2023 Social Media Advertising Landscape: An Update from a Senior FTC Official

Holland & Knight hosted Michael Ostheimer, a senior attorney for the Federal Trade Commission (FTC), for a webinar presentation on April 6, 2023. Ostheimer has been with the FTC for more than three decades and currently serves as a senior staff attorney with the FTC's Division of Advertising Practices.

During the interview, Holland & Knight Partners Anthony DiResta (former director of the FTC's Southeast Regional Office and co-chair of the firm's Consumer Protection and Compliance Team) and Da'Morus Cohen (co-chair of the firm's Marketing, Advertising and Sweepstakes Team) asked Ostheimer dozens of questions covering a broad range of topics concerning social media advertising and marketing practices, including:

• trends in social media advertising, including the metaverse
• what regulations govern social media advertising
• the role of disclosures and disclaimers, including darkposting
• the use of blogs, celebrities and influencers in social media advertising
• revisions to the FTC's Guides on Testimonials and Endorsements
• Made in USA claims
• Influencer, reviewer and employee posts on social media platforms
• product and service reviews, including digital deception, review hijacking, fake and manipulated reviews, and "review gating"
• concerns relating to sweepstakes and similar promotions in social media
• conduct by tech companies and user-generated content
• law enforcement actions, warning letters and other initiatives by the FTC concerning digital deception and fake and manipulated reviews
• risk management, including understanding liability and available relief to consumers and the government as a result of an enforcement action, and
• recommended policies and procedures, including social media policies and training practices

Importantly, these compliance issues touch upon every industry sector in the U.S. economy, including financial services, healthcare and life sciences, retail, technology, hospitality and tourism, transportation, education, media, technology, telecommunications and manufacturing.

The webinar is chock-full of best practice tips and "inside information" that can help companies enhance their regulatory compliance programs and minimize their risks associated with social media advertising and marketing.

Key Takeaways

Standards of Review

From the FTC's perspective, social media advertising is not substantively different from traditional advertising, such as television and radio. In fact, social media advertising is subject to the same rules and standards as traditional advertising. The FTC's focus is on the integrity of the communications from the marketer to the consumer – whether the communications are accurate, transparent and nondeceptive. In other words, brands must tell the truth, not exaggerate any claims, and be transparent through disclosures and disclaimers.

Educating the Public

To enforce FTC regulations and educate marketers and the consuming public, the FTC has launched several initiatives concerning social media advertising, which include:

• filing law enforcement actions, which are seeking both injunctive and monetary relief, including those regarding negative options and autorenewals
• issuing warning letters to marketers, including product manufacturers and influencers, especially those regarding health claims, Made in USA claims and COVID-19 claims
• issuing updated guidance for marketers, specifically focused on social media advertising and marketing, including revisions to the Guides on Testimonials and Endorsements and the publication of Disclosures 101 specifically targeted to influencers themselves
• conducting workshops and webinars, and
• disseminating educational materials for consumers

Key Legal Issues in Advertising

From the FTC's perspective, the key issues of interest relating to social media advertising and marketing are:

• correctly identifying social media posts as advertising and marketing
• including appropriate, clear and conspicuous disclosures in those advertising and marketing materials that not only identify a social media post as an advertisement but also include disclosures relating to any material connections, including from employees of the company or brand, and
• ensuring that beyond sufficient disclosures, social media advertising and marketing generally complies with the FTC's regulations, including the Guides on Endorsement and Testimonials

Social Media Policies

Social media policies are a must. Every business that engages in social media advertising must have a formal social media policy. Those policies should be implemented with management oversight and must be effective. The policies should be communicated to third-party vendors as well as employees. The FTC also expects marketers to train employees on proper social media use. This obligation may extend beyond employees to third-party agents depending on the underlying relationship between a third-party agent and the marketer. Finally, some form of monitoring is expected to ensure compliance with the marketer's social media policy and the FTC's regulations and guidance.

