Is that a selfie or an ad? UK watchdog launches investigation into influencer marketing.

We are all familiar with celebrities and social media stars using their social media accounts to promote brands and products. For some, it is their main source of income and they can make millions in endorsement and sponsorship deals. Major TV and sports icons can command hundreds of thousands of pounds per post, which may sound extraordinary but the reality is that this is fast becoming one of the primary means for marketing to young people.

The problem with influencer marketing is that the commercial relationship is not always appropriately disclosed, making it difficult for consumers to distinguish between editorial content and advertising.

In response to this, the Competition and Markets Authority (CMA) has now launched an investigation into the failure of influencers to properly declare the promotional or paid-for nature of some of their social media posts.

Regulatory scrutiny on these issues is nothing new; the CMA conducted similar work in 2016 in relation to online review and endorsements. Similarly, the Advertising Standards Authority (ASA) announced earlier this year that it had launched a project exploring consumers’ ability to recognise ads online and the adequacy of labelling.

What does the law require?

Currently, the most relevant laws which seek to prevent this behaviour are contained in the Consumer Protection from Unfair Trading Regulations 2008 (CPRs), as well as in the CAP code.

The law requires, among other things, that: (a) all marketing communications are clearly identifiable as marketing; (b) marketers must not falsely claim or imply that the marketer is acting as a consumer; and (c) marketers must make clear that advertorials are marketing communications.

The key is transparency; Consumers must understand when they’re viewing advertising rather than genuine editorial content. This is particularly important when applied to the social media accounts of individuals who may use their account for a mixture of personal posts (at the gym, eating out, or humble-bragging) and paid-for posts.

To help consumers understand when they are seeing top-quality editorial selfies and when they are seeing promotional posts, back in 2012, the industry came up with simple identifiers: #Ad – to be used where the influencer receives money or other benefit for the post and the marketer has some degree of control over the content; and #Spon – to be used where the influencer receives money or other benefit for the post, but where the marketer has no control over the content. The ASA has warned about using ambiguous labels such as “brought to you by” and “thanks to our friends at”.

Both advertisers and influencers have historically been unenthusiastic about using the identifiers, on the basis they consider that it dilutes the message and because influencers are sensitive not to appear insincere in their posts. That said, we have found that with the proliferation in influencer advertising, consumers are becoming more familiar and comfortable with seeing the #Ad / #Spon identifiers.

Practical considerations

Influencers and advertisers have been critical of the increased scrutiny on influencer marketing on the basis that they consider that the requirements are not sufficiently clear. The CAP code rules and the ASA’s guidance are purposefully broad and non-specific in nature, recognising that there is no one-size-fits-all approach. This can make it difficult applying the rules to the various social media platforms, the functionality of which can vary significantly.

For instance, it is generally accepted practice to include the marketing label/identifier for influencer marketing in the following manner:

  • Twitter: anywhere in the tweet
  • Pinterest: at the beginning of the text
  • Facebook: at the beginning of the post (unless the post is very short)
  • Instagram: on the image itself and in the accompanying post

Additionally, the platforms themselves have started to take their own steps to tackle this problem. In response to being singled out by the ASA in 2017, Instagram has now developed a ‘paid partnership’ tagging tool to enable influencers to communicate that they are working in collaboration with a brand.

These platform-specific nuances can make it difficult for influencers to understand their disclosure duties and there have been a number of celebrities who have been caught out by the rules and received adverse adjudications from the ASA.

As the primary party responsible for ensuring compliance with the disclosure requirements, there is increased pressure on advertisers to educate the influencers they work with of their disclosure responsibilities and it is recommended that the specific disclosure requirements are expressly set out in the advertiser’s contract with the influencer.

The investigation

 The CMA has reportedly contacted numerous social media influencers (including influencers based outside the UK, but targeting followers in the UK) to elicit information about the deals they have in place with brands. The CMA has also asked members of the public to provide details of their experiences interacting with this type of content, with particular interest in people who have purchased products as a result of such practices.

