FTC – Dickinson Law's Inside Entrepreneurship Law Blog

Sponsorships and Brand Deals: Small Businesses Welcome!

by Maheen Naz

Often, at the very heart of a successful business is successful advertising. Advertising is a decades-old industry. Sponsorships, however, are relatively new and exciting, especially for new business owners. Small businesses may feel that brand deals and sponsorships are only something larger businesses can pursue. However, these advertising tools are incredibly valuable for businesses of all sizes. Business owners should not overlook them.

Brand Deal vs. Sponsorship

Brand deals and sponsorships are similar. Both involve compensating influencers to create content promoting a certain brand. However, when diving into the nitty gritty, the differences become important.

Brand deals are often also called brand endorsements. One example of a brand deal would be Apple sending an influencer an Apple device and asking them to make a video about it. Afterward, the influencer would get to keep the product while also receiving payment.

Sponsorships are when a business pays an influencer to create content promoting a brand, with or without a product. Essentially, sponsorships allow businesses to buy advertising within the influencer space, such as an ad on Instagram or Facebook stories.

At the end of the day, both sponsorships and brand deals are advertising tools. Sponsorships and brand deals dominate the social media space. Whether consumers recognize it or not, many of their favorite and most trusted social media influencers pursue sponsorships and brand deals to keep themselves and their social media careers afloat.

One of the most difficult parts of starting a business, particularly a small business, is gaining exposure. It may be a smart investment to pay a social media influencer with a large following to promote your business or brand. By doing this paid promotion, you provide the social media influencer with a brand sponsorship. However, brand sponsorships come with their fair share of regulations and disclosure requirements regulated by the Federal Trade Commission.

How do Sponsorships AND Brand Deals Work?

Sponsorships and brand deals can work in several ways. Often, a brand will reach out to an influencer they believe will bring attention to their product to help increase their revenue. In exchange for this advertisement, the brand or business will pay the influencer or send the influencer free merchandise.

Since sponsorships have become more prevalent, it is more common for businesses to compensate influencers with free products instead of traditional payment. As a business owner, particularly one with limited means, asking the influencer to accept free merchandise may be more economical.

The Federal Trade Commission

The Federal Trade Commission (FTC) is responsible for preventing fraudulent or deceptive advertising and “educating marketers about their responsibilities under truth-in-advertising laws and standards.” The FTC requires you to disclose when you have a financial, employment, or personal relationship with a brand.

The FTC Disclosure Provision

The FTC Disclosure Provision requires social media influencers to disclose any payment they receive to promote a product or service. The disclosure provision helps protect consumers from false or misleading advertising. If an influencer does not disclose the advertisement, consumers will not know that corporate funding is involved and might be swaying the influencer’s opinion. This business practice constitutes unfair competition.

For example, Lord & Taylor gave 50 influencers a free dress in 2015. The company then paid each influencer $1,000 to $4,000 to post a photo of themselves in the dress. The influencers’ posts reached 11.4 million Instagram users who bought the dress, selling it out in two days. Since each post failed to disclose that the influencer received a free dress and payment for their photo, the FTC got involved.

This example is a reminder that social media influencers and small businesses must be aware of the FTC Disclosure Provision. Everyone involved must make sure that the influencer discloses any relationship with the brand or business. Failure to disclose could result in severe penalties, including fines.

How to Properly Disclose Brand Deals or Sponsorships

1. Disclose, disclose, disclose! When it comes to the FTC, disclosure is your best bet to ensure you stay out of any legal trouble. Before asking for an influencer to post, your business should ideally proofread the post to ensure disclosure has occurred. Financial relationship? Disclose it! Personal relationship? Disclose it!
2. Make sure the disclosure is VISIBLE. Place the disclosure within the endorsement message itself. Do not be sneaky about disclosures. Do not hide disclosures in about me pages, profile pages, or at the end of a caption. Do not mix your disclosure into a group of hashtags or links. The consumer should not have to click “more” or do any additional work to discover the disclosure.
  - Photo Endorsements – The endorsement should be visible on the image or near the image. Ex: #Ad #Sponsorship #Paid
  - Video Endorsements – The disclosure should be in both the video and the description.
3. Use accessible language. Do not try to fool consumers. Be clear and concise. Make sure the disclosure is in the same language as the endorsement itself.
4. Encourage honesty. At the end of the day, try to pick an influencer who actually believes in their endorsement. Their honesty will shine through in their post.

The Bottom Line

As a small business owner, a fine from the FTC is not a business expense one wants to incur. Small businesses should be cautious and judicious with sponsorships. However, they should not allow the FTC’s guidelines to limit them from pursuing sponsorships and advertising as a whole since it could be tremendously valuable to their business.

This post has been reproduced and updated with the author’s permission. It was originally authored on March 27, 2023 and can be found here.

Maheen Naz, at the time of this post, is a recent graduate of Penn State Dickinson Law. She was born and raised in New York City. She loves to read, watch horror movies, drink hot chocolate, and bake. She is passionate about people, linguistics, and fashion.

