Stay ADvised: What's New This Week, November 18

Articles

• FTC Releases Disclosure Advice for Social Media Influencers
• FTC Lawsuit Accuses Data Storage Co of EU-U.S. Privacy Shield Misrepresentation
• Bullock and DeGeneres Sue Over Impersonation Ads
• Senate Proposes Bill Aimed at Online Information "Bubble"
• Health Care Ad Agency Settles With DOJ for $70 Million Over Ad Fraud

FTC Releases Disclosure Advice for Social Media Influencers

What is good for the advertiser is good for the influencer, so says the Federal Trade Commission (FTC). As partnerships between brands and the social media influencers they hire to promote them continue to expand, the agency has issued disclosure guidelines specifically targeted to influencers so they understand their legal obligations in these arrangements.

There isn’t much new in the content of this guidance, but the FTC has added examples and clear language to reach this new population of non-traditional marketers. Titled “Disclosures 101 for Social Media Influencers,” the guide, written and formatted in a casual, plain-English style, provides a roadmap for influencers including basic information on how to comply with the guidance and how to steer clear of FTC enforcement. An accompanying video summarizes the same information in another easily understood format.

It seems the FTC want to reach new influencer entrants as well as those YouTube and Instagram personalities with thousands if not millions of followers, and to make sure they understand what the FTC is looking for, specifically when and how to make disclosures about their working relationship with a company. It “lays out the agency’s rules of the road for when and how influencers must disclose sponsorships to their followers.”

The FTC advises influencers that it is their responsibility to disclose any material connection to a brand, whether that connection is a personal, family, employment or financial relationship. And once again the FTC explains that the issue isn’t just about dollars, as disclosure obligations are triggered when any item or incentive of value (and not necessarily monetary value) exchanges hands. In addition, the FTC reminds influencers that the guidance also applies to those posting from abroad “if it’s reasonably foreseeable that the post will affect consumers.”

As to the question of “how” to properly disclose, the FTC repeats its mantra requiring “clear and conspicuous” disclosure, noting that the standard for what is clear and conspicuous may vary depending on the format of the endorsement. Broadly stated, however, it means that disclosures should appear with the endorsement and shouldn’t be buried in “a group of hashtags or links.” And for video, disclosures should be both in the audio and the video – and not at the end, either.

Are you live streaming? If so, repeat those disclosures periodically. As to the content of the disclosures, “Ad” and “Advertisement” and “Sponsored” are all good, but don’t bury the lead. For space-constrained platforms like Twitter, the FTC finds use terms such as “BrandPartner” or “Brand Ambassador” acceptable – but make sure you replace “Brand” with the actual name of the Brand! The FTC also cautions that “likes” and “pins,” etc., are in fact endorsements and so suggest influencers “like” with care.

And tell the truth. The guide further advises that influencers shouldn’t paint a product in a positive light if they think it is bad or endorse something without trying it first.

This is not the first time the FTC has released guidelines for social media influencers. In 2017, the agency reached out to over 90 social media influencers to educate them about how to lawfully endorse products. The FTC has also published and updated its general endorsement guides that, according to the agency, “reflect the basic truth-in-advertising principle that endorsements must be honest and not misleading. An endorsement must reflect the honest opinion of the endorser and can’t be used to make a claim that the product’s marketer couldn’t legally make.” Those guides are coming up for review as part of the FTC’s regular guidance review program. In the meantime, it remains to be seen whether this new publication will reach and resonate with its intended audience.

Key Takeaways

By some estimates, the online advertising market on Instagram is expected to reach more than $2.5 billion next year. The publication of this latest brochure is part of the FTC’s continuing recognition that influencers have real clout with consumers and its concomitant efforts to reach the source and not just the brands. It comes at a time of increased enforcement by the FTC in this area, including a recent suit accusing a company of selling fake followers.

FTC Lawsuit Accuses Data Storage Co of EU-U.S. Privacy Shield Misrepresentation

Don’t forget to renew! That is just one lesson from a recently filed Federal Trade Commission (FTC) suit charging a data storage company with falsely touting its participation in the E.U.-U.S. Privacy Shield program (Privacy Shield).

Privacy Shield was created to “provide companies on both sides of the Atlantic with a mechanism to comply with data protection requirements when transferring personal data from the European Union (EU) and Switzerland to the United States in support of transatlantic commerce.” And, at least for a time, Nevada-based Raging Wire Data, whose business consists of offering data storage services in the U.S., was indeed a member of Privacy Shield. However, the FTC alleges that the company’s membership lapsed and it did not renew its certification, although it continued to promote its participation. Thus, the FTC has charged in its complaint that Raging Wire misrepresented online and in marketing materials its continuing participation in the Privacy Shield program, in violation of the FTC Act.

Since the passing of the General Data Protection Regulation (GDPR), companies coming under the jurisdiction of the GDPR are required to protect all of their customers’ data that is transferred to the U.S. Since the EU does not recognize current U.S. law as providing adequate protection for consumer information, in order to allow data to flow across the Atlantic, the Privacy Shield program enables companies that collect and want to transfer data from the E.U. to the U.S. to comply with European privacy law.

