By Heather Dunn

Earlier this year the Federal Trade Commission (FTC) issued an in-depth Q&A on its Endorsement Guides, making very clear that any “material connections” between endorsers and a brand must be disclosed alongside an endorsement.  Endorser disclosures are the advertiser’s responsibility, and the FTC will generally pursue the advertiser and its advertising agencies for violations.  This means companies must provide appropriate training to their endorsers, and must monitor their activities.  As a recent FTC letter indicated, doing so can provide great benefit, even when things go awry.

The background is that an FTC complaint charged Machinima, an online multi-channel entertainment network, with violating Section 5 of the FTC Act and misleading consumers because it paid “influencers” to post YouTube videos reporting favorably on Microsoft’s Xbox One video game system and several games, without disclosing that they were being paid for their endorsement.  The program was part of a campaign managed by Microsoft’s advertising agency, Starcom MediaVest Group.  The FTC complaint alleged that, without clear disclosure of the influencers’ material connections, their seemingly objective opinions about the games were misleading to consumers.  The FTC filed a complaint against Machinima and on September 2, 2015, announced that Machinima agreed to settle the charges.

Why did the FTC not also charge Microsoft and Starcom MediaVest Group in the complaint?  In a letter addressed to Microsoft and Starcom MediaVest Group dated August 26, 2015, the FTC informed the companies that it decided to close its investigation into their activities.  The letter indicated that while Microsoft and Starcom both were responsible for endorsers’ failure to disclose their material connection to the companies, FTC staff decided to recommend against any enforcement action because the failure of disclosures, (i) appeared to be an isolated incident, (ii) occurred “in spite of, and not in the absence of, policies and procedures designed to prevent such lapses” and (iii) the companies quickly required Machinima to remedy the situation when they learned that the paid endorsers were not making the necessary disclosures.

Companies that utilize endorsers in any capacity (influencers, brand ambassadors, employees, marketing affiliates, etc.) must identify and manage their disclosure requirements.  Doing so could mitigate risk of enforcement action in some cases where endorsers fail to inform consumers of their connection with the brand.  Creating an endorsement policy and closely monitoring members of the brand network are important steps to take.  A good endorsement policy will generally include an explanation of the endorsers’ responsibility to disclose their connection to the brand,  legal and marketing guidelines including examples of acceptable disclosures, and (because objective claims by the company or its endorsers must be substantiated by the company) information about how the endorser may and may not describe the company’s products.  A good policy also requires regular monitoring.  By way of example, the proposed FTC settlement order prohibits Machinima from compensating any influencer who has not made the required disclosures, and requires Machinima to follow up within 90 days of the start of a campaign to ensure the influencers’ disclosures continue to be made.