SOURCES:

https://heyjessica.com/brand-deals-sponsorships-the-good-the-bad-and-the-ugly/

https://later.com/blog/sponsored-instagram-posts/

https://www.linkedin.com/pulse/social-media-influencers-take-note-ftc-disclosure-provision-/?trk=pulse-article_more-articles_related-content-card

https://news.bloomberglaw.com/tech-and-telecom-law/social-media-endorsements-cant-escape-ftcs-watch

https://www.ftc.gov/system/files/documents/plain-language/1001a-influencer-guide-508_1.pdf

Monopoly: A Threat to Consumer, Business, and Economic Interests

by Foday Turay

A monopoly is the sole supplier of goods and services, with little to no competition or price regulations. Due to a lack of competition, monopolies have significant leverage against others in the market and consumers. As a result, the U.S. Federal Trade Commission (FTC) protects against illicit and unfair business practices that allow monopolies to exploit their market.

One of the foremost responsibilities of the FTC is to prevent corporations from becoming monopolies. In December 2020, the FTC filed an antitrust complaint against Facebook, accusing them of becoming a social media monopoly. This post will discuss the legal, economic, and business components of U.S. District Judge James E. Boasber’s latest ruling that allows the FTC’s antitrust lawsuit to proceed.

Judge Boasber’s Ruling

Judge James Boasberg of the U.S. District Court of the District of Columbia made the right decision in allowing the FTC more time to amend its antitrust complaint against Facebook. The FTC’s complaint arose when Facebook purchased its competition, such as WhatsApp and Instagram. Facebook’s accumulation of start-ups and competitors has made the company significantly more powerful, leaving it with little to no competition. Judge Boasberg’s decision is a positive step toward regulation of anti-competitive business practices. If left unregulated, monopolized companies like Facebook can hinder consumers, business, and the economy.

Legal Components

Antitrust laws are statutes created by Congress to protect consumers from unfair business practices. For example, section 2 of the Sherman Act makes it unlawful for any person to “monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several states or with a foreign nation.” Therefore section 2 of the statute establishes three offenses, (1) monopolization, (2) attempted monopolization, and (3) conspiracy to monopolize. The FTC’s 2020 antitrust complaint accuses Facebook of violating the law by purchasing various social media companies to lessen its competition.

Economic Components

The primary purpose of antitrust law is to promote a market-based economy. A market-based economy relies on supply and demand to determine the appropriate prices and quantities for goods and services. Competition is imperative for a market-based economy to succeed as it promotes innovation, lowers consumer prices, and incentivizes companies to improve the quality of their goods and services. A lack of competition in a market-based economy suppresses innovation, gauges prices, and decreases the quality of goods and services. Antitrust laws preserve the competitive nature of the economy, thereby incentivizing healthy economic growth.

If left unregulated, monopolized companies like Facebook may hinder innovative start-up companies from succeeding in their market. Unregulated monopolies can leverage their significant resources to control consumers’ exposure to new companies, impeding possible profits. Judge Boasberg’s decision to extend the FTC’s complaint is critical in protecting consumers’ access to innovative social platforms. Facebook’s current business practices deny consumers any alternatives. By purchasing its competitors and utilizing its leverage, Facebook denies consumers access to different social media with potentially better ideas and implementations.

Facebook’s unfair business practices make it harder for other social media companies to compete, thus keeping those companies out of the market completely. By blocking various social media companies from the market, Facebook has easily become a monopoly and has even more leverage over the social media industry than before. Without an alternative for consumers, Facebook can impose harmful conditions and unfair prices while it reduces innovation.

Business Components

Prohibiting monopolies not only encourages market competition but also helps businesses to grow. Companies are encouraged to develop new ideas, resulting in better productivity and output. For example, Uber completely revolutionized the traditional taxi industry in only a few years, reducing consumer costs and generating billions of dollars in profit. Without a monopoly in the taxi industry, Uber’s inventive ideas were allowed to succeed and positively affect consumers.

Conclusion

Competition is an essential tool for a market-based economy. Thus, the Sherman Act has long stood to preserve competition and encourage low prices, high-quality goods and services, and business growth. Monopolization removes the benefits of market competition and therefore goes against the interest of consumers and businesses alike.

Judge Boasberg’s decision to allow the FTC’s claim against Facebook to proceed takes steps in the right direction. It helps to preserve the purpose of the Sherman Act, maintaining a competitive market to generate positive impacts on the economy and businesses. Judge Boasberg made the right decision, and others should follow.

This post has been reproduced and updated with the author’s permission. It was originally authored on April 11, 2023 and can be found here.

Foday Turay, at the time of this post, is a recent graduate of Penn State Dickinson Law. He is an assistant district attorney in Philadelphia. Turay is a first-generation college and law student interested in Criminal, Business, and immigration law. He is also a Deferred Action for Childhood Arrivals recipient.

