Hogan Lovells
Third-party IP use in social media

Contracting
  • Agreements with influencers and social media marketing agencies
    Terms you need to consider
  • Contracts and payments for influencers in Italy
  • Insurance considerations when partnering with influencers
    Are you covered for social media claims?
  • Social media policies
    What to tell your influencers and employees
Contracting

Agreements with influencers and social media marketing agencies

Terms you need to consider

Social media marketing has become a staple for any consumer facing brand that is looking to reach new customers or engage existing ones. And yet many brands engage social media influencers, or the marketing agencies that represent them, without formal agreements in place. Or, when there are agreements, they do not include the kinds of provisions that will protect a brand’s reputation and properly mitigate risk. In this piece, we lay out the most important terms to include in a social media marketing agreement with agencies or individuals, and some tips for working with influencers.

Why do businesses need to take note?

A written contract with a social media influencer or marketing agency should include the following:

  1. Crystal clear identification of the scope of the agreement, including the name of the social media profile where the content is permitted to be posted, the number and type of posts requested, the timing and frequency of those posts, and any requirements with respect to captions, hashtags, and tags (including their position, dimension, and color). 

    We suggest lending as much specificity as possible to the scope of the social media services procured, including whether reposts are permitted, whether the influencer can include third parties’ products in their posts, reference to other individuals or brands, and whether the social media content must be deleted after the termination or expiration of the agreement.

  2. Clear termination rights granting the brand discretion as to when it can unilaterally terminate an influencer’s activities. Termination rights should be considered under the relevant jurisdiction’s governing laws for enforceability. You should also consider including a right of termination in case of violation, by the influencer or agency, one of the core brand principles set out in the brand’s social media usage guidelines, as described in greater detail below.

  3. Broad license grants by the influencer or agency back to the brand with respect to the brand’s usage (preferably on an unlimited, perpetual basis) of the influencer’s posts and content. This enables brands to leverage social media content by influencers in other marketing campaigns and on other platforms.

  4. Adequate remedies in the event of liability arising out of the influencer’s conduct and insurance requirements imposed upon the influencer or agency. We recommend a broad indemnification provision requiring the influencer or agency to indemnify for its acts or omissions, breach of the agreement, failure to comply with laws or infringement matters - again with insurance requirements that are appropriately tailored to cover this type of liability.

  5. Clear guidelines with respect to how the brand expects its influencers to behave in the social media world, along with clear examples of content that is and is not acceptable for the brand. These guidelines should be drafted so as to be compliant with local laws. In the United States, we often attach social media usage guidelines that are compliant with FTC disclosure requirements to the agreement. In other countries, such as Italy, UK, or France, the same guidelines usually make reference to the codes or best practice recommendations issued by local authorities.

  6. Clear representations and warranties by the influencer or agency with respect to its compliance with applicable laws, with a call-out to the relevant guidelines for social media marketing in your jurisdiction that we describe directly above. Representations and warranties also should state that the influencer or agency will not infringe or violate the intellectual property rights of third parties in connection with their social media marketing activities.

The choice of the law regulating the agreement often is key and shall be carefully evaluated. Also, making reference to a specific code or best practice recommendations issued by the local authorities is useful to clearly identify to the influencer which are the standards to comply with.

Looking forward

As social media evolves, we imagine legal issues relating to influencers will continue to change with it. Increasingly, brands are moving away from traditional celebrities and celebrity influencers. From CGI-enabled influencers to “deepfakes” to the adoption of micro and nano influencer models, it will become more and more challenging for brands to mitigate risk when marketing on social media. The legal provisions that we highlight here are likely to remain relevant looking ahead, though the way we tackle these provisions will surely change. 

In this changing landscape, brands need to stay current on the latest FTC disclosure requirements in the U.S. and the relevant regulatory guidelines for other jurisdictions. Regulatory enforcement actions have shown that brands should implement regular monitoring and influencer education, and be sure to take corrective action if influencers do not heed the social media usage guidelines that have been provided.

At a European level, the general rules on fair communications and advertising apply. But they often are not enough. Thus, the advertising authorities of various Member States are adopting codes, guidelines, and best practice recommendations which are extremely helpful in understanding how to implement social media marketing correctly. Albeit these are usually non-binding self-regulatory codes – applicable only to those companies that have accepted them – they are actually followed by most of the players active on the market. The case law is crucial to follow, particularly the one of the self-regulatory bodies, which is now putting down the markers for the future.

Authors

Meryl Bernstein

Maria Luigia Franceschelli

 

Contracting

Contracts and payments for influencers in Italy

In recent years, the development of the Internet has changed the way in which many companies usually advertise their products; indeed, the web is today considered the most efficient means for marketing purpose due to its capability to reach out to a potentially unlimited audience of customers connecting through a PC or a smartphone.

Web marketing has significantly changed throughout the years: while it was originally carried out by bloggers using their own blogs to review certain products, once social networks developed, influencers started to use such social networks for their reviews. Using a social network is in fact much simpler than reviewing the products through a personal blog, since the influencers are often just requested to upload a picture – wearing a particular skirt or tasting a particular wine – with a brief description of the advertised product.

Since a specific law applicable to social media influencers does not exist, companies have to assess all the implications that could potentially arise when delivering their products to influencers for marketing purpose. In this respect, please find below a summary of the main employment and tax related aspects.

