Mr. Max

Hospitality Law

Digital Marketing: Native Advertising and Online Influencers in the Hospitality Industry

What You Need to Know about Recent FTC Enforcement

By Theodore C. Max, Partner, Sheppard, Mullin, Richter & Hampton LLP

The travel tourism and hospitality industry have embraced influencer marketing to enhance and pinpoint access to target audiences. Online influencers and native advertising not only helps companies reach their own customers but also helps them to reach other influencers and a broader audience of customers. When working with influencers and media, one needs to be careful and mindful of the basic rules governing endorsements promulgated by the Federal Trade Commission ("FTC") and recent enforcement actions which underscore the differences between advertising and endorsements, on the one hand, and unsolicited and impartial consumer responses, on the other, in various forms of social media, including Facebook, YouTube, Instagram, Twitter and others. These FTC decisions impact all forms of online retailers and advertisers, including travel tourism and hospitality. The increased frequency of these recent enforcement efforts makes it plain that the FTC is scrutinizing the explosive growth of digital marketing and the growing role that influencers play in impacting decisions of consumers. Notwithstanding the radical change in technology, the FTC remains vigilant in enforcing the simple rule that advertisements and marketing that promote goods or services must be clearly identified as such. (1) To avoid a serious mistake and potential FTC enforcement, it is critical that advertisements and digital media campaigns take into account recent FTC enforcement actions impacting online and native advertising, influencers, and social media.

Influencer Marketing in the Travel Tourism and Hospitality Industry

Influencer marketing involves working with influencers to access your target audience, rather than marketing directly to customers. Influencers are individuals or channels of media communication that by virtue of their knowledge or celebrity hold "influence" over the potential tourism or hospitality customers. Online influencers may command an expansive audience for one of the following reasons: (1) Strong media following; (2) Extensive following for videos distributed on YouTube; (3) Blogging influencers with strong website signals; (4) Experienced travel journalists and writers; and (5) Popular travel-related websites and publications. Influencers may be contacted and used without compensation or imposition of any conditions, which would not implicate the FTC Guidelines. As a practical matter, one should carefully plan any effort with regard to online influencers and define the objectives of the project. The marketing project should be developed carefully and one should try to develop a relationship with the influencer, even if financial consideration is paid as part of the advertising effort. In addition, whether or not the effort constitutes an advertisement or endorsement under the FTC Guidelines, it is important to constantly monitor and review the social media output of the influencer to ensure that any necessary disclosures are made.

Endorsement Guidelines in the Age of Social Media

The FTC's published "Guides Concerning the Use of Endorsements and Testimonials in Advertising" ("Endorsement Guides") defines an endorsement as "any advertising message . . . that consumers are likely to believe reflects the opinions, beliefs, findings, or experience of a party other than the sponsoring advertiser." The FTC updated the Endorsement Guides in 2009 and issued "The FTC's Endorsement Guides: What People Are Asking" in June 2010 to address the most frequently asked questions ("FAQs"). (2)

In June 2015, the FTC revised the FAQs to address social media and other new issues not previously covered: "The key principle is that consumers have a right to know when a supposedly objective opinion is actually a marketing pitch." (3) The revised FTC Guidelines make clear that the basic rules apply to social media, including bloggers and influencers:

  • Endorsements must reflect the truthful experience of the endorser. Social media participants cannot make claims that require proof that does not exist;
  • The endorser must clearly disclose and endorse any material connection between the endorser and the advertiser;
  • Each company advertising should have a company policy regarding employee use of social media and a robust compliance program, including specific training and guidance relating to the FTC's Enforcement Guides; and
  • Advertisers should make training available to employees, vendors and personnel at respective advertising agency and implement a response and remediation program in place and take immediate action when given notice of improper or lack of proper disclosure.(4)

The following discussion, which does not address cases involving the travel and hospitality industries, makes clear how recent FTC decisions impact the use of social media in advertising and promotion of products and services.

88four Helpful Do's and Don'ts for Online Advertisers and Retailers**

1. Don't Tweet and Not Disclose:

In 2012, the advertising agency Deutsch L.A. promoted the PlayStation Vita ("PS Vita") gaming console by creating a Twitter campaign that asked users to tweet positive statements about the hand-held gaming device with the hashtag "#GameChanger". The FTC alleged that Deutsch LA misled consumers by encouraging its own employees to promote PS Vita on Twitter without disclosing they were Deutsch employees and that PS Vita was a client.(5) This was the first action of its kind involving Twitter and misleading behavior. Notwithstanding this fact, the FTC made it clear that the Guidelines were applicable to Twitter. (6) As a consequence, any effort by employees or agents to promote a good or service by indicating a positive rating such as a Facebook thumbs up or Twitter tweet needs to make it clear that the person initiating such messages is an employee or agent.

