Last week, the Federal Trade Commission (FTC) reached a settlement with Warner Bros. Home Entertainment Inc. (Warner) and issued a proposed 20 year consent order in connection with allegations that Warner’s 2014 influencer campaign constituted deceptive native advertising. The FTC’s complaint alleges that Warner failed to disclose that it paid online influencers were paid to promote Warner’s Middle Earth: Shadow of Mordor video game. This is the second FTC enforcement action following the release of its native advertising guidelines (see our blog post on the guidelines here). The first FTC action was against Lord & Taylor for its deceptive (and hugely successful) Instagram influencer campaign that similarly failed to disclose that compensation had been provided to influencers.
In this case, Warner hired an ad agency, Plaid Social (Plaid), to run their YouTube campaign which also required influencers to post on social media sites such as Twitter and Facebook. According to the complaint, influencers were paid up to several thousand dollars and were given access to a pre-release version of the video game. In exchange for payment, influencers were required both to post only positive video reviews of the and not communicate any “negative sentiment” or reveal any bugs or glitches in the game. Additionally, influencers were required to communicate a “strong verbal call-to-action” in their review videos to direct viewers to the game’s website.
Given the payment paid and conditions imposed on influencers by Warner, the FTC took the position that the influencer video reviews were biased and did not constitute an impartial review of the video game. Accordingly, the FTC alleges that Warner was required to ensure that influencers provided adequate disclosure so that consumers understood that the reviews were sponsored advertisements.
Although Warner required influencers to place sponsorship information in the “description box” of the YouTube video review, the FTC took the view that the disclosure provided was inadequate for the following reasons:
Under the proposed order: Warner is (i) prohibited from failing to make such disclosures in the future and misrepresenting that sponsored content was created by an independent user or ordinary consumer; (ii) required to ensure that future campaigns “clearly and conspicuously” disclose a “material connection”, if one exists; and (iii) required to implement and maintain certain monitoring and compliance obligations to ensure compliance with the proposed order.
1. Disclose “material connections” clearly and conspicuously. A “material connection” means any relationship between the advertiser and the influencer that materially affects the weight or credibility of any review and would not be reasonably expected by consumers. Simply making disclosure “somewhere” in the ad is not sufficient - it must be “unavoidable”.
2. The FTC is not interested in excuses. The FTC recognizes that “[a]dvertisers are in the “clear and conspicuous” business.” and know how to make disclosures properly. Although the FTC chose not to pursue Plaid for misleading advertising, the FTC guidelines explicitly extend liability beyond advertisers to include all parties involved in administering a campaign.
3. Platform matters. In this case, posting disclosure statements “below the fold”, on YouTube, in addition to being inadequate on that platform, was even more problematic when the video reviews were reposted on platforms that did not have a “below the fold” portion - effectively resulting in no disclosure on those platforms. Advertisers need to understand how various platforms work and may not be able to use a one-size-fits-all approach to disclosure.
4. Influencer agreements need to be clear and compliance monitored. In addition to establishing agreements with adequate disclosure requirements and training employees to review proposed ads prior to dissemination, organizations should regularly monitor influencers to ensure compliance.
The FTC’s active enforcement in this case confirms that applying misleading advertising laws to digital media remains an enforcement priority.
While the FTC may be ahead of the Canadian Competition Bureau, we can expect similar types of cases to be brought in Canada given that both misleading advertising and the digital economy have been identified by the Bureau as priority enforcement areas. Accordingly, companies and their ad agencies need to consider how the misleading advertising laws apply to their digital campaigns and ensure that their compliance measures are tailored to the specific campaign and platforms involved.