Editor’s Note: This blog post is a joint submission with BakerHostetler’s Data Privacy Monitor blog.

Authored by: Gerald Ferguson and Alan Pate

In a March 20, 2014 closing letter sent to fashion company Cole Haan, the FTC warned that use of the hashtag #WanderingSole in conjunction with a recent Pinterest contest did not adequately communicate the “material connection” between Pinterest contestants and Cole Haan and violates Section 5 of the FTC Act. Although the FTC declined to bring an enforcement action against Cole Haan, the findings of the letter have important implications for brands running contests and promotions on social media.

Cole Haan’s contest rules instructed contestants to create Pinterest boards titled “Wandering Sole” and pin five Cole Haan shoe images to the board. Contestants were also required to post their “favorite places to wander” and include the hashtag #WanderingSole in each pin description. The most creative qualifying entry would receive a $1,000 shopping spree from Cole Haan.

In the FTC’s closing letter, the FTC found that each Pinterest board was in fact an endorsement of Cole Haan products. Prior to sending the closing letter, the FTC had conducted an investigation into whether Cole Haan’s contest violated Section 5 of the FTC Act by soliciting these entries. Pursuant to its authority under Section 5 of the FTC Act, the FTC requires the disclosure of any material connection between a marketer and an endorser when their relationship is not otherwise apparent. According to the FTC, the financial incentive to pin Cole Haan products (i.e. the $1,000 prize) was a material connection between Cole Haan and contestants. The FTC stated that it did not believe that the use of “#WanderingSole” adequately disclosed this material connection to others who may view the entry boards.

Ultimately, the FTC declined to bring an enforcement action against Cole Haan. The FTC cited, among other considerations, the fact that the FTC had yet to publically address whether an entry into a contest is a form of material connection or whether a pin on Pinterest may constitute an endorsement.

Although the FTC did not bring an enforcement action in this case, it has now given clear notice to the business community on this issue. It is likely that the FTC will pursue enforcement actions against brands that fail to adequately disclose such material connections in the future. Accordingly, brands running contests on social media should be cautioned to clearly and conspicuously display contest rules and notices on any social media pages where they host and promote their contests. Further, brands may be advised to include the word “contest” or “sweep” in any hashtags associated with their sweepstakes or contest entries.

For more information on complying with the FTC’s rules on endorsements, see the FTC’s revised Guides Concerning the Use of Endorsements and Testimonials in Advertising.