Sources:

https://www.documentcloud.org/documents/21177063-memorandum-opinion

https://www.justice.gov/archives/atr/competition-and-monopoly-single-firm-conduct-under-section-2-sherman-act-chapter-1

https://www.investopedia.com/terms/m/marketeconomy.asp

A Beginners Guide to Complying with COPPA

By: Ashli Lyric Jones

As technology is advancing, children have the ability to access most websites, apps, and other technology with the click of a button. This access has given companies the ability to market directly towards children. Companies such as Youtube, TikTok, and Apple have been successful at appealing to children and adults of all ages. But with great success comes great responsibility and restrictions. And this responsibility needs to be taken seriously. Note that Google and Youtube violated COPPA and had to pay $170M.

When it comes to the collection of personal information from children under 13, the Children’s Online Privacy Protection Act (COPPA) puts parents in control. The Federal Trade Commission (FTC) enforces COPPA, which spells out what operators of websites and online services must do to protect children’s privacy and safety online. The following list should serve as a guide for businesses that must comply with the COPPA.

step 1: Determine if coppa applies to your business

Does your website or online service collect personal information from kids under 13? If so, it is likely that COPPA applies to you. To be more specific, you must comply with COPPA if you meet any of the following criteria:

Your website or online service is directed to children under 13 and you collect personal information from them.
Your website or online service is directed to children under 13 and you let others collect personal information from them.
Your website or online service is directed to a general audience, but you have actual knowledge that you collect personal information from children under 13.
Your company runs an ad network or plug-in, for example, and you have actual knowledge that you collect personal information from users of a website or service directed to children under 13.

The term “website” is defined broadly under COPPA. In addition to traditional websites, this Rule applies to:

mobile apps that send or receive information online (like network-connected games, social networking apps, or apps that deliver behaviorally-targeted ads)
internet-enabled gaming platforms
plug-ins
advertising networks
internet-enabled location-based services
voice-over-internet protocol services
connected toys or other Internet of Things devices

step 2: post a privacy policy that complies with coppa

Once you have determined that COPPA applies to your business, the next step is to post a privacy policy that is clear and comprehensive. This notice must describe how personal information is being collected online from kids under 13 and how it is being used. The notice must also describe the practices of any other services collecting personal information on your site — for example, plug-ins or ad networks.

A link to your privacy policy should be included on your homepage and anywhere you collect personal information from children. Additionally, if you operate a site or service directed to a general audience, but have a separate section for kids, you must post a link to your privacy policy on the homepage of the kids’ part of your site or service.

step 3: notify parents directly about your data collection practices

Under COPPA, you are required to give parents “direct notice” of your information practices before collecting information from their kids. The notice must tell parents:

that you collected their online contact information for the purpose of getting their consent;
that you want to collect personal information from their child;
that their consent is required for the collection, use, and disclosure of the information;
the specific personal information you want to collect and how it might be disclosed to others;
a link to your online privacy policy;
how the parent can give their consent; and
that if the parent doesn’t consent within a reasonable time, you’ll delete the parent’s online contact information from your records.

Additionally, if you make a material change to the practices parents previously agreed to, you have to send an updated direct notice.

step 4: obtain parents’ verifiable consent

COPPA gives you the authority to choose a reasonable method to obtain parents’ verifiable parental consent before collecting, using, or disclosing personal information from children. Parents must have the option of allowing the collection and use of their child’s personal information without agreeing to disclose that information to third parties.

If you make any changes to your practice of collection, use, or disclosure of personal information from kids you must send the parent a new notice and get their consent. Parents may revoke their consent at any time.

step 5: protect the security of kids’ personal information

When collecting any data, it is important to establish and maintain reasonable procedures to protect the confidentiality, security, and integrity of personal information collected from children. If you minimize what information you collect from children, it will be easier to protect kids’ personal information.

conclusion

The FTC looks at a variety of factors to see if a site or service is directed to children under 13 such as the subject matter of the site or service, the use of animated characters or other child-oriented activities and incentives, the use of visual and audio content, the age of models, ads on the site or service that are directed to children, and the presence of child celebrities or celebrities who appeal to kids.

It is important to determine if COPPA applies to your business. If COPPA applies to your business, you must establish and publish a privacy policy. Next, you must notify parents directly about your data collection practices and obtain verifiable parental consent. Lastly, it is important to protect the security of kids’ personal information.

When COPPA was first drafted there was no Youtube, no Facebook, no TikTok, and no iPhone. With the advancements in technology occurring at a rapid pace, it is important to make sure you stay up to date with all of the changes regarding COPPA. You don’t want to be the next business to get fined.

This post was originally authored on March 18, 2020, and can be found here. Ashli Jones, at the time of this post, is a rising third-year law student at Penn State Dickinson Law. She is from Long Island, New York and is a graduate of Spelman College in Atlanta, Georgia. Ashli is pursuing a certificate in Entrepreneurship with an Intellectual Property and Technology concentration. She is interested in intellectual property within the entertainment law field. Ashli is the President of the Sports & Entertainment Law Society, Mentorship Chair for the Women’s Law Caucus, and Social Chair for the Black Law Students Association.