The rise of digital advertising in the 2010s provided marketers with increasing opportunities to use innovative methods to create, format, and deliver targeted messaging. But the confluence of social media and digital advertising generated two new issues in advertising law: the use of influencers for marketing and the propriety of native advertising.   

Leveraging the popularity and credibility of athletes and celebrities to market a product or brand has long been part of advertising, but the popularity of social media enabled a new generation of celebrities and otherwise ordinary people with strong social media presences to market to consumers. The other issue, native advertising, which is paid content that looks like the news, feature articles, product reviews, or other material that surrounds it, also rose in popularity as consumers shifted online, and media spend followed.   

Both the Federal Trade Commission (FTC) and BBB National Programs’ National Advertising Division (NAD) provided guidance on these emerging issues in the 2010s. The “aughts” were NAD’s fifth decade of work in ad law, following in the wake of the division’s founding in 1971. 

Native Advertising

Throughout the 2010s, NAD directed its monitoring efforts towards native advertising, reviewing major advertisers and media platforms to provide guidance on when disclosure was required that content was advertising. NAD’s first case looked at advertising for Qualcomm, the maker of microchips used in electronic devices, that sponsored a series of articles called “What’s Inside” on Mashable.com. Applying FTC guidance on deceptively formatted advertising, NAD reasoned that “consumers can be misled when an advertiser conveys a commercial message without disclosing that it is the author of the message because sponsored content can convey an explicit or implicit message about a product, the benefits of using the product, or the disadvantages of a competing product.” 

In addition, NAD reviewed advertising for American Express and explained that when linking consumers to advertising content, advertisers should be transparent that the linked content is advertising.  

Social Media Influencers

As part of its monitoring program, NAD also brought challenges against social media influencers who failed to disclose material connections with the brands that engaged them.  

For example, NAD reviewed advertising for Fit Tea LLC and social media endorsements by Kourtney Kardashian, Khloe Kardashian, and Kylie Jenner. NAD questioned whether material connections between the endorsers and the product were adequately disclosed to consumers. 

As NAD noted in its decision, when the author of a social media post expresses a personal opinion about how much he or she likes a product or how often he or she uses a product, consumers may not be able to determine whether the post is a paid endorsement or whether it is a spontaneous recommendation made without any payment or other compensation. That is why the disclosure of material connections is so important.

FTC Actions

Well-known companies came under FTC scrutiny in the 2010s when they failed to apply accepted advertising law principles while advertising in new formats. For example, the FTC’s 2015 settlement with Lord & Taylor addressed both native advertising and influencers.  

Scrutiny began when Lord & Taylor launched an advertising campaign for a line of clothing featuring a paisley dress. The marketing plan included social media with Lord & Taylor–branded blog posts, photos, video uploads, native advertising editorials in online fashion magazines, and the use of “fashion influencers” recruited for their style and base of followers on social media platforms.  

Lord & Taylor gave the dress to several fashion influencers who were paid to post photos of themselves dung a specific weekend wearing the dress and contractually obligated the influencers to mention the company using the “@lordandtaylor” designation and to include the campaign hashtag “#DesignLab” in the photo caption. In addition, Lord & Taylor representatives preapproved each of the Instagram posts to ensure that the required hashtag and appropriate designation was used and paid for an article about the new collection that appeared on the Nylon Magazine website and for a posting on Nylon’s Instagram account. 

The FTC’s complaint alleged that Lord & Taylor failed to clearly disclose that the Instagram images and captions were part of a paid-for advertising campaign to promote the new collection and that the influencers were not impartial. The FTC’s consent agreement prohibited Lord & Taylor from misrepresenting that an endorser of a product is independent and that paid commercial advertising is a statement or opinion from an independent or objective publisher or source. In addition, the settlement required Lord & Taylor to clearly and conspicuously disclose when there is a material connection between Lord & Taylor and endorsers.

With many new innovative marketing practices, unscrupulous actors find ways to besmirch the new practices by engaging in unlawful contact. The FTC’s action against Devumi, LLC, is a prime example. The FTC alleged that Devumi and its owner and CEO sold fake indicators of social media influence, including fake followers, subscribers, views, and likes to users of social media platforms including LinkedIn, Twitter, YouTube, Pinterest, and others to improve their social media presence. The company went out of business, but the owner was ordered to pay $2.5 million, the amount he received from the business.

In addition, the FTC entered into a settlement agreement with a skincare company Sunday Riley Modern Skincare and its owner resolving allegations that the managers and employees of the company wrote reviews for the company’s products using fake accounts created to hide their identities.  

The accuracy of claims and legitimacy and transparency of followers, likes, clicks, and other forms of engagement is not only important to individual brands but also critical to the integrity of the broader digital marketplace. 

New & Updated Guidance

NAD was uniquely able to address some of these issues in early cases that guided advertisers on the rules of the road in the new digital landscape. NAD’s cases were followed by FTC enforcement actions as well as the release of policy statements and targeted business guidance. With respect to influencers, the FTC updated its endorsement guides and provided layers of business guidance on influencer marketing. Addressing native advertising, the FTC released an Enforcement Policy Statement on Deceptively Formatted Advertisements and provided business guidance on native advertising. Competitors began challenging the use of those new practices at NAD and, in turn, NAD applied the FTC’s new guidance in resolving those cases.  As a result, advertising self-regulation expanded the impact of the FTC’s efforts. Working in tandem, NAD and the FTC were able to help brands build transparency in digital marketing and work towards a more trusted marketplace for consumers.