Why do businesses need to take note?

The legal relationship between the influencer and brands can be governed by different regulations depending on the activity actually carried out and the way the enterprises manage it. Under an employment law perspective, the majority of influencers are managed as self-employees. This means that the influencer is not subject to any hierarchical power of the company. Influencers can receive only products for free and/or a money compensation.

In case of money compensation, the influencer - depending on the activity carried out - can be considered as an ordinary self-employee or a self-employee of the show business making marketing and advertising activity. In such latter case, which is actually the most common one, particular obligations born on the company (such as the registration of the influencer within the labour office and the payment of the social security contribution to a special fund of the National Institute for Social Contribution called EX-ENPALS, the contribution is approximately equal to 35% of the compensation paid in whole amount by the company as withholding agent).

Under a tax perspective, beyond the ordinary tax regime in case of money compensation, two different relationships may arise in case of delivery of the company products to the influencer:

  1. an exchange (permuta) between the delivery of a product and the provision of the marketing service, if the influencer is legally obliged to upload a review of the same product through its social network after receiving it. Such transaction results in (i) a sale of the product by the enterprise, generating a taxable income equal to the value of the product, and (ii) a cost incurred by the enterprise equal to the value of the service provided by the influencer. Such cost is qualified as advertising cost and fully deductible from the taxable base for income tax purposes; OR
  2. a free transfer of the product (dazione liberale) by the enterprise to the influencer, if the review is not mandatory for the influencer. Such transaction results in (i) a sale of the product by the enterprise, generating a taxable income equal to the value of the product, and (ii) a cost incurred by the enterprise equal to the value of the service provided by the influencer. Such cost is qualified as representation cost and partially deductible from the taxable base for income tax purposes.

Having said the above, it is worth noted that executing a contract with all the specific provisions which will govern the relationship with the influencer - specifying his/her autonomy and freedom to choose timing and place to develop the activity of influencer coordinated with the indication of the company - is advisable.

Details on particular clauses recommended for agreements with influencers are described in the “Agreements with influencers and social media marketing agencies” section.

Looking forward

The influencer business is likely set to grow in the near future. The influencers all around the world showed to be very adaptable to any kind of business, market and scenario. In particular, also the lockdown due to the COVID-19 emergency is been used as an opportunity to develop the influencer activity.

The new conditions in which every sector is working in light of the COVID-19 emergency shall be analyzed and constantly checked to understand how the influencer business can help the business market.

Additional resources

https://engagepremium.hoganlovells.com/influencer/tool/influencers-tool-contracting-agreements-with-influencers-and-social-media-marketing-agencies

https://engagepremium.hoganlovells.com/influencer/tool/influencers-tool-guides-for-your-region-social-media-influencers-in-italy

Authors

Serena Pietrosanti

Elena Pellicano

Andrea Nizza

Contracting

Insurance considerations when partnering with influencers

Are you covered for social media claims?

The last few years have seen a rapid expansion in the use of social media influencers to advertise products. This is no surprise when the average earned media value is $5.20 for every dollar spent. But big profits come alongside new risks, including legal risks. As regulators catch up with this rapidly developing sector of the advertising industry, firms need to understand their liability or they risk fines that can run into the millions.

Why do businesses need to take note?

With the European adoption of the General Data Protection Regulation (GDPR) and other countries interested in following suit with similar customer data protection legislation, targeted advertising through traditional avenues has become more difficult. A potential replacement can be found in social media influencers, but B2C firms should approach this expanding opportunity with a proper awareness of any legal risks attached.

Influencers themselves can turn to insurance providers for Personal Media Profile Insurance adjusted specifically to their needs. This can cover any legal expenses and compensation costs for matters from breach of license to defamation and negligence. But coverage does not extend to the firms who hire them in the first place, leaving them to need their own insurance solutions.

One risk for firms is that companies may be held responsible for their influencers infringing the intellectual property and other rights of third parties. With more recent entrants to the influencer market not necessarily having in-depth knowledge of the relevant regulatory rules, for example, the rules on comparative advertising, falling foul of such rules is a real possibility. Firms need to recognize that they do not control the content disseminated in their name. Companies need to make sure the "advertising injury" section of the company's commercial general liability policy is not limited to content directly distributed by the company, but also includes advertisements posted on social media platforms by influencers.

Influencers also might be accused of making false or deceptive posts about the products or services provided by the firm, and if so the firm could be liable. Elon Musk demonstrated this in 2018 when he tweeted that he had "funding secured" to take Tesla private, a claim which when found to be false cost not just him $20 million in fines, but also his company an equivalent fine. It also led to lawsuits from shareholders who alleged market manipulation. Directors and officers liability insurance, or D&O insurance, could be crucial in protecting against exposure to third-party lawsuits and in providing coverage for defense costs in a regulatory investigation, particularly if it covers wrongful acts alleged against the company, directors, and officers. But this is unlikely to cover the fine itself.

