Companies Sponsoring Social Media Contests Beware!

May 1, 2014 by Susan D. Rector, Partner
For the first time, the Federal Trade Commission (FTC) on March 20th signaled an interest in enforcing false and deceptive advertising practices in social media.  The FTC sent Cole Haan a closing letter, which is tantamount to a formal warning that its social media contest had run afoul of Section 5 of the Federal Trade Commission Act prohibiting unfair and deceptive advertising practices.

Cole Haan ran its “Wandering Sole” contest on Pinterest offering a $1,000 shopping spree to whomever made the most creative Pinterest board including five images of Cole Haan shoes and five favorite places to wander using the hashtag #WanderingSole in each pin.  See the following tweet announcing the contest:



Here are examples of contest entries:



Section 5 of the FTC Act requires disclosure of any material connection between an endorser and the advertised product where consumers might reasonably not expect that connection.  For example, in a TV ad consumers reasonably expect an endorsing celebrity to be paid by the brand. However, when a blogger recommends a product, consumers may not reasonably know whether the blogger was paid, received free product or was otherwise incentivized to make an endorsement. Therefore, the material connection must be disclosed.
 
Mary Engle, the FTC’s Associate Director for Advertising Practices and author of the closing letter, told Digiday in an interview, that “Advertisers have to make it clear to the normal consumer that they have to disclose when they've compensated or incentivized someone to endorse a product.”  The FTC concluded that under the circumstances set out above, entry into a contest to receive a significant prize in exchange for endorsing a product through social media constitutes a material connection that would not reasonably be expected by viewers of the endorsement.
 
The FTC Brand Endorsement Guidelines were updated in 2009 and can be found at http://www.ftc.gov/sites/default/files/attachments/press-releases/ftc-publishes-final-guides-governing-endorsements-testimonials/091005revisedendorsementguides.pdf.  Similarly, the FTC updated its .com Disclosures Guidelines in 2013, to include examples of acceptable disclosures in social and mobile ads.
 
To whom is this FTC closing letter important?
 
Any company running a promotional contest using social media and any PR or advertising firm assisting clients to do so must be mindful of these new requirements and the FTC’s interest in enforcement proceedings in this area.
 
What should firms do differently?
 
No enforcement action was recommended at this time due to never having previously publicly addressed whether a contest entry is a formal material connection or whether a pin on Pinterest may constitute an endorsement, the small number of entries and the contest ran a short time.  By issuing this closing letter, these conditions have now been satisfied, and the FTC may bring additional enforcement actions.  The FTC notes that it expects Cole Haan to take reasonable steps to monitor social media influencers’ compliance with the obligation to disclose material connections when endorsing its products. 
 
Steps to take to avoid FTC enforcement
 
  • Use hashtags like #CompanyNameContest when using social media to conduct a contest.
  • Give all entrants the opportunity to review the Official Contest Rules that include clauses on eligibility, selection, entry, prizes and their value, conditions of participation and disclaimers limiting the contest sponsor’s liability.
  • Use the word “Ad” or “spon” or “paid” in space–constrained advertising such as Twitter tweets to identify the post as paid advertising.


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