The hashtag: #WanderingSole. The event: High-end shoe company Cole Haan challenges its Pinterest followers to post pictures of themselves wearing the shoe brand in unique and creative places, with the accompanying clever hashtag. Innocent enough, right? Not so fast.

Cole Haan created the #WanderingSole challenge within the context of a contest, the winner of which would be awarded a $1,000 Cole Haan shopping spree. And that’s when the Federal Trade Commission (FTC) stepped in — slapping Cole Haan with a warning that it was in violation of Section 5 of the FTC Act for failure to disclose a material connection between Cole Haan and the endorsers.

“We believe that participants’ pins featuring Cole Haan products were endorsements of the Cole Haan products, and the fact that the pins were incentivized by the opportunity to win a $1,000 shopping spree would not reasonably be expected by consumers who saw the pins,” the FTC wrote in a March 20, 2014, letter to Cole Haan. “Moreover, we were concerned that Cole Haan did not instruct contestants to label their pins and Pinterest boards to make it clear that they had pinned Cole Haan products as part of a contest. We do not believe that the ‘#WanderingSole’ hashtag adequately communicated the financial incentive — a material connection — between contestants and Cole Haan.”

The FTC originally issued its endorsement guidelines in the 1980s, but in 2009, the Commission updated the Guides Concerning the Use of Endorsements and Testimonials in Advertising to address endorsements in social media, such as products reviews, blogs and tweets. Specifically, the FTC wanted to make it clear that if a company asks someone to endorse its product on social media sites — even though the endorsements may not look like traditional advertising — those posts are subject to the endorsement guidelines.

While the Cole Haan situation was the first time the FTC addressed the issues of whether a contest is a form of material connection between an advertiser and an endorser under the FTC Guidelines, or even whether a pin can constitute an endorsement, it serves as a reminder to companies and their employees about the FTC’s requirements when endorsement are made on social media sites.

First, advertisers and endorsers must disclose any material connection between the advertiser and the endorser. If an endorser receives a product for free with the expectation on the part of the advertiser that the endorser will use and review the product, the endorser must disclose that information if a “significant minority” of consumers would otherwise be misled about the nature of the relationship. The moment there is a material connection — when something changes hands (a free product, free meal, or, in the case of Cole Haan, the chance of a $1,000 shopping spree) — the rule on disclosure of material connection applies.

Second, advertisers and endorsers must provide a clear and conspicuous disclosure. In the Cole Haan example, the endorsers (consumers posting pictures) only tagged the posts with #WanderingSole, which did not clearly communicate that the endorsers were motivated to post pictures of the Cole Haan shoes because they were in a contest. Somewhere in the body of the endorsement — Tweet, blog post, Facebook update, etc. — the endorser must clearly state that the product or service being endorsed was provided by the advertiser at no cost or with the expectation of a reward. The disclosure must not be hidden in a separate post or a different page on the site. For example, #paidad in a Twitter post or a sentence within a blog entry stating that the reviewer received the products for free from the advertiser should suffice.

Additionally, with regard to testimonials that specify certain results, the FTC Guidelines specifically require disclosure of the typical results that consumers can generally expect from the use of the product or service.  Prior to the 2009 revisions to the Guidelines, advertisers were permitted to describe unusual results as long as they included the disclaimer “results not typical.” That safe harbor no longer exits. Furthermore, advertisers need to monitor the length of time that an endorsement is used in order to ensure it remains relevant. For example, if a celebrity touts a diet product, once the advertiser no longer has good reason to believe that the celebrity is still using the diet product, the advertiser must also discontinue running that campaign.

While it is critical that marketing departments and senior management are aware of the FTC Guidelines and implement them in social media endorsement posts, it is also important that companies clearly communicate to employees what they can and cannot post with regard to endorsements, and require that they disclose their employment status when they do endorse an employer’s product or service.

There are several steps that legal departments can take to help keep their companies on the straight and narrow with respect to FTC Guidelines:

  1. Reinforce the fact that social media endorsements should be treated just like traditional advertising. The endorsement guidelines apply to social media just as they apply to print, radio, or television advertising.
  2. Ensure that material connections are disclosed in a way that is clear and conspicuous.
  3. Police the content. Make sure the legal department is reviewing social media posts and offering guidance just as it does with traditional advertising.

The law is always slow to catch up with technology. By contrast, social media, like email, is less formal and moves very quickly. As a result, it is easy for companies to forget to consider what rules apply.

As for Cole Haan, it got off easy. Being the first time this issue came up before the FTC, the Commission stopped short of fining or recommending other enforcement action for its #WanderingSole campaign. Furthermore, the FTC noted that Cole Haan had since adopted a social medial policy that adequately addressed the FTC’s concerns regarding compliance with the Guidelines. The next company may not be so lucky.