The same is the case if a firm falls foul of the requirement to clearly inform consumers that what they are viewing is an advertisement. Different regulatory bodies have varying guidelines on how to achieve an acceptable level of clarity. The U.S. Federal Trade Commission (FTC) requires a post's status as an advertisement to be disclosed in the top three lines of the post – any later and mobile-phone viewers would have to click the "more" button to find out. While this may seem to be the influencer's responsibility, in 2016 the FTC still took action against the department store Lord & Taylor, LLC for failing to disclose that Instagram posts by influencers were advertisements. The UK's Competition and Markets Authority (CMA), in collaboration with the Advertising Standards Authority (ASA), has released guidelines which make clear that it too will hold brands accountable for content released by influencers they pay, whether or not the brands have any control over the material released by the influencers. The CMA and ASA have also gone so far as to threaten the possibility of not just fines, but also civil and criminal liability for those who don't comply. D&O insurance won't cover fines, but could cover any lawsuit costs.

Looking forward

As the social media influencing industry expands ever further brands can expect governments to introduce further regulatory protections for consumers – and to enforce these more frequently. And this is a trend which is likely to play out beyond the UK, and certainly in other markets. In this context, insurance coverage only goes so far, and crucially does not protect against the biggest risk of all: huge government fines.

Authors

Victor Fornasier

Clare Douglas

Contracting

Social media policies

What to tell your influencers and employees

For some time now, it has been the hot topic in the advertising industry: influencer marketing. Primarily, this young form of marketing is about winning brand or product advocates who are in demand as experts in certain subject areas. The aim is to increase the value and credibility of a company’s brand on the basis of the respective target group's trust in the influencers. Influencer marketing via social media has become a rapidly growing global market. For example, every fifth German has already bought a product advertised by an influencer.

Influencer marketing is not limited to topics around fashion, food, and lifestyle. In fact, influencers are more than successful in other economic sectors. The automotive, healthcare, insurance, entertainment, and finance industries have for a long time recognized the potential of influencers for themselves and will continue to invest in this auspicious new way of marketing.

Why do businesses need to take note?

Authenticity, credibility, and honest enthusiasm

Influencers provide a robust platform for marketing a company's brands and products. Following idols on Instagram and viewing content created by social media celebrities has become a regular part of many people’s everyday lives. The opportunities for companies in almost all industry sectors to profit from collaborations with influencers have probably never been better.

However, companies also should keep an eye on the risks. If a "brand ambassador," "social partner," "brand enthusiast," or other influencer posts misleading or inappropriate content, this can have devastating consequences for a company, its reputation, and its brands. Once a video, picture, or Tweet has gone viral on the Internet, it is out there. The risks of a social media crisis are not to be underestimated. 

Better safe than sorry!

When collaborating with influencers to promote a company’s brands and products, it is of highest importance to minimize possible risks by setting up a Social Media Policy (SMP). An SMP is addressed to one's own employees to make sure they know how to engage and interact with the influencer at every step of the collaboration. This SMP is separate from a social media usage policy which companies often put in place to govern employees’ use of their own social media.

A policy might also help the influencer to understand what to do and – most importantly – what not to do. Therefore, an SMP may consist of two versions: the first for internal use, with all the information about how to deal with influencers, and the second for external use, clarifying the questions the influencers might have regarding the collaboration.

An SMP should include a few basic key points to safeguard and simplify the process of one's social media collaborations. The SMP should differentiate between the two chief ways to engage in influencer collaboration:

      1. Is a company paying the influencer (or giving something for free)?

      2. Is the company providing free products without specifically asking for something in return (but most likely hoping that the influencer will post about the product)?

With respect to question 1, the employees should check whether one of the following actions is part of the collaboration with the influencer:

      • Requesting the influencer to post content in return for money and/or free products; to be positive about or to present the brand in a certain way; to use the company's hashtags or special key messages; to use the content the company provides, or to post content in line with the company's instructions;
      • Asking the influencer for approval of the posts; for having exclusive rights to use them, or for any other form of control, especially in a way that prevents the influencer from posting about other brands and their products;
      • Engaging the influencer as affiliated "brand ambassador" or rewarding the influencer based on click-throughs to the company's website or purchases of its products.

If one or more of these actions are part of the collaboration, the company should provide the influencer with a clear summary containing all rights and duties of the collaboration, including:

The subject matter of the agreement; commencement and termination of the collaboration; execution and remuneration of the activity; provision and use of products, as well as their return; the labeling of contributions; loyalty; information and confidentiality obligations; rights of use and data protection; and the question of liability.

If the brand is providing free products without specifically asking for something in return (see question 2 above), companies should look at the relevant legal system. When sending free products to influencers, it might – in some jurisdictions – be sufficient to include a note asking them to clarify in any blog post that the product was a gift. In other jurisdictions, however, it might be necessary to label such posts prominently as an advertisement.

In both cases, if a company wants to use the influencer's posts for its own social media accounts, the company should ask the influencer for permission which might lead to a contractual relationship as outlined above. Companies should always monitor the relevant influencers to ensure they disclose their connection with the company.

Looking forward

We strongly recommend setting up at least a basic SMP for the employees and the influencers your company plans to collaborate with. If the rough framework of the collaboration is defined, the risk of unpleasant surprises can easily be minimized. A team of experienced lawyers can help setting up an SMP in accordance with the individual requirements of each case. ­­

Authors

Yvonne Draheim

Sabrina Mittelstaedt

 

Intellectual Property
  • Third-party IP use in social media
  • Trademarks as hashtags, not hashtags as trademarks
Intellectual Property

Third-party IP use in social media

Social media hashtags and handles are not exempt from intellectual property infringement claims. The fact that a trademark owner may use its trademarks as a hashtag in its own social media communications, and encourage members of the public to do the same, does not mean that the hashtag is freely available for use by your business or organization on social media posts, campaigns, or advertisements. 

