FTC intensifies its focus on PR firms

The FTC has made it crystal clear it considers PR firms to be "actively participating in the marketing of products," writes Davis & Gilbert's Michael Lasky.

Last month, the Federal Trade Commission (FTC) again made clear that the activities of PR firms continue to be squarely within its purview. In a letter last month to a company that the FTC investigated, it stated, "Any party that activity participates in the marketing of products through paid endorsers, including a public relations firm… has the responsibility to make sure that [all appropriate] disclosures are made." This unequivocal language foreshadows the FTC's increased oversight and enforcement activity on PR firms.

On March 6, the FTC entered into a consent order with home-security company ADT for its failure to disclose that the experts who promoted its product were paid endorsers. The FTC also investigated and sent letters to News Broadcast Network in New York and Pitch Public Relations in Arizona for their individual and collective failure to disclose that the experts who promoted ADT’s product were not impartial experts, but were, in fact, paid by ADT.

The facts in this matter revealed that ADT allegedly paid three experts over $300,000 to appear on TV shows and post on blogs without disclosing the experts were paid by ADT to promote its home-security technology. News Broadcast Network worked with ADT to book media interviews for an expert hired to endorse the ADP Pulse home-security system. In similar fashion, Pitch worked with ADT to promote that same system. The FTC focused its inquiry not only on ADT, but also News Broadcast Network and Pitch to determine "whether adequate disclosure was made in those media interviews that [the expert] was compensated to endorse ADT Pulse."

Under Section 5 of the FTC Act, material connections between all marketers and endorsers must be disclosed in situations in which the relationship is not apparent from the context of the endorsement. In the ADT case, the endorsers were introduced as experts in child safety, home security, or technology. There was, however, no mention of the experts’ connection to the company. The FTC found this was a misleading endorsement since it would be difficult for the consumer to make an accurate buying decision given that the marketing message was disguised as an impartial review of a product.

Prior columns have discussed the FTC’s Guides Concerning the Use of Endorsements and Testimonials and how PR executives should navigate them, as well as the FTC’s first enforcement actions under the guides and the importance of adequate disclosure in native content. Even with those prior developments, the FTC has now made it crystal clear that it considers PR firms to be "actively participating in the marketing of products." As such, PR agencies should adhere to the following five key principles to ensure that materials produced for their clients comply with the FTC laws and policies:

1. PR firms should have a reasonable basis to support all claims made in the content they disseminate for their clients prior to doing so. If the PR agency does not possess a reasonable basis to support the claims made, it is committing an unfair and deceptive practice in violation of Section 5 of the FTC Act. 

2. All content should contain clear and conspicuous disclosures to ensure it is not false, deceptive, or misleading. Disclosures need to be drafted carefully so they are easily understood.

3. Content should also be designed not to mislead the audience for whom the message is targeted. The PR firm should be able to establish, upon inquiry, who was the intended audience. For example, was the intended audience for a marketing message about an investment product a first-time investor of limited resources or a sophisticated investor in hedge funds? The answer is important to evaluate if a marketing message is clear and not misleading to its intended audience.

4. PR firms should inform their clients of the need to comply with the FTC guides and include disclosures that endorsers are paid to provide their opinion in all content, even in letters written to request media bookings.

5. PR firms that are promoting a product or service that is regulated by another governmental entity should include appropriate disclosures and risk information in the marketing message for those items. For example, the FDA has begun to target the materials produced by PR firms. In 2012, the entity sent a warning letter to a pharmaceutical company for failing to include required risk information about a product in a pitch letter accompanying a press release. Although the press release contained the required risk information, the FDA found the product to be misbranded as the media pitch letter did not contain the required risk information.

Developments are ongoing as it relates to the FTC’s oversight of PR firms. Adhering to the above five principles should ensure that enforcement actions will involve neither your agency nor its clients.

Michael Lasky is a senior partner at the law firm of Davis & Gilbert LLP, where he heads the PR practice group and co-chairs the litigation department. He can be reached at mlasky@dglaw.com.

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