Today's online celebrities—both verified and aspiring—can now become product sponsors with the help of a social-media account, a picture-perfect aesthetic, and several hundred thousand followers. The influencer marketing industry is a multibillion-dollar industry according to some industry reports stating it is projected to generate $2.6 billion by 2020. With the number of brand-sponsored influencer posts expected to surpass six billion in 2020, it is no surprise that consumer-facing companies have realized the power of leveraging social-media influencers to market their products to an algorithm-curated audience.
Social media remains an ideal platform for attracting prospective customers, but participating companies must be aware of regulatory guidelines that apply when sending products and promo-codes to online personalities agreeing to post highly visible endorsements.
FTC Endorsement Guide
Consumer regulatory agencies have long been monitoring compliance of online endorsements. The FTC's Endorsement Guide addresses the application of Section 5 of the FTC Act (15 U.S.C. 45) to the use of endorsements and testimonials in advertising. For influencers and advertisers to be in voluntary compliance with the law, the FTC Endorsement Guide recommends several important practices, including that:
- Influencers be bona fide users
- Endorsements reflect honest opinions
- Material connections be disclosed prominently above the "more" button and not buried among other tags, hashtags, or links such that consumers are required to search for disclosures
- Influencers avoid ambiguous disclosures
Warnings and Enforcement Actions
In April 2017, the FTC demonstrated that it was monitoring the accounts of popular influencers by sending out more than 90 letters to celebrities, athletes, and other influencers to educate them regarding their responsibilities under FTC Endorsement Guides and other advertising laws. And in September 2017, the FTC sent warning letters to 21 of the influencers previously contacted, citing specific postings of concern.
Consumer advocacy and self-regulating advertising groups have also been monitoring influencer non-compliance. For example, in 2018, the Electronic Retailing Self-Regulation Program referred direct response for Alo Yoga to the FTC after the yoga clothing line refused to respond to its advertising disclosure recommendations. And in 2016, Truth in Advertising sent a letter to the Kardashians saying it would file a complaint with the FTC if they failed to disclose their post sponsorships.
In addition to providing guidance and warnings, the FTC has also brought action against those not in compliance. In 2016, the FTC brought charges against department store chain Lord & Taylor for using online influencers to post themselves wearing the same dress but failing to require advertising disclosures in those posts. The FTC then approved a final consent order prohibiting deceptive advertisings.
The FTC also settled charges with Warner Bros. after it failed to disclose that it paid online influencers to post gameplay videos. Disclosures were in the video description but not in the video itself. A consent order required audio and text disclosures in future influencer videos.
Noteworthy is the fact that the FTC is not only bringing enforcement action against advertising companies, but also influencers themselves. In 2017, the FTC brought its first-ever case against social-media influencers, charging the owners of the CSGO Lotto site with deceptively endorsing of its online gambling service without disclosing they jointly owned the company. The influencers settled with a consent order requiring clear and conspicuous disclosure of any material connections with an endorser.
The FTC is not the only regulatory agency charging influencers for their posts. In 2018, the SEC also settled charges against professional boxer Floyd Merriweather Jr. and music producer DJ Khaled for failing to disclose payments received to promote coin offerings.
Checklist for Choosing an Influencer
The influencer industry is rapidly growing and drawing mass attention. There is no doubt that this is only the beginning of influencer industry regulation. Companies should review their marketing department practices to ensure they are asking the right questions, including:
- Have you vetted the influencer? Has your paid high-profile influencer been contacted by the FTC for failing to disclose sponsored ads? Are you working with newer influencers who may be less familiar with disclosure requirements?
- Have you set clear terms? Does your agreement state clearly how much control you have over the influencer's posts and actions? Has the influencer been instructed on how to properly use the product? Do you have a plan for posting if the influencer uses but does not like the product?
- Are you monitoring influencer posts for compliance? What are the consequences when an influencer fails to follow guidelines? Does your contract include the power to require influencers to pull content down from their channel?
These questions address just a few points companies should consider to ensure their use of influencer marketing does not also attract a following from consumer protection agencies.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
© Morrison & Foerster LLP. All rights reserved