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By: Taryn Kadar
Social media provides an outlet for politics, sports, connecting with friends, contests, and window shopping. It is only natural that it also provides companies with unique marketing and advertising opportunities to reach consumers. Because of the wide spread influence of social media, companies have been taking advantage of these opportunities, and the Federal Trade Commission (FTC) is frantically trying to keep up with the times.
The latest FTC effort to reach the headlines is its recent attempt to crack down on the viral marketing campaign of the shoe and clothing company Cole Haan. In a promotional event called the “Wandering Sole Pinterest Contest” Cole Haan encouraged Pinterest users to create their own “My Wondering Sole” board for all the world to see. Participants of the contest could win a $1,000 Cole Haan gift card if they created a board on Pinterest and “re-pinned” their favorite Cole Haan images to their board. The FTC considered the resulting posts to be deceptive because the participants were not revealing that they were professing their love for the brand for the chance to win a contest. The FTC actually initiated regulatory action against the company (in the form of an official warning) to put an end to the “deception.” In the FTC’s view, if a company’s followers are sharing something on social media because of a chance to win money or gifts, it is essentially a paid endorsement that needs to be affirmatively disclosed. Just to clarify, the followers/consumers, as well as the company, need to disclose this information.
Many companies, from Fortune 500 to “mom and pop shops” have been using social media to promote a product or their brand. With the rise of social media advertising, and the FTC’s attempts to regulate it, the future of potential insurance claims and coverage for an FTC fine is unclear. Will regulatory action by the FTC trigger coverage under a standard general liability policy as a potential advertising injury? Could an FTC fine be covered under a cyber-liability endorsement or standalone policy? What happens when the plaintiff’s bar decides that “deceptive” social media advertising is worthy of a class action lawsuit? Do exclusions need to be modified to address this new developing issue?
On the other side of the coin, what does the FTC’s position mean for businesses and their social media marketing campaigns? Tweets, Facebook posts and the like are brief by their nature. If a promotional contest will now require an 8 paragraph disclaimer, is it worth the risk?
As of now, these are questions without clear answers. I suspect that the FTC will have to find a way to make peace with the brave new world of social media advertising. But until then, we must all watch our step.