Antitrust and Unfair Competition Law

Competition: 2016, Vol 25, No. 2


By Shafiel A. Karim1


A. Recent Celebrity Endorsement Gaffes on Social Media

On August 17, 2016 the Kardashian women—America’s "First" celebrity family—were served with a demand letter from Truth In Advertising ("").2 alleged, "members of the Kardashian . . . women are engaged in deceptive marketing campaigns . . . by routinely creating and publishing sponsored social media posts . . . without clearly and conspicuously disclosing that they are paid representatives . . . ."3 published the letter and a database of 108 posts that allegedly violate federal disclosure rules.4 The Kardashian women had one week to comply with’s demands.5

The Kardashian women apparently failed to satisfy the demands because on August 25, 2016, notified the Federal Trade Commission ("the Commission") of the alleged violations.6 complained to the Commission that the Kardashian . . . women published a "plethora of posts that do not clearly or conspicuously disclose the [Kardashians’] material connections to the [advertising] companies featured or promoted in the posts or that the posts are advertisements as is required by law."7

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In response, only 27 of the 108 posts identified by’s August 17 letter were revised to include the hashtag8 "#ad" and only four were deleted.9 But "the vast majority of the posts . . . remain[ed] unchanged."10 added, "The willingness of the Kardashians . . . to alter their Instagrams . . . suggests they would also fix other similarly deceptive posts if permitted to do so by the other companies they endorse."11 As a result, surmised, "it is apparent that the issue is with the [advertisers], who continue to flagrantly ignore the law."12 The Kardashian womens’ gaffe shows the need for greater clarity in federal disclosure rules and regulatory enforcement of social media endorsements.

Of course, the Kardashian women are not the only celebrities who promote and advertise products on social media without making appropriate disclosures. On September 6, 2016, Britney Spears posted a "selfie" applying EOS lip care products on Instagram exclaiming, "Yessss @eosproducts . . . Always saving my lips in the dry Vegas heat! #BritneyXeos."13 Spears was identified as a paid EOS "brand ambassador" in a recent class action complaint against the lip care company.14 On April 2, 2016, LeBron James posted a picture of a half-eaten pizza from Blaze Pizza on Instagram and wrote, "Had to stop by my favorite place to eat. Nothing like @blazepizza!!"15 James failed to disclose his role as an investor in Blaze Pizza.16 Justin Timberlake, a spokesperson for Sauza tequila, posted pictures of a tequila party that prominently showcased Sauza 901 tequila on a golf course on June 10, 2015. Timberlake failed to mention his financial relationship with the company.17 The list of celebrity offenders is certainly long but their approach to sponsorship is usually relatively simplistic as indicated by the content of the aforementioned posts. However, some celebrities take an even more sophisticated approach.

Exhibit A

Exhibit A - Britney Spears post on social media

Exhibit B

Exhibit B - LeBron James post on social media

Exhibit C

Exhibit C - Justin Timberlake post on social media

Selena Gomez recently posted a photograph of herself ostensibly watching The Big Bang Theory on a laptop. Gomez wrote, "The one thing that gets me going . . . Sheldon Cooper—Big Bang Theory."18 The photograph depicts Gomez sitting on a chair in a dressing room with a cup in hand watching the popular sitcom. Gomez’s head is turned away from the camera. But immediately adjacent to Gomez’s laptop is an out-of-focus bottle of Coca-Cola. Further out-of-focus is a bottle of Smartwater on the dressing room table, another Coca-Cola product. Gomez of course, is a spokesperson for The Coca-Cola Company.

Exhibit D

Exhibit D - Selena Gomez post on social media

This link between celebrities and product endorsements is nothing new. Marketers have a longstanding tradition of using celebrity spokespersons to advertise and promote goods and services.19 However, this tendency has become nearly ubiquitous in recent years. Today, approximately fourteen to nineteen percent of all advertisements in the United States feature celebrity endorsements.20 But it is not only the advertisers who favor these agreements. For example, Shaquille O’Neal is reportedly paid five million dollars per year to tweet positive endorsements for goods and services.21 To put this into perspective, if O’Neal tweeted once daily and utilized the full 140-character limitation of Twitter, he would earn ninety-seven dollars per character. In fact, celebrities sometimes make more from their endorsement deals with advertisers than they do through their day jobs.22

Traditionally, the Commission’s policy regarding such product placement favored advertiser self-regulation, but this method of regulation has recently become outdated.23 Traditional media like newspapers, magazines, radio, and television created and distributed curated content that was only distributed to the public after passing editorial and regulatory scrutiny.24 Self-regulation worked because the few large content creators and distributors almost exclusively controlled the flow of content. With so few points of origination, the Commission could better supervise advertising in spite of its laissez-faire approach.

All of that changed, however, with the advent of social media because it democratized the creation and distribution of content. Today, anyone can distribute content worldwide without any editorial or regulatory compliance filter. The absence of such restrictions has resulted in a lack of source identification in celebrity endorsements, a problem that has engendered distress for advertisers.

A 2012 survey reported that forty-five percent of responding advertising agencies were concerned about the lack of transparency in celebrity endorsed social media content.25 But the lure of selling product is so great that only twenty-nine percent of responding advertising agencies discontinued their use of paid social media campaigns.26

This current state of affairs cannot endure. If advertisers continue creating product awareness on social media through celebrity endorsements, advertisers should brief endorsers regarding federal advertising laws including disclosure rules. Further, advertisers should contractually obligate endorsers to comply with those laws, and monitor endorsers to ensure compliance. To aid advertisers in their compliance, the Commission should clarify existing ambiguities in its regulations and guides with regard to advertising on social media. Finally, social media companies should exercise some editorial or regulatory compliance control over the content created and published on their platforms.