Why do businesses need to take note?

Ownership of a trademark includes the right to control the nature of its use.

This includes the use of the trademark in social media and other communications, as well as in broader marketing and advertising. Use of someone else’s mark as a hashtag is subject to the same legal standards as a regular trademark use. Hashtagging someone else’s trademark does not insulate you or your business from claims of trademark infringement or offer a way to use another’s trademark freely without the owner’s permission.  For example, whether represented as “NIKE” or “#NIKE,” it still can qualify as a trademark use. Always consult your counsel before using any third-party trademarks in social media or otherwise.

Tweets or social media posts by commercial entities are different from posts by individuals. 

While individuals (not influencers) generally have free reign to post about their favorite celebrity or a company’s products or services, the same does not hold true for a corporation. Unlike a non-commercial individual, whose speech is protected by the First Amendment, when businesses communicate, it is for the purpose of conducting business and engaging in commerce, which is entitled to substantially less First Amendment protection.

Even content intended only for internal communications can result in liability.

The reality these days is that very few, if any, communications can be kept solely as internal. The risks of internal communications ending up outside the company grow exponentially depending upon your size, even with the best of intentions. And whether you intended the communication to be internal, or external, it will be considered a commercial communication entitled to lesser protection and increased risk of liability.

Posts that relate to celebrities raise concerns about that individual’s right to privacy and publicity.

Celebrity influencers get to capitalize on fame by getting paid for sponsorship and endorsement agreements with companies. Consumers know about these business relationships and make assumptions about sponsorship or endorsement when they see links between companies and celebrities/influencers on social media. Even posting a photo online of a celebrity using your product or shopping at your store can lead to infringement of rights of privacy and publicity claims. 

Looking forward

What matters is the overall commercial impression you leave with the consumer based upon your social media post (including the hashtags that you use). The key question in your mind should be “does this post suggest an affiliation, sponsorship, or other relationship between the subject of my post/hashtag and my business?” 

Remember that just because another business posted something does not mean it is available for your business to repost/retweet. The other business may have an agreement in place with the IP owner, or they could be infringing that owner’s IP themselves!


Authors

Julia Matheson

Meryl Bernstein

David Brzozowski

Intellectual Property

Trademarks as hashtags, not hashtags as trademarks

If Jane Austen were a U.S. trademark lawyer, she might say, "It is a truth universally acknowledged that a hashtag is registrable as a trademark." And Jane would be correct; the U.S. Patent and Trademark Office has stated that it will allow social media hashtags to proceed to trademark registration when the applicable criteria are met. But, rather than ask whether hashtags can be registered as trademarks, consider the inverse: Can and should registered (or unregistered, for that matter) trademarks be used as hashtags? Taking this query one step further, what are the legal and practical implications when a brand owner uses its trademark as a hashtag? What about when a third party uses another company's brand as a hashtag?

These questions are difficult to answer by reference to existing case law. And the inherent nature of social media - where a brand's identity is no longer controlled by the brand owner - is in many ways inimical to the traditional tenets of trademark law. By its nature, a trademark is a communicative vehicle. Legally, it communicates that the goods or services it identifies come from a single source and are consistent in quality and purpose. Practically, it is a repository for a host of other information for the consumer - a favorite taste or texture, a feeling, an experience, a way of being, and much more. Control is a concept entirely absent from the social media universe; once a user posts certain content (assuming his or her account is not private), it is forever in the ether, for anyone to view, repost, comment upon, retweet, abbreviate, illustrate, meme, and more. But, this is the new reality of the brand market­place. And these days, even brand-savvy and protective trademark owners are using their marks as hashtags. By doing so, brand owners are ceding potentially even more control than usual over their trademarks to the public and taking a chance with their brand's reputation and associated goodwill.

Click here to read the full article.


Authors

Julia Matheson

Meryl Bernstein

Regulatory & litigation
  • Influencer litigation risks
  • Who influences the influencers?
    Responses to FTC’s call for public comment on updates to the Endorsement Guides
  • FTC enforcement in the social media space
  • Hey influencers! The FTC is talking to you - new guidance from the FTC
  • Spilling tea at the FTC
    Increasing regulatory scrutiny of influencer marketing and an opportunity for public comment
  • New process to move SWIFT-ly at NAD on some influencer claims
Regulatory & litigation

Influencer litigation risks

The relationship between a brand and a social media influencer usually starts out like any other new relationship - heady and exciting - but sometimes it sours quickly. When it does, the fault lines are familiar. Because these relationships are, by definition, highly public, the resulting litigation can be as painful for both parties as any break-up,  but considerably more expensive. 

Companies that use social media influencers should be mindful of the ways in which their relationships with influencers may result in litigation. Brands would be well-advised to take active steps both before and after the influencer relationship is formed to avoid the most common pitfalls. 

Why do businesses need to take note?

