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March 15th, 2016
FTC Settles First Native Advertising Case Against Fashion Retailer
Less than three months after issuing guidance to marketers on native advertising, the FTC has brought and settled its first native advertising case against national retailer Lord & Taylor. The FTC alleged that Lord & Taylor deceived consumers by paying for native advertisements, including an article published online by the fashion magazine Nylon, a Nylon Instagram post, and other incentivized social media posts by fashion influencers, without disclosing that the posts were actually paid promotions for the company's 2015 Design Lab collection. As the first of its kind, this case provides advertisers with crucial information about what steps companies must take to avoid similar FTC scrutiny of their native advertising campaigns.
The Details of Lord & Taylor's Campaign - Native Editorials and Incentivized Influencer Posts
According to the FTC complaint, to promote its new private-label Design Lab collection for women, Lord & Taylor launched a social media marketing campaign in late March 2015. The marketing plan included Lord & Taylor branded blog posts, photos, video uploads, native advertising editorials in online fashion magazines, and online endorsements by selected "fashion influencers," all focused on a dress from the new collection - the Design Lab Paisley Asymmetrical Dress.
With respect to the native advertising editorials, the FTC complained that Lord & Taylor had edited, reviewed, and paid for an article which appeared in Nylon, a pop culture and fashion publication, as well as reviewed and approved a caption to be posted alongside a photo of the paisley dress on Nylon's Instagram account. Neither the article, nor the Instagram post, gave any indication to consumers that they were paid advertising directed by Lord & Taylor.
Regarding the fashion influencers, the FTC noted that Lord & Taylor gave the influencers a free paisley dress and paid them between $1,000 and $4,000 each to post a photo of themselves wearing it on Instagram or another social media site. Lord & Taylor pre-approved each proposed post, and the influencers were obligated by contract to tag "@lordandtaylor" as part of the posts and to use the hashtag "#DesignLab" in the caption of the photos. Lord & Taylor failed to require the influencers, however, to disclose that they received the dresses for free or were paid by Lord & Taylor for their posts.
The FTC complaint notes that the influencers' posts reached 11.4 million individual Instagram users resulting in 328,00 brand engagements with Lord & Taylor's Instagram handle (e.g., likes, comments, or repostings). The dress subsequently sold out.
In the proposed consent order settling the claims against Lord & Taylor, the FTC (i) prohibits Lord & Taylor from misrepresenting that paid commercial advertising is from an independent or objective publisher or source; (ii) prohibits the company from misrepresenting that any endorsement is from an independent or ordinary consumer; (iii) requires the company to disclose any unexpected material connection between itself and any influencer or endorser (e.g., that the endorser was paid and/or received free product for their endorsement); and (iv) requires the company to monitor and review influencer posts to ensure they incorporate the necessary disclosures and to terminate any influencers that fail to comply.
One of the biggest take-aways from the proposed consent order is the requirement that Lord & Taylor develop and implement a process by which it can monitor and review influencer posts to ensure they have the proper disclosures. Lord & Taylor must also get signed acknowledgments from influencers saying that the influencers have received and will follow the advertiser's policy requiring the disclosure of material connections to the company in their posts. The consent order even goes so far as to specify that influencers should only get one opportunity to cure an endorsement that doesn't indicate that it was incentivized by the advertiser (e.g., through use of hashtags #ad or #sponsored, or other language as appropriate); any subsequent failures should result in the termination of those influencers/endorsers by the company. Although the consent order is limited to Lord & Taylor, companies would be wise to take note of these requirements.
If you have any questions about native advertising or other advertising law issues, please contact Jeffrey Greenbaum at (212) 826 5525, firstname.lastname@example.org; Terri Seligman at (212) 826 5580, email@example.com; Rayna Lopyan at (212) 705 4842, firstname.lastname@example.org, or any other member of the Frankfurt Kurnit Advertising Group.
Other Advertising Law Alerts
What the Advertising Industry Can Learn from Kim Kardashian’s Settlement with the SEC
On October 3, 2022, the Securities and Exchange Commission (SEC) announced that it entered into a $1.26 million settlement with Kim Kardashian over her social media promotion of the EMAX token without disclosing payment she received from token issuer, EthereumMax. The matter provides important lessons for advertisers. Read more.
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Get Ready for California’s New “Automatic Renewal” Rules
California recently amended its Automatic Purchase Renewals law. The amended statute - effective July 1st -- require marketers to provide consumers of automatic renewal or continuous service offers with more information and easier ways to terminate. Read more.
June 22 2018
“Made in the U.S.A.” Claims Continue to be Scrutinized
In 2016, California amended Section 17533.7 of the California Business and Professions Code ("Section 17533"), liberalizing the standard for selling products labeled "Made in U.S.A" to California consumers. Read more.
June 4 2018