A. Commercial Speech and the First Amendment

The First Amendment offers robust protection for political, literary, and artistic speech with few exceptions. Indeed, Justice Cardozo described the First Amendment as "the matrix, the indispensable condition of nearly every other form of freedom."27 But commercial speech—"expression related solely to the economic interests of the speaker and its audience"—is the proverbial stepsibling of high value political, literary and artistic speech.28 The Supreme Court said commercial speech is of "less constitutional moment" than non-commercial speech, and analyzes commercial speech protection with "less enthusiasm and with less exacting scrutiny" than it does non-commercial speech.29

Endorsements by celebrities are commercial speech because they are intended to sell goods and services. Until relatively recently, it was unclear whether commercial speech was entitled to full First Amendment protection. In Valentine v. Chrestensen, the Supreme Court concluded political speech could not be regulated but that "the Constitution imposes no such restraint on government as respects purely commercial advertising."30 Since Valentine, the Court has expanded First Amendment protection of commercial speech and further developed the analysis to determine constitutionality.31 Later, in an eight to one opinion, Justice Kennedy wrote:

The commercial marketplace, like other spheres of our social and cultural life, provides a forum where ideas and information flourish. Some of the ideas and information are vital, some of slight worth. But the general rule is that the speaker and the audience, not the government, assess the value of the information presented.32

Nevertheless, while normal commercial speech may enjoy some First Amendment protection, the First Amendment does not protect false or misleading commercial speech.33 Prior to joining the Supreme Court, Justice Powell wrote, "advertising . . . must meet the most exacting standards of accuracy and professional excellence."34 Commercial speech is misleading if the speaker furnishes insufficient material information to the audience that "restrict[s] the . . . flow [of information] to consumers" and potentially results in a purchase decision that may not otherwise have been made.35

Indeed, in Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, Inc., the Supreme Court explained, "Untruthful speech, commercial or otherwise, has never been protected for its own sake . . . .The First Amendment as we construe it today, does not prohibit the State from insuring that the stream of commercial information flow cleanly as well as freely."36 Similarly, in Friedman v. Rogers, the Supreme Court held a state requiring the "publication of additional information [that] could clarify or offset the effects of spurious communication" does not run afoul of the First Amendment’s protection of commercial speech.37 This principle undergirds the constitutionality of regulating advertisers that disseminate deceptive advertisements as demonstrated by several circuits that have expanded on the rule in Friedman.

For example, the Third Circuit held "[a]ny remedy formulated by [the Commission] that is reasonably necessary to prevent false or misleading practices does not impinge upon constitutionally protected commercial speech."38 Further, the Fourth Circuit held that the Commission’s regulations requiring the disclosure of funeral fees do not violate the First Amendment because not disclosing the fee "is misleading and poses no barrier to remedy formulated by [the Commission] reasonably necessary to prevent future deception."39 To summarize, the First Amendment protects commercial speech but governmental regulation of commercial speech is not unconstitutional.

B. Federal Statutes

To prevent deceptive commercial speech, the legislature passed multiple bills mandating disclosure of material information. Congress passed the Newspaper Publicity Act in 1912 ("NPA") to clearly distinguish advertisements for journalism. In pertinent part, the NPA stated: "all editorial or other reading matter published . . . [for] which money or other valuable consideration is paid . . . shall be plainly marked ‘advertisement.’"40 The NPA was designed to regulate native advertising or "advertorials," which were advertisements guised as news reporting.41 Like the NPA, Congress passed the Radio Act of 1927 ("Radio Act"), which required broadcasters to distinguish paid advertisements from original programming.42

Two years after the NPA was passed, President Woodrow Wilson signed the Federal Trade Commission Act ("FTC Act") into law, creating the Commission. Originally, the Commission’s mandate was similar to the impetus behind the Sherman Antitrust Act of 1890: regulate unfair methods of competition in the form of monopolies and trust.43 But in 1938, the Wheeler-Lea Act expanded the Commission’s authority to include regulation of "unfair or deceptive acts or practices," which is the source of the Commission’s current authority to regulate advertising generally and endorsements specifically.44

C. Federal Regulations and Guides

As part of its enforcement mandate, the Commission has interpreted the FTC Act by promulgating regulations and publishing guides informing advertisers, endorsers, and the public at large of its endorsement policies and enforcement principles. The Commission defines an endorsement as "any advertising message . . . that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser."45 Like all commercial speech, an endorsement must not be false or misleading and "must reflect the honest opinions, findings, beliefs, or experience of the endorser."46 Although the Commission proscribes dishonesty in its guides and regulations, it does not describe how advertisers should ensure their advertisements are not unfair or deceptive. The FTC Act is also silent regarding celebrity endorsements on social media.

D. The FTC’s Endorsement Guides: What People Are Asking

To supplement the promulgated regulations codified in the Code of Federal Regulations, the Commission has published several guides. In 2015, the Commission published "The FTC’s Endorsement Guides: What People Are Asking." This Guide describes hypothetical factual scenarios followed by the Commission’s application of the promulgated regulations. In a prescient factual hypothetical uncannily similar to the quagmire the Kardashian women currently face, the Commission considers the following:

A famous celebrity has millions of followers on Twitter. Many people know that she regularly charges advertisers to mention their products in her tweets. Does she have to disclose when she’s being paid to tweet about products?
It depends on whether her followers understand that her tweets about products are paid endorsements. If a significant portion of her followers don’t know that, disclosures are needed. Again, determining that could be tricky, so we recommend disclosure.47

Consistent with commercial speech jurisprudence, the analysis focuses on the impact that the undisclosed commercial speech has on the audience and the likelihood of resulting confusion. But this suggests that the standard may not be much of a standard at all; if the social media post is commercial in character, it should be disclosed irrespective of what a "significant portion" of the audience may know because successfully determining what a "significant portion" of a large audience knows is likely impossible.48

Further, the Guide does not clarify how celebrities can clearly and conspicuously disclose the material connection with the advertiser.49 Some have proposed hashtags like "#ad" as clear and conspicuous disclosures. On the one hand, the Commission concluded a hashtag is not a clear and conspicuous disclosure because "it won’t tell consumers of your relationship to the [advertiser]," which is a material fact since endorsements are considered more credible when they are not paid.50 On the other hand, the Commission considers hashtags like "#ad" to "likely be effective":

What about a platform like Twitter? How can I make a disclosure when my message is limited to 140 characters?
The FTC isn’t mandating the specific wording of disclosures. However, the same general principle—that get the information they need to evaluate sponsored statements—applies across the board, regardless of the advertising medium. The words "Sponsored" and "Promotion" use only 9 characters. "Paid ad" only uses 7 characters. Starting a tweet with "Ad:" or "#ad"—which takes only 3 characters—would likely be effective.


