FTC Challenges Company’s Social Media Promotion

October 25th, 2014

The Federal Trade Commission (“FTC”) has broad jurisdiction to enforce federal consumer protection laws such as the FTC Act. As such, the FTC regulates a variety of businesses, both large and small, and investigations and enforcement actions against a particular company or targeting a particular industry serve to aid other businesses in complying with the law. A past investigation conducted by the FTC of Cole Haan has many implications for businesses utilizing social media to promote their brands.

The FTC’s investigation of Cole Haan focused on the company’s use of a social media platform called Pinterest (link) to promote its products. Think of Pinterest as an online bulletin board where users can “pin” images to their “boards,” which others may view and, in turn, pin to their boards. Usually Pinterest users pin images of products that they enjoy using, along with positive comments about the product. To increase its visibility on Pinterest, Cole Haan created a contest whereby Pinterest users create Pinterest boards with pins of Cole Haan’s Wandering Sole Pinterest board, along with places users like to visit. The user with the most creative pin would win a $1000 shopping spree from Cole Haan.

The FTC investigated Cole Haan’s contest, alleging that “entry into a contest to receive a significant prize in exchange for endorsing the product through social media constitutes” a “material connection” under Section 5 of the FTC Act. Material connections between the endorsee and the marketer must be disclosed when the connection is not otherwise obvious from the context of the communication containing the endorsement. Simply stated, the FTC argued that the users’ pins were endorsements, which were not properly disclosed. The FTC opted not to pursue an enforcement action against Cole Haan for several reasons, including Cole Haan’s adoption of a social media policy that adequately addressed the FTC’s allegation.

Many dealers use social media to promote their brands. They often use contests to encourage consumers to “like” their Facebook pages, follow their Twitter accounts, or pin images to their Pinterest boards. The FTC’s investigation of Cole Haan’s Pinterest promotion highlights risks dealers take when using contests or sweepstakes to generate leads and traffic to their websites, social media accounts, and physical locations. There is a fine line between unsolicited endorsements and those requiring disclosure of material connections between the endorsement and the consideration received in return. The FTC appears willing to use its powers under the FTC Act to expand the scope of what constitutes a material connection and endorsement to activities on social media websites that otherwise seem routine.

Please call our firm at 516-873-3000 so that we can assist you with creating social media policies, and with developing promotions, such as contests and sweepstakes, that comply with the law.

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