Stay ADvised: What's New This Week, December 6
In This Issue:
- NAD Warms to Coldest Water on the Question of Incentivized Endorsements
- Supplement Maker's Efforts to Take Down Health and Earnings Claims Fall Short, Says DSSRC
- After Late Shipments, Kanye West's Yeezy Settles for Nearly $1M
- Closing Inquiries but Leaving Door Open to Further Enforcement, FTC Releases Made in USA Closing Letters
NAD Warms to Coldest Water on the Question of Incentivized Endorsements
It took a while to get here, after a detour to the Federal Trade Commission (FTC), but the National Advertising Division (NAD) ultimately determined that social media influencer videos featuring (but not discussing) The Coldest Water's insulated water bottle did not amount to use by the company of endorsements that failed to disclose a material connection. Instead, it seems the lucky company had no relationship with the influencers cited by NAD at all.
NAD first raised the question in June 2021, inquiring via its self-monitoring program as to whether social media influencers posing with The Coldest Water's product in the foreground or background of videos and tagging the company constituted undisclosed advertising endorsements of the product.
Initially, The Coldest Water did not respond. But when NAD referred the company to the FTC, The Coldest Water agreed to engage with the self-regulatory process after all.
The questioned social media videos featured influencers doing the many things they do (playing the saxophone, giving real estate advice, etc.) while displaying The Coldest Water bottle prominently in the frame. And although the influencer didn't mention or actively promote the product, the logo was clearly visible and the captions tagged and hash-tagged the company, which most certainly constitutes an endorsement.
As it happened, however, The Coldest Water had a good explanation as to why there was no material connection disclosure—it seems there was, in fact, no connection between influencer and advertising. This despite the fact that the company's website includes a section about how to become an influencer on behalf of the company.
The Coldest Water explained that while it "encouraged paying customers to post about the product, it did not do so in exchange for material compensation." And more interestingly, it "pointed out and provided NAD with examples of influencers who were completely unrelated and unknown to the company and appeared to be using the company's tags in their content in an effort to piggyback off the viral nature of the company's advertising, a common influencer marketing tactic," at least according to the advertiser.
As for its social media policy, The Coldest Water detailed what it said was its recently expanded guidance for influencers (presumably arising from its detour to the FTC) that included training on appropriate social media marketing and requirements for disclosing connections in accordance with FTC Guidance.
Although satisfied with the social media video explanation, NAD did ask The Coldest Water to modify the portion of its website that had invited influencers to promote The Coldest Water by creating these types of videos. NAD had said it was "concerned that the language indicated that the advertiser was actively encouraging influencers to post about its product in exchange for potential sponsorship opportunity." Though the company said that this webpage was meant for existing The Coldest Water influencers, it agreed to comply with NAD's recommendations.
Sometimes it looks like a duck, quacks like a duck but is not a duck. Nonetheless, advertisers who publicly look to entice influencers to post may find themselves under scrutiny even where they have not broken the rules.
Supplement Maker's Efforts to Take Down Health and Earnings Claims Fall Short, Says DSSRC
The Direct Selling Self-Regulatory Council (DSSRC) called out a direct seller of wellness products and supplements over exaggerated health claims and said efforts to remedy the "aggressive and unsupported health-related product performance claims" fell below DSSRC's expectations.
Daxen, the company in the hot seat, sells herbs, supplements, herbal coffee, skincare, and household products. DSSRC reached out to Daxen after its routine monitoring revealed that social media posts made by the company's salesforce included unsubstantiated claims about product ability to treat a medical dictionary's worth of health-related conditions—from arthritis to "blockage of the vein," to obesity, headaches, goiter, AIDS, cancer, and the list goes on.
Daxen, a multi-level direct selling company headquartered in California, did not contest that the claims were inappropriate and took immediate steps to take down those that were generated by its U.S. salesforce. It was, however, less successful with posts originating overseas.
Though Daxen said it promptly reached out to ex-U.S. salesforce members who posted the offending claims, DSSRC determined these efforts were not enough. First, even after several requests by DSSRC, Daxen did not provide any information as to whether the offending posts were made by current or inactive salesforce members.
Nor did Daxen provide written confirmation of requests to take down the remaining, offending posts "as a demonstration of the Company's due diligence and good faith efforts to address DSSRC's concerns and remove the problematic claims from circulation."
DSSRC made it clear, as it has done before, that companies such as Daxen are responsible for salesforce claims and must make ongoing and documented efforts to make sure such claims come down regardless of where they originate. DSSRC was especially concerned that new posts with "aggressive claims" appeared during the pendency of the proceedings and that these posts are accessible by U.S. consumers. To DSSRC, this indicated a failure on the part of Daxen to monitor claims and ensure compliance.
