Client Alert: Lord & Taylor Settles FTC Complaint Alleging Consumer Deception in Connection with Paid Native Advertising

ord & Taylor has agreed to settle a Federal Trade Commission complaint alleging that the national retailer deceived consumers by paying for native advertisements.

The Design Lab Social Media Campaign

In its complaint, the FTC focused on Lord & Taylor’s social media campaign launched in support of its private label clothing line, Design Lab. As part of the campaign, the retailer recruited fifty “fashion influencers,” gave them the Design Lab Paisley Asymmetrical Dress, and paid them to post a photo of themselves wearing the Design Lab dress on Instagram. Lord & Taylor did not require the influencers to disclose that they had been paid (and no influencer voluntarily did so). The Design Lab Instagram campaign reached 11.4 million individual Instagram users, and the Paisley Asymmetrical Dress subsequently sold out. The campaign also included a paid article placed in the fashion publication Nylon, and photo of the Paisley Asymmetrical Dress posted to Nylon’s Instagram page; neither the article nor Instagram post disclosed that it had been pre-approved and paid for by Lord & Taylor.

FTC’s Allegations

While the Design Lab campaign reflected what appeared to be impartial statements and reviews made by fashion influencers, the influencers specifically created the postings as part of Lord & Taylor’s Design Lab advertising campaign. Lord & Taylor failed to disclose that the influencers were paid endorsers—a fact that the FTC believed would be material to consumers in their decision to purchase the Paisley Asymmetrical Dress. The Nylon Magazine Instagram posting and article similarly appeared to be independent statements or opinions, when it was, in fact, paid advertising.

According to the FTC, Lord & Taylor’s actions constitute “unfair or deceptive acts or practices in or affecting commerce.”

Settlement

Lord & Taylor opted to settle the complaint. The settlement prohibits the company from misrepresenting that paid advertising is from an independent or objective source, or misrepresenting that any paid endorser is an independent or ordinary consumer. The settlement also establishes a monitoring and review program for the retailer’s future endorsement campaigns.

Takeaway: Focus on Transparency

To avoid similar allegations of unfair or deceptive trade practices, businesses should ensure that paid advertising is clearly labeled as such. Should an industry influencer be hired to provide an endorsement, such fact should also be clearly disclosed. For instance, businesses should consider adding the terms “Advertisement,” “Paid Advertisement,” or “Sponsored Advertising Content” to an Instagram post, or, with respect to condensed posts like those appearing on Twitter, using “#Ad” or “#Spon.” Merely incorporating a business’s hashtag or social media handle does not communicate this message with sufficient clarity.

To ensure that required disclosures in native advertisements are made, businesses may wish to consult the FTC’s enforcement policy statement on this subject.