• by Char Pagar , May 11, 2015

The use of social media to promote products, services, and brands is expanding so quickly that social media advertising is expected to reach $34 billion worldwide by 2016.  Social media can be a simple and cost-effective tool for reaching an engaged group of people who may be interested in your products or services.  

However, companies that communicate via social media – just like companies that advertise via traditional media – face legal risks stemming from allegations of false or deceptive advertising. 

Traditional Advertising Rules Apply - Even to Social Media

The Federal Trade Commission has been especially active in taking enforcement actions related to social media standards.  For example, the FTC's endorsement guidelines require endorsements or testimonials to disclose when an endorser has a “material connection” to the advertiser, requiring a disclosure to be made when an endorser has a financial interest in the advertiser that consumers would not expect.  In the past year, the FTC has made it clear it intends to apply this disclosure rule to social media channels. 

In particular, advertising agency Deutsch LA, Inc. came under scrutiny in 2014 from the FTC for the social media campaign it designed for the Sony PlayStation Vita.  The agency launched a campaign encouraging 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 the agency’s failure to disclose that the employees’ personal tweets were from the advertising agency for the advertised product was deceptive.  

Deutsch LA entered into a settlement agreement with the FTC.  If senior agency staff had advised agency employees to disclose in their tweets the connection to Sony, or asked them to use a specific hashtag like #sponsored in their tweets, the matter might have been resolved differently.

In February 2015, automobile shipment broker AmeriFreight also 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 services and a chance to obtain an additional discount 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 that they were offered discounts in exchange for favorable reviews.  The FTC asserted that failure to disclose that material connection in the online reviews was deceptive. 

Avoiding Violations Requires Implementing Policies

In order to avoid the kind of legal issues Deutsch LA and AmeriFreight faced, any employee or outside agency engaging in social media posting on behalf of a company should be properly educated on the rules that govern this area.

For postings by employees, policies and procedures are key. The FTC has indicated that established employer policies and procedures regarding employee social media postings will be considered when determining liability for false or deceptive advertising. Therefore, adopting strong, written social networking policies and consistently following those policies should help companies effectively and legally utilize this new media for advertising purposes.

If a company is employing an outside agency, they should verify that agency employees have been properly educated and trained regarding the regulations for social media advertising.  Company employees designated to manage outside agencies should also be current on FTC standards to ensure checks and balances.

Companies and regulators will almost certainly clash in the future over how to apply traditional advertising rules to social media, and further enforcement actions by the FTC and other regulators will continue as more companies continue test the legal boundaries.   

To reduce the risk of becoming the next case study, educate employees, implement appropriate policies and procedures, and conduct due diligence prior to retaining any outside agency.  These relatively simple steps can help you reduce the risk that regulators will knock on your door.