessica Parker and Matthew Broderick v.
Sephora
In January 2003, Sarah Jessica Parker and Matthew Broderick
sued Sephora for $15 million for false endorsement or sponsorship
in 2001 advertisements which pictured the celebrities alongside
copy reading referring to them in the same “L’eau down on celebrity
sweethearts”, a Valentine’s Day-related promotional campaign at
Sephora retail outlets:
“MATTHEW & SARAH: They’re famous, happily
Married and madly in love.” The brochure also
contained the copy: “SHOP SEPHORA.COM.”
Do Not Assume You Have Permission!
Katherine Heigl v. Duane Reade (2014)
Katherine Heigl sued Duane Reade for $6
million in New York federal court claiming
a violation of the Lanham Act and New York
Civil Rights Law for the use of her photo and
name in social media promoting Duane
Reade. The case was settled amicably before
trial: "Ms. Heigl has voluntarily dismissed her
lawsuit, and Duane Reade has made a
contribution to benefit the Jason Debus
Heigl Foundation.”
Celebrity Giveaways
Twitter: The FTC recommends and Best Practices involve
featuring disclosures at the beginning of the tweet. But this
depends upon the length of the tweet. The point is the
disclosure should not be inaccessible or buried. See FTC “.com
Disclosures Twitter Chat.” (“Beginning of tweet is best.”).
What Makes A “Material” Girl?
Madonna loves our products and we have nothing in writing
but she always Tweets and Snapchats about how
wonderful our designs are!!! All it is are a few free bags
here and there. . . .What is the big deal? What is “material”
any how?
What about “#sp”? That works???
While “#sp” has been used by
influencers, the FTC has noted this has
not been seen as “likely [to] infor[m]
consumers that the message was
sponsored by an advertiser.”
What Makes A “Material” Girl?
What About Free Gifts?: If the social media influencer
receives a one-time fee or gift or if the social media influencer
continually receives free gifts from a brand, even if the gifts are
of less value individually, this would likely require a
disclosure. Social media posts meet the test even if the posts
are not accompanied by a review. For example, a standalone
photograph can convey that the media influencer endorses the
product
What Is “Material”?
We run a retail website that includes customer reviews of the products we
sell. We believe honest reviews help our customers and so we give out
free products our favorite customers for them to review. We tell them to
be honest, whether it’s positive or negative. What we care about is how
helpful the reviews are. Do we still need to disclose which reviews were
of free products?
FTC Says: Yes. Knowing that reviewers got the product they reviewed for free
would probably affect the weight your customers give to the reviews, even if
you didn’t intend for that to happen. And even assuming your reviewers are
unbiased, FTC says your customers have the right to know which reviewers
were given free product. It’s also possible that the reviewers may wonder
whether your company would stop sending them products if they wrote several
negative reviews – despite your assurances that you only want their honest
opinions – and that could affect their reviews.
What About Native Advertising?
What if we get a reporter to prepare an article about our new
denim collection? We could also have influencers wear the
new denim collection and take selfies of the new jeans? We
would only give them a few pairs of jeans and maybe $1,000
each. That cannot be a problem can it?
FTC v. Lord & Taylor: The Facts
Lord & Taylor promoted the launch of the Design Lab Collection and
a featured Design Lab paisley dress design through native
advertising, including a Lord & Taylor-sponsored article in the online
publication Nylon, and a Nylon Instagram post that was approved by
Lord & Taylor. Lord & Taylor paid fifty online fashion “influencers” to
post Instagram pictures of themselves wearing the same Design Lab
paisley dress.
FTC v. Lord & Taylor: The Facts
The Instagram portion of the social media campaign was very
successful and reached 11.4 million individual users in just more
than two days, resulting in 328,000 brand engagements with Lord &
Taylor’s Instagram handle, and the sell-out of the featured paisley
dress.
FTC v. Lord & Taylor: The Facts
While the influencers were free to style the paisley dress as they wanted, Lord &
Taylor required each influencer to use the Instagram user designation
“@lordandtaylor” and the hashtag “#DesignLab” in the caption of their photo
posting. While Lord & Taylor also pre-approved each proposed post, it failed to
require the influencers to disclose that Lord & Taylor paid them to post the photo
and no influencers made any such disclosures.
FTC v. Lord & Taylor: The Facts
But, Lord & Taylor failed to disclose that the Nylon article and Instagram
post were contracted and paid-for promotions. Lord and Taylor also
approved the Instagram Nylon post but did not require a disclosure. Lord
and Taylor also neglected to disclose that it had given each of the fifty
influencers the dress, as well as a payment between $1,000 and $4,000, in
exchange for his or her endorsement and the posting of a photo of
themselves wearing the dress on Instagram or another social media site.
FTC v. Lord & Taylor: The Facts
Busted!!!
FTC v. Lord & Taylor: The Complaint
On March 15, 2016, the FTC settled charges brought against New York
retailer Lord & Taylor, LLC (“Lord & Taylor”), arising from Lord & Taylor’s
March 2015 social media campaign targeted at 18 to 35-year old women its
launch of its new Design Lab Collection.
FTC v. Lord & Taylor: The Complaint
 The FTC complaint alleged that Lord & Taylor failed to disclose that the
Nylon article and Instagram post were contracted and paid-for
promotions.
 The FTC complaint further alleged that Lord and Taylor also approved
the Instagram Nylon post but did not require a disclosure. With regard
to the fifty influencers, the FTC also alleged that Lord and Taylor
neglected to disclose that Lord & Taylor had given each influencer the
dress, as well as a payment between $1,000 and $4,000, in exchange
for their endorsement and the posting of a photo of themselves wearing
the dress on Instagram or another social media site.
FTC v. Lord & Taylor: The Consent
Judgment

