Updated: Warner Bros. Settles with the FTC over Paid Online Influencers: Avoiding Liability for Endorsements in Online Videos and Social Media

Practical Law Legal Update w-003-3447 (Approx. 7 pages)

Updated: Warner Bros. Settles with the FTC over Paid Online Influencers: Avoiding Liability for Endorsements in Online Videos and Social Media

by Practical Law Commercial Transactions

The Complaint

After initiating the investigation, the FTC alleged that:

The sponsored YouTube videos and related social media posts promoting the videos were advertisements for the video game.
Warner Bros.:
- paid each influencer from hundreds to tens of thousands of dollars;
- gave each influencer a free advance-release version of the game and told them how to promote it, requiring that the game be promoted in a positive way and without disclosure of any bugs or glitches;
- misled consumers by suggesting that the gameplay videos reflected the influencers' independent or objective views; and
- failed to require the paid influencers to adequately disclose that they were paid for their positive reviews.

The FTC further alleged that:

Instead of requiring the influencers to adequately disclose the sponsorship, Warner Bros. instructed that the disclosures be placed in a description box appearing below the YouTube videos.
Because Warner Bros. required other information to be placed in the same box, the vast majority of sponsorship disclosures were pushed "below the fold" and only visible if viewers clicked on the "Show More" button in the description box.
When influencers posted YouTube videos on Twitter and Facebook the posting did not include the "Show More" button, making it even less likely that consumers would see the sponsorship disclosures.
Sometimes, the influencers only disclosed that they had received early access to the videogame, but failed to disclose that Warner Bros. also had paid them to promote the game.
Warner Bros.' contracts with influencers subjected their videos to pre-approval and, on at least one occasion, Warner Bros. reviewed and approved an influencer video that lacked adequate disclosure.
Warner Bros. did not properly instruct its influencers to include sponsorship disclosures clearly and conspicuously in the actual videos, where consumers were most likely to see or hear the disclosures.

The Consent Order

While Warner Bros. settled the charges without admitting guilt, the company did agree to greatly strengthen how it oversees its online endorsements and has submitted to the FTC's monitoring of these programs. Under the consent order, Warner Bros. is prohibited from misrepresenting that videogame endorsements made as part of a marketing campaign are independent opinions or the experiences of impartial video game enthusiasts. The consent order also requires Warner Bros. to clearly and conspicuously disclose any material connection between the company and any influencer or endorser promoting its products. And lastly, the consent order specifies the minimum steps that Warner Bros., or any entity it hires to conduct an influencer campaign, must take to ensure that future campaigns comply with the terms of the order, which include:

Providing each influencer with a statement detailing the responsibility to disclose the connection between the influencer and Warner Bros.
Establishing a system to monitor and review influencers' disclosures made in connection with online videos, social media postings, and other digital advertisements or communications.
Terminating and stopping payment to any influencer who misrepresents impartiality or fails to adequately disclose the relationship between the influencer and Warner Bros.

Final Decision and Order

On November 17, 2016, the FTC issued its final decision and order against Warner Bros. to settle charges that the company failed to adequately disclose that it paid online influencers to post gameplay videos. Under this final order, Warner Bros. is prohibited from failing to make such disclosures in the future and cannot misrepresent that sponsored content is the objective, independent opinions of video game enthusiasts or influencers.

Running a Legal Online Endorsement Campaign

As online advertising, including video endorsements, continues to grow in use and importance, companies should ensure they have standard policies in place to best avoid being put in a similar situation as Warner Bros. This Update provides key considerations and advice on limiting the risk companies may face when running an online endorsement campaign.

Is it an Endorsement?

An endorsement is an advertising message that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the company that sponsored the paid endorsement, even if the views expressed by the endorser are identical to those of the sponsoring company. Something as simple as posting a picture or video of a product on social media, such as to Twitter, Facebook, or Instagram, could convey that the endorser likes or approves of the product, and could subject the post to the Federal Trade Commission Act (FTC Act) (16 C.F.R. § 255.0(b)).

The FTC has stated that the relevant facts in determining whether a post (or any other message) is an endorsement vary and cannot be fully set out, but include:

Whether the speaker is compensated by the sponsor or its agent.
Whether the sponsor provided the product or service in question for free.
The terms of any agreement.
The length of the relationship.
The previous receipt of products or services from the same or similar sponsors, or the likelihood of future receipt of products or services.
The value of the items or services received.

(74 Fed. Reg. at 53126).

If there is a material connection between a sponsor and an endorser, the endorser must disclose that connection (16 C.F.R. § 255.5). The interpretation of what constitutes a material connection may be broader than expected. Even intangible benefits such as a chance to win a prize could require disclosure.