Status of FTC Endorsement Guides

The FTC received 30 comments regarding the proposed revisions to the Guides Concerning the Use of Endorsements and Testimonials in Advertising (Guides), which are currently under review by staff. The staff will make a recommendation to the Commission, who will then consider those recommendations and issue the revised Guides.

These proposed revisions attempt to clarify that the Guides cover fake reviews and that advertisers should not distort or misrepresent what consumers think of their products by procuring, suppressing, boosting, organizing or editing consumer reviews. Moreover, the revisions clarify that the Guides cover tags in social media posts and expand the definition of "endorsers" to incorporate virtual influencers such as computer-generated fictional characters.

Social Media Disclosures

Disclosures are required no matter the social media platform. This list is clearly not exhaustive. The rule is simple: If your company is advertising and disclosures would otherwise be required, include disclosures.

Visual disclosures and audible disclosures may be required – this requirement may not be limited to only videos. Disclosures should also be prominent and appear first. For instance, on Instagram, disclosures should appear in the first two to three sentences of the caption to be truly conspicuous and they should not appear within a "more" link, but should appear above.

This also goes for advertising in the metaverse. The FTC is highly concerned and focused on artificial intelligence, deep fakes and other synthetic media that pose major risks around fraudulent practices and dark patterns.

Should gifts and other free items be disclosed? Absolutely. It is critical for companies to disclose the "material connection" between the influencer or speaker and the brand/company so that consumers know when there is an incentive that underlies the promotion. A free sample provides such a material connection, as does an invitation to a party.

Notices of Penalty Offenses

In mid-October 2021, the FTC sent "Notice of Penalty Offenses" letters to more than 700 of the country's largest companies, including retailers, advertisers and consumer product companies, taking an alternative approach to civil penalties following the U.S. Supreme Court's ruling in AMG Capital Management, LLC v. FTC.

The Notices describe endorsement and testimonial practices that the FTC has found to be unfair or deceptive, contain a clear reminder that the FTC may seek civil penalties from companies utilizing advertising practices previously found to violate the FTC Act and warn that recipient brands that engage in deceptive and unfair conduct could be subject to civil penalties of up to $43,792 per violation.

While the Notices state that the FTC did not intend to single out the recipient or suggest that the recipient engaged in unfair or deceptive conduct, each company (and companies who did not receive the Notice) should review their current endorsement, testimonial and advertising review policies, procedures and practices to ensure compliance.

The World of Influencers

As with traditional media, a disclosure of material connections is required for influencer posts. Those disclosures must be "clear and conspicuous." The hashtag – #ad – may be sufficient if the consumer understands that the communication is an advertisement. There are instances when the hashtag should include capital letters if the capitalization would make the hashtag easier to read. Relying solely on a "See More" link is likely to be insufficient, as consumers routinely ignore or fail to click on such links. Also, if endorsements run throughout a livestream, for example, the FTC expects disclosures to be placed throughout the entirety of the livestream.

While the FTC's focus remains on brands themselves and not individual influencers, brands should give guidance to their influencers on what they should and should not say in terms of making material connections disclosures and in terms of not making deceptive claims. Brands should train and monitor influencers on the brand's policies and ensure compliance with those policies through pre-review or post-review of influencer posts. This goes for brands large and small – regardless of size, each brand is held to a strict scrutiny standard to be transparent and tell the truth.

In fact, the FTC released its Disclosures 101 guide in November 2019 specifically aimed at providing a user-friendly summation of the Guides on Testimonials and Endorsement to influencers themselves.

Finally, virtual influencers pose their own host of issues. But any company using a virtual influencer to push a product should ensure that sufficient disclosures or information is available for the consuming public to know: 1) the communications are advertisements; 2) the influencer is virtual or artificial intelligence and not a real person; and 3) the virtual influencer does not have the ability to try or test out a product – even the product being advertised.

Made in USA

The FTC has increasingly prosecuted more deceptive U.S. origin claims under Section 5 of the FTC Act since the start of the COVID-19 pandemic than in the previous decade. This uptick in administrative enforcement increases the cost of compliance surrounding "Made in USA" claims, and companies should take notice regarding any origin claims they intend to make. Companies should expect consequences for deceptive Made in USA claims, as revealed in the FTC's action against Lithionics Battery LLC.