Disputes between brands and influencers: influencers who fail to influence

Disagreements sometimes arises between a brand (or its PR firm) and the social media influencer itself. These disagreements typically share a common set of facts: disputes have erupted when the influencer has failed to make the contractually-mandated number of social media posts, failed to obtain brand approval before posting specific items, or otherwise failed to comply with contractual guidelines governing social media behavior. Disagreements also have arisen over an influencer’s failure to share analytics relating to the contracted-for social media posts with the brand or its PR firm after they are posted.    

When a conflict arises between a brand and an influencer, the brand has a difficult decision to make: whether to file a lawsuit against the influencer alleging breach of contract, fraud, or some other cause of action, thus alerting the world to the fact that the relationship has soured. Such litigation is not without reputational risk to the brand. The same market dynamics that make influencer advertising so powerful in the first place can work in reverse when the company ends up embroiled in public litigation with the influencer. For that reason, it is far preferable in most cases for brands to take active steps to avoid disagreements with influencers in the first place.

That said, several high-profile lawsuits have recently been filed against influencers, claiming that they have failed to live up to their contractual obligations. These lawsuits should serve to put influencers on notice that brands can, and will, take action when necessary to protect their contractual rights. 

To minimize litigation risks, brands should perform due diligence before selecting their influencers. They also should have in place a carefully vetted written contract that clearly spells out the expectations of both parties. When it comes to payment, brands should consider scheduling staged, partial payments to be due after completion of each post, rather than making a lump-sum payment to influencers up-front.  Sometimes, even with careful planning, disputes cannot be avoided.  For that reason, companies should consider including in their social influencer agreements a binding arbitration clause with a confidentiality restriction to keep any resulting litigation out of the public eye.  

Third-party claims against brands based on influencer behavior

Equally vexing (but potentially even more expensive) is the possibility that a brand might face a third-party lawsuit based on the actions of a social media influencer. There are a number of different types of influencer behavior that could lead to third-party litigation risk for the brand: 

First, if an influencer fails to clearly and conspicuously disclose his or her relationship to the brand (including, most principally, the fact that he or she is being compensated for the social media post), the brand might find itself the subject of a lawsuit alleging false advertising or unfair competition. This could theoretically take the form of a competitor claim, a consumer class action, or a state attorney general enforcement action.   

Notably, in cases filed by private plaintiffs alleging an influencer’s failure to adequately disclose the nature of the relationship with the brand, it may not be enough for the plaintiff to simply allege a violation of the FTC guidelines governing social media influencers. At least one court has found that, because “the FTC does not provide a right of action, [a plaintiff] cannot engineer one through [state] law.”  Nonetheless, a plaintiff might argue that an influencer’s failure to adequately disclose the nature of the relationship could independently cause consumer confusion about the nature and strength of the endorsement. In response to this type of claim, a defendant might be able to argue that consumers are savvy enough to understand (and indeed expect) that social media influencers are compensated for their promotion of particular brands. This issue is still being sorted out by the courts. 

Other types of litigation risks arise not from what influencers don’t do, but instead from what they do. If an influencer goes beyond merely promoting the brand and instead also makes derogatory comments about a competitor’s products, that could open the door for competitor claims against both the influencer and the brand for product defamation, corporate defamation, false advertising, and/or tortious interference with prospective business advantage. Similarly, if an influencer shares copyright-protected works (for example, a photograph taken by someone else) or posts a photo that includes someone else’s likeness without obtaining appropriate releases, both the influencer and the brand could find themselves named in a third-party claim for copyright infringement or invasion of the right of privacy.  

Looking forward

Like any good relationship, the one between brands and influencers is not without risk. The best way for brands to minimize influencer-related litigation risks is to take affirmative steps throughout the relationship to carefully spell out and then actively monitor the activity of influencers, seeking to ensure strict compliance with all contractual and regulatory requirements.

Author

Susan Cook

Regulatory & litigation

Who influences the influencers?

Responses to FTC’s call for public comment on updates to the Endorsement Guides

Much has changed in the world of advertising and promotions since 1980 when the Federal Trade Commission (“FTC”) first published its “Guides Concerning the Use of Endorsements and Testimonials in Advertising,” more commonly known as the Endorsement Guides (the “Guides”). The Internet has become a staple of modern life and the backbone for social media platforms, which seemingly multiply in number each day. Frequently found on these platforms are social media influencers – individuals who, through their large number of followers, trending content, or general popularity, leverage a high degree of social “influence” on other users on the platform. Influencers often monetize their reputations on social media platforms by partnering with companies to endorse products and services through sponsored posts. Despite the clear technological advancement and evolution in advertising methods, the Endorsement Guides were last amended over a decade ago in 2009. The FTC recently sought public comment on the current state of the Guides and opportunities for reinvention. 

At the close of the comment period in late June, the FTC received over 100 comments from companies, trade associations, consumer advocacy groups, and consumers. Commenters were keen on having their voices heard to shape the FTC's approach in this brave new world of advertising, particularly with respect to the behaviors of (and the FTC’s approach to) social media influencers.

We combed through the areas where the FTC requested comment and the responses received – so you don’t have to. We also analyzed the responses based on the identity of the commenter to search for common themes and were able to streamline the dozens of comments into a handful of key takeaways.  Let’s take a look at some of the issues on the commenters’ minds.

