Celebrity Endorsements and Social Media

If you follow any celebrities or sports stars on social media, you may have seen one of them endorsing or promoting a product. Just the other day, Katy Perry posted a photo of herself on Instagram, wearing a Prada outfit with the hashtag “#Prada.”

The fact that I follow Katy on Instagram may shock you, but here’s something even more shocking: did you know that Federal Trade Commission rules require celebrities and influencers to disclose their relationships with brands on social media? You may not be the only one to just learn that. The FTC recently sent out more than 90 letters to various celebrities, athletes, and other social media influencers, reminding them of their obligation to clearly disclose their relationships to brands when promoting or endorsing products on social media. When I look at that picture posted by Katy, I wonder whether Prada paid her to promote their products? Or did they give her the outfit for free? Is she just posting in Prada spontaneously? You can’t tell from her post.

The FTC has endorsement guidelines that apply to these situations. If there is a “material connection” between an endorser and an advertiser, they have to clearly and conspicuously disclose that connection, unless it is already clear from the context. A material connection is a connection that might affect the credibility that consumers give the endorsement. It can be a business or family relationship, a monetary payment, or a gift of free product. These guidelines don’t just apply to the celebrities like Katy Perry or Donald Trump; they also apply to the marketers like Prada. So if Katy wore that Prada outfit just because she loves how she looks and feels in Prada (and who doesn’t?), that’s one thing. But if Prada pays her to wear their outfits and post pictures on Instagram, then it’s not quite as compelling an endorsement. The same applies if Donald Trump tweets about how wonderful Ivanka’s fashion line is. She’s his daughter, so there’s a material connection that affects the amount of credibility we give to Trump’s tweet. On the other hand, in the specific case of Donald and Ivanka Trump, the family relationship is well known, so there may not be a need for an explicit disclosure.

In the letters, the FTC noted that in the case of Instagram posts, consumers may only see the first three lines of longer posts, unless they click the “more” button. According to the FTC, when making endorsements on Instagram, celebrities should disclose the material connection about the “more” button. The same general concept applies to other social media – Facebook, Snapchat, Twitter, etc.

It is common in these posts to provide multiple hashtags, generally at the end of a post. Putting a disclosure in such a location is not conspicuous enough. Also, some techniques influencers may use to disclose material connections may not be sufficient. For example, the FTC noted that consumers may not understand disclosures such as “#sp” or “Thanks [brand name].”

Consequently, brands and marketers should develop an “influencer policy” that provides guidelines to the various celebrities and other influencers that endorse their products on social media. The brands should try to agree in advance as to the disclosure that the influencer will make, rather than leave it up to the influencer’s discretion. Using a hashtag such as #ad or #advertisement is appropriate in cases where the brand has had input in the content. A hashtag such as #sponsor (rather than #sp) is appropriate in other cases. Also, the policy should require that disclosures be made at the top of a post, and be separate from long hashtag strings.

By taking a more proactive approach to how celebrities and influencers endorse products on social media, brands can minimize their liability for misleading endorsements. Are you paying attention, Katy?

New Federal Law Prohibits “Anti-Yelp” Contract Terms

Congress recently passed a new law that restricts a company’s ability to include an “anti-Yelp” type of non-disparagement provision in a standardized contract. The new law, called the Consumer Review Fairness Act of 2016,” is designed to protect individuals who post negative online reviews. The CRFA applies to reviews of goods and services made by an individual who is a party to a “form contract.” The CRFA defines a form contract as a contract with standardized terms used in the course of selling or leasing goods or services, and imposed on an individual without meaningful opportunity for that individual to negotiate the standardized terms. Because the act repeatedly refers to “individuals,” it seems directed more at the B2C arena, and will likely not apply to business-to-business contracts. In addition, the act specifically exempts employment agreements and independent contractor agreements.

A covered non-disparagement provision in a form contract will be void from the start if it prohibits or restricts the ability of an individual who is a party to engage in a review of the goods or services. The CRFA also voids any provision in a form contract that would impose a penalty or fee against an individual for engaging in a review of the goods or services.

