This guest post was written by Char Pagar, partner and former member of the firm’s Executive Committee at VLP Law Group.

Social media presents an attractive opportunity for almost every business that is trying to engage existing and potential customers. These media platforms can be easy to use, timely, and cost-effective. But, companies using these platforms to communicate should keep in mind that the traditional legal rules surrounding false or deceptive advertising still apply. The media might be new, but the old rules still apply.

For example, the Federal Trade Commission’s endorsement guidelines require an endorser to disclose whether or not they have a “material connection” to the advertiser. According to the FTC, a disclosure has to be made when an endorser has a financial interest in an advertiser that consumers would not expect. In the past year, the FTC has announced several enforcement actions demonstrating that it intends to apply this disclosure rule to social media channels.

One of those cases involved automobile shipment broker AmeriFreight, which entered into a settlement agreement resolving FTC allegations that AmeriFreight obtained favorable online reviews in a deceptive manner. According to the FTC, AmeriFreight offered customers a discount on its services as well as a chance to obtain an additional discount on its services if the customers agreed — prior to purchase — to provide a favorable online review of the company’s service. The FTC’s complaint mentioned that the company did not direct customers to disclose in their reviews that they were offered discounts in exchange for their favorable reviews. The FTC asserted that the failure to disclose the material connection in the online reviews was deceptive.

Advertising agency Deutsch LA, Inc. also came under serious scrutiny from the FTC for the social media campaign it designed for the Sony PlayStation Vita. The agency launched a campaign that encouraged people to tweet positive reviews of the PS Vita using the hashtag #gamechanger. According to the FTC, Deutsch LA’s senior staff encouraged agency employees to take the same action using their personal Twitter accounts. The FTC investigated Deutsch LA, and concluded that it was deceptive for the agency to fail to disclose that the employees’ personal tweets were from the advertising agency for the advertised product. Deutsch LA entered into a settlement agreement to settle the FTC’s allegations.

In order to reduce the risk of facing legal scrutiny on this front, a company should strongly consider taking steps to educate any employee or outside agency engaging in social media posting on behalf of the company about the rules that govern this area. For employees, actions like the creation of a written social media policy that requires disclosure of material connections, regular training sessions on what that policy requires, and routine compliance monitoring will reduce the company’s legal exposure. For outside agencies, a company should conduct due diligence on whether an agency’s personnel are up-to-date on the FTC’s standards prior to retaining any agency. Company employees who are assigned to manage outside agencies should also be trained about the FTC’s standards so they can monitor compliance.

As social media continues to grow in importance and prevalence, there will almost certainly be clashes between companies and regulators over how traditional advertising rules should apply to social media and other new media platforms. Companies will no doubt continue to test the legal boundaries. Companies that want to reduce the risk of becoming the next case study should take steps to educate their employees, implement appropriate policies and procedures, and conduct due diligence prior to retaining outside agencies to provide social media services. These relatively simple steps can help you reduce the risk that regulators will knock on your door.

Char Pagar is a partner and a former member of the firm’s Executive Committee at VLP Law Group. She helps clients advertise, market, and promote their businesses in accordance with federal and state law. She also represents companies in government investigations of their advertising and marketing practices.


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