The Canal Street Blog

The Canal Street Blog

Business-focused legal discussion

Social Media Legal Issues: (Post Number 2): Honesty, Transparency, and the FTC’s Impact on Your Social Media Strategy

“Advertising” and “marketing” via social media are an inherent part of any business’ social media strategy. After all, devoting  your valuable resources (time, money, and talent) to a social media campaign without garnering business is unsustainable. Like those who employ traditional media, companies who employ social media to advertise and market their business must be concerned with the laws and regulations that govern how companies can present information to consumers. But the viral nature of social media and the fact that your employees may be “advertising” and “marketing” without management’s knowledge  can translate to costly mistakes for your company. The Federal Trade Commission‘s (“FTC”) “Section 5” and the regulations promulgated under its authority largely govern how your business must conduct its marketing activities, and management and employees should understand and integrate the following into any social media strategy:

1. Honesty:  The FTC prohibits “unfair or deceptive acts or practices” from affecting commerce. To prevent your business from running afoul of the FTC, you must be honest. Any claims that you make, through social media or otherwise, must be truthful, accurate, and adequately substantiated. The FTC has broad discretion to decide what is “unfair” or “deceptive,” and businesses should consider this when creating any social media advertising campaign.

An act or practice is “deceptive” if it (1) is material and (2) is likely to mislead a consumer (e.g. social media user) acting reasonably under the circumstances. The FTC Policy Statement on Deception further explains how the FTC makes this determination, and what you should consider when creating your social media campaign.

The FTC’s examples of misleading practices include “false oral or written representations, misleading price claims, sales of hazardous or systematically defective products or services without adequate disclosures, failure to disclose information regarding pyramid sales, use of bait and switch techniques, failure to perform promised services, and failure to meet warranty obligations.”

And the FTC defines “material” by asking “whether the act or practice is likely to affect the consumer’s conduct or decision with regard to a product or service.” This is a low standard for materiality, and a prudent manager would consider any representation made by his or her company as a “material” one.

The FTC defines an “unfair” practice as one that  (1) causes substantial injury to consumers, (2)  is not outweighed by countervailing benefits to consumers and competition, and (3) could not have been reasonably avoided by the consumers. As you can probably surmise, this definition is ripe for broad interpretation and should be approached accordingly. Basically, if your advertising or marketing practice could injure your consumer, you should likely avoid it.

One area of particular concern is your business’ privacy policy. The FTC has cracked down on businesses who do not follow their own privacy policy as being deceptive, and have also cracked down on poorly written privacy policies as unfair. Check out our post on privacy policies for more information on what to include in your policy.

Not only should businesses be concerned with the honesty of their own practices, they should also be concerned with the practices of those whom they rely on to spread the word on their behalf. Marketing firms, including affiliate marketers, should follow these same principles. It is prudent for managers to contractually require any agencies working on their behalf to comply with all applicable laws, including the FTC’s regulations. Because the business whose name is used on the marketing will ultimately bear responsibility for violations, contracts between businesses and marketers should also include language requiring the marketing firm to indemnify the business for any violations, and maintain adequate insurance to fund the indemnification. Keeping in mind the vast quantity of internet information through which the FTC must sift, one wrong move could still put both your company and the marketers you rely on out of business. Contact an experienced contract attorney to ensure your agreements are sound.

In addition to being honest with your consumers, the FTC also mandates you maintain a certain level of transparency:

2. Transparency: Transparency is essentially a certain type of honesty. Every business should consider the above discussion regarding honest practices, but they should also consider the amount of information they share with consumers. The FTC rules governing honesty and transparency overlap. For example, your social media sweepstakes or other promotion must not only be accurately depicted, it must also include required disclosures regarding odds, entry, etc. So while it may be “honest” to make a certain claim, the same claim may not be “transparent” because it fails to meet the disclosure requirements mandated by the FTC or state law. There is no “bright line” to follow with respect to how much information you provide consumers, but you must provide enough information for your advertisement to avoid being “unfair” or “deceptive.”

In addition, if your social media strategy employs any type of endorsements, whether by bloggers, celebrities, or “ordinary” social media users (including your own consumers), you must disclose all “material connections,” which are essentially any connections predicated on the exchange of something of value (e.g. cash payment, free products, referrals, etc.)

The FTC’s Endorsement Guidelines require endorsers and advertisers to disclose these connections to avoid consumer deception, and they hold both the endorser and the advertiser accountable for any violation. Moreover, advertisers (i.e. your business) must correct any misleading information disseminated by endorsers. Accordingly, every business employing any type of endorsement as part of a social media strategy must not only educate their own personnel as to the FTC regulations, but must also monitor what their endorsers are saying and act quickly to correct false information. This can be a daunting task, but there are many resources and companies available to help you monitor your online presence. With respect to endorsements and the FTC and your internet presence generally, as Dallas Lawrence suggest in his Mashable post on Social Media and the FTC, you should “monitor, engage, and be transparent.”

The FTC may also affect your social media advertisements through other regulations, namely CAN-SPAM. However, CAN-SPAM is a complex subject to be tackled in a future post. If you can’t wait for the next post, check out the Bureau of Consumer Protection’s CAN-SPAM Compliance Guide for Business.

Should you have any questions regarding CAN-SPAM or any other social media topic, please contact us or subscribe to our free Q&A service. Stay tuned for our next post in the Social Media Legal Issues series, which will discuss the affect of privacy law on your business’s social media strategy.