The CMA investigation is considering the extent to which influencers are clearly and accurately identifying any commercial relationships, and whether people are being misled. “It is really important they are clearly told whether a celebrity is promoting a product because they have bought it themselves, or because they have been paid or thanked in some way by the brand,” said George Lusty, senior director at the CMA.

Although there has been no time-frame set by the CMA for the investigation, they expect to provide an update at the end of 2018. In any case, it is clear that they intend to take appropriate action where they find that there has been a breach of the law. The CMA has the power to seek enforcement orders from the courts, as well as being able to name and shame influencers and advertisers not playing by the rules.

With both the CMA and the ASA paying particular attention to this topic this year, the message to advertisers and influencers is quite clear and it will become incumbent on them to ensure their influencer marketing practices are compliant.

Webinar: Rules of the road in engaging with influencers

Please join us for a complimentary webinar hosted by the Association of National Advertisers on the current issues related to influencer marketing, for industry experts. Jason Gordon, partner in the Entertainment & Media Group at Reed Smith, and Jennifer MacDougall, VP, associate general counsel and assistant corporate secretary & ethics officer at Jack in the Box, will provide an overview of some of the most pressing legal and business concerns related to influencer marketing, including insights on how brands should work with influencers to avoid compliance issues and tips on influencer agreements.

Date: Tuesday, September 11, 2018

Time: 1 p.m.–2 p.m. EST
To register, please click here

FTC Approves Final Revisions to Jewelry Guides

The Federal Trade Commission (“FTC”) recently approved final revisions to its Jewelry Guides (formally, the “Guides for the Jewelry, Precious Metals, and Pewter Industries,” the “Guides”), aimed at helping prevent deception in jewelry marketing. Based on the overall record of FTC review over the past six (6) years, the FTC has approved revisions to the Guides to better align the Guides with Section 5 of the FTC Act by: removing outdated or redundant provisions; guiding marketing of certain products to more accurately represent their properties; and removing existing restrictions on product marketing that are unnecessary to prevent deception.

Specifically, the FTC revised twelve (12) areas of the Guides as follows:

  1. Surface application of precious metals – First, the Guides caution marketers against using gold, silver or platinum terms to describe all or part of a coated product, unless they adequately qualify the term to indicate the product has only a surface layer of the advertised precious metal. Second, the Guides advise marketers advertising their product’s gold, silver or platinum coating to assure its reasonable durability. Third, the Guides provide revised examples of non-deceptive marking and descriptions for gold surface applications that are reasonably durable. Fourth, the Guides advise marketers to disclose the purity of coatings made with gold, silver or platinum alloy. Finally, the Guides advise marketers to disclose rhodium coatings over products advertised as precious metals.
  2. Alloys with precious metals in amounts below minimum thresholds – The Guides remove the thresholds for gold and silver alloys, advising marketers that they may use “gold” and “silver” to describe a product or part thereof composed throughout of gold or silver alloy if they qualify the term with an equally conspicuous, accurate karat fineness disclosure for gold alloys and/or an equally conspicuous, accurate part per thousand designation immediately preceding the silver term for silver alloys. The Guides retain the existing platinum alloy guidance without change.
  3. Products containing more than one precious metal – The Guides include a new section which states that it is unfair or deceptive to misrepresent the relative quantity of each precious metal in a product that contains more than one precious metal. The Guides advise marketers to list precious metals in the order of their relative weight in the product from greatest to least; however marketers may list metals in a different order if the context makes clear that the metal listed first is not predominant (e.g., “14K gold-accented silver”).
  4. Composite gemstone products – The Guides include new guidance for composite gemstone products, cautioning marketers not to use unqualified gemstone names to describe composite gemstone products and advising against calling such products “treated [gemstone name].” The Guides also caution against using the unqualified terms “composite [gemstone name],” “hybrid [gemstone name],” or “manufactured [gemstone name]” unless the term is qualified to clearly and conspicuously disclose that the product: (i) does not have the same characteristics as the named stone; and (ii) requires special care. The Guides further recommend the marketer to disclose the special care requirements to the customer.
  5. Varietals – The Guides include new guidance stating that it is unfair or deceptive to mark or describe a product with an incorrect varietal name.
  6. “Cultured” diamonds – The Guides include new guidance addressing the use of the word “cultured” to describe laboratory-created diamonds, advising marketers to qualify the word “cultured” by disclosing clearly and conspicuously that the product is not a mined stone. The Guides state that marketers can effectively qualify the term “cultured diamond” with the Guides suggested disclosures (“laboratory-created,” “laboratory-grown,” “[manufacturer name]-created”), however these qualifying disclosures need not be adjacent to the term “cultured,” provided they disclose clearly and conspicuously that the product is not a mined stone.
  7. Qualifying claims about man-made gemstones – The Guides advise marketers of man-made gemstones sharing the same optical, physical and chemical properties as the named stone that they may use terms other than the terms previously listed in the Guides (“laboratory-grown,” “laboratory-created,” “[manufacturer name]-created,” “synthetic”) to describe such man-made gemstone if such terms clearly and conspicuously convey that the product is not a mined stone.
  8. Pearl treatment disclosures – The Guides include a new guidance advising marketers to disclose clearly and conspicuously treatments to pearls and cultured pearls that: (i) are not permanent; (ii) create special care requirements; or (iii) significantly affect product value.
  9. Use of the term “gem” – The Guides eliminate two sections that discussed the use of the word “gem” because they are not necessary to prevent deception.
  10. Misleading illustrations – The Guides eliminate a section that discussed misleading illustrations because relevant guidance is provided in already addressed in other areas of the Guides.
  11. Diamond definition – The Guides eliminate the word “natural” from the definition of diamond because lab-created products that have essentially the same optical, physical and chemical properties as mined diamonds are also diamonds.
  12. Exemptions recognized in the assay for gold, silver and platinum – The Guides add bracelet and necklace snap tongues to the exempted items listed in the Appendix for gold alloy products and for products made of silver in combination with gold, as these items are already included in the exemption for mechanically-coated gold, silver and platinum products