A. The Problem

The Commission’s current regulations are ambiguous because (1) the "clearly and conspicuously disclose" standard is not "synonymous" with the "clearly and prominently disclose" standard and it is unclear what factual circumstances warrant the application of one standard instead of the other; (2) the Commission’s definition of "significant minority" is too expansive and should be redefined using class action jurisprudence; (3) the Commission’s enforcement activity in social media is sporadic or non-existent; (4) the Commission provides conflicting guidance on the use of hashtags in social media endorsements; and (5) the Commission does not affirmatively and unambiguously describe what word or combination of words constitutes a proper disclosure.

1. "Clearly and Conspicuously Disclose" Is Not Synonymous with "Clearly and Prominently Disclose"

The Commission requires endorsers to "clearly and conspicuously disclose" a material financial connection with advertisers.51 A material financial connection includes "either the payment or promise of compensation prior to and in exchange for the endorsement."52 A connection is material and subject to the disclosure rules if "it would likely affect the consumer’s conduct or decisions with regard to a product or service."53 The Supreme Court agreed with the Commission’s position that "the misrepresentation of any fact" is material if it affects a consumer’s purchase decision.54 It is also well settled that "[a]ctual injury is not required."55 The materiality requirement is satisfied if "an act or practice . . . [is] likely to cause injury to be considered deceptive."56

But in some rules, guides, and enforcement actions, the Commission has also articulated a "clearly and prominently disclose" standard.57 In one guide, the Commission claims "clearly and prominently" and "clearly and conspicuously" are "synonymous" but that "[t] hey may have different meanings under other statutes."58 In practice, however, the "clearly and prominently disclose" standard appears to be less comprehensive than the "clearly and conspicuously disclose" standard. For example, compare the Commission’s orders in In re Machinima, Inc. and In re Warner Bros. Home Videos.

a. In re Machinima, Inc.59

In 2013, Microsoft Corporation hired Starcom Media Vest Group, an advertising agency, to help advertise and promote its Xbox One video game console.60 In turn, Starcom hired Machinima, Inc., a network of channels on YouTube with nearly three billion monthly views and 400 million active subscribers, to create and publish game reviews showcasing Microsoft’s game console.61 Machinima paid $15,000 to $30,000 to YouTube influencers to create and publish the actual videos.62 These influencers were later paid an additional one dollar per thousand views up to $25,000. The influencers were contractually obligated to keep their compensation confidential.63 In March 2016, the Commission issued an order using the "clearly and prominently disclose" standard.

b. In re Warner Brothers Home Entertainment, Inc.64

In 2014, a Warner Brothers division hired several YouTube influencers to create video play-by-play reviews of its new video game Middle Earth: Shadow of Mordor.65 The hyperlinks to these videos were subsequently posted on other social media websites like Twitter and Facebook.66 Warner Brothers required the endorsers to post an "FTC disclaimer" in the description section beneath the video on YouTube but "did not require that the YouTube influencers be instructed to place sponsorship disclosures clearly and conspicuously in the video itself."67 "[C]onsumers ha[d] to click on a ‘Show More’ button in the description box and potentially scroll down before they c[ould] see the sponsorship disclosure."68 In July 2016, the Commission issued an order using the "clearly and conspicuously disclose" standard.

c. In re Lord & Taylor, LLC69

In 2014, clothing company Lord & Taylor hired fifty influencers on social media.70 The influencers were paid to post photographs of themselves wearing Lord & Taylor’s clothes and post the photographs on social media websites like Instagram.71 Lord & Taylor required the influencers to include "@lordandtaylor" and "#DesignLab" in the photograph posts but did not require the influencers to disclose the fact that they were paid to take and post the photographs.72 Approximately 11.4 million users viewed the photographs taken and posted by the influencers.73 Some of the influencer’s photographs were subsequently featured in a fashion magazine.74 The Commission’s Order repeated the "clearly and conspicuously" definition in Warner Brothers75 In May 2016, the Commission issued an order using the "clearly and conspicuously disclose" standard and defined the phrase using the verbatim language from Warner Brothers.

d. In re AmeriFreight, Inc., et al.76

In 2015, AmeriFreight, Inc. offered its customers discounts if they wrote and posted positive reviews on various social media websites.77 AmeriFreight offered its customers additional remuneration if their review was deemed most "creative" and "informative."78 The terms of the discount did not require any disclosure of the fact that the endorser would receive a discount in exchange for a positive review.79 In April 2015, the Commission issued an order using the "clearly and prominently" standard and defined the phrase using the verbatim language from Machinima.80

e. Machinima, Warner Brothers, Lord &Taylor, and AmeriFreight Compared

Both Machinima and Warner Brothers used YouTube influencers to advertise and promote video game products through endorsements and both companies failed to require the influencers to disclose the fact that they were paid to endorse the video game products. Lord & Taylor paid Instagram influencers to post photographs of them wearing the company’s clothes without requiring disclosure of the fact that the endorsers were paid. And AmeriFreight offered its customers money for positive endorsements on the Internet without requiring disclosure of that fact. Despite the factual similarity between Machinima and Warner Brothers as well as the general issue similarity among Machinima, Warner Brothers, Lord & Taylor, and AmeriFreight, the Commission used the "clearly and prominently" standard in Machinima and AmeriFreight and "clearly and conspicuously" in Warner Brothers and Lord & Taylor. Moreover, the Commission’s definitions of the two standards shows "clearly and prominently" is not synonymous with "clearly and conspicuously."