No consensus as to the effectiveness, format, and clarity of the Guides

The FTC called for comment as to the effectiveness of the Guides and whether their flexible nature should be maintained. In response, the majority of commenters call the Guides a necessary tool to navigate the maze of online endorsement activities, but insist that the Guides’ associated materials remain as guidance and not be codified into further regulations. Commenters also appear united on the need for further clarity in the Guides, specifically surrounding disclosure obligations.

Although most commenters, particularly companies, industry associations, and consumers, agree on the form of the Guides and need for greater clarity in certain areas, numerous industry associations disagree on whether the Guides are ultimately effective or not. Roughly half of the substantive comments, including those from the Association of National Advertisers and Consumer Reports, suggest the Guides are too outdated to be effective. However, many organizations favoring industry self-regulation, such as Better Business Bureau (BBB) National Programs and the Interactive Advertising Bureau, argue the current Guides are effective and should remain flexible to adapt to technological innovation.

Some argue for self-regulation, others more enforcement

The Guides currently allow significant flexibility in disclosure obligations – that is, how and where an advertiser, influencer, or endorser reveals that they have “material connection” to the brand or product they’re promoting. While about half of the commenters, mainly consumers and consumer advocacy groups, advocate for clearer, bright-line rules to standardize disclosure practices, others prefer continued self-regulation, especially within particular industries.

For example, the Entertainment Software Association (ESA) expresses specific apprehension over how stricter, uniform rules would affect the video game industry, which frequently has product endorsements in the form of long-form videos called playthroughs. Such content, the ESA argues, in which influencers record themselves playing and commenting on new games, are well understood to be endorsements among their consumer base and therefore should not be held to the same standard disclosure obligations as are applied to other goods or services.

Others, including Consumer Reports and Truth in Advertising, Inc., argue that allowing industries to self-regulate their advertising leaves room for bad actors to justify deceptive practices. These commenters contend that the FTC's current enforcement of the Guides (or lack thereof, in their view) has enabled fraudulent activity and misinformation to permeate all types of promotional material on the web, warranting more aggressive implementation of the Guides. Consumer Reports goes even further, suggesting that the FTC's authority may be insufficient to address widespread issues and legislative solutions may need to confront the violations. By contrast, other commenters, such as the Association of National Advertisers, contend that certain practices should be exempt from enforcement, advocating instead for safe-harbor provisions in the Guides so long as an advertiser follows the spirit of the Guides.

Commenters like Consumer Reports also suggest that the current media landscape actively disincentivizes social media platforms and influencers from following the Guides. Amplified engagement, even if artificial, they claim, attracts users and investors to platforms and consumers to marketers. As a result, these commenters argue, platforms and influencers should have some responsibility to monitor their content for proper disclosure practices.

Alignment as to need for clearer guidance as to social media disclosure obligations

Commenters nearly universally agree that the FTC should provide further clarity on influencers' disclosure obligations. This not only includes the types of relationships and content requiring disclosure, as well as how such disclosures should be displayed on various platforms. Many commenters request guidance on what relationships warrant disclosures. Specifically, there is concern around companies incentivizing consumer or reviewer engagement without disclosing these incentives. Commenters like BBB National Programs and the American Influencer Council also suggest that promotion and engagement through fake social media accounts should either be disclosed or prohibited.

 In terms of how to present disclosures, many commenters agree that the endorsement guides need to mention whether the default disclosure buttons provided on social media platforms are sufficient. The American Influencer Council even suggests that the FTC collaborate with the "Big 6" social media platforms – Instagram, Twitter, Snapchat, TikTok, Facebook, and YouTube – to standardize disclosure practices across platforms when displaying sponsored content.

 A call for action regarding children's advertising and consumer research for all ages

Some consumer advocacy groups, especially those with a special interest in children's advertising, strongly believe that children cannot adequately understand disclosures of material connections and, as a result, the Guides should contain targeted guidance for children's advertising, especially native advertising directed at children. Notably, groups like the Center for a Commercial-Free Childhood (“CCFC”) and Common Sense Media's policy arm, Common Sense Kids Action (“Common Sense”), propose hard line rules, such as prohibiting influencer or native advertisements to children below the age of 12 or 13. Research conducted by these commenters purport to show that most children under the age of 12 do not possess the cognitive ability to discern when an ad is an ad and, even if they can recognize content as an advertisement, they do not fully comprehend what that means.

Moreover, both Common Sense and the CCFC take issue with the practice of encouraging young people to post photos or participate in viral meme challenges that are product-based or company-driven, turning children and teenagers into unwitting influencers. These commenters believe these practices to be exploitative and inherently unfair. The BBB's Children's Advertising Review Unit (CARU) similarly agrees that the FTC should provide more explicit guidance regarding children's advertising in the age of influencers, and asks the FTC to conduct additional research to better understand children's comprehension of native content versus advertising across the numerous platforms now available to them. However, some commenters, including the Association of National Advertisers, argue against specialized guidelines for children as they could prove challenging to implement and fairly enforce.

Relatedly, commenters suggest that the FTC should itself invest time and resources into conducting more research regarding consumer understanding in the age of social media and influencers, both for children and for all consumer age groups. These commenters request additional research regarding many topics, including whether how much, if at all, incentives affect consumer reviews. Some commenters, including the Interactive Advertising Bureau, note such research has already been conducted by external trade associations, opening the door for further FTC consideration.