Takeaway: Marketers should continue to clearly and conspicuously disclose the contents and processing of their jewelry products in accordance with the Guides, as applicable, and refer to the amended Guides when making certain products claims regarding content and quality.

Potential(ly) Reach(ing): Facebook Sued Over Inflated Audience Numbers

On August 15, Danielle A. Singer and her company Project Therapy, LLC (dba Therapy Threads) filed a class-action complaint against Facebook, Inc. over its claims concerning ad audiences. According to the Complaint, Facebook overstates its audience metrics in order to induce advertisers to spend money on ads on the platform.

The plaintiffs allege, in part, that Facebook’s statements regarding the “Potential Reach” of ads placed on the platform are so inflated that they contradict census data. For instance, the Complaint points to Facebook’s claims about its Potential Reach in Chicago, IL. Facebook allegedly stated that its ads could possibly reach 1.9 million people from ages 18-34 in Chicago. However, the plaintiffs presented census data that only about 800,000 residents of Chicago fell in that age range.

The plaintiffs seek monetary damages as well as an order which requires Facebook to hire auditors and to fix problems identified by the auditors.

While Facebook has not yet responded to the statements made in the Compliant, in 2017, the company stated that it bases its audience reach estimates on several factors and that the estimates are not intended to match the population set forth in census estimates.

Takeaway: When buying ads based on projected audience reach, advertisers should determine what the ad platform factors into such reach estimates and understand that estimates are, of course, never a guarantee.

Commercial Co-Ventures Beware

On July 19, 2018, it was announced that Operation Troop Aid (“OTA”) entered into a settlement with multiple states, including California, Delaware, New York, Pennsylvania, Virginia and Washington, for participating in an unlawful charitable commercial co-venture with Harris Originals of NY, Inc. (“Harris Jewelry”) a nationwide jewelry retailer for military personnel. In its simplest form, a commercial co-venture is when a for-profit company advertises that the purchase of a product will benefit a charity. Here, Harris Jewelry marketed a campaign called “Operation Teddy Bear,” in which it advertised that it would donate a specific amount of money to OTA when consumers purchased its teddy bears dressed in military uniforms”. Although Harris Jewelry passed along donations to OTA it did not document how the donated amount was calculated, and at times provided different information to consumers as to the amount of money to be donated. OTA did not oversee Operation Teddy Bear and the related marketing communications about how much would be donated to OTA, nor did it request an accounting of the number of bears sold or the rationale for the amount donated by Harris Jewelry to OTA. The parties also did not have a written contract governing the nature of their relationship, the calculation for donations to be made and how the donated funds were to be used. It was also discovered that OTA also improperly expended funds for non-charitable purposes and without any discussion, approval, or oversight by OTA’s board of directors. As part of the settlement, OTA agreed to dissolve the charity. There is a continuing investigation into Harris Jewelry.