Specifically, the Commission’s order required Warner Brothers and Lord & Taylor in "clearly and conspicuously" cases to make disclosures "through the same means through which the communication is presented . . . simultaneously."81 Warner Brothers and Lord & Taylor were also required to consider the impact of its "representation[s] or sales practice[s]" on "children, the elderly, or terminally ill."82 The Commission’s order added, "disclosure[s] must comply with these requirements in each medium through which it is received, including but not limited to all electronic devices and face-to-face communications."83 Similar to the volume and cadence disclosure requirements of the "clearly and prominently disclose" standard for audible communications, the "clearly and conspicuously disclose" standard also requires audible disclosures to be in the same speed as an audible advertisement.84 And disclosures for text communications must be of "sufficient" duration and "sufficiently noticeable" under the "clearly and prominently disclose" standard but must also be the same "length of time" and "easily noticed" under the "clearly and conspicuously disclose" standard.85

A comparison of Machinima and AmeriFreight with Warner Brothers and Lord & Taylor shows how the "clearly and prominently disclose" standard is not synonymous with the "clearly and conspicuously disclose" standard. The two standards are different. The "clearly and prominently disclose" standard is slightly less restrictive because disclosures need not be made simultaneously with the endorsement nor do advertisers need to consider the impact on children, elderly, or the terminally ill. Additionally, the Commission’s failure to articulate what would trigger each standard further complicates the matter. When might the Commission accept disclosure under the less restrictive "clearly and prominently" standard? And when is the heightened "clearly and conspicuously" standard required? To eliminate this ambiguity, the Commission should publicly abandon the "clearly and prominently disclose" standard and apply only the "clearly and conspicuously disclose" standard because it is more comprehensive. Also, unlike the "clearly and prominently disclose" standard, the "clearly and conspicuously disclose" was also the product of the public comment process before a regulation is promulgated by an administrative agency.

2. Significant Minority

A paid endorsement is deceptive if it does not disclose a material connection and misleads a "significant minority" of the target audience.86 The Commission considers ten to twenty-two percent of an audience to constitute a "significant minority" for purposes of determining whether an endorsement is deceptive or misleading.87As an illustration, a paid endorsement on Instagram by Kim Kardashian-West would need to deceive approximately 8.4 million users for it to satisfy the "significant minority" standard.88 But a class comprising of 8.4 million deceived individuals is large by any consumer protection statute standard because courts have held 40 injured individuals as sufficient to certify a putative class action.89

3. The Commission’s Enforcement of Endorsements on Social Media Is Inconsistent or Sporadic

The Commission is authorized to pursue an administrative proceeding or a judicial action under Sections 5(b) or 13(b) of the FTC Act, respectively. A Section 5(b) proceeding is heard before an administrative law judge who issues an "initial decision" that may be appealed before the full Commission, then a federal circuit court, and ultimately before the Supreme Court.90 Unlike a Section 13(b) judicial opinion, a Section 5(b) order becomes effective 60 days after service. Conversely, the Commission may pursue a civil action directly in federal court under Section 13(b) where the order becomes effective immediately upon issuance.91

The Commission notes, however, "administrative adjudication offers certain advantages over direct judicial enforcement [because] in an adjudicatory proceeding, the Commission has the first opportunity to make factual findings and articulate the relevant legal standard . . . .Thus, where a case involves novel legal issues or fact patterns, the Commission has tended to prefer administrative adjudication."92 Not surprisingly, the Commission’s limited social media endorsement enforcement actions have been through administrative adjudication under Section 5(b).

On August 13, 2015, the Commission published its "Statement of Enforcement Principles Regarding ‘Unfair Methods of Competition’ Under Section 5 of the FTC Act."93 In its statement, the Commission enumerated three enforcement principles. First, the Commission will initiate an administrative proceeding if the enforcement action promotes consumer welfare.94 Second, the endorser’s or advertiser’s alleged "act or practice . . . must cause, or be likely to cause, harm to competition or the competitive process, taking into account any associated cognizable efficiencies and business justifications."95 Third, the Commission will avoid Section 5(b) enforcement if enforcement under the Sherman or Clayton Act is sufficient to protect consumer welfare.96

In practice, however, the Commission has adopted a laissez-faire attitude toward endorsements on social media. This approach has led to inconsistent and sporadic enforcement actions despite high profile violations. For example, in 2011, Hyundai Motor America launched a pre-Super Bowl promotional campaign in anticipation of the automaker’s television advertisements scheduled to air during halftime. Specifically, Hyundai furnished gift certificates to bloggers who included a hyperlink to the promotional videos in their blog posts.97 Hyundai’s terms and conditions for the campaign did not require the bloggers to "clearly and conspicuously" disclose the fact that the bloggers received gift certificates in exchange for including a hyperlink to the promotional videos.98

Instead of filing an administrative complaint or commencing a civil action in federal court, the Commission merely sent a letter to Hyundai. The Commission explained, "Hyundai did not know in advance about use of these incentives, that a relatively small number of bloggers received the gift certificates, and that some of them did in fact, disclose this information."99 The Commission added, "the actions with which we are most concerned here were taken not by Hyundai employees, but by an individual who was working for a third-party media firm hired to conduct the blogging campaign."100 But this fact is not different from Machinima, Warner Brothers, or Lord & Taylor. Microsoft hired Machinima and Warner Brothers and Lord & Taylor hired third-party social media influencers. This inconsistency is further muddled by the fact that the Commission’s decision was based on non-public information.

Similarly, although put a spotlight on the Kardashian women, 13.3 million people viewed Spears’ endorsement of EOS, 25.1 million people viewed James’ endorsement of Blaze Pizza, Timberlake’s tequila photo was viewed by almost 36 million people, and approximately 100 million Instagram users viewed Gomez’s dressing room photograph.101 Neither Spears, James, Timberlake, nor Gomez has been the subject of a private or public inquiry or enforcement action. Ultimately, the lack of enforcement actions—whether administrative or judicial—by the Commission demonstrating the application of existing regulations to real-world facts results in greater opacity not clarity.

