FTC Reaches $15 Million Settlement With Tea and Skincare Company For Failing To Adequately Disclose Material Connections To Endorsers

As discussed in a previous post, the FTC recently published a Proposed Federal Register Notice seeking public comment as to whether changes should be made to its Endorsement Guides, thereby providing insight into the agency’s thinking on influencer marketing and testimonials. To coincide with the agency’s request for public comment, FTC Commissioner, Rohit Chopra, issued a separate statement criticizing the FTC’s pursuance of “no-money, no-fault” consent orders and calling for the FTC to seek “tougher remedies for companies that are illegally astroturfing or disguising their advertising as an authentic endorsement or review.” It is against this backdrop that the FTC has announced its settlement with Teami.

There are two key aspects to the FTC’s complaint. First, the FTC alleges that Teami and its individual owners deceptively claimed, without substantiation, that their products could cause rapid and substantial weight loss, fight against cancerous cells, decrease migraines, unclog arteries, prevent and treat colds, and prevent flus. Second, the FTC claims that the defendants failed to disclose material connections with endorsers who received some form of compensation in exchange for their endorsement.

In its complaint, the FTC lays out Teami’s historical social media influencer advertising practices. The FTC notes that FTC staff wrote to the defendants in April 2018, informing them that material connections with endorsers, such as monetary payments, should be clearly and conspicuously disclosed. Specifically, FTC staff advised that because consumers viewing Instagram posts typically only see the first few lines of a longer caption unless they click “more,” that endorsers should disclose any material connection above the “more” link. Shortly thereafter, the defendants implemented a social media policy and the defendants assert that they provided this policy to their paid influencers or included the policy as part of the influencers’ contracts. In many cases, Teami’s paid influencers were contractually required to obtain approval from Teami for their promotional Instagram posts. However, according to the FTC, subsequent promotional posts by Teami’s paid influencers did not comply with Teami’s own policy, thereby resulting in many influencers posting endorsements absent the proper disclosures.

As part of the consent order, the defendants “neither admit nor deny any of the allegations in the [c]omplaint.” They are, however, prohibited from making disease, health and weight-loss claims without competent and reliable scientific evidence, and they must monitor endorsers to ensure compliance regarding prohibited representations and required disclosures of material connections. In addition, the consent order contains a sizeable monetary judgment of approximately $15.2 million, which will be suspended upon payment of $1 million within one year of the settlement.

In conjunction with the press release announcing this enforcement action, the Commission released a statement making clear that “the Commission is committed to seeking strong remedies against advertisers that deceive consumers because deceptive or inaccurate information online prevents customers from making informed purchasing decisions and creates an uneven playing field for those that follow the rules.”

The FTC also released posts on both its Consumer and Business Blogs, providing additional insight into its enforcement approach. On its Consumer Blog, the FTC states that the Teami settlement is “the FTC’s first case to challenge claims made in social media endorsements about the effectiveness of health-related products” and advises consumers to “[l]earn how to decode ads for products that promise to treat everything from obesity and arthritis to diabetes and dementia.” The Business blog outlines four key takeaways for advertisers and influencers: (i) weight loss and disease-related claims require “solid substantiation” by way of “sound scientific evidence”; (ii) advertisers must clarify expectations with influencers they may engage to promote their product and while a “contract provision is a fine start,…it’s probably not enough”; (iii) advertisers should monitor their influencers and ensure compliance with the FTC guidelines and any advertiser-specific policy, and should stop working with any influencer that fails to comply; and (iv) in addition to applying to advertisers, the disclosure laws apply to influencers who are required to clearly and conspicuously disclose when they have a material connection to a product.

In keeping with the FTC’s note regarding the law also applying to individual influencers, the FTC also sent warning letters to the ten social media influencers cited in the complaint as having failed to adequately disclose that the defendants paid them for certain social media posts.

Takeaway: Social media advertising continues to be a focus of the FTC. Advertisers should continue to ensure that health claims are supported by reliable scientific evidence. Further, advertisers should take proactive steps to monitor social media influencer advertising to ensure compliance with FTC disclosure requirements.

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