Customer reviews can be used to promote or protect a brand. Reviews are relied upon by consumers when making any purchase. On March 26, Alexandra Megaris and Deborah Bessner hosted a webinar on “Customer Reviews: The Dos and Donts.” The webinar focused on a number of pressing topics surrounding customer reviews, including endorsements and testimonials,
Stirring the Pot: Tea Marketer Settles with FTC Over Unsubstantiated Health Claims, Inadequate Influencer Disclosures
Last week, the FTC entered into a settlement with Teami, LLC, a marketer of teas and tea-based skincare products that the FTC alleges promoted its products with deceptive, unsubstantiated health claims and endorsements by social media influencers who did not adequately disclose their material connections to (i.e., monetary payments from) the company. The action highlights the FTC’s continued focus on both health claims and influencer marketing.
According to the FTC’s two-count complaint, Teami and its individual owners claimed, without reliable scientific evidence, that their products would treat cancer, clear arteries, significantly decrease migraines, treat colds, prevent flus, cause “rapid and substantial” weight loss and burn body fat.
The defendants also allegedly misrepresented that social media posts by influencers reflected the views of ordinary users of Teami products, failing to adequately disclose that the influencers were paid for their endorsements. According to the FTC, such disclosures must be clear and conspicuous—and, in this context, because consumers’ Instagram feeds typically display only the first few lines of a longer post followed by an option to read more, that means that endorsers must disclose any material connections above the “more” link.
FTC Aims to Shake Up Endorsements, Seeks Public Comment on Its Endorsement Guides
The FTC has issued a Proposed Notice requesting public comment on whether to make changes to its Endorsement Guides (“Guides”) as part of the agency’s periodic retrospective review. This review will serve as a key opportunity for industry participants to shape what happens next by showing what they are seeing in the marketplace when it comes to endorsements and testimonials, consumers’ understanding of them, and the effects of new technology and platforms.
While the FTC’s standard practice is to review its rules and guides every 10 years, this review promises to be anything but standard. This is particularly true considering that FTC Commissioner Chopra weighed in with a separate statement, noting that he hopes that the Commission will consider taking steps beyond the issuance of voluntary guidance, including codifying elements of the existing Endorsement Guides into formal rules that could trigger civil penalties and damages. He also suggested that the FTC develop requirements for technology platforms that facilitate and profit from influencer marketing and specify the requirements that companies must adhere to in their contractual arrangements with influencers. The Guides were first issued in 1980, and the Commission last sought public comment on them in 2007. Since that time, endorsement-related practices (and the media where they appear) have changed dramatically, with new platforms and apps emerging that provide new ways for companies and their endorsers to reach consumers. In an attempt to keep up with the changing times, the FTC issued an FAQ-type of document, Endorsement Guides: What People are Asking, and has modified it multiple times over the years.
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Customer Review Fraud Top of FTC’s Priority List
Last week, the FTC announced yet another settlement with a company regarding its customer review practices. This case involved a popular cosmetics brand that retailed at Sephora—Sunday Riley. According to the FTC, Sunday Riley’s managers and Chief Executive Officer ordered employees and interns to create fake Sephora accounts and submit reviews for their products. The FTC had obtained multiple company emails showing the lengths Sunday Riley went to drive positive customer reviews, including evading Sephora’s detection by manipulating IP addresses.
Sunday Riley and its CEO settled with the FTC. In the settlement, the company and CEO did not admit fault, which is standard in these settlements. Similar to other recent settlements relating to “fake” customer reviews, the parties agreed on a go-forward basis to not make misrepresentations about the status of an endorser or customer review and to disclose material connections in endorsements and reviews.
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FTC’s Snack Service Settlement Reminds DTC Companies Not to Incentivize Reviews
Positive online reviews have become essential for any business marketing goods or services over the internet, especially for trendy services like food delivery and custom health product sales. But the FTC’s newly-announced settlement with startup healthy snack service UrthBox reminds marketers that online praise must be freely given, not bought—even if the compensation offered isn’t monetary.
UrthBox, Inc., a San Francisco company offering direct-to-consumer snack deliveries on a subscription model, drew the FTC’s ire by maintaining an incentive program that offered free snack boxes to consumers who posted positive reviews on the BBB’s website. According to the FTC’s complaint, the plan was simple: when a consumer reached out to UrthBox, customer service representatives would offer to send free products to the consumer in exchange for a screenshot of a positive review. The program began with the customer service department at UrthBox, where representatives were paid bonuses based on the number of consumer complaints they were able to turn into positive online reviews. The impact was significant: where UrthBox’s BBB profile had only nine reviews (all negative) in 2016, by the end of the next year, the company boasted 695 reviews, 88% of them positive.
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FTC Sets Its Sights on Fake Customer Reviews
Since updating its Endorsement Guides in 2015 to keep pace with the meteoric rise of social media and influencers in marketing, the FTC has placed a significant emphasis on the need to disclose material connections between advertisers and endorsers. Through its Guides, informal business guidance, blog posts, warning letters, and multiple enforcement
NY AG Finds Use of Bots, Sock-Puppets Illegal
Astroturf was again in the news last week, but not because the big game whose name we can’t mention was played on synthetic turf. Rather, last week, the office of the NY Attorney General (“AG”) announced it reached a precedent-setting settlement with artificial engagement company Devumi LLC and related companies (“Devumi”) over the selling of
All I Do is Win, Win, Win?: SEC Settles Charges with Floyd Mayweather and DJ Khaled
In the iconic words of DJ Khaled: “Another one.” That’s right, folks. Another round of celebrities have fallen on the wrong side of the federal government’s enforcement of its advertising disclosure rules. Recently, the SEC announced that it settled charges against Floyd Mayweather (professional boxer) and DJ Khaled (entertainer and music producer) for failing to tell their social media followers that they received money for promoting investments in Initial Coin Offerings (“ICOs”). This case is especially noteworthy, considering that this is the first time the SEC brought an action against a paid celebrity endorser involving ICOs.
In Mayweather’s case, he received a $300,000 payment for ICO tweets like this one: “starts in a few hours. Get yours before they sell out, I got mine…”
Likewise, DJ Khaled received a $50,000 payment for this tweet: “I just received my titanium centra debit card. The Centra Card & Centra Wallet app is the ultimate winner in Cryptocurrency debit cards powered by CTR tokens! Use your bitcoins, ethereum, and more cryptocurrencies in real time across the globe. This is a Game changer here. Get your CTR tokens now!”
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Guest Blog: Ad Standards Introduces New Influencer Disclosure Guidelines
Our Canadian partner in the Global Advertising Lawyers Alliance (GALA) wrote this post about influencer disclosure practices in Canada that we wanted to share with you.
On March 28, 2018, Ad Standards introduced new Disclosure Guidelines (the “Guidelines”). Developed with the cooperation of influencers and advertisers, the Guidelines are intended to provide suggested best practices for when, and how, to disclose any material connection between an advertiser or brand and the influencer.
The Guidelines inform an Interpretation Guideline under the Canadian Code of Advertising Standards (the “Code”), issued in October 2016, requiring that any “material connection” between an influencer and a brand be “clearly and prominently disclosed in close proximity to the representation about the product or service.” The Interpretation Guideline says what to do, but suggested looking to other sources including the FTC’s Guide to Testimonials & Endorsements for how to do it. The new Guidelines provide a Canadian resource, with illustrative examples of “dos” and “don’ts” to assist industry in complying with the Code.
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Senate Banking Committee Holds Hearing on Virtual Currencies – Warns of Celebrity Endorsements
The Senate Committee on Banking, Housing, and Urban Affairs held a hearing on Tuesday on virtual currencies and the role of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) in overseeing the virtual currency industry. Witnesses included SEC Chairman Jay Clayton and CFTC Chairman Christopher Giancarlo.
A key takeaway of the hearing was a concern among regulators and Committee members of opportunistic fraud taking place amid the hype around virtual currencies, also commonly known as cryptocurrencies.
Among these concerns were those involving celebrity endorsements of token sales in Initial Coin Offerings (ICOs). In some cases these sales may be fraudulent. CFTC Chairman Giancarlo noted one example where his agency took action against a company that solicited customers for a virtual currency known as My Big Coin. Mr. Giancarlo stated that within the agency that coin came to be known as “My Big Con,” as the company used the funds to purchase personal luxury items rather than using the funds for their purported purposes.