Why Contest Hashtags Can Get You in #LegalTrouble

Cause marketing is a popular technique for promoting sales. Brands frequently advertise that they donate a percentage of sales to a charitable cause, particularly using social media to spread the word of their good deeds. In so doing, brands become a co-venturer with the charity and have certain legal obligations under a wide variety of charitable solicitation laws.

Participants competed for a $1000 shopping spree by creating boards pinning five shoe images from Cole Haan and five images of their “Favorite place to wander.” The contest required pins to be labeled with the hashtag “#WanderingSole.”

Section Five of the FTC Act and the Endorsement and Testimonial Guidelines both require advertisers to disclose a material connection between the brand and the endorser. In Cole Haan’s case, the FTC found that the opportunity to win the $1000 prize constituted a material connection between the contestants and the brand. The FTC decided that the mere chance that the consumer might win as a financial incentive in need of disclosure.

The FTC’s reasoning raises several questions for which we do not have definitive answers:

• What if the prize had not been “significant,” as the FTC termed the $1000 prize? What if it were a $25 a gift card? Would the FTC still have found a material connection? We have no way of knowing how the FTC would react to different types of prizes. Some would argue that despite the size of the prize, if a contest is sufficiently popular, odds of winning are slim anyway. In this case, is the FTC correct in finding a material connection? Unfortunately, it would take a test case in court to resolve some of these issues. For now, brands need to assess their own risk tolerance.
• The FTC declined to take enforcement action given the small number of contestants. Should brands with short-term, low visibility promotions assume that they, too, can evade legal enforcement?  Not necessarily. Now that the FTC has publicized its closing letter with Cole Haan, it will deem all brands on notice of the issues presented in this case.
• Another reason the FTC cited for failing to pursue Cole Haan is that it had not previously addressed a “pin” as an endorsement. Is the FTC closing letter here just commenting on Pinterest promotions? Most likely not. In the Ann Taylor case several years ago, the FTC noted that a sweepstakes entry could be seen as a material connection between the brand and the consumer, but that was not opining on a specific social media platform. Does Cole Haan’s closing letter mean that “like” to win promotions are also at risk? Facebook “likes” seem safe for the moment, but hashtag promotions on Twitter and other platforms may be more at risk.

Steps to take:

• When planning a hashtag entry for a sweepstakes or a contest, work with your legal team to determine what hashtag will satisfy both the FTC’s Endrosement and Testimonial Guidelines and the FTC’s DotCom Disclosure Guideslines.
• Consider the implications of the Cole Haan closing letter for other kinds of social media promotions. Work with your legal team to decide what kind of risk your brand is willing to accept.
• Make sure your legal team has created a social media endorsement policy that the brand can distribute and enforce with all third parties interacting with the brand. Time and time again, the presence of an adequate social media policy as saved brands from FTC enforcement action.