According to the FTC’s allegations, from January 2017 to October 2018, after its Privacy Shield membership had lapsed, Raging Wire continued to claim on its online privacy policy that it was a member of the program and in compliance with its requirements. Even after the Department of Commerce, which administers the program, alerted the company about its alleged misrepresentations, Raging Wire continued to falsely promote to its customers its membership in the program.

The FTC also alleges that the company failed to adhere to a number of the program’s requirements while it was still a member. For example, the FTC claims that it failed to conduct the required annual verification of the accuracy of its statements about Privacy Shield, and it did not maintain a dispute resolution process for customers. Further, after the company’s participation in the program had lapsed, Raging Wire failed to either delete the data or affirm its continuing protection of personal information that it had collected while part of the program, as required by law.

The FTC’s complaint seeks to enjoin Raging Wire from making any further misrepresentations about Privacy Shield or other government data security programs. It would also require the company to continue Privacy Shield protections on collected data or to affirm that it has deleted the data.

Key Takeaways

As the FTC notes in its complaint, under the GDPR, companies that transfer personal data from the E.U. to the U.S. outside the framework of a government program like the Privacy Shield could be subject to steep fines of up to € 20,000,000. Given these serious repercussions, companies that have signed up for Privacy Shield should ensure their registration is current and not misrepresent their involvement with the program in any respect.

Bullock and DeGeneres Sue Over Impersonation Ads

Another day, another endorsement from a famous celebrity for a surprising product. But are those endorsements that appear in “articles” and advertising online and even in your social media feeds real? Maybe not, and some celebrities are taking a stand. Sandra Bullock and Ellen DeGeneres have filed a lawsuit against more than 100 anonymous entities they accuse of stealing their names and likenesses to promote so-called beauty products online.

The suit, filed in Los Angeles Superior Court, claims a host of unknown individuals and entities have for years misappropriated Bullock and DeGeneres’ likenesses to sell beauty products in ads calculated to appear like legitimate news sources but containing “fabricated celebrity endorsements and fake testimonials.” The stars have alleged violations of California’s false advertising law, unfair competition law, and the Common Law Right of Publicity.

Bullock and DeGeneres say the “celebrity endorsement industry” has targeted them “because of their age, their unimpeachable reputation for honesty and having worked hard to maintain a healthy and youthful look, which con artists believe will attract and dupe unwitting customers into getting bilked by giving up their credit card information.” It has taken advantage of their “substantial commercial value” to make profits off their fake endorsements, alleges the suit.

One ad, claim the stars, features DeGeneres promoting a product called Alessa Serum in which she attributes her ability to wear minimal makeup to the miracles of the touted product. In another, Bullock is featured in a fabricated “Entertainment Today” segment saying she is “leaving Hollywood to focus on a lifestyle brand,” presumably the beauty brand being advertised.

According to the allegations, after enticing customers with the fake celebrity endorsements, the scammers added insult to injury with deceptive free trial offers: “Customers are deceptively induced to buy products like Defendants’ ‘anti-aging serums’ and other Beauty Products, typically tempting them with a ‘trial offer’ which promises a free or risk-free trial at a nominal cost or for only a shipping and handling fee,” alleges the complaint. “In practice, however, customers who purchase the trial offer are charged full price for the product or service unless they cancel the order within a very short time, a tactic that commits customers to receiving multiple deliveries and charges for products they did not want or expect.”

In a statement, counsel for DeGeneres and Bullock have said the suit “exposes the scam and how it works so people can avoid getting trapped in it, and provides a way to identify those responsible and profiting from it so they can be stopped and held to account.”

Since the fraudulent affiliate marketers have so far evaded detection by using a web of ever-changing entities and websites, DeGeneres and Bullock have filed the complaint against unnamed defendants “DOES 1 through 100.” They say the plan is to use the suit to conduct discovery to ascertain the defendants’ true identities. Counsel for Bullock and DeGeneres have likened finding the parties responsible for the allegedly deceptive ads to playing “Whack-A-Mole,” because “for each site exposed, another pops up.”

Key Takeaways

The complaint stresses that the affiliate marketing industry is by and large legitimate, but it points to a “dark side” exemplified by the alleged wrongdoers in this litigation. Indeed, this suit alleges facts pleading various examples of advertising fraud, including appropriation of likeness and deceptive advertising—both through the use of fabricated endorsements and through deceptive free trial offers.

Senate Proposes Bill Aimed at Online Information "Bubble"

Do we see and hear only what we want to see and hear? Would you rather make those decisions for yourself and not have content presented to you based on what an algorithm thinks you want? If Congress can agree on this issue, that wish may come true at least for some who would rather not see information served to them based on “perceived interest” culled from their lifestyles and habits. How? A group of bipartisan senators has proposed a bill that would require major tech companies to provide users with the option to view a version of their website that does not include any personalized search results based on user data.

