FTC Investigates Ann Taylor For Encouraging Bloggers to Tout New Product Line
May, 2010
The FTC's handling of its first investigation under the recently issued "Guides Concerning the Use of Endorsements and Testimonials in Advertising" (the "Guides") offers important lessons for companies seeking to harness social media (i.e., blogs, Twitter, Facebook, etc.) to promote their products or services.
On April 20, 2010, the Federal Trade Commission's Division of Advertising Practices (the "FTC") announced that it was closing its investigation into clothing designer and retailer Ann Taylor for suspected violations of the Guides. The Guides (16 CFR Part 255 et seq.) were issued by the FTC in October 2009 to address the increasing use of social media by advertisers, including Twitter, Facebook, blogs and message boards, and so-called "sponsored conversation" companies that connect advertisers with bloggers and others who might write, post, or tweet about their products (e.g., PayPerPost, Sponsored Tweets, Sponzai). The investigation of Ann Taylor was the first under the new Guides, generating a wave of speculation and concern in both advertising circles and the blogosphere. The investigation ended not with a bang but a whimper, however, as the FTC declined enforcement action against Ann Taylor. Nevertheless, the Division's letter closing the case offers important clues as to how the FTC intends to police this emerging area.
The Endorsement Guidelines
The FTC has broad authority to regulate "unfair or deceptive acts or practices in or affecting commerce," including the power to issue regulations, conduct investigations and bring enforcement actions seeking injunctive relief and civil penalties. See 15 U.S.C. §45. In issuing the Guides, the FTC expressed concern that the use of social media in advertising has blurred the line between what is advertising and what is opinion, and has generated confusion among consumers.
The Guides cover "any advertising message...that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser." They prohibit false or unsubstantiated claims and require disclosure of "material connections" between the endorser and the company selling the product or service. According to the FTC, connections that "might materially affect the weight or credibility of the endorsement" must be disclosed where the connection is "not reasonably expected by the audience."
The Ann Taylor Investigation
The FTC launched its investigation into Ann Taylor's LOFT division following a January 26, 2010 "exclusive blogger preview" of the chain's summer 2010 product line. The invitation to the preview party stated that "Bloggers who attend will receive a special gift, and those who post coverage from the event will be entered in a mystery gift card drawing where you can win up to $500 at LOFT!"
The promotion was apparently a success. A number of "fashion bloggers" covered the event; each providing an enthusiastic endorsement for the new line.[1] A few disclosed the gift card, while others did not mention it at all.
In its April 20 letter to Ann Taylor closing the investigation, the FTC explained that its inquiry into the event stemmed from its concern that "bloggers who attended a preview on January 26, 2010 failed to disclose that they received gifts for posting blog content about that event." According to the letter, the Division considered a number of factors in deciding against an enforcement action in the case. First, the Division noted that the January 26 event was the first and only event of its kind held by Ann Taylor. Second, it noted that "only a very small number of bloggers posted content about the preview, and several of those bloggers disclosed that LOFT had provided them gifts at the preview."[2] Finally, the Division considered the fact that, following the January event, LOFT adopted a written policy "stating that LOFT will not issue any gift to any blogger without first telling the blogger that the blogger must disclose the gift in his or her blog." Importantly, the Division qualified the last factor by emphasizing that the "FTC staff expects that LOFT will both honor that written policy and take reasonable steps to monitor bloggers' compliance with the obligation to disclose gifts they receive from LOFT."
Important lessons from the FTC's handling of this matter:
- First, although the FTC is likely to limit its enforcement efforts to tackling more egregious cases, there is no de minimus exclusion in the Guides. In this case, a gift of as little as $10 was apparently sufficient to trigger a disclosure obligation. Furthermore, although the FTC gave consideration to the fact that this was a first time event for Ann Taylor, marketers would be wise to view the FTC's leniency here as an acknowledgment of the newness of the guidelines -- a shot across the bow -- rather than a free pass for first time violators.
- Second, advertisers who seek to make use of blogs, message boards or other forms of social media must be sure not only to advise would-be posters of their disclosure obligations, but to monitor them going forward to ensure compliance.
- Finally, if it was not apparent beforehand, it is now absolutely clear that advertisers operating in this area must implement and enforce a written policy advising their employees of their obligations under the FTC Guides.
We can expect further guidance from the FTC as additional investigations are announced. For now, advertisers, bloggers and those in the "sponsored conversation" arena should be sure to take note of the FTC's decision in the LOFT investigation and continue to monitor developments in this area.
[2] According to the FTC, LOFT posted a sign at the event telling bloggers that they should disclose the gift but it was unclear whether any of the bloggers actually saw the sign.