U.S. Federal Trade Commission building. Photo: Diego M. Radzinschi/ALM

The U.S. Federal Trade Commission's recent settlement with two Georgia companies over allegations of misrepresentation in a media campaign promoting mosquito repellent to combat the Zika virus during the 2016 Rio Olympics provides some important takeaways for advertising and public relations firms.

The federal agency earlier this month announced that Atlanta-based public relations firm Creaxion Corp. and Inside Publications, publisher of Inside Gymnastics magazine, misrepresented that paid endorsements were independent consumer opinions and commercial advertising was independent journalistic content, according to the statement announcing the settlement. The companies' principals, Mark Pettit and Christopher Korotky, respectively, also were named in the action.

According to the complaint, two Olympic gold medalists engaged as endorsers by the companies posted social media endorsements for the repellent without disclosing they were paid, and the magazine reposted the endorsements, again without disclosure of the payment. In addition, according to the FTC, Inside Gymnastics ran ads for the product that were disguised as feature or other articles, while Creaxion and Pettit reimbursed employees for buying the product and posting online reviews.

Neither Pettit nor Korotky immediately returned a LinkedIn and email message, respectively, seeking comment about the allegations or settlement.

As part of the proposed FTC order, the companies and their principals are prohibited from making such misrepresentations going forward and must disclose material connections with, and otherwise monitor, any endorsers they engage, according to the news statement.

The agreement is significant, legal experts said, as a strong indication that the FTC guidelines governing product endorsements extend well beyond the product's manufacturer.

“This is a public reminder to ad agencies and publishers that the FTC is aware of the material role they can play in the development of content, and a message that 'We can hold you accountable too if you're integrally involved in developing the promotional strategy for products,” said Raqiyyah Pippins, counsel at Arnold & Porter Kaye Scholer.

She added that the FTC is more likely to pursue enforcement when the allegations concern issues related to public health as in this case.

The case also demonstrates the problem on the part of companies of devoting a portion of their website to consumer product reviews. If companies are giving any sort of emolument, even something as small as a free product, in exchange for an online review, that fact must be “prominently disclosed” on the site, said Larry Weinstein, a litigation partner and co-head of the false advertising and trademark group at Proskauer Rose.

In an email, Tami Carmichael, a partner at Olshan Frome Wolosky, added that for industry agencies and PR firms, the case highlights the “importance of having and implementing up-to-date branding and social media guidelines that clearly set forth influencer's and endorser's disclosure obligations.”

Such lessons certainly extend to the advertiser-companies themselves, said Amy Lally, a litigation partner at Sidley Austin. For starters, she said, companies and their legal departments must strongly prioritize compliance with all laws, including sponsorship laws, in their contracts with marketing firms, endorsers and influencers. But before those contracts are signed, Lally added, businesses should develop a process for vetting those marketing firms.

“If you're going to have these good, strong contracts, then review some of the work product of your marketing partners to see whether in past work they have adhered to your high standard or what your would-be strong contract language would be,” she said.