The Filter Bubble Transparency Act takes aim at the “filter bubble,” a term coined to describe the online echo chamber that happens when search engines and social media sites display only information that reflects users’ worldviews and “filter” out other information not in line with users’ preferences—gleaned by tracking user data—thereby creating an information “bubble.”

The measure would give consumers the option to see two versions of the same website by simply toggling between them. One version would include “filtered” results ranked based on what the bill calls “opaque algorithm-generated content” and machine learning, and the other would show a wider range of “unfiltered” results not based on data tracking.

By offering two versions of the same information, the bill would effectively require large tech companies to disclose search results that use algorithms to “determine the order and manner in which information is delivered to users.” As the text of the proposed bill puts it, the legislation would provide an option free from the use of “data processing … to determine the order or manner that … information is provided to a user on a covered internet platform, including the ranking of search results, the provision of content recommendations, the display of social media posts, or any other method of automated content selection.” This, the sponsoring senators hope, would help stem the tide of political polarization some experts have attributed partly to these “micro-targeting” algorithms.

The bipartisan bill is sponsored by Republican Senate Majority whip and chair of the Subcommittee on Communications, Technology, Innovation and Internet, John Thune. Democratic senators Richard Blumenthal and Mark Warner, who worked in tech prior to politics, are co-sponsors.

“This legislation is about transparency and consumer control,” noted Senator Thune in a statement. “For free markets to work as effectively and as efficiently as possible, consumers need as much information as possible, including a better understanding of how internet platforms use artificial intelligence and opaque algorithms to make inferences from the reams of personal data at their fingertips that can be used to affect behavior and influence outcomes.”

If passed, the bill would be binding on companies with more than 500 employees, $50 million in revenue, or more than a million users. It would apply to “any public-facing website, internet application, or mobile application, including a social network site, video sharing service, search engine, or content aggregation service.” The Federal Trade Commission (FTC) would enforce the legislation, and violations would be prosecuted under the FTC Act’s prohibition against unfair or deceptive trade practices.

Key Takeaways

By providing users with an unfiltered version of the information superhighway, the “Filter Bubble Bill” is an attempt to address concerns many have expressed that, because of the way data is collected and parsed, users see only information that reinforces their own worldviews. Given that the proposed bill is backed by powerful sponsors on the Hill, the proposal could see some serious traction, a departure from historical privacy bills that would have impacted big tech companies. Senator Thune has also expressed openness to having the measure be part of a broader privacy bill.

Health Care Ad Agency Settles With DOJ for $70 Million Over Ad Fraud

Not all fraud is consumer fraud. Companies get rooked too. The U.S. Department of Justice (DOJ) has entered into a $70 million settlement that resolves allegations against a healthcare company accused of fraudulently selling nonexistent advertising inventory to its pharmaceutical company clients.

Chicago, Illinois-based ContextMedia Health LLC, doing business as Outcome Health (Outcome) sells advertising primarily to pharmaceutical companies to be displayed via its dedicated TVs and tablets in doctors’ offices. The company was accused of selling fabricated advertising inventory by exaggerating the number of doctors participating in its network, giving the impression that clients’ advertisements were disseminated to a far wider audience than they actually were.

Even though Outcome under-delivered on the promised advertisements, it still invoiced customers an amount that reflected full delivery of the promised ads. To hide this discrepancy, Outcome falsified affidavits and proof of performance documents to make it appear as if it was delivering the promised ads. It also inflated engagement metrics to falsify the effectiveness of the ad campaigns, alleged the DOJ.

The fraud affected not only Outcome’s clients but its investors as well. Outcome reported a significantly higher revenue than it had actually earned to account for the misrepresentations made to clients, resulting in a material misrepresentation of its revenue for the years 2015 and 2016. It then used the falsified figures to raise hundreds of millions in equity financing from 2016 to 2018.

“Outcome Health deceived its lenders and investors, and overbilled its clients by fraudulently misrepresenting both the quality and quantity of its advertising services and concealing those misrepresentations from auditors,” said Principal Deputy Assistant Attorney General John P. Cronan in a statement.

The $70 million settlement agreed to in Outcome’s non-prosecution agreement with the DOJ will compensate the company’s pharmaceutical company clients. Of this amount, about $65.5 million has already been paid out. The agreement also requires Outcome to cooperate with the DOJ’s ongoing investigation of certain individuals and to beef up its compliance program to prevent future violations.

For its part, Outcome said it is “thrilled to resolve this matter, as it enables us to move forward and focus on our mission to be the indispensable partner to patients, providers and industry partners during moments of care.”

The deal does not compensate investors, however, who sued Outcome separately for fraud. That suit was settled shortly thereafter and led to the departure of the company’s chief executives who perpetrated the alleged fraud.

Key Takeaways

This is another example of the growing incidence of ad fraud perpetrated against corporations. Taking note of this growing ad fraud trend, the government repeatedly reiterated in its press release that it has made it a priority to pursue fraud “which harms lending institutions, investors, customers, and competitors.”