4. Hashtags Are Not Clear and Conspicuous Disclosures Because They Are Not Always in Sufficiently Close Proximity to the Commercial Endorsement and Can Be Co-opted for Non-advertisement Purposes

On some social media websites like YouTube, the hashtag is not in sufficiently close proximity to the endorser’s video content. A hashtag disclosure on YouTube can only be made in the description section below the video unless the content creator or YouTube superimposes the hashtag—in which case any disclaimer, not just a hashtag could be made—to the video. Similarly, a text hashtag on Instagram would not satisfy the proximity requirement for a "clear and conspicuous" disclosure because the disclosure should be made in the same medium as the endorsement; photographic endorsements should include disclosures in the photographs themselves (e.g., superimposed text on the photographic endorsement). Text endorsements on Facebook and Twitter face the problem of hashtag cooption.

Hashtags are limited to labeling and organizing information on a social media website. More important, hashtags can be used by anyone for both commercial and noncommercial speech. As a result, hashtags can be intentionally coopted for political or satirical purposes or unintentionally coopted by social media users who use it outside of the United States where "#ad" has a different connotation than advertisement. Similarly, a hashtag disclosure could be used to categorize posts that are commenting on a particular social media endorsement.

For instance, a search for the hashtag "#ad" on Twitter reveals both commercial and non-commercial posts. Search results include both actual advertisement tweets as well as non-advertisement tweets that refer or relate to advertising generally. For example, Ad Age magazine’s official Twitter feed ranks high on the results for the hashtag "#ad."102 It also includes the verified Twitter feed of popular blogger Anaggh Desai.103 Similarly, the Twitter account for United Parcel Services ("UPS") logo and "#ups" and "#ad" hashtags could be subversively parodied to "United Pot Smokers" and "#ups" and "#ad", satirically advertising and promoting marijuana instead of the freight delivery services of UPS.

5. The Commission Does Not Recommend Specific Words or Combination ofWords That Are Sufficiently "Clear and Conspicuous"

Unlike the NPA and the Radio Act of 1927, the FTC Act nor the regulations, guidance documents, or enforcement orders from the Commission recommend a specific word or set of words to satisfy the "clearly and conspicuously" or "clearly and prominently" disclosure standards. Indeed, the Commission has expressly avoided fixing the words or combination of words that would sufficiently disclose a material connection between an endorser and advertiser. The Commission explained:

The FTC isn’t mandating the specific wording of disclosures. However, the same general principle—that people get the information they need to evaluate sponsored statements—applies across the board, regardless of the advertising medium. The words "Sponsored" and "Promotion" use only 9 characters. "Paid ad" only uses 7 characters. Starting a tweet with "Ad:" or "#ad"—which takes only 3 characters—would likely be effective.104

But the Commission’s reluctance to prescribe a set of descriptive words leaves advertisers guessing as to what will constitute a "clear and conspicuous" or "clear and prominent" disclosure. Social media companies like Facebook and Twitter are also left in the dark as to what specifically they could do—from a terms of use and technology perspective—to ensure compliance with the FTC Act’s disclosure requirements.

B. Proposed Solutions

1. Best Practices for Celebrity Endorsements on Social Media

Based on Machinima, Warner Brothers, Lord & Taylor, and AmeriFreight, an advertiser should follow the three "M’s" referring to (1) mandating endorsers to comply with the disclosure requirements of Section 5; (2) make sure endorsers are aware of the Section 5 disclosure rules; and (3) monitor all endorsements. Any endorser that fails to strictly comply with disclosure rules should be terminated.

2. The Commission Should Eliminate the "Clearly and Prominently" Standard in Favor of "Clearly and Conspicuously"

The Commission should discontinue the use of the "clearly and prominently" disclosure standard used in Machinima and AmeriFreight. The "clearly and conspicuously disclose" standard is more comprehensive than the "clearly and prominently disclose" standard and has been promulgated in the Code of Federal Register after comment from industry. The Commission should publicly state that the "clearly and prominently disclose" standard is being abandoned and that "clearly and conspicuously disclose" will only be used in its enforcement actions for purposes of uniformity of compliance and enforcement. Adopting a single standard will result in greater clarity for industry and the Commission. In particular, celebrity endorsers and advertisers will know, with greater certainty, the standard that the Commission will apply to a given factual circumstance instead of wondering whether the more relaxed "clearly and prominently disclose" standard will be applied.

3. The Commission Should Replace "Significant Minority" with "Sufficient Minority" by Requiring Fewer People to Be Affected by Unlawful Conduct

Celebrity social media accounts disseminate non-commercial and commercial content to millions of viewers at the click of a button. Selena Gomez recently broke records by acquiring more than 100 million followers.105 Since the Commission previously defined "significant minority" as anywhere from ten to twenty-two percent of an audience, potentially 10 million to 22 million of Gomez’s followers need to be deceived to satisfy the standard.106 In the world of celebrity social media, ten to twenty-two percent of an audience is too broad. Thus, the Commission should use the minimum number of plaintiffs required to certify a class action as the basis for whether a "sufficient minority"—not "significant minority"—has been deceived. Courts have widely held that forty injured individuals are sufficient to certify a class.107 Accordingly, an objective standard of forty individuals should constitute a "sufficient minority." By doing so, the Commission will effectively grant millions of social media users a potential administrative remedy that they otherwise would not have had because too few people were deceived or misled.

4. The Commission Should Enforce the FTC Act Disclosure Requirements Against Celebrity Endorsers, Advertisers, and Social Media Companies Uniformly

The Commission should adopt a policy requiring disclosure of all material facts in an administrative enforcement action—even in cases where no enforcement action was actually taken—so that industry understands what the Commission considers violative and not violative.

