Who: Federal Trade Commission; Lord & Taylor, LLC
Where: United States
When: 15 March 2016
Law stated as at: 11 April 2016
What happened:
US national retailer Lord & Taylor, LLC (“Lord & Taylor“) has reached a settlement with the Federal Trade Commission (“FTC“) over charges that the company ran a deceptive advertising campaign to promote its Design Lab clothing collection.
The campaign
Lord & Taylor launched a social media campaign in March 2015 that included native advertising editorials in online fashion magazines and posts from fashion “influencers” on social media. The campaign focused on a ‘Paisley Asymmetrical Dress’ from the Design Lab collection.
As part of the campaign, online fashion magazine Nylon ran an article about the retailer’s new collection, which was paid for and approved by Lord & Taylor. The magazine also posted a photo of the dress on Instagram, together with a caption that was edited by Lord & Taylor. Neither the article nor the social media post, however, indicated that they were advertisements paid for by Lord & Taylor.
Lord & Taylor also sent the paisley dress to 50 fashion “influencers” and paid them between $1,000 and $4,000 to post a photo of themselves wearing the dress. The influencers were contractually obligated to caption their posts with specific designations and hashtags promoting Lord & Taylor and the Design Lab collection. The retailer also pre-approved each post to ensure that the required hashtags were used, but none of the influencers were required to identify their picture as an advertisement (for example, by including #ad) or otherwise acknowledge that they had been compensated in exchange for the post.
The FTC complaint and the terms of settlement
The FTC’s complaint against Lord & Taylor charged the retailer with:
- failing to disclose that the article appearing in Nylon Magazine and the corresponding Instagram post were not independent statements and opinions, but rather, paid-for commercial advertisements;
- misrepresenting “that the 50 Instagram images and captions reflected the independent statements of impartial fashion influencers“, when in fact the posts were “part of an advertising campaign to promote sales of the Design Lab collection“; and
- failing to disclose that the fashion influencers were “paid endorsers” for Lord & Taylor, which amounted to a deceptive practice.
Under the terms of the proposed settlement with the FTC, Lord & Taylor is prohibited from misrepresenting that any endorser is an independent or ordinary consumer, or that any paid advertising is from an objective source.
The settlement further requires Lord & Taylor to “clearly and conspicuously, and in close proximity to the representation” disclose the connection between itself and any endorser. Finally, the settlement order imposes various monitoring and review obligations that require Lord & Taylor to regulate its future endorsement campaigns.
Other recent enforcement
The charges against Lord & Taylor are the first action brought by the FTC since the release of its Enforcement Policy Statement on Deceptively Formatted Advertisements, but deceptive advertising is clearly a high priority for the FTC.
In September 2015, the FTC alleged that US video network operator Machinima, Inc. engaged in deceptive advertising by paying influential vloggers up to $30,000 to upload YouTube videos endorsing the Xbox One system and games without disclosing that they had been compensated. You can read Marketinglaw’s coverage of the Machinima case here.
The FTC order against Machinima, the final version of which was published in March 2016, prohibits the company from misrepresenting that paid influencers are objective or independent and requires a disclosure to be made if an influencer has a material connection to the company. As with the Lord & Taylor proposed settlement, the Machinima order also requires the company to implement a compliance monitoring system for any influencers it engages.
Why this matters:
The Lord & Taylor case should be viewed as a cautionary tale by companies that promote their products and services through the use of native advertising or via digital and social media. Although the Lord & Taylor campaign was subject to enforcement action in the United States, it is highly likely that the Advertising Standards Authority would have intervened if a similar case had occurred in the UK. For an example of the ASA’s recent enforcement in this area, refer to Marketinglaw’s coverage here.
Advertisements that blend seamlessly with other content can be highly effective, but publishers should carefully consider transparency requirements. Paid advertising that it is not immediately recognisable as an advertisement may mislead consumers – in other words, an advertisement should not imply that it is anything other than an ad. Clear and conspicuous disclosures may be necessary to ensure that consumers understand that certain content is advertising.
This is particularly true with digital media, and the FTC has commented that the “recent proliferation of natively formatted advertising in digital media has raised questions about whether these advertising formats deceive consumers by blurring the distinction between advertising and non-commercial content.”
Social media endorsements of a product or service should reflect the honest and objective opinion of the endorser. If there is a material connection between the marketer and the endorser, that connection must be clearly disclosed. Again, transparency is paramount – any disclosures should be sufficiently conspicuous and contemporaneous.
The terms of the Lord & Taylor settlement indicate some best practices which advertisers should employ to ensure their campaigns do not fall foul of the law. The establishment of a comprehensive compliance monitoring system (despite being punitively mandated in this case) would enable businesses to identify, correct and prevent questionable advertising practices.