In addition, in 2021, the FTC adopted the "Made in USA" Labeling Rule (The Rule),¹ which codifies and clarifies the FTC's longstanding position and guidance on U.S. origin claims. The Rule establishes the FTC's ability to pursue potentially strict punishments for those who violate the Rule's mandates related to product labeling.

The FTC has education materials and set up an email where brands may inquire about compliance. This includes compliance with the "all or virtually all" standard for Made in USA claims.

Darkposting and Dark Patterns

The FTC discourages the use of dark patterns – those deceptive and misleading user interfaces that trick users into acting or clicking – that cause users to make unintended and potentially harmful selections. Companies should ensure that user interfaces do not create false beliefs and do not bury fees or terms in dense documents or places where a consumer is unlikely to see before purchasing. The FTC has brought several enforcement actions against companies engaging in harmful dark patterns and darkposting, including those regarding:

• Disguised ads that appear to be independent content, comparison shopping sites that are actually ranked based on compensation and countdown timers that create a false sense of urgency. The FTC sued Effen Ads LLC for sending unsolicited emails to consumers that included "from" lines that falsely claimed they were coming from various news organizations. Additional links in the email sent the consumers to websites pitching Effen Ads' work-from-home schemes.
• Difficulty canceling subscriptions or recurring charges, including those made without consent. The FTC sued ABCmouse claiming that it was extremely difficult to cancel free trials and subscription plans despite promising "Easy Cancellation." 
• Burying key terms and junk fees, including fees that are hidden or obscured through burying junk fees or material terms in dense language. The FTC sued LendingClub for allegedly using large visuals to falsely promise loan applicants that they would receive a specific loan amount and pay "no hidden fees," yet the consumers were charged hidden fees that were hardly disclosed except through hovering over hyperlinked text or were buried between larger text.
• Tricking consumers into sharing data, including giving the appearance of consumer choice but funneling the consumers toward sharing more personal information.

Fake Reviews

The short answer is: do not post fake or false reviews. While a company is not responsible for every single fake or false review posted by those with no affiliation, companies should be careful not to incentivize fake or false reviews. And companies should not bias or distort reviews. The FTC views the concept of consumer harm broadly – that is, fake or inflated reviews establishes consumer harm because the consumer is not able to reasonably avoid these reviews. The FTC also weighs various factors when calculating the harm that arises from fake reviews, including the number of purchases and cost of the product.

Critically, the FTC is monitoring and taking enforcement action against brands that engage in review hijacking, review gating and other forms of manipulated reviews. For example, the FTC brought an action against Bountiful Company and obtained a judgment of $600,000 where the company engaged in "review hijacking" – when a brand repurposes (generally higher) reviews for one product to appear to also be the reviews or ratings for another product, where the company had higher product rating and review and higher average ratings.

The FTC is also concerned with review gating, where brands encourage positive reviews which results in the brand sending positive reviewers in one direction and negative reviewers another way. In this scenario, the brand is able to secure and publish only those more favorable reviews. The FTC is also monitoring brands that accept money from manufacturers in exchange for higher rankings on the brand's website.

Consumer Reviews

Consumer reviews are essential but come with their own set of obligations. It is important for marketers to understand what is required when a brand induces consumers to leave reviews, including material disclosures and giving consumers the ability to leave accurate, truthful and nondeceptive reviews. Also, there is the question of whether brands are required to perform some diligence to determine that a review is from a consumer who actually purchased the products (e.g., verified purchaser reviews). While this point is subject to debate, there remains an obligation on brands to cure any reviews that are not accurate, truthful and nondeceptive. This includes removing fake reviews (if possible, depending on the platform), not discouraging posting of negative reviews and not buying fake reviews. Consumers should be able to trust and rely upon brand reviews to make an informed decision.