5. The Commission Should Prohibit the Use of Hashtag Disclosures and Require Social Media Companies to Identify and Publish Advertisements Differently Than Non-advertisement Posts

The Commission should eliminate any doubt as to the sufficiency of hashtag disclosures and publicly state that hashtags are not "clear and conspicuous" disclosures. Instead, the Commission should publicly state that social media companies should explore technology solutions to identify advertisement content from non-advertisement content and publish advertisement content differently than non-advertisement content. For example, Facebook, Instagram, and Twitter all use "verified" accounts for public personalities as identity theft safeguards.108 Google’s software scans Gmail users’ e-mails to display salient advertisements.109 YouTube scans the user-uploaded videos to prevent copyright infringement. Reddit publishes promoted commercial posts using a different background color from non-commercial posts.110 And Facebook charges advertisers to insert posts into a user’s feed.111 These examples illustrate social media companies’ ability and willingness to deploy technology solutions to legal and regulatory problems.

Similar to these established methods of monitoring their content, social media companies should scan the content of verified celebrity posts for keyword or image triggers suggestive of an endorsement. If commercial speech is identified, the social media company should affirmatively require the verified celebrity poster to disclose the material connection by identifying the advertiser. The commercial post should be displayed differently than non-commercial posts; the font and background color should be different by default so that viewers are on notice of the commercial character of the post.

Further, like the way traditional media charges for print display advertising and radio and television charge for airtime, social media companies should charge celebrity endorsers to post commercial content on their platforms. By aligning the financial incentives of social media companies with the FTC Act’s clear and conspicuous disclosure requirements, the Commission will have an editorial/compliance filter for the social media world just as it does in traditional media. The result would be a greater likelihood of self-regulation and compliance with the FTC Act.

6. The Commission Should Propose a Specific Word or Combination of Words to Connote an Advertisement

Finally, the Commission should require all advertisement content on social media to not only be published differently than non-advertisement content, but also be clearly disclaimed as "ADVERTISEMENT" like the NPA and Radio Act of 1927.


The Commission’s modus operandi of permitting advertisers to self-regulate is inappropriate with the fast changing social media landscape. The Commission’s preference for administrative enforcement in social media cases illustrates the fact that social media is a changing landscape that requires some regulatory intervention. But the Commission’s intervention has been insufficient. The need for "clear and conspicuous" disclosures between celebrity endorsers and advertisers is greater than ever. The Commission should abandon the "clearly and prominently disclose" standard for the "clear and conspicuous standard", replace the "significant minority" threshold with "sufficient minority," and publicly state that hashtags are not clear nor conspicuous disclosures in social media posts. Each of these recommendations will result in greater clarity for industry and should ultimately lead to greater compliance with the FTC Act.



1. Shafiel A. Karim is a solo practitioner in Southern California who represents small businesses and entrepreneurs in transactional and litigation matters as well as plaintiffs in consumer class actions.

2. Letter from Truth in Advertising to Kris Jenner, Kardashian family Manager (Aug. 17, 2016), https:// (last visited Oct. 10, 2016).

3. Id.

4. Kardashian/Jenner Database,, (last visited Sept. 27, 2016).

5. Supra note 2.

6. Letter from Truth in Advertising to FTC re: Kardashians (Aug. 25, 2016), https://www. (last visited Aug. 29, 2016).

7. Id.

8. A hashtag is a pound symbol ("#") followed by a combination of alphanumeric characters and was not designed with federal disclosure rules in mind. Hashtags are also "bookmarks" or "symbol[s] of community membership." Lei Yang, et al., We Know What @You #Tag: Does the Dual Role Affect Hashtag Adoption? (2012), pdf (last visited Sept. 30, 2016). Invented by Twitter to label and organize tweets, the hashtag has cross-pollinated to every major social media platform as well as popular culture and modern vernacular. See, e.g., Miles Efron, Hashtag Retrieval in Microblogging Environment, SIGIR 2010 Geneva (2010), (last visited Sept. 27, 2016); Allison Shapp, Variation in the Use of Hashtags (Spring 2014), Shapp_QP2_Hashtags_Final.pdf (last visited Sept. 27, 2016).

9. Letter from Truth in Advertising to FTC re: Kardashians (Aug. 25, 2016), https://www. (last visited Aug. 29, 2016).

10. Id.

11. Id.

12. Id.

13. Britney Spears (@britneyspears), Instagram (Sept. 6, 2016), BKBlBqABq_u/?hl=en (last visited Aug. 29, 2016); see Exhibit A.

14. Nicole E. Caggiano v. EOS Products, LLC, et al., No. 1:16-cv-00408 (S.D.N.Y. Jan. 19, 2016).

15. LeBron James (@king’ames), Instagram (Apr. 2, 2016), (last visited Sept. 27, 2016); see Exhibit B.

16. Charlotte Wilder, Papa ‘Brons? A LeBron-Approved Pizza Chain is Coming to Boston Soon, The Boston Globe (Feb. 17, 2016), (last visited Sept. 23, 2016).

17. Justin Timberlake (@justintimberlake), Instagram (June 10, 2015), p/3w5dz8ydvw/?hl=en (last visited Sept. 28, 2016); see also Sauza 901, home (last visited Sept. 28, 2016); see Exhibit C.

18. Selena Gomez (@selenagomez), Instagram, (last visited Sept. 27, 2016); see Exhibit D.

19. Leah W. Feinman, Celebrity Endorsements in Non-Traditional Advertising: How the FTC Act Regulations Fail to Keep Up with the Kardashians, 22 Fordham Intell. Prop. Media & Ent. L.J. 97, 103-110 (2011).

20. Kevin Plank, Under Armour’s Founder on Learning to Leverage Celebrity Endorsements, Harv. Bus. Rev., May 2012.

21. Kevin Gray, Twitter Athletes: $5 Million in 140 Characters, Men’s Journal (Nov. 19, 2013), http:// (last visited Oct. 12, 2016).

22. Andre McNeil, Athletes Who Make More From Endorsements Than Sports, Investopedia, http://www. (last visited Sept. 27, 2016).

23. A.J. Casale, Going Native: The Rise of Online Native Advertising and a Recommended Regulatory Approach, 65 Cath. U.L. Rev. 129, 133 (2015).

24. Douglas Holt, Branding in the Age of Social Media, Harv. Bus. Rev. (Mar. 2016).

25. RSW/US, Changes in Social Digital Media 2009-2012, http :// Changes-in-Social-Digital-Media-2009-2012.pdf (last visited Sept. 10, 2016).

