Social Media & Marketing Alert: FTC / Teami, LLC

By: Jeff Bartholomew

April 30, 2020 – Denver, CO

FTC Settles Enforcement Action Against Online Marketer of Teas and Skincare Products and Sends Warning Letters to Influencers over Misleading Endorsements

On March 5, the Federal Trade Commission (the “Commission” or the “FTC”) announced the settlement of a two-count complaint against Teami, LLC, an on-line marketer of teas and skincare products whose sales were promoted by prominent social media influencers.  The first count alleged that Teami made unsubstantiated claims about the efficacy of its products (for example, their ability to reduce weight, decrease migraines, unclog arteries, and treat cancer).  The second count, which is explored further in this Alert, charged that Teami failed to disclose “adequately” that Teami paid the influencers to endorse its products.  In particular, the complaint alleged that the influencers’ Instagram posts failed to “clearly and conspicuously” disclose the relationship between Teami and the influencers above the “more” link that readers must click to read the remainder of the posts.  In addition to bringing the action against Teami, the Commission sent warning letters, discussed below, to the ten influencers alleged to have made inadequate disclosures in their Instagram posts.

Complaint Against Teami

The complaint noted that the FTC had written to Teami and its founders in 2018 regarding product endorsements by influencers on Instagram and that Teami had implemented a social media policy in response.  According to Teami, its policy was communicated to the influencers and was included in contracts with some of them.  The policy instructed the influencers who were paid to disclose this fact and included detailed instructions such as “DON’T … [m]ake the disclosure below the ‘more’ button – the disclosure needs to be seen in the first part of your post without clicking anything else.”  The FTC’s complaint, however, alleged that “numerous Instagram posts published by paid influencers after [Teami implemented its policy] did not comply with Teami’s own social media policy” and that Teami failed to enforce its requirements against the influencers.

Stipulated Order Against Teami and its Owner/Founders

Monetary Judgment.  The FTC order settling the case against Teami and its owner/founders included a judgment of more than $15.2 million, which, according to the FTC, represents the total sales of the challenged products.  Based on the defendants’ financial condition, all but $1 million of the judgment was suspended subject to the payment of the $1 million, which is secured by liens on real properties owned by the owner/founders.

Permanent Injunction.  The stipulated order also contains requirements (and prohibitions) applicable to Teami’s relationships with its endorsers and disclosures relating to those relationships. The order also requires Teami to provide each of its endorsers a “Statement of Disclosure Responsibilities” and to obtain the agreement of each endorser to comply with it.  The defendants are required to monitor the compliance by Teami’s endorsers with the Statement of Disclosure Responsibilities and to terminate payments to any endorser who does not comply with those responsibilities.

Lessons for Advertisers

The stipulated order filed by the FTC in the Teami lawsuit contains detailed provisions regarding its expectations of Teami and its founders, employees, and others to comply with applicable laws and FTC rules regarding celebrity endorsements.  Accordingly, even though the order is enforceable only against those persons, it should be instructive to other businesses that engage, or intend to engage, social media influencers to help sell their products or services.  Additional guidance is found in the Commission’s “Guides Concerning the Use of Endorsements and Testimonials in Advertising,” adopted in 1980 (the “Guides”), which were revised in 2009 and are currently under review by the FTC for possible additional revisions.  Although the stipulated order does not refer to the Guides per se, we recommend that businesses working with influencers develop compliance programs (or review their existing programs) to ensure that they are consistent with the Guides and the Teami stipulated order.

Lessons for Influencers

In connection with the enforcement action against Teami, the FTC sent warning letters to the ten influencers who had posted endorsements of Teami’s products on their Instagram pages.  The letters state that “[i]ndividual influencers who fail to make adequate disclosures about their connections to marketers are subject to legal enforcement action by the FTC.” The letters also request that the influencers respond to the FTC “describing what actions you are or will be taking to ensure that your social media posts endorsing brands and businesses with which you have a material connection clearly and conspicuously disclose your relationships.”

These letters are reminiscent of earlier FTC action. In 2017 it sent warning letters to 90 celebrities, sports figures, and advertisers to “educate” them as to the FTC’s views regarding social media advertising and the role of influencers.

We believe that the FTC’s warning letters to social media influencers, as well as its own significant, self-generated publicity of the Teami case, are preparing the marketing industry for potential enforcement action against influencers who do not follow the Guides.  Accordingly, we believe that any social media influencer or, indeed, any person endorsing a product or service, should review the Teami case, other enforcement actions by the Commission, and the Guides and should proactively implement his or her own program, if necessary, to avoid potential enforcement action by the Commission.

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