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Social Media and Advertising

Issues

Jonathan Flintoft, Baker & McKenzie

Rebecca Bedford, Minter Ellison

1

Introduction

1. Contractual issues

• Addressing social media advertising in the

franchise agreement

• Impact of permitting online/ social media

advertising on other terms of franchise

agreement

2. Regulatory issues

• Issues with testimonials

• Native advertising and use of bloggers

2

CONTRACTUAL ISSUES

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What does the franchise agreement

say?

• Does the agreement permit or prohibit internet

advertising by the franchisee?

• Does the agreement expressly deal with use by

the franchisee of social media?

• Example:

Franchisee shall use advertising techniques such as

event sponsorships, joint promotions and internet/

social media channels, as well as printed media

– appears to permit use of social media by franchisee

– but rights are potentially broad and unfettered

4

What does the franchise agreement

say?

• The agreement should

– make it clear what can/cannot be done on

social media

– be broad enough to cover advances in

technology

– address ownership of content/ use of IP on

social media platforms

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Approaches to social media advertising

in franchise agreement

1. Use of social media controlled by franchisor/ no rights for franchisee – franchisee prohibited from establishing website or

social media account relating to franchised business or products/ services

– sole right of franchisor to set up and control website or social media presence

– franchisees may have limited participation – eg. ability to make posts, links to franchisee websites

– likely to be applicable where franchisor in-country and/or has franchisor operated franchises

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Approaches to social media advertising

in franchise agreement

2. Use of social media permitted by franchisee

– may be appropriate where franchisor has no in-

country presence or operations

– local social media pages may be an effective

marketing tool and assist with engaging local

consumers – eg. through competitions

– franchisor should consider carefully what rights

franchisee should have to operate in social media and

ensure there are appropriate controls in the

agreement

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Considerations for franchise agreement

• Controls over social media platforms that may be used

– franchisor consent in all cases?

– Facebook only? what about Twitter, Instagram, Pinterest, etc?

– blanket permission may be problematic in view of likely future

changes

• Responsibility for costs of setting up and maintaining

social media pages

• Approval of user names/ content by franchisor

– eg. user name should indicate particular territory

– pre-vetting of content by franchisor before uploading

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Considerations for franchise agreement

(cont.)

• Responsibility for creation/ management of content

– clear statement to users that page is run by franchisee

– compliance with laws and rules of particular platform

– complaint handling/ take down procedures

• Provision of content by franchisor

– can franchisee only use content provided by franchisor?

– consider whether appropriate in particular market

• If franchisee is permitted to create content, who owns it?

– owned by franchisor to extent refers to franchisor’s trade marks,

products, etc?

• Obligation to comply with franchisor’s directions

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Considerations for franchise agreement

(cont.)

• Specific indemnity by franchisee in favour of franchisor?

• Procedures on expiry/ termination

– transfer of social media accounts to franchisor (to the extent

possible)

– termination of accounts

– transfer of content

→ rules of the particular social media platforms will be relevant

Note: social media policies should be regularly reviewed

and updated due to the frequent changes to the rules of

use of the various platforms and likely changes to the

types of platforms available

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Impact on other terms of agreement

• Territories

• Restraints of trade

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Territories

• Tension between the traditional idea of the

franchise territory and the ‘borderless’

nature of the internet

• Drafting of territory clauses going forward

will require fresh thinking

• But risks remain where franchisors are

operating under outdated agreements

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Territories

• ‘Virtual’ encroachment

• The sorts of claims franchisors may face

have not significantly changed from those

made in ‘traditional’ encroachment cases

• But the risks of franchisor liability have

increased because of the growth in online

commerce

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Territories

• Legal risks to franchisors flowing from

online activity:

– breach of the franchise agreement

– misleading or deceptive conduct and related

claims under the CCA

– unconscionable conduct claims

– claims based on good faith

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Territories

• Case study – Video Ezy

• Poorly drafted territory clause – [the franchisor will not] carry on the trade or business

...within the territory...

• Franchisor argued sales ‘into’ the territory were not sales ‘within’ the territory

• Court rejected the argument

• Breach of: - territory clause

- implied term of good faith

- unconscionability provisions of CCA

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Territories

• How to mitigate the risks?

– Terms clearly permitting sales into the territory

(cf. the poor drafting of the Video Ezy clause)

– ‘Marketing’ as opposed to sales and

distribution territories

– Careful analysis of existing franchise

agreement before franchisor undertakes

online operations

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Territories

• Issue of franchisees encroaching on each

other’s territory

• Different models to give franchisors control

of online operations:

– ‘absolute’ control

– control of ‘public face’ of online operations

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Territories

• Important to consider competition issues

associated with online sales

• Note amendments to Franchising Code

regarding disclosure of online operations

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Restraints

• Key problem is that traditionally drafted

franchise clauses may be easily

circumvented by former franchisees using

online operations

• Need to draft in order to capture online

activity – but this potentially increases the

risk of the clause being found to be

unenforceable

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REGULATORY ISSUES

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Online testimonials

• Risks in the franchising context

• Brand damage

• Astro turfing

• Commercial risks:

– inconsistent messaging

– degradation of the brand and other intellectual

property

• Vetting may be reduced

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Online testimonials

• Legal risks:

– misleading and deceptive conduct under the CCA

– specific prohibitions against false or misleading

representations

• Even unsolicited testimonials may give rise to

franchisor liability where:

– the franchisor is aware of the testimonial;

– the franchisor has the ability to remove it; and

– the franchisor fails to take steps to remove it

22

Online testimonials

• ‘Online review platforms’

– Urbanspoon and TripAdvisor are popular examples

• Risks associated with franchisors’ encouraging the posting of online testimonials on third-party sites

• Electrodry proceedings currently before the Federal Court provides a good example

23

Online testimonials

• Electrodry:

– Carpet cleaning franchisor

– ACCC brought proceedings in July for misleading or deceptive conduct/false representations

– Proceedings still before the Court

– Allegations that Electrodry instructed a contractor and franchisees to post fake testimonials on various online review platforms:

• Amazing Job!

• Fantastic Result!

• These guys are the best cleaners!

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Online testimonials

• Allegedly issued a manual to franchisees on how to post fake reviews

• Provided ‘template’ reviews

• Asked that mobile phones be used so that IP addresses would be different

• ACCC alleges: – Electrodry made false or misleading

representations through the contractor

– Electrodry induced or attempted to induce its franchisees to make false or misleading representations

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Online testimonials

• Potential risk management strategies for franchisors: – Adjusting settings of social media accounts

– Proactive monitoring of social media

– Clear ‘digital standards’ policy

– Contractual take-down powers

– Breach notices for a breach of digital standards policies

– Tightening of definition of ‘advertising’ and ‘promotion’ to cover social media

– Contractual obligations on franchisees to monitor social media

– Franchisee training as to risks of social media/online testimonials

26

Online testimonials

• ACCC guidelines: What you need to know about online reviews – a guide for businesses and review platforms

• Key points in franchising context: • Avoid encouraging friends and family to write reviews without

disclosing the connection

• Avoid soliciting others to write reviews when these people have not actually used the relevant product or service

• Avoid offering incentives for positive reviews

• Always disclose commercial relationships

• Avoid selective editing of reviews

• Useful tool for franchisee training

27

Native advertising/ blogger issues

• What is native advertising?

• Examples

– “sponsored” tweets

– bloggers as brand ambassadors

– incentivising consumers to make posts (eg. in context of competitions)

• Increasingly valuable marketing tool

28

29

Kangaroo Island: “Cash for Tweets”

• None of tweets revealed that “celebrities” were paid to post the tweet or that the tweet was connected to a South Australian Tourism Commission campaign

• Bad publicity for SATC

– featured on ABC’s MediaWatch programme

– triggered large number of negative tweets and comments from consumers

• ACCC statement: celebrities do not necessarily need to disclose that they are being paid but it was important that in all instances celebrities’ tweets or Facebook posts were truthful – out of step with approach in other countries?

30

UK approach • Consumer Protection from Unfair Trading Regulations 2008 -

specific prohibitions

– using editorial content in the media to promote a product where a trader has paid for the promotion without making that clear in the content or by images or sounds clearly identifiable by the consumer (advertorial)

• UK Code of Non-broadcast Advertising, Sales Promotion and Direct Marketing

– marketing communications must be obviously identifiable as such

– marketing communications must make clear their commercial intent, if that is not obvious from the context

– marketers and publishers must make clear that advertorials are marketing communications; for example, by heading them "advertisement feature"

31

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UK approach (cont.)

• UK Advertising Standards Authority ruling

– not a breach of the Code

– initial out of character tweets did amount to a

marketing message

– but, considering that consumers would understand

each series of tweets was a marketing communication

when viewed in its entirety, acceptable that preceding

tweets were not individually disclosed as adverts

• all tweets made within 1 hour

• final tweet featured #spon

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Other jurisdictions

• New Zealand – Advertising Standards Authority

Guidance Note on Social Media

– paid for Twitter endorsements must include #ad

• US – FTC.com Disclosures Guide examples

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Australian approach

• ACCC Online Reviews Guidelines (December 2013)

• Guiding principles

1. be transparent about commercial relationships

2. don’t post or publish misleading reviews

3. don’t omit or edit negative reviews (this can be as misleading as posting fake reviews)

• Directed at online consumer review platforms but also relevant to native advertising

• No prescriptive requirements as in US and NZ

• Application of s.18 of the ACL – will ACCC become more active as use of native advertising increases?

35

Contractual considerations

• Could obligations in Talent Agreement restrict

expression of genuine views? – for example

– obligations not to make negative comments/ damage

brand reputation

– requirements to pre-vet or edit content

– use of content provided/ required by brand owner

• Consider including obligations for talent to base

reviews on actual experience/ genuinely held

views

• Care in exercising rights to edit/ remove reviews

and posts

36

Considerations if engaging in native

advertising

• Carefully consider whether paid endorsers should be required to disclose their relationship with the brand and, if so, the appropriate form of disclosure (Ad: / #ad seems safest) – needs to be weighed against possible loss of integrity and

spontaneity in social media context

• Level of risk involved and appropriate form of disclosure may vary depending on the endorser’s celebrity status and the context of the marketing communications – the more famous the celebrity, the more likely consumers would

understand they are being paid to endorse brand

– consumers are more likely to recognise paid endorsements in traditional media (eg. TV commercials) than in social media

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Considerations if engaging in native

advertising (cont.)

• Consider requiring consumers participating in

promotions to clearly reference the brand/ competition in

promotion social posts

• Make it clear to ambassadors that they should only make

honest representations based on their own experiences

and views

– but risk of negative comments

• Think twice before imposing obligations on brand

ambassadors to only post positive comments about the

brand, or before vetting negative posts

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Questions?

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