Advertisers hoping to show that they have exhausted efforts to remove problematic salesforce claims should provide the DSSRC with real, tangible evidence of compliance efforts—including takedown requests, confirmation of requests to remove posts, and termination letters.
After Late Shipments, Kanye West's Yeezy Settles for Nearly $1M
Hear Ye, Hear Ye, the artist formerly known as Kanye West, currently known as Ye, must pay the state of California $950,000 to settle allegations that his sneaker and apparel company Yeezy violated California's 30-day shipping rules.
The settlement shelves charges that Yeezy "repeatedly violated" California's consumer protection 30-day shipping rule, which requires that companies ship internet orders within 30 days unless a longer time period is specified. If a business is unable to ship an order within that required timeframe, it must send a "delay notice" informing consumers of the expected delay timeframe and offering a refund or replacement goods.
District attorneys for Sonoma, Alameda, Los Angeles, and Napa counties jointly filed the complaint, alleging that Yeezy repeatedly failed to timely ship items and did not provide consumers with the adequate delay notice or offer a refund.
The complaint also alleged that Yeezy made false or misleading statements about its capacity to ship products within a certain timeframe, even when consumers paid for expedited shipping. In addition to the 30-day shipping rule, the complaint alleged violations of California's false advertising law based on the alleged misrepresentations about shipping times, as well as unjust enrichment. The complaint sought civil penalties of up to $2,500 per violation and a permanent injunction forbidding the company from violating California consumer protection laws.
On top of the monetary penalty, the stipulated final judgment enjoins Yeezy from making any misrepresentations about shipping times or refunds and generally violating the 30-day shipping rule. The order also sets forth a list of scenarios in which the company must provide a full refund to consumers, such as if products are out of stock or damaged.
Given supply chain issues prevalent in today's economy, companies may be especially vulnerable to rules governing shipping deadlines. And California isn't the only one whose consumer protection laws aim to shield buyers against extended shipping periods.
The FTC's Mail Order Rule also requires that sellers ship products within a reasonable time, up to 30 days. Companies should pay special attention to these rules and ensure their public statements, advertising and practices match.
Closing Inquiries but Leaving Door Open to Further Enforcement, FTC Releases Made in USA Closing Letters
The Federal Trade Commission (FTC) has published the first Made in USA closing letters sent following the agency's adoption of the new Made in USA Labeling Rule earlier this year, which codified the FTC's longstanding enforcement policy and provides a maximum penalty of $40,000 per violation.
The letters, following remedial action by the companies, resolved matters with businesses the FTC found may be violating the Made in the USA Rule. Though in these cases the FTC decided not to take further action or to impose any monetary penalties, the closing letters hint at the concerns that the FTC is likely to focus on in future enforcement actions.
The companies came under the FTC's microscope over marketing materials that may have overstated the extent to which certain products or product parts were made in the United States. As the FTC reminded the companies, unqualified U.S.-origin claims "likely suggest to consumers that all products advertised in those materials are 'all or virtually all made in the United States.'"
For those products that are "substantially transformed" in the U.S. but not all or virtually all made here, advertisers should use clear and conspicuous language to qualify the claim in order to avoid consumer deception about "the presence or amount of foreign content," said the FTC. Though it is appropriate to promote those certain aspects of the product or manufacturing that occur in the United States, the message should not convey that "all or virtually all" the products are made in the United States unless the claim can be substantiated.
For example, the FTC's closing letter to Attic Breeze stated that the company may have overstated the extent to which its solar-powered attic fans are made in the United States. The company employs workers in the United Sates and assembles fans here, but the fans have "significant" imported parts.
The FTC said it was appropriate for the company to market the fact it employs workers and performs certain functions domestically but that its marketing should not convey that the product is "all or substantially all" made in the United States. The FTC closed the matter because of Attic Breeze's remedial action qualifying the claims, including on new product packaging, the company's website, and on print and social media advertisements.
The FTC appears to be following the same pattern and template as prior FTC closing letters regarding problematic—but remediated—Made in the USA claims. The letters' publication shows that the FTC intends (at least in some cases) to resolve Made in USA matters via staff closing letters.
The agency's adoption of the labeling rule, however, hints that the FTC may more strongly enforce against offenders in this area, and if past behavior is a predictor of future action, that's likely to be against repeat and more egregious offenders or those that decline to take remedial action.