The proposed FTC settlement order prohibits Lord & Taylor from: “misrepresenting, in any
manner, expressly or by implication, that an endorser of such [Lord & Taylor] product or
service is an independent user or ordinary consumer of the product or service” in
connection with the advertising labeling, promoting, offering for sale, sale or distribution of
any product or service.

Lord & Taylor also is required to “clearly and conspicuously, and in close proximity to the
representation, disclose a material connection, if one exists, between such [Lord & Taylor]
endorser ad.”

Lord & Taylor also is required to establish a monitoring and review program for its
endorsement campaigns, which includes provisions, inter alia, for terminating any
endorser with a material connection to Lord & Taylor who has misrepresented, in any
manner, his or her independence or impartiality or failed to disclose, clearly and
conspicuously, in close proximity to the representation, a material connection between the
endorser and Lord & Taylor. Lord & Taylor’s future endorsement campaigns would be
subject to FTC monitoring and review.
Executive Summary: What You Need to
Know
 What’s the bottom line?: “The watchword is
transparency. An advertisement or promotional message
shouldn’t suggest or imply to consumers that it’s anything
other than an ad.” The FTC Guides apply to any
advertising message that consumers are likely to “believe
reflects the opinions, beliefs, findings or experience of a
party other than the sponsoring advertiser”
 What do the rules require of social media influencers?:
Social media influencers must disclose any material
relationship between the brand and him/herself
Executive Summary: What You Need to
Know

How can social media users fulfill the FTC disclosure requirements?: The
FTC requires that the disclosure be clear and conspicuous. For example,
including the following on an Instagram or Twitter post is likely sufficient:
“#contest, #sweepstakes, #advertisement, or #ad. For the disclosure, use a font
and contrasting shade of type that is easy to read and that stands
out. Additionally, use hashtags that are relevant. The hashtag “#sweeps” , for
example, is likely not sufficiently transparent to meet the FTC disclosure
requirement for sweepstakes

Which social media posts are governed by the FTC Guides?: The FTC is
focused on endorsements that are made on behalf of a sponsoring advertiser in
exchange for a fee or something of value (i.e., free clothing or a discount on
future purchasers). The test to determine if an individual social media post
requires a disclosure is whether knowing about the gift or incentive given by the
brand to the social media influencer affects “the weight or credibility” readers or
viewers give to the recommendation?
Executive Summary: What You Need to
Know

Are there specific rules for different platforms?: For sweepstakes and
contests, when requiring a “tweet”, “pin” or a “like” for entry, the brand must
disclose there’s a contest and it must include the official rules or a link to the
official rules. For Facebook and similar social media, a brand cannot buy or use
“fake likes” or “pins”. See In re Deutsch LA Inc.

Does this apply to all social media platforms?: Yes, the FTC Guides apply to
blog entries, Instagram posts, Facebook posts, Twitter posts, YouTube videos
etc. If the social media influencer and brand relationship meets the FTC
requirements;
Thank You Again for Your Attention