You Can Run, But You Can’t Hide: FTC Reinforces its Position that Compliance is Everyone’s Responsibility

In a recent FTC action, a PR agency, its CEO, a magazine publisher, and its owner, were found to have broken several FTC rules: namely, the were found to have misrepresented paid endorsements as independent consumer opinions and commercial advertising as journalistic content.

HealthPro Brands Inc. (HealthPro) hired a public relations agency, Creaxion Corporation (Creaxion), to help launch and promote a new insect repellent during the 2016 Zika virus outbreak.  The FTC claimed that Creaxion’s CEO contacted the owner of Inside Publications, LLC  (Inside Publications) to broker a partnership between HealthPro and Inside Publications, where Inside Publications would distribute the repellent to athletes and others attending the 2016 Summer Olympics in Brazil, the epicenter of the Zika outbreak.

Inside was tasked with creating “advertorial” content to promote and market the repellant through social media and other channels. According to the FTC, two gold medal Olympic athletes posted testimonials and endorsements about the repellant on social media but never disclosed that they had been generously paid for those endorsements – a key requirement under the FTC’s guidelines.

These endorsements were then allegedly re-posted by Inside Publications – minus those pesky disclosures again. The FTC alleged that the parties also conducted an online consumer/employee review program that reimbursed employees and their “friends” for purchasing the repellent. Surprise – no one added disclosures about their relationships here either.

The campaign was rife with examples where the parties neglected to include the requisite FTC disclosure statements, including on paid social media posts and on paid ads for the product.

Section 5 of the FTC Act clearly prohibits false representation and requires that endorsements reflect the independent opinions and experience of impartial users; further, you must disclose material connections between the endorsers and the marketer of the product (specifically that endorsers get paid); and endorsers cannot falsely represent that paid ads are independent statements and opinions of impartial publications.

The FTC looked closely at the written agreements between the parties to determined who had responsibility for the marketing materials, and who should be named in any enforcement action by the FTC. Notably, the FTC did not name HealthPro in its complaint – only Creaxion and Inside – the agency and the publisher.

This case reiterates the FTC’s position that any and all parties in a marketing campaign may be, and can be, held liable for infractions of the FTC rules and regs. This includes corporate entities, agencies, and their individual owners, officers, and directors in their individual capacities, who could be exposed to significant liability in the event that there is an enforcement action by the FTC.