26. Id.

27. Palko v. Connecticut, 302 U.S. 319, 327 (1937) overruled by Benton v. Maryland, 395 U.S. 784 (1969) on other grounds.

28. Cent. Hudson Gas & Elec. Corp. v. Public Serv. Comm’n, 447 U.S. 557, 561 (1980); see also Elliot Zaret, Commercial Speech and the Evolution of the First Amendment, Wash. Lawyer (Sept. 2015).

29. Id. at 562 n. 5; Cincinnati v. Discovery Network, 507 U.S. 410, 435 (1993).

30. Valentine v. Chrestensen, 316 U.S. 52 (1942).

31. See, e.g., Cent. Hudson Gas & Elec. Corp., 447 U.S. 557, 561 (1980) (Justice Powell articulated a four-part test that asks (1) whether expression protected by First Amendment; (2) whether commercial speech concerns lawful activity and is not misleading; (3) whether governmental interest is substantial; and (4) whether regulation directly advances government interest and is not more extensive than necessary to advance that interest).

32. Edenfield v. Fane, 507 U.S. 761, 767 (1993).

33. Cent. Hudson Gas, 447 U.S. at 563 ("there can be no constitutional objection to the suppression of commercial messages that do not accurately inform the public about lawful activity"); Gertz v. Robert Welch, Inc., 418 U.S. 323, 340 (1974) ("there is no constitutional value in false statements of fact"); Konigsberg v. State Bar, 366 U.S. 36, 49 n.10 (1961) (libel, slander, obscenity, perjury, and false advertising not protected by First Amendment).

34. Letter from Lewis F. Powell, Jr., to Eugene B. Sydnor, Jr., Chairman of the U.S. Chamber of Commerce Education Committee (Aug. 23, 1971) Archives/PowellMemorandumTypescript.pdf (last visited Oct. 7, 2016).

35. Bates v. State Bar of Ariz., 433 U.S. 350, 374 (1977).

36. 425 U.S. 748, 771-72 (1976).

37. Friedman v. Rogers, 440 U.S. 1, 12 n.11 (1979); Goodman v. Ill. Dep’t of Fin. & Prof’l Regulation, 430 F.3d 432 (7th Cir. 2005).

38. United States v. Reader’s Digest Ass’n, 662 F. 2d 955 (3d Cir. 1981); United States v. Raymond, 228 F.3d 804 (7th Cir. 2000)(no First Amendment protection for government prevention of false or misleading commercial speech); United States v. Phillip Morris USA, Inc. (566 F.3d 1095 (D.C. App. 2009) (no First Amendment protection for fraudulent and deliberate misrepresentations).

39. Harry & Bryant Co. v. FTC Act, 726 F.2d 993 (4th Cir. 1984).

40. 62 Cong. Ch. 389.

41. The NPA was part of a larger bill that regulated the postal service and required newspapers and magazines to disclose circulation information, among other things. Shortly after the NPA was, a constitutional challenge followed. However, the Supreme Court held Congress has the authority to regulate the mails and for that reason the NPA’s requirement that native advertising be marked "advertisement" was constitutional. Lewis Pub. Co. v. Morgan, 229 U.S. 288 (1913). The Court’s analysis was limited to Congress’ authority to regulate the mails, not the government’s authority to regulate commercial speech.

42. 69 Cong. Ch. 169.

43. 15 U.S.C. § 45(a)(2); Marc Winerman, The Origins of the FTC: Concentration, Cooperation, Control, and Competition, 71 Antitrust L.J. 1, 96 (2003).

44. Winerman, supra note 43.

45. 16 CFR 255.

46. 16 CFR 255.1.

47. The FTC Act’s Endorsement Guides: What People Are Asking, Federal Trade Commission (May 2015) pdf (last visited Oct. 11, 2016).

48. For example, the Guide ignores the fact that many users on social media are infants. In fact, the minimum age to create a user account on Facebook, Instagram, and Twitter is thirteen. Some estimates suggest Facebook alone has thirteen million teenage users. See Ryan W. Neal, Facebook Gets Older: Demographic Report Shows 3 Million Teens Left Social Network In 3 Years, International Business Times (Jan. 16, 2014), (last visited Sept. 27, 2016).

49. A material financial connection includes "either the payment or promise of compensation prior to and in exchange for the endorsement." 16 CFR 255.5. A connection is material and subject to the disclosure rules if "it would likely affect the consumer’s conduct or decisions with regard to a product or service." FTC Statement on Deception, 103 F.T.C. 174, 175 (1984) {appended to Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984)); see also 81 FR 22596. The Supreme Court agreed with the Commission’s position that "the misrepresentation of any fact" is material if it affects a consumer’s purchase decision. See FTC v. Colgate Palmolive, 380 U.S. 374, 386-387 (1965). It is also well settled that "[a]ctual injury is not required." In re Cliffdale Associates, Inc., et al., 103 F.T.C. 110, 107 n.11 (1981). The materiality requirement is satisfied if "an act or practice . . . [is] likely to cause injury to be considered deceptive." Id.

50. Supra note 47; see also 16 CFR 255.5.

51. 16 CFR 255.5.

52. Id.

53. FTC Statement on Deception, 103 F.T.C. 174, 175 (1984) (appended to In re Cliffdale Associates, Inc., 103 F.T.C. 110 (1984)); see also 81 FR 22596.

54. See FTC v. Colgate Palmolive, 380 U.S. 374, 386-387 (1965).

55. Cliffdale Associates, 103 F.T.C. 107 n.11 (1981).

56. Id.

57. See, e.g., In re Machinima, Inc., FTC Docket No. C-4569 (Mar. 16, 2016), system/files/documents/cases/160317machinimado.pdf (last visited Sept. 28, 2016); In re AmeriFreight, Inc., FTC Docket No. C-4518 (Apr.13, 2015), cases/150420amerifreightdo.pdf (last visited Sept. 28, 2016).