 Next steps

The FTC’s comment request was merely that – a call for comments in response to a number of open-ended inquiries the agency is considering addressing. There is no clear timeline for when – or even whether – the FTC would issue a notice of proposed rulemaking with revisions to the Endorsement Guides. The collection of comments makes clear, however, that the public is interested in receiving additional clarification on various aspects of the Guides and wants the agency to stay current with advertising issues in the age of social media, even if there is still a strong preference for industry self-regulation.

The Regulations.gov docket, where all public comments can be found, is located here.

Meryl Bernstein

Brendan Quinn

Regulatory & litigation

FTC enforcement in the social media space

The proliferation of social media platforms and the myriad of ever-emerging means of communication with consumers have tasked the U.S. Federal Trade Commission (FTC) with applying established norms of consumer protection to the fast-paced world of social media. A great deal can be gleaned from FTC enforcement, giving savvy brands an edge in maximizing the effectiveness of social media platforms while minimizing potential regulatory risks.  

Innovation in extending the reaches of social media involves endless possibilities and attendant risk. Understanding and mitigating risk is a two-fold exercise. First, brands must understand the FTC’s basic principles governing deceptive advertising which apply, no matter the constraints of social media (e.g., the limit on the length of a Tweet). Second, a careful monitoring and understanding of FTC enforcement is an invaluable way to learn from the mistakes of others. 

Why do businesses need to take note?

Many FTC enforcement matters involving social media have implications well-beyond specific claims or product categories. Several FTC enforcement principles involve the failure to disclose information material to a consumer’s purchasing decision. In June 2019, joint FTC/Food and Drug Administration (FDA) Warning Letters were sent to four sellers of vaping liquid containing nicotine. The FTC alleged unrelated third-parties promoted the companies’ products on Facebook, Twitter, and Instagram without disclosing that the nicotine-containing products pose a serious public health risk. Significantly, the FTC’s apparent theory of liability was that the four companies were deemed to engage in deceptive advertising even though the offending content about its products do not appear on the companies’ social media platforms. Companies need to pay attention to what others are saying about their product and take action.

During the Summer Olympics in Brazil, athletes were recruited to market insect repellant. It was alleged they did not disclose that they had received compensation for the product endorsement. The FTC alleged that the compensation paid was material information that could affect a consumer’s credibility associated with the endorsements portrayed. FTC entered into a consent agreement that will last for 20 years and exposes the advertiser to substantial civil penalties if the order is violated. 

Parties that disclose required material connections still may be the target of FTC attention when the disclosure is not clear. Social media does not lend itself well to traditional disclosure practices, but FTC is no less adamant that disclosures must appear, for example, as part of a Tweet. Similarly, a disclaimer should typically appear in the first three lines of an Instagram post when the remainder of the post is not readily visible above the “more” designation. The complexity of how to disclose advertising information in social media does not excuse non-compliance. Again, FTC enforcement is instructive.

Two additional examples reflect a sharp rise in enforcement – a trend that is likely to continue. The nature of the conduct and the entities targeted by the FTC are telling. 

  • The sellers of Geniux Dietary Supplement making cognitive improvement claims resulted in decisive FTC enforcement in April 2019. Marketing under various brand names, the products were touted to vulnerable, elderly populations promising improvement in memory and cognitive skills based on non-existent clinical studies. Allegations included use of sham news websites and fraudulent celebrity endorsements. The FTC also alleged that fake consumer endorsements were used and social media postings failed to disclose compensation to the firm placing the advertising.
  • Cure Encapsulations entered into a consent order in February 2019 after the FTC found unsubstantiated weight-loss claims promoted by a paid third-party website that was paid to write and post fake reviews on a highly visible website. The reviews were crafted to appear as actual purchaser’s opinions.

Numerous other enforcement actions taken by the FTC provide a critical place to start when crafting a new social media campaign.  

Looking forward

Social media has proven a dynamic, constantly evolving tool for brands to engage with consumers in ways that “break through the clutter” in ways unimaginable just decade ago. But the FTC’s visible enforcement efforts underscore the real-world risks to brands, by their own action or entities enlisted to promote a product.

Key messages and how such information is shared with the consumer continue to evolve, rewarding innovation of brands and benefiting consumers who want to know more and more about the origin, story, and benefits of a given product. But innovation must include legal compliance. Brands must take a strategic and creative approach working with influencers while ensuring that such campaigns do not run afoul of the FTC’s deceptive advertising mandate. 

Author

Steven Steinborn

Regulatory & litigation

Hey influencers! The FTC is talking to you - new guidance from the FTC

The Federal Trade Commission (FTC) released new guidance regarding influencer marketing. The FTC breaks down the basics of advertising disclosures for social media influencers through a series of do’s and don’t’s as to how, when, and where to disclose a “material connection” to a brand.

As social media platforms seemingly multiply by the day, savvy brand owners and their influencers alike seek new ways to engage with consumers and raise brand awareness. Yet as brands disperse their advertising among a fleet of influencers, all involved must understand and abide by basic truth-in-advertising principles. To this end, the Federal Trade Commission recently released new guidance aimed at explaining these requirements to influencers so that they – and the brands they represent – comply with federal law.

Why do businesses need to take note?

What’s happening?

The FTC’s new Disclosures 101 for Social Media Influencers and its accompanying videos represent the first time the FTC is speaking directly to influencers themselves to remind them of their legal obligations when posting on social media. These publications build upon and clarify key guidance from the FTC concerning influencer marketing, namely the FTC’s Endorsement Guides and a 2017 Frequently Asked Questions guidance document.

The new guidance comes as no surprise because FTC enforcement action against influencers is on the rise. This trend began in 2017 when the FTC sent dozens of educational warning letters to numerous influencers and settled its first formal complaint against two influencers in the online gambling industry for failing to disclose their ownership of the company they endorsed.

The FTC’s thinking

This new guidance applies to all posts – even those posted by influencers abroad – if it is reasonably foreseeable that a post may affect U.S. consumers.

As such, the FTC reiterates that it is the influencer’s own responsibility to disclose any “material connection” to a brand, which includes any personal, family, employment, or financial relationship. Financial relationships are not limited to monetary compensation but refer to the influencer’s receipt of “anything of value” from the brand, such as free or discounted products or any other perk in exchange for mentioning any product or service offered by the brand.

Even connections such as tags, likes, pins, or other similar ways of showing someone likes a brand or product can constitute endorsements that require disclosure. Influencers cannot rely on others for disclosures nor presume their followers’ knowledge of their existing relationship with a brand.

Where and how to disclose

Influencers must always ensure that consumers can see and understand a required disclosure.

  • As to placement, disclosures should be placed within the endorsement itself. Disclosures should not be mixed among a string of hashtags nor appear only:
    • on a profile page or “About Me” page,
    • at the end of a post or video or in a video’s description, or
    • anywhere that requires a consumer to click “More.”

Consumers are also more likely to notice disclosures conveyed both visually and aurally. For example, when endorsing a product during a live video stream, any disclosure should be repeated periodically so viewers who only see part of the stream receive and understand the disclosure.

The FTC is therefore cracking down on influencers who bury their disclosures at the end of posts among numerous hashtags or distract from a small-print written disclosure during an engaging video. Instead, the FTC encourages influencers to make their disclosures one of the first things consumers see or hear.

  • As to content, disclosures should be simple and clear, using terms like “advertisement,” “ad,” “sponsored,” “[Brand] Partner,” or “[Brand] Ambassador” with or without hashtags. The FTC cautions against using vague and confusing terms like “sp,” “spon,” and “collab,” or stand-alone terms like “thanks” or “ambassador.”
  • A platform’s built-in disclosure tool may not be sufficient and influencers should always consider adding their own disclosures.

Finally, influencers must also remember basic truth-in-advertising principles such as (i) don’t endorse a product you haven’t tried, (ii) don’t say you think a product is great when you actually believe it’s bad, and (iii) don’t invent claims that require proof the brand may not or does not have, such as health claims.

Looking forward

The FTC states that these disclosures are an important step towards keeping influencer recommendations honest and allowing consumers to weigh the value of influencer endorsements. This new guidance also ensures that brands and their influencers will know what to do to stay on the right side of the law and avoid enforcement action by the FTC.

With the FTC’s enforcement focus now clearly directed at influencers themselves – and not just the brands they represent – be on the look-out for more #bad #ads caught in the FTC’s crosshairs.


Authors

Julia Matheson

Brendan Quinn

Regulatory & litigation

Spilling tea at the FTC

Increasing regulatory scrutiny of influencer marketing and an opportunity for public comment

The kettle’s on at the Federal Trade Commission (FTC), where quite the storm has been brewing lately for social media influencers and their sponsoring brands. The FTC is continuing a streak of increased scrutiny for social media advertising in general, but with a stronger emphasis on the responsibility of influencers themselves, building on last fall’s Disclosures 101 for Social Media Influencers.

Big changes are ahead with the agency looking to comprehensively revise its Endorsement Guides, as well as issuing a $15.2 million judgment against a detox tea manufacturer who advertised through a fleet of well-known influencers like Cardi B and Jordin Sparks (these influencers also received individual FTC warning letters as a result of the settlement).

How should the FTC regulate influencers? Let your voice be heard!

The advertising world looks nothing like it did 40 years ago when, in 1980, the FTC first published its “Guides Concerning the Use of Endorsements and Testimonials in Advertising,” more commonly known now as the Endorsement Guides. With the advent of the internet and proliferation of social media platforms, it comes as no surprise that the FTC voted 5-0 to publish a Federal Register notice requesting public comment on the Endorsement Guides as part of a comprehensive regulatory review. The Guides were last amended in 2009.

Click here to read the full article.

Authors

Julia Matheson

Meryl Bernstein

Brendan Quinn

Regulatory & litigation

New process to move SWIFT-ly at NAD on some influencer claims

The National Advertising Division (NAD) recently announced new procedures to resolve straightforward digital advertising disputes in a matter of weeks. The new procedures – called the SWIFT process – represent a new way for advertisers to enforce against their competitors’ (or defend their own) influencer marketing practices.

The NAD is a self-regulatory body housed within the Better Business Bureau that offers an alternative venue for dispute resolution among advertisers beyond the federal courts, the Federal Trade Commission (FTC), or state regulators. Usual NAD proceedings last several months. To streamline the time to reach a decision, NAD recently developed new SWIFT (Single Well-defined Issue Fast Track) procedures to contend with single-issue claims such as:

  • The prominence or sufficiency of disclosures, including disclosures in influencer marketing, native advertising, