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Five Lessons from the FTC’s Latest Native Advertising Action

FTC LogoOn March 15, 2016, the Federal Trade Commission (FTC) reached an agreement with Lord & Taylor to settle charges that the luxury department store brand engaged in allegedly deceptive native advertising practices by failing to disclose and accurately represent its relationship to online magazines and fashion “influencers” who promoted the brand. This latest enforcement action follows the FTC’s release of a policy statement on native advertising practices and a companion set of guidelines for businesses. The action provides a cautionary tale with practical lessons about the importance of transparency in marketing strategies that mimic the look and feel of surrounding content.

The Commission’s first target was an industry not typically associated with technology: fashion. The choice was an effective signal about the breadth of native advertising’s relevance. At the center of the case, Lord & Taylor developed a strategy to promote a new private clothing label, Design Lab, by utilizing several different channels to highlight a single product: a paisley spaghetti strap dress with an asymmetrical hemline. The campaign included not only editorials in fashion magazines, but also a coordinated series of Instagram photos posted by a group of 50 fashion “influencers”: individuals recruited for their fashion style and broad base of social media followers.

The FTC complaint alleged three violations of Section 5 of the FTC Act. First, the FTC claimed that Lord & Taylor falsely represented that the Instagram photos reflected the independent views of impartial influencers, rather than their participation in a coordinated marketing campaign. In fact, Lord & Taylor had purportedly signed contracts with each of the fashion influencers requiring them to submit their posts to the company for pre-approval. Each post was required to include several hashtags mentioning the company name—the complaint went on to allege—and in some cases, the company made stylistic edits to the photo captions.

The FTC also alleged that the company was deceptive in its failure to disclose the fact that the influencers were compensated for their efforts. Each influencer was paid between $1,000 and $4,000 to post the Design Lab photo, but none of the posts revealed the fact that the dress was obtained for free, that the influencer had been compensated, or that the post was part of a larger marketing campaign.

Finally, the FTC found that the Lord & Taylor misrepresented its relationship with the online fashion magazine Nylon. The magazine published an article about the Design Lab collection and posted a picture of the dress on its Instagram account. But it did not disclose Lord & Taylor’s involvement:  the retailer reviewed and pre-approved both the Instagram post and the article, and paid for the post.

Companies seeking to integrate native advertising into their own marketing campaigns may draw the following lessons from the settlement:

Context is Critical. When consumers click on an online editorial or scroll through their Instagram posts, they generally expect to read the independent views of the author or view the personal photos of a friend or trusted contact. As the FTC has made clear, these expectations structure the relationship between the content publisher and its audience. Not all advertisements must broadcast themselves as such: a photo of a paisley dress with the words “25% off in stores now” is likely to be interpreted as an advertisement regardless of its placement. But, according to the FTC, “the watchword is transparency.” If a consumer may be unlikely to recognize certain content as an ad, include a disclosure.

Disclose Material Connections. Fashion influencers are followed on social media sites for their fashion-savvy. Implied in their appeal is the expectation that the opinions they share on fashion are their own. Any material relationship between a company and its endorsers—including receiving compensation or free products with the expectation of an endorsement—is likely to affect the weight or credibility a consumer gives the endorsement, and so must be disclosed. The FTC’s endorsement guide offers practical advice for navigating these relationships.

Ensure that Disclosures are Clear and Conspicuous. If a disclosure is required, burying it in informational jargon or small text won’t cut it. According to the FTC’s Consent Order, clear and conspicuous means “difficult to miss.” Any disclosure should be presented at the same time of the ad in simple, clear language; near the focal point of the ad; and in a font, color, or size that is easily noticed.

Create Clear Guidelines for Affiliates. Lord & Taylor’s strategy of employing a network of visible social media affiliates to extend the reach of the brand is a common practice across industries.  Before deploying affiliate campaigns, companies should consider—as the Consent Order requires of Lord & Taylor—setting forth affiliates’ transparency obligations in a clear, written policy, distributing the policy to affiliates, and obtaining signed and dated acknowledgments that affiliates have received and agree to comply with the policy.

Monitor and Enforce Affiliates’ Conduct. The Consent Order requires Lord & Taylor to implement and maintain a monitoring and enforcement program for its affiliates. Companies may follow this example by periodically reviewing the representations and disclosures made by endorsers and terminating any endorser who misrepresents his or her impartiality or fails to disclose material connections with the company.