58. .com Disclosures: How to Make Effective Disclosures in Digital Advertising, 6 n.18, Federal Trade Commission (Mar. 2013) (last visited Oct. 9, 2016).

59. Complaint, In re Machinima, Inc., FTC Docket No. C-4569 (Sept. 2, 2015), system/files/documents/cases/150902machinima-cmpt.pdf (last visited Sept. 28, 2016).

60. Id. at 1.

61. Id.

62. Id. at 3.

63. Id. at 4.

64. Complaint, In re Warner Bros. Home Entertainment, Inc., FTC File No. 152-3034 (Jul. 11, 2016) https:// (last visited Sept. 28, 2016).

65. Id. at 1-2.

66. Id. at 3.

67. Id.

68. Id. at 3.

69. Complaint, In re Lord & Taylor, LLC, FTC Docket No. C-4576 (May 23, 2016), system/files/documents/cases/160523lordtaylorcmpt.pdf (last visited Oct. 9, 2016).

70. Complaint, In re Warner Bros. Home Entertainment, Inc., FTC File No. 152-3034 (July 11, 2016), https:// (last visited Sept. 28, 2016).

71. Id.

72. Id.

73. Id.

74. Id.

75. Id. at 3-4.

76. See In re AmeriFreight, Inc., FTC Docket No. C-4518 (Apr. 20, 2015), files/documents/cases/150420amerifreightcmpt.pdf (last visited Sept. 28, 2016).

77. Complaint, In re Warner Bros. Home Entertainment, Inc., FTC File No. 152-3034 (July 11, 2016), https:// (last visited Sept. 28, 2016).

78. Id. at 2-3.

79. Id.

80. Order, In re AmeriFreight, Inc., FTC Docket No. C-4518 (Apr. 20, 2015), system/files/documents/cases/150420amerifreightdo.pdf (last visited Sept. 28, 2016).

81. See Order, In re Warner Bros. Home Entertainment, Inc., FTC File No. 152-3034 (July 11, 2016), https:// (last visited Oct. 12, 2016); See Order, In re Lord & Taylor, LLC, FTC Docket No. C-4576 (May 23, 2016), system/files/documents/cases/160523lordtaylordo.pdf (last visited Oct. 12, 2016).

82. Id.

83. Id.

84. Id.

85. Id.

86. Telebrands, 140 F.T.C. 278, 291 (2005), aff’d, 457 F.3d 354 (4th Cir. 2006)("An ad is misleading if at least a significant minority of reasonable consumers are likely to take way the misleading claim."); Heinz W. Kirchner, 63 F.T.C. 1282 (1963)("An interpretation [of an advertisement] may be reasonable even though it is not shared by a majority of consumers in the relevant class, or by particularly sophisticated consumers. A material practice that misleads a significant minority of reasonable consumers is deceptive.").

87. See, e.g., Firestone Tire & Rubber Co. v. F.T.C., 481 F.2d 246, 249 (6th Cir. 1973); Telebrands, 140 F.T.C. 278, 325 (2005), aff’d 457 F.3d 354 (4th Cir. 2006).

88. Kardashian-West has 83.6 million followers on Instagram. See Kim Kardashian-West (@kimkardashian), Instagram, (Sept. 27, 2016).

89. The federal numerosity requirement for certification of a class under Rule 23 of the Federal Rules of Civil Procedure is satisfied with as few as 40 persons injured by the defendant’s conduct. Wolkenstein v. Reville, 539 F. Supp. 87 (2d Cir. N.Y. 1982); Kreiger v. Gast, 197 F.R.D. 310 (W.D. Mich. 2000); Animal Sci. Prods., Inc. v. Hebei Welcome Pharm. Co. (In re Vitamin C Antitrust Litig.), 279 F.R.D. 90 (E.D. N.Y. 2012).

90. 15 U.S.C. § 45(c).

91. A Brief Overview of the Federal Trade Commission’s Investigative and Law Enforcement Authority, Federal Trade Commission (Jul. 2008), (last visited Oct. 9, 2016).

92. Id.

93. Donald S. Clark, Statement of Enforcement Principles Regarding ‘Unfair Methods of Competition’ Under Section 5 of the FTC Act, Federal Trade Commission (Aug. 13, 2015), files/documents/public_statements/735201/150813section5enforcement.pdf (last visited Sept. 25, 2016).

94. Id.

95. Id.

96. Id.

97. Id.

98. Id.

99. Id.

100. Id.

101. These numbers are accurate as of September 27, 2016.

102. Ad Age Magazine (@adage), Twitter, (last visited Oct. 9, 2016).

103. Anaggh Desai (@anaggh), Twitter, (last visited Oct. 9, 2016).

104. See supra note 47.

105. Gil Kaufman, Selena Gomez First To Reach 100 Million Instagram Followers, Billboard Magazine (Sept. 27, 2016), (last visited Sept. 28, 2016).

106. See, e.g., Firestone Tire, 481 F.2d 249; Telebrands, 140 F.T.C. 278, 325 (2005), affd 457 F.3d 354 (4th Cir. 2006).

107. See Wolkenstein v. Reville, 539 F. Supp. 87 (2d Cir. N.Y. 1982); Kreiger v. Gast, 197 F.R.D. 310 (W.D. Mich. 2000); Animal Sci. Prods., Inc. v. Hebei Welcome Pharm. Co. (In re Vitamin C Antitrust Litig.), 279 F.R.D. 90 (E.D. N.Y. 2012).

108. See Verified Page or Profile, Facebook (Sept. 28, 2016), help/196050490547892; Verified Badges, Instagram (Sept. 28, 2016), https://help.instagram. com/854227311295302; About Verified Accounts, Twitter (Sept. 28, 2016), https://support.TWiTTER. com/articles/119135.

109. How Gmail Ads Work, Google (Sept. 28, 2016),

110. Sponsored Headline Tests: Placement and Design, Reddit (June 23, 2016), announcements/comments/4phzsi/sponsored_headline_tests_placement_and_design/ (last visited Sept. 30, 2016).

111. Facebook Ad Basics, Facebook (Sept. 30, 2016)

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