• by Marc Roth , February 17, 2014

Just as advertising reflects the world around us, the legal issues presented by marketing do the same. In our increasingly technological world, three trends in 2013 captured the greatest attention from in-house counsel and advertising and marketing executives. They are: celebrity endorsements in the age of social media; ensuring that material disclosures are made when advertising online and to mobile devices; and potentially expensive class action lawsuits filed under the Telephone Consumer Protection Act.

Celebrity endorsements are not new. But celebrity endorsements in the age of Twitter and Facebook present new legal wrinkles, principally how to ensure compliance with requirements such as the Federal Trade Commission’s Guides Concerning the Use of Endorsements and Testimonials in Advertising.

A lawsuit filed by actress Octavia Spencer provides an illustration. Weight loss system Sensa signed her to a $1.25 million sponsorship deal. Among other requirements, Spencer agreed to make at least two social media posts per month and sent tweets like: “thanks @Sensa Weightloss! Losing weight never tasted so good! #flourlesschocolate cake #spon.” 

Thereafter, Sensa, according to Spencer, informed her that her Facebook posts received fewer “likes” than usual and that the number of sales had dropped.  The company felt that her use of “#spon” at the end of her tweets – which she believed was necessary for FTC guideline compliance – had a detrimental effect.  Accordingly, Sensa terminated her contract.

Her suit highlights the Catch-22 result when celebrity endorsements collide with the FTC’s Guides: while advertisers and their endorsers must designate paid tweets (by using “#spon” or “#ad,” for example), consumers may view them with less interest, which may lead to fewer “likes,” less social media presence, and a less compelling endorsement. 

In an interesting twist, the FTC guidance document that was relied upon by Spencer, the aptly named “.com Disclosures,” was subsequently updated to indicate that the hashtag “#spon” alone may not be enough to indicate a sponsored or paid tweet, since consumers may not understand that abbreviation.  Instead, the FTC suggested that the full spelling, “#sponsored,” be used to help consumers better understand and evaluate the content of the message.

And speaking of .com Disclosures, 13 years after the FTC first offered guidance to marketers on making disclosures in online ads, the agency updated this document for the digital age, to provide guidance for advertising appearing on smartphones, tablets and on social media sites. The central tenet for the agency: Because existing consumer protection laws apply with equal force to the Internet and other electronic media, marketers should use “clear and conspicuous” disclosures to avoid consumer confusion and deception in the marketplace.

In practice, this means that if a disclosure doesn’t fit within the 140-character limit of Twitter or on an iPhone screen, then the ad claim should be modified – or not disseminated. A familiarity with the guidelines is essential for marketers, although the FTC cautioned that the publication is not intended to be a safe harbor for marketers.

In the age of social media, marketers are constantly seeking new ways to engage with customers.  But shooting off a text about a new sale can trigger serious legal problems, as evidenced by the rising number of class action lawsuits brought under the Telephone Consumer Protection Act (TCPA).

Originally enacted in 1991 to quell disruptive robocalls to home landlines and fax ads, the TCPA today has become a tool for plaintiffs to sue companies over unwanted cellphone calls and unsolicited text messages, with the hopes of reaping huge rewards.  Papa John, for example, paid $16.5 million to settle a class suit of 220,000 customers who received advertising texts from the pizza company.

To make matters worse, recent legal rulings, like a Michigan federal court holding that a company owner could be held personally liable, have generally favored plaintiffs.  Because the TCPA provides statutory damages of up to $1,500 per violation – regardless of actual injury to the plaintiff – the number of suits continues to proliferate.