FTC Enters Proposed Consent Order Against Lord & Taylor for Native Advertising Campaign

The Federal Trade Commission (“FTC”) has wasted no time in bringing an action against an advertiser for allegedly deceptive native advertising. The FTC released its Enforcement Policy on Deceptively Formatted Advertisements (“Native Advertising Guidelines”) in late December 2015 (which we blogged about here) and last week the FTC concluded an enforcement action against Lord & Taylor, LLC (“Lord & Taylor”) for its native advertising campaign.

Generally, the complaint against Lord & Taylor alleged that the retailer violated Section 5 of the FTC Act by misrepresenting the nature of certain advertisements and failing to disclose material connections between Lord & Taylor and paid endorsers in a March 2015 marketing campaign for its Design Lab clothing line. The extensive campaign included a weekend blitz of branded blog posts, advertorials in online fashion magazines, and influencer endorsements on social media. The posts and articles appeared to be organic, but were paid for by Lord & Taylor and failed to disclose the material connection between Lord & Taylor and the posters.  Specifically, the complaint alleged that Lord & Taylor:

• Paid approximately 50 influencers (i.e., individuals with strong social media presence and followings) between $1000 and $4000 each and provided them with a free dress from the line. Those influencers were required to post a photo of themselves wearing the dress on the Instagram platform, tag “@lordandtaylor”, and include the hashtag “#DesignLab” in the caption. However, the influencers were not contractually obligated or otherwise required to disclose that they received a free dress or had been compensated by Lord & Taylor. Moreover, Lord & Taylor reviewed and edited each Instagram post prior to posting, but did not add appropriate disclosures.
• Paid for, reviewed, and edited an Instagram post by Nylon Media, LLC (“Nylon”) about the same dress. Like the influencer posts, Nylon’s Instagram post did not contain any disclosure that Lord & Taylor had paid for the posting.
• Paid Nylon to publish an article in its online magazine about the dress. Lord & Taylor reviewed, edited, and approved the article, but the article failed to disclose the relationship between the parties.

Incidentally, the campaign was highly successful and the dress quickly sold out.

The proposed Consent Order, which will be in place for at least 20 years, prohibits Lord & Taylor from misrepresenting that: (1) paid commercial advertising is from an independent or objective source, and (2) any endorser is an independent or ordinary consumer. Further, it requires Lord & Taylor to: (1) disclose any material connection between itself and any influencer or endorser (consistent with FTC principles, including those set forth in the Guides Concerning the Use of Endorsements and Testimonials in Advertising (“Endorsement & Testimonial Guides”)); and (2)  obtain a signed and dated statement from each future endorser obligating the endorsement to clearly and conspicuously disclose any material connection to Lord & Taylor. Finally, the Consent Order establishes a monitoring and review program for Lord & Taylor’s future endorsement campaigns.

KEY TAKEAWAYS

Even though the Native Advertising Guidelines were not yet in place when Lord & Taylor conducted the Design Lab campaign, the result of the action is not surprising given that the campaign contained clear violations of established FTC guidelines and regulations, including the Endorsement & Testimonial Guides (as alleged in the complaint). Nonetheless, the action serves as an important reminder that the FTC is serious about native advertising. This, also, should come as no surprise given the popularity of native ads and how effective they can be as a marketing tool. As such, consistent not only with the Native Advertising Guidelines but long standing FTC principles, including those in the Endorsement & Testimonial Guides, advertisers across all industries must:

• Take care to include proper disclosures in a clear and conspicuous manner in advertising (native or otherwise) across all media whenever it is necessary to avoid deception.
• Consider implementing written policies that obligate endorsers (like influencers) to comply with applicable law, including disclosure of any material connection between the advertiser and endorser.
• Consider implementing a monitoring program, especially where numerous paid endorsers are engaged across various media.

We have thoroughly discussed compliance with the Native Advertising Guides in our blog post on the guides and have discussed compliance with other related FTC policies here and here, for example.  Complying with these FTC policies is of paramount importance to avoid an FTC action like that which was faced by Lord & Taylor.