Employee Reviews

As with consumer reviews, employee reviews are also subject to regulation and must comply with the general notion that they are accurate, truthful and nondeceptive. In addition, it may not be adequate to merely state "staff review" before an employee's review. A more fulsome disclosure is likely required. Failure to do so may subject the company to liability. Specifically relating to social media posting, hashtags such as #employee and #myemployer may be sufficient under certain circumstances. But brands are reminded that certain "trendy" marketing campaigns using employees may be disfavored by the FTC if a consumer is unable to immediately ascertain that the marketing communications are being delivered by an employee of the brand.

Brands may also not pay or solicit their employees to leave misleading, deceptive, fake or untruthful reviews. The FTC has recently enforced and received hefty monetary relief against several brands whose employees were instructed to leave fake reviews for the brand's products.

Brands cannot censor less than favorable reviews. That is the law, as outlined in the Consumer Review Fairness Act.

User-Generated Content

When a user simply likes or loves a product for what it is, there is no need for that user or the brand to disclose a connection when that user truthfully and genuinely posts or comments on the product. If the review is organic and not incentivized, then there is nothing that needs to be disclosed.

Promotional Devices

Brands must carefully manage their promotional devices in social media, such as sweepstakes and contests. Promotional devices are useful tools to engage consumers and trigger clicks. But brands are reminded that information disseminated relating to the promotional device must be accurate, truthful and nondeceptive. And viewers should know that a post, for example, will enter the viewer into a sweepstakes by stating that it is "Brand A's Sweepstakes" or similar.

In addition, state law also provides various requirements for promotional devices, including registration depending on the approximate value of the prize to be awarded or the frequency with which a brand is conducting such promotional devices. In addition, best practices dictate the preparation of official rules and other documents to inform consumers of the material terms of the promotional device, including method of entry, promotional period and applicable limitations. Lastly, social media platforms have their own requirements relating to using their platforms to promote promotional devices, including specific disclosures.

Enforcement

There are several factors that lead the FTC to commence an investigation, including consumer complaints, monitoring by FTC staff, a high number of reviews, whistleblowers, competitors, news stories, congressional inquiries, sweeps of industry practices by the FTC, claims that are not likely to be substantiated and referrals from nonregulatory bodies such as the National Advertising Division (NAD) and Better Business Bureau (BBB). The FTC considers whether health and safety is involved, whether egregious conduct is at play, the extent of consumer injury, the geographic impacts, the method of dissemination of deceptive advertising and whether the deception entails an emerging industry. Because the NAD conducts its own investigation and due diligence into claims, the FTC weighs the NAD's decisions and conclusions heavily and may formally investigate referrals from the NAD.

Remember, it is not enough to merely have a social media policy in place. That policy must be implemented, monitored for effectiveness and enforced.

The FTC is highly concerned about native advertising, as detailed in its Enforcement Policy Statement on Deceptively Formatted Advertisements.

Enforcement Relief

Monetary relief is considered in almost every investigation. Brands are subject to hefty monetary penalties for noncompliance, and the FTC looks into what various civil penalties are available. This includes determining whether the conduct at issue violates a civil rule, whether new rulemaking should be had, including with Made in USA claims, and whether Section 205 synopses should issue to brands notifying them of potentially illegal conduct.

The FTC actively works with other law enforcement partners to monitor social media advertising and enforce compliance, such as state attorneys general and other federal agencies, including the Consumer Financial Protection Bureau (CFPB). The FTC is coordinating even more closely with state attorneys general given the FTC's loss of its ability to seek disgorgement following the Supreme Court's ruling in AMG Capital Management, LLC v. FTC.

How We Can Help

Holland & Knight's Consumer Protection Defense and Compliance Team includes a robust social media practice, with experienced attorneys that are recognized thought leaders in the field. From representing dozens of companies and individuals in federal and state investigations concerning advertising and marketing to compliance counseling and transactional contract matters involving celebrities, the firm's practice includes regulatory, compliance, litigation, investigation and transactional work in the social media space.

For more information or questions about the specific impact that social media advertising and marketing regulations can have on you or your company, contact the authors.

Notes

¹ An analysis and copy of the "Made in USA" Labeling Rule can be found in the Federal Register.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.