Under the FTC Act, an act or practice is deceptive if it misleads a "significant minority" of consumers (POM Wonderful, LLC v. FTC, 777 F.3d 478, 490 (D.C. Cir. 2015)). The FTC requires disclosures for sponsored YouTube videos and related social media content because other online users, who have no connection to the makers of the sponsored products or services, may mention the products or services in their posts, which in itself can cause consumers to confuse genuine recommendations with sponsored endorsements.

Monitoring Endorsements

Like Warner Bros., companies often use well-known figures and celebrities for endorsements to try to influence consumer purchasing by:

Increasing the brand's visibility.
Creating positive consumer associations with the company or brand.
Increasing consumer brand recognition and recall.
Elevating the company's competitive position in a particular market.

The Warner Bros. settlement shows that a sponsoring company needs to inform its marketing partners, and the endorsers themselves, of the disclosures that must accompany statements about its products or services. The FTC has issued its Guides Concerning the Use of Endorsements and Testimonials in Advertising (Guides), which are intended to help advertisers comply with the FTC Act and minimize the risk of FTC enforcement actions. The Guides are not regulations and therefore no civil penalties are associated with them. However, if sponsors do not follow the Guides, the FTC could decide to investigate for unfairness or deception.

In the Guides, the FTC advises that if there is a connection between the endorser and the sponsor or marketer of a product that would affect how people evaluate the endorsement, it should be disclosed. While the Guides acknowledge that it is unrealistic for sponsors to know every statement that its endorsers make, it also:

Cautions sponsors to use reasonable efforts to track what their network of partners and endorsers are saying.
Holds sponsors responsible for monitoring partners and endorsers to ensure they are making appropriate disclosures, for example by:
- ensuring endorsers make clear and conspicuous disclosures;
- ensuring the sponsor's partners have the proper training programs in place to inform endorsers of the disclosure requirements;
- asking for reports from partnering organizations to confirm training is adequate and the proper disclosures are being made;
- creating policies that monitor partners periodically;
- creating policies that monitor endorsers' social media accounts periodically; and
- following up with partners and endorsers when questionable practices are discovered.
Requires sponsors to take appropriate action if an endorser continues to make inadequate disclosures.
Warns that companies that are directly involved in recruiting and directing online influencers may be held responsible for influencers' failure to adequately disclose that they received payment for their endorsement.

Avoiding Liability for Online Endorsers' Actions

Companies should include the following steps when creating a plan to avoid liability for online endorsers' actions:

Determine whether a third party qualifies as an endorser. Under the Guides, this analysis is not always easy, but a sponsor should think carefully about whether:
- it is providing an incentive to a third party to speak on its behalf; and
- the incentive would come as a surprise to a typical consumer.
Prepare contracts or other guidelines to govern endorsers' actions. When working with an endorser, the sponsor should prepare a contract or other guidelines that govern what the endorser can and cannot do. The document should require endorsers to disclose any connection between them and the sponsor, and, because the sponsor may be liable for the endorsers' claims, it should include some guidance about what endorsers can and cannot say. However, according to the Guides, endorsements must reflect the endorser's own opinions and beliefs. A sponsor must be careful to provide only guidance and not prescribe what an endorser should say (16 C.F.R. § 255.1). For a sample endorsement agreement, see Standard Document, Celebrity Endorsement Agreement.
Monitor endorsers and ensure they comply with the contract or guidelines. As the Warner Bros. settlement demonstrates, a sponsor must monitor online endorsers and take steps to ensure that they comply with the sponsor's policies. A company may need to assign an employee or agent to periodically review statements made by endorsers on social media to ensure that claims are accurate and that the endorsers make appropriate disclosures. If an endorser does not comply with the contract or guidelines, the company should contact the endorser to correct the problem. If any problem continues, the company should consider terminating the relationship.

There is no one-size-fits-all approach to online endorsements. To develop an approach that best fits advertising needs and offers adequate legal protection, the sponsor's marketing team should work closely with the sponsor's legal counsel to identify:

The company's goals.
The social media platforms the company wants to leverage.
The types of claims the endorser may make.
The incentives that may be given to the endorsers.
Other factors that could lead to potential legal liability if they are not addressed.

For more information on the FTC's endorsement rules, see Practice Notes, Advertising Overview: Endorsements and the Use of People in Advertisements and Advertising and Promotions in Social Media: Endorsements and Testimonials.

Updated: Warner Bros. Settles with the FTC over Paid Online Influencers: Avoiding Liability for Endorsements in Online Videos and Social Media | Practical Law