The CRFA does not affect the right to pursue a claim for defamation, libel, or slander, however. Nor does the CRFA prevent any party’s right to remove or refuse to display on a website owned by such party any content in a review that:

  • Contains the personal information or likeness of another person, or which is libelous, harassing, abusive, obscene, vulgar, sexually explicit, or inappropriate with respect to race, gender, sexuality, ethnicity, or some other intrinsic characteristic;
  • Is unrelated to the goods or services offered by or available at the website; or
  • Is clearly false or misleading.

The CRFA doesn’t just void these provisions, however. It makes it a violation of law to offer a form contract containing a provision that would be void under the law. Such a violation also will be considered an unfair or deceptive act or practice, The CRFA gives the Federal Trade Commission the power to enforce the act, and also grants individual states the power to pursue violations.

Consequently, we recommend that companies that sell goods or services to individuals review all of their standard contracts, including their website terms of service, to ensure compliance with the CRFA.

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Website Protection from Copyright Infringement Claims

shortcuttingIf you operate a website, you may have to worry about copyright infringement claims. This is particularly true if you have a blog, or if you allow visitors to post photographs, music clips, videos, or written content. The visitors may be posting content that infringes on someone’s copyright, and you don’t want to be responsible.

Fortunately, the Digital Millenium Copyright Act (DMCA) helps website owners insulate themselves from copyright infringement claims. There are two steps to this process, and both are equally important and essential. Unfortunately, too many website owners focus on the first step, and overlook the second. Without both, the website owner has no protection under the DMCA from copyright infringement claims.

The first requirement is that your website terms of service should have a process for people to notify you of potential copyright infringement claims. This is typically called a “takedown notice.” The notice informs you that there is material on your website that may infringe a copyright, and has to conform to specific requirements outlined in the DMCA. Your process must cover taking down or disabling access to the potentially infringing material, and giving the person who posted it an opportunity to challenge the takedown notice. That’s the first part of insulating yourself from copyright infringement claims.

The second part, which is often overlooked, is registering an “online agent” with the US Copyright Office. The online agent is a person designated to receive notices of potential copyright infringement. You go to this page at the Copyright.gov website, where you can download, print out and mail in what’s called an “Interim Designation of Agent to Receive Notification of Claimed Infringement” form. On the form, you list the full legal name of your company. There is a base fee of $105 that covers that one name. Then you can list additional names under which you are doing business. For example, here you would list your website address, or if you operate more than one website, all your website addresses. For each group of 10 or fewer, there’s an additional fee of $35. So if you have a corporation, and you run one website, you would list your corporate name, and the website address, and pay a fee of $140. When choosing your designated agent to list on the form, you want to pick someone who you know is going to be in that role for an extended period of time, because you must pay additional fees to change your designated agent.

By following both of those two steps, website operators can take advantage of the protections from copyright infringement claims provided by the DMCA.
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ArgumentAn increasing concern for employers is their employees’ use of social media. For some time now, employers have been devoting resources to monitoring their employees on social media. I’m not talking about someone taking a couple of minutes to check her Facebook page during the workday. This is about employers monitoring the use of social media in general, outside the workplace.

In response to this trend, the National Labor Relations Board has gotten involved. A common misperception is that the NLRB only regulates employers with unionized workforces. In fact, the NLRB has authority to regulate most private employers, even if they don’t have a unionized workforce. The NLRB has been weighing in on employers’ social media policies when it believes that those policies infringe upon employees’ rights to engage in “concerted activities” for “mutual aid or protection.”

In particular, the NLRB has ruled that some very common employment policies violate the National Labor Relations Act:

  • Prohibitions against sharing confidential information on social media, when the employer’s definition of “confidential information” is overly broad;
  • Prohibiting employees from speaking to the media, or commenting on social media, about the employer or co-workers;
  • Restricting employees from posting “inappropriate,” “disparaging,” or “negative” statements about the employer or co-workers;
  • Prohibitions against employees using the company logo;
  • Requiring employees to include a disclaimer stating that their comments do not reflect the views of the employer, when posting on social media.