Takeaway: Many states have laws that govern commercial co-ventures. These laws are designed to protect consumers and charities by ensuring that the for-profit company fulfills its promises to consumers and the charity and to protect the intellectual property of charities. Although these laws vary on a state-by-state basis, they all require that, at minimum, the parties to a commercial co-venture clearly memorialize the terms of the commercial co‑venture relationship in a written agreement and carefully account for funds. Some states also have statutorily-mandated contract language, marketing disclosures and registration and bonding requirements.

 

 

Hat Makers Marketed Made-Up “Made In America” Claims, FTC Says

In January of this year, the FTC announced its complaint against the Bollman Hat Company and its wholly-owned subsidiary, SaveAnAmericanJob, LLC, for allegedly violating its policy on “Made in the USA” claims. Bollman and its subsidiary, which sells hats under the Bollman, Bailey Western, Betmar, Country Gentleman, Eddy Bros., Helen Kaminski, Jacaru, Kaminski XY, Kangol, Karen Kane, Pantropic, and other private label brand names, market their hats with such claims as “American Made Matters,” “Choose American,” and “Made in USA since 1868.”

However, according to the FTC, more than 70% of their hat styles were in fact imported as finished products, and the remaining styles contained “significant” imported content, in violation of FTC requirements for marketing products as “Made in the USA.” Furthermore, Bollman and its subsidiary improperly licensed their “American Made Matters” seal to various companies whose products also failed to meet FTC standards. The FTC recently approved a final consent order settling the charges against Bollman and SaveAnAmericanJob, which prohibits all deceptive use of their “American Made Matters” certification and marketing materials and enjoins them from providing others the means to make similar deceptive country of origin claims. This is the third case involving deceptive “Made in the USA” claims that the FTC has brought in the last year.

Takeaway: The FTC offers specific business guidance on how to comply with the “Made in the USA” standard, deviation from which may land manufacturers and advertisers in legal hot water. The FTC’s “Made in the USA” page is available here.

Trader Joe’s Candies Are Tart, But Not “Natural,” False Advertising Suit Claims

Trader Joe’s “Ts & Js Lemon Grapefruit Lime Tangerine Sour Gummies” have soured the palate of at least one consumer, according to a recently-removed Southern District of California lawsuit. Plaintiff Serena Wong, who filed her complaint against the grocery giant earlier this year, claims that the candies contain an undisclosed artificial ingredient, d-l malic acid, which enhances the candies’ tangy flavor. The label discloses the ingredient “malic acid,” which is in fact natural, but laboratory testing of commercial samples of the product showed the presence of the compound’s “d-l” form—“a synthetic petrochemical” that has “never been extensively studied for its health effects in human beings” according to the complaint. Wong claims the failure to declare the artificial flavor on the packaging and labelling the candies as “all natural” is unlawful, and she brought the putative class action suit against Trader Joe’s for violations of California’s Consumer Legal Remedies Act, unfair competition, false advertising, breach of express and implied warranties, and negligent misrepresentation.

Trader Joe’s removed the suit in May and was granted an extension until August to respond to the complaint.

Takeaway: The differences between which ingredients have been deemed “natural” versus “artificial” may seem minute—such as malic acid versus d-l malic acid—but advertisers should be wary not to open themselves to potential liability by mislabeling or ambiguously-labeling a product’s ingredients.

Defendants Reach Settlement with FTC Over Deceptive Get-Rich-Quick Scheme

Operators of a get-rich-quick scheme have agreed to a permanent ban on the marketing or selling of certain types of software as part of a settlement with the Federal Trade Commission (“FTC”) over allegations that the defendants deceived consumers by falsely claiming consumers could earn large sums of money working online utilizing the defendant’s products. The scheme falsely promised consumers that they could earn hundreds to thousands of dollars a day using the defendants’ “Mobile Money Code” software products, which were in fact generic software applications that help users make mobile-friendly websites. The FTC alleged that the defendants violated the FTC Act, by contacting consumers through deceptive spam e-mails, and the CAN-SPAM Act, by sending commercial email messages that included misleading subject lines; failing to identify themselves as advertisers; including no valid physical address of sender; and offering recipients no opt-out for future messages. The settlement order requires the defendants to pay $7,000,000, which will be suspended upon payment of $698,500 to be used to refund defrauded consumers; and bans the defendants from marketing or selling money-making software.

Takeaway: As we previously blogged, part of the FTC’s 2018 agenda is to bring cases which show actual harm to consumers or businesses. This settlement, along with recent cases brought by the FTC for deceptive work-from-home business coaching schemes, is evidence of the FTC’s continued enforcement of get-rich-quick schemes that in fact harm consumers.

FDA: “Milk” Probably Was a Bad Choice

Apparently even the Food and Drug Administration (FDA) is on board with ‘90s nostalgia. This week, the agency effectively rebooted the nearly 20-year-old debate on whether alternative milk and plant-based drink products should fall within the definition of “milk”.

The FDA governs the proper labeling of foods, including ensuring that foods conform to a certain “standard of identity”. FDA Commissioner Dr. Scott Gottlieb spoke at a Politico event this week, in part discussing the standards of identity used for milk in the United States. Regarding plant-based “milks”, Commissioner Gottlieb observed that there has “probably not” been proper enforcement of the agency’s standard of identity for milk.

Despite the increased consumption of alternatives, the FDA has yet to update its definition of “milk”: “the lacteal secretion, practically free from colostrum, obtained by the complete milking of one or more healthy cows.” When confronted with the reality that alternative milk products do not fit within the statutory definition, Commissioner Gottlieb cleared up any confusion by confessing, “an almond doesn’t lactate.” Accordingly, the “plant-based dairy imitators” may violate federal standards.

The Commissioner went on to state that the FDA plans on first developing guidance on notifying companies about the change and seeking public comment on how to enforce a new standard. The agency will likely issue such guidance this year.

Takeaway: Alternative milk and plant-based drink product manufacturers and marketers should keep an eye on the FDA over the coming months and create a plan for next steps if such products cannot be labeled as “milk”. Consumers should also practice ordering their coffee with “almond drink” or “soy liquid”, just in case.

 

Battle of the Bottles: Jack Daniel’s Brings Trademark and Trade Dress Infringement Suit Against Texas Distilleries

Jack Daniel’s is fighting hard to protect its iconic, all-American image against purported copycats. The famous Tennessee whiskey brand filed a lengthy complaint against Dynasty Spirits (“Dynasty”) and Buffalo Bayou Distilleries (“Buffalo Bayou”), two Texas distilleries, alleging trademark and trade dress infringement and dilution. Dynasty is responsible for the distilling and marketing of the accused whiskey, and Buffalo Bayou is responsible for the product’s labeling, packaging, and shipping.

At the center of Jack Daniel’s complaint is Dynasty’s bottle design, which Jack Daniel’s claims illegally replicates its own square bottle with angled shoulders, beveled corners, and ribbed neck. Dynasty’s bottle is also labeled with arguably similar black-and-white color scheme, arched lettering, and script font. Jack Daniel’s asserts that the accused whiskey creates a similar impression in the marketplace to Jack Daniel’s whiskey, leading consumers to believe that the two products are affiliated or sponsored by a common source. The complaint alleges that due to poor reviews of the taste and quality of Dynasty’s whiskey, such belief has and will continue to impair the Jack Daniel’s brand.

Takeaway: Trademark and trade dress lawsuits are common. New brands and startups should be aware that existing brands will likely be aggressive in protecting their IP.

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