October 01, 2019 Best of ABA Sections

Influencers: What Every Brand and Legal Counsel Should Know

Mark Goodrich and Jason Howell

The growth of social media and “influencers” represents a sea change in how brands, celebrities, spokespersons, and consumers interact. An “influencer” is any person with credibility who can influence the opinions or purchase decisions of others. Influencer campaigns create a number of legal challenges to navigate, and in particular make it difficult for consumers to discern whether the influencer simply likes a product or is being paid to promote the product. As a result, the Federal Trade Commission (FTC) has made “endorsement” compliance a point of emphasis in recent years.

FTC endorsement standards. The FTC establishes requirements and principles for brands and influencers in its “Guides Concerning the Use of Endorsements and Testimonials in Advertising” (Guides) and “The FTC’s Endorsement Guides: What People Are Asking” (FAQs). The Guides and FAQs include examples and applications related to endorsements, which encompass three principles: (1) endorsements must reflect the honest opinions, findings, beliefs, and experiences of the endorser; (2) advertisers must not make claims through endorsements that would be false, misleading, or unsubstantiated if made directly; and (3) influencers and advertisers must disclose material connections. “Material connections” are any relationships that would impact the weight or credibility that the audience gives the endorsement.

Disclosures must be clear and easy for the audience to read and understand. A simple statement about the relationship is often the best option, while unambiguous hashtags would also be permissible on social media.

Recent developments. In April 2017, the FTC sent 90 “educational letters” to marketers and social media influencers reminding them that they must disclose material connections. In September 2017, 21 influencers received follow-up warning letters regarding potential failures to disclose their material connections with brands. Also that month, the FTC brought its first enforcement action directly against social media influencers for failing to disclose in social media postings that they jointly owned the company, passing off their commentary as independent opinions of impartial users. While these influencers were also owners, brands may use this case, together with the warning letters, to convey to influencers that their disclosure obligations are essential.

The FTC issued updated FAQs in September 2017. A few key takeaways follow: (1) use clear and unambiguous disclosure language; (2) do not bury disclosures; (3) comply with the FTC Guides when tagging a brand; (4) consider all potential material connections; (5) require disclosure of any connection that would be relevant to how the consumer views the endorsement, including free travel or accommodations, familial relationships, free products, and payment; and (6) disclose in images on image-only platforms.

Historical enforcements. In addition to injunctive relief and, in some instances, consumer redress, the orders obtained in recent FTC enforcements of influencers and endorsers establish: (1) five years of recordkeeping obligations along with a requirement to respond to FTC requests for information; and (2) a 20-year life of the order related to certain advertising restrictions and obligations. In other words, a violation of the Guides often results in regulatory scrutiny of a brand’s marketing practices for decades.

The FTC sometimes decides not to file an action and instead issues “closing letters.” The common theme across closing letters is that each business had a strong compliance program and/or a compliance-focused social media policy. Therefore, strong compliance programs significantly reduce the risk.

Related legal compliance considerations. Brands should discourage influencers from using third-party content without permission when promoting the brand, including photos, videos, or other content that contains third-party trademarks, copyright-protected material, publicity rights, or other personal or proprietary rights. At a minimum, brands must set expectations in terms and codes of conduct, and such terms should prohibit infringement of third-party rights.

Relatedly, brands must determine the appropriate agreement based on the relationship. As a general rule, brands and their counsel should consider: (1) the expectations for the influencer’s services or role; (2) the influencer’s compliance obligations under the Guides; (3) the compensation or benefits that will be provided; (4) any term or termination rights; (5) trademark licenses and/or any required approvals; (6) intellectual property ownership; (7) releases from liability and indemnification (if applicable); and (8) whether exclusivity is required.

Influencers may also initiate contests or sweepstakes or make other promotional offers on behalf of the brand. Such influencer promotions are subject to state and federal promotion and consumer protection laws, social media platform rules, and the FTC Guide’s requirement to use a #contest or #sweepstakes disclosure. Violations by the influencer while promoting the brand also present liability for the brand. Therefore, when requesting such promotional activities, the brand should remind the influencer of his or her compliance obligations under promotion laws, including posting official rules and certain disclosures of key terms.

Finally, when making claims related to drugs or other products regulated by the Food and Drug Administration (FDA), influencers must comply with FDA regulations.

Compliance tips for influencer programs. The FTC requires brands to have “reasonable programs in place to train and monitor” influencers. A few examples of best practices follow:

Establish a social media and influencer policy. Brands should draft an internal social media and influencer policy that establishes guidelines for the company to follow when engaging influencers and promoting the brand online.

Develop and distribute an influencer code of conduct. This code of conduct informs influencers with material connections about their endorsement obligations and how to satisfy them.

Monitor periodically. Brands are required to make a “reasonable effort” to know what influencers are saying. Brands should periodically monitor their influencers and should take action to stop any advertising that is false or unsubstantiated or does not disclose the influencer’s material connection with the company.

Provide training. Brands should offer onboarding training on the FTC requirements to employees, vendors, and agencies, and offer periodic refresher trainings to remind individuals about their obligations.

Consider desired oversight and the scope of the influencer relationship. Certain influencer relationships require more oversight. Brands should consult with legal counsel for the best way to structure each type of relationship.

ABA SECTION OF INTELLECTUAL PROPERTY LAW

This article is an abridged and edited version of one that originally appeared on page 12 of Landslide®, September/October 2018 (11:1).

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Mark Goodrich

Mark Goodrich is an associate with Perkins Coie LLP in Seattle, Washington.

Jason Howell

Jason Howell is a partner with Perkins Coie LLP in Seattle, Washington.