The reason that the NLRB claims these prohibitions violate the NLRA is because they can be interpreted as prohibiting employees from discussing the terms and conditions of employment. For example, suppose an employer considers wages to be confidential information, and prohibits employees from posting confidential information on social media. The NLRA protects the rights of employees to discuss their wages with their co-workers, so the prohibition and the definition of “confidential information” could be a violation of the NLRA.

Another example is where an employer prohibits employees from making “negative” comments about the employer. The NLRA protects the rights of employees to complain about workplace policies, so a prohibition on making negative comments could be viewed as a violation.

In light of the NLRB’s greater involvement in reviewing these social media policies, it is a good idea for employers to review their employee handbooks and other workplace policies.

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If You Have Nothing Nice To Say…

Then say it online in California.

On September 9, California governor Jerry Brown signed a new law that prohibits businesses from having customers sign agreements to IMG_1246not post disparaging online reviews. The new law prohibits a contract for the sale or lease of consumer goods or services from containing a waiver of the consumer’s right to make any statement about the seller, its employees or agents, or the goods or services. The law also prohibits the seller from threatening or trying to enforce a provision that the new law makes illegal, or to otherwise penalize a consumer for making any statement protected under the new law.

Not only is any such waiver void and unenforceable, if a business violates the new law it will be subject to civil penalties of up to $2,500 for the first violation, and $5,000 for each additional violation. The attorney general, a district or city attorney, or the consumer can sue to collect the civil penalty. A willful, intentional, or reckless violation can bring an additional penalty of up to $10,000.

Also, the law does not prohibit or limit a person or business that hosts online consumer reviews or comments from removing a statement that is otherwise lawful to remove.

This new law is the first of its kind in the US, but it is quite likely that other states will follow California’s lead, given recent attempts by businesses to punish consumers for negative online reviews. For example, over the summer the New York Post reported that a hotel in Hudson, New York, the Union Street Guest House, was fining wedding guests $500 for posting bad online reviews. The hotel posted its policy on its website, and the backlash on Yelp was rather epic. Yelpers pummeled the hotel with 1-star reviews, by noon of the day the story broke, hundreds of new 1-star reviews had been posted.

One could argue that the hotel case demonstrates that no legal remedies are necessary. The hotel had a dumb idea, and the marketplace responded with a well-deserved thrashing. Imposing civil fines would probably be unnecessary, as the hotel should have learned its lesson. On the other hand, some legal remedy might be necessary if the hotel had actually tried to deduct $500 from any online poster’s wedding deposit.

Another case occurred in Utah, also with devastating results for the business. A couple posted a negative review on Ripoff Report about an online retailer, KlearGear, in violation of KlearGear’s “policy.” When the couple refused to pay a $3,500 nondisparagement fee, KlearGear filed a negative credit report against them. The couple fought back by filing a lawsuit, and the court ordered the hapless KlearGear to pay damages in the amount of $306,750.

So what are the lessons for business owners? First, if you are a California-based business or have California customers, don’t ask or require your customers to waive their right to post online reviews, and don’t try to penalize them if they do. Keep in mind that for now, at least, the California law only applies to business-to-consumer transactions, not business-to-business. Also, the California law doesn’t specify whether the consumer must be in California, the business must be in California, or both. Because the law is so new, courts have not had a full opportunity to define the scope of the law’s coverage. Businesses that are located outside of California but who sell to consumers in California may still be subject to the law.

Another lesson is that businesses have to find more intelligent ways to deal with negative online reviews. Nobody is perfect, and every business at some point or another is going to have an unhappy customer. When that customer posts a negative online review, businesses that try to punish or argue with the customer are going to look bad, and news of these incidents has a way of spreading like a bad virus. This can result in a massive loss of business, but also may result in a large civil judgment, as we saw with the KlearGear case.

Instead, a business that receives a negative review has to look at the incident as an opportunity. It’s an opportunity to try to fix the problem and convert an unhappy customer into a happy customer. Businesses can respond to reviews on Yelp, for example. Instead of lashing out, a business should apologize for the shortcoming, and offer to fix it. Even if the customer never responds, the business is now on record as being proactive in trying to remedy the situation. In addition, without the negative review, the business might have no way of knowing that it was letting customers down in some way. The negative review gives the business a chance to reexamine its processes, products and services, and make necessary improvements.

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