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Paul Zimmerman
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National Retailer Settles FTC Charges It Deceived Consumers Through Paid Instagram Posts by “Fashion Influencers”

The national retailer, Lord & Taylor, has settled Federal Trade Commission (FTC) charges that it deceived consumers by paying for native advertisement, without disclosing that the posts were in fact paid promotions for the company’s 2015 Design Lab clothing collection.

The FTC's complaint alleges in late March 2015, Lord & Taylor launched a comprehensive social media campaign to promote its new private-label clothing line, Design Lab. The marketing plan included branded blog posts, photos, video uploads, native advertising editorials in online fashion magazines, and online endorsements by a team of specially selected “fashion influencers.” 

The company placed a Lord & Taylor-edited, paid article in Nylon, a fashion publication. Nylon also posted a photo of the retailer’s Design Lab Paisley Asymmetrical Dress on Nylon’s Instagram site, along with a caption that Lord & Taylor had reviewed and approved. The Instagram post and article gave no indication to consumers that they constituted paid advertising placed by Lord & Taylor. 

At the same time the company gave 50 select fashion influencers a free Paisley Asymmetrical Dress and paid them between $1,000 and $4,000 each to post a photo of themselves wearing it on Instagram or another social media site. While the influencers could style the dress any way they chose, Lord & Taylor contractually obligated them to tag “@lordandtaylor” and use the hashtag “#DesignLab” in the caption of the photo they posted. The company also pre-approved each proposed post. However, Lord & Taylor did not expressly require that the influencers disclose in their posts that they had been compensated. This effort to downplay paid placement quickly drew the attention of the advertising press.

Under the terms of the recently announced settlement, Lord & Taylor is required to ensure that its influencers clearly disclose when they have been compensated in exchange for their endorsements and is prohibited from misrepresenting that paid ads are from an independent source. The company is also required to disclose any unexpected material connection between itself and any influencer or endorser. Finally, the proposed order establishes a monitoring and review program for the company’s endorsement campaigns.

This case comes on the heels of the FTC issuing an Enforcement Policy Statement detailing how established consumer protection principles apply to different advertising formats, including “native” ads that look like surrounding non-advertising content. The policy statement explains that an ad’s format is deceptive if it materially misleads consumers about the ad’s commercial nature, including through any implied or express representation that it comes from a party other than the sponsoring advertiser. If the source of advertising content is clear, consumers can make informed decisions about whether to interact with the advertising and the weight to give the information conveyed in the ad.

Brands, creators and advertisers alike should be aware of this move to impose stricter guidelines on social media disclosure of native advertising. The FTC issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears that a proceeding is in the public interest. The FTC, with this case, has sent a strong signal that it will begin more aggressively pursuing complaints against businesses that bend or break the disclosure rules for sponsored content. When planning and executing online marketing campaigns, brands and advertisers would be well advised to consult advertising counsel with expertise in sponsored content disclosures.

This article is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.