2. Don't Go-Native Without Disclosing That it's Advertising

In 2016, in the first case involving native advertising, the FTC alleged that Lord & Taylor deceived consumers by promoting the launch of its Design Lab Collection and featuring a paisley dress through paid native advertising, including a sponsored article in the online fashion publication Nylon and a Nylon Instagram post, without disclosing that these were paid promotions.(7) While the influencers were free to style the paisley dress as they wanted, Lord & Taylor required each influencer to use the user designation "@lord&taylor" and the hashtag "#DesignLab" in the caption of their photo posting. While Lord & Taylor also pre-approved each proposed post, it did not require the influencers to disclose that they had been paid by Lord & Taylor to post the photo. No influencers made any such disclosures.(8)

The FTC settlement prohibits Lord & Taylor from "misrepresenting, in any manner, . . . , that an endorser of such [Lord & Taylor] product or service is an independent user or ordinary consumer of the product or service." Lord & Taylor also is required to "clearly and conspicuously, and in close proximity to the representation, disclose a material connection, if one exists, between such [Lord & Taylor] endorser ad." Lord & Taylor is required to establish a monitoring and review program for its endorsement campaigns, including, inter alia, provisions requiring termination of any endorser who has misrepresented his or her impartiality or failed to make a clear and conspicuous disclosure. The FTC noted: "The watchword is transparency. An advertisement or promotional message shouldn't suggest or imply to consumers that it's anything other than an ad."(9) As a consequence, payment to an influencer, even in terms of a complimentary stay or reimbursement for travel expenses needs to be disclosed and care needs to be taken that proper guidelines need to be adopted which impose penalties for the failure to make proper disclosures.

3. Influencers - Don't Post the Video Unless You Disclose Who Paid for It

The FTC alleged in a complaint that an entertainment network that worked for Microsoft's ad agency, Starcom, paid a large group of "influencer" bloggers to promote Microsoft's Xbox One by producing and uploading YouTube videos of themselves playing Xbox One games. The FTC further alleged that no disclosure of the network's compensation was required and many of the videos lacked disclosure. The 2016 order settling the FTC's charges prohibits Machinima from misrepresenting in any influencer campaign that the endorser is an independent user of the product or service being promoted. Among other things, it also requires prominent disclosure of any material connection between the endorser and the advertiser, and prohibits compensating any influencer which has not made the required disclosures. In addition, the order requires the company to follow up within ninety days of the start of a campaign to ensure the disclosures are still being made. The FTC issued a closing letter but did not take action against Microsoft and Starcom because of the "robust" compliance program, specific guidance and training relating to the FTC Enforcement Guides for employees, vendors and Starcom personnel. The FTC noted that Microsoft and Starcom had installed safeguards and, once put on notice, took swift action to require that proper disclosures were made after they were put on notice. (10) Once again, influencer bloggers who are compensated need to disclose any compensation that was paid to the blogger and the failure to disclose a material connection may result in FTC action.

4. You Cannot Use a "Ring of Power" to Hide Sponsorship of Video Content

In 2014, Warner Bros. Home Entertainment launched an online advertising campaign designed to generate buzz within the gaming community for the new release of "Middle Earth: Shadow of Mordor," a fantasy game based on "The Hobbit" and the "Lord of the Rings" trilogy. The FTC alleged that during the campaign, Warner Bros., through its advertising agency, hired online influencers to develop sponsored gameplay videos and post them on YouTube and promote the videos on Twitter, Facebook, and other social media. According to the FTC complaint, Warner Bros. paid each influencer between hundreds to tens of thousands of dollars and gave them a free advance-release game.(11) The FTC alleged that Warner Bros. failed to require the paid influencers to adequately disclose that the videos were sponsored content and clearly and conspicuously disclose Warner Bros.'s sponsorship. The FTC order prohibits Warner Bros. from misrepresenting that any such gameplay videos are independent opinions or the result of impartial video game consumers and requires clear and conspicuous disclosure of any material connection between Warner Bros. and any influencer or endorser.(12) Care needs to be taken to ensure that the nature of the relationship with the blogger who is creating video content is clearly articulated to the public. Given the way in which video can be used effectively to promote travel and hospitality destinations, care should be taken to make sure that any material connection underlying any influencer or blogger relationship is properly disclosed.

References:

(1) See "Commission Enforcement Policy Statement on Deceptively Formatted Advertisements" (Dec. 2015), available at https://www.ftc.gov/public-statements/2015/12/commission-enforcement-policy-statement-deceptively-formatted ; see also "Native Advertising: A Guide for Businesses" (Dec. 2015) , available at https://www.ftc.gov/tips-advice/business-center/guidance/native-advertising-guide-buinesses*
(2)"Endorsement Guides: What People Are Asking" (May 2015), https://www.ftc.gov/tips-advice/business-center/guidance/ftcs-endorsement-guides-what-people-are-asking.*
(3)"FTC Year in Review: Advertising and Privacy in the Age of Influencers, Smartcars, and Fitbits" (June 11, 2015), available at https://www.ftc.gov/system/files/documents/public_statements/958883/160611yearinreview.pdf.*
(4)"Endorsement Guides: What People Are Asking" (May 2015), https://www.ftc.gov/tips-advice/business-center/guidance/ftcs-endorsement-guides-what-people-are-asking.

(5) Sony Computer Entertainment America to Provide Consumer Refunds to Settle FTC Charges Over Misleading Ads for PlayStation Vita Gaming Console" (Nov. 25, 2014), available at https://www.ftc.gov/news-events/press-releases/2014/11/sony-computer-entertainment-america-provide-consumer-refunds.
(6)The FTC order barred Sony from making misleading claims regarding handheld consoles in the future, and Sony gave consumers who purchased the console prior to June 1, 2012, $25 in cash or credit or a $50 voucher for merchandise. Deutsch LA was barred from making any similar misrepresentations that an endorser of any game console or video game product is an independent user. Deutsch LA was required to disclose a material connection between an endorser and Deutsch LA or any company involved in the manufacturing or marketing of the product. "FTC Approves Final Orders Related to False Advertising by Sony Computer Entertainment America and Its Ad Agency Deutsch LA for PS Vita Game Console" (March 31, 2015), available at https://www.ftc.gov/news-events/press-releases/2015/03/ftc-approves-final-orders-related-false-advertising-sony-computer.

(7) Lord & Taylor, LLC, No. C-4576 (May 23, 2016), available at https://www.ftc.gov/enforcement/cases-proceedings/152-3181/lord-taylor-llc-matter.
(8) Lord & Taylor, LLC, No. C-4576 (May 20, 2016), available at https://www.ftc.gov/system/files/documents/cases/160523lordtaylordo.pdf.
(9) Lord & Taylor, LLC, No. C-4576 (May 23, 2016), available at https://www.ftc.gov/enforcement/cases-proceedings/152-3181/lord-taylor-llc-matter.
(10) Machinima, Inc., No. C-4569 (Mar. 17, 2016), available at https://www.ftc.gov/news-events/press-releases/2016/03/ftc-approves-final-order-prohibiting-machinima-inc; https://www.ftc.gov/system/files/documents/cases/160317machinimado.pdf.
(11) Warner Bros. Home Entertainment (July 11, 2016), available at https://www.ftc.gov/system/files/documents/cases/160711warnerbroscmpt.pdf.
(12) Warner Bros. Home Entertainment (July 11, 2016), available at https://www.ftc.gov/news-events/press-releases/2016/07/warner-bros-settles-ftc-charges-it-failed-adequately-disclose-it; https://www.ftc.gov/system/files/documents/cases/160711warnerbrosagree.pdf.

Theodore C. Max is a partner at Sheppard, Mullin, Richter & Hampton in New York. He co-leads the Fashion, Apparel and Beauty group. His focus is intellectual property protection and litigation, advertising and media consultation and clearance, and transactional and licensing matters. Mr. Max has counseled clients on, and litigated cases involving cutting edge copyright and trademark law. He has assisted clients to identify, protect and preserve intellectual property assets. He also has experience developing and implementing anti-counterfeiting programs and pursuing civil and criminal enforcements. Mr. Max has actively litigated intellectual property issues, as well as licensing and franchise disputes. Mr. Max can be contacted at 212.653.8702 or tmax@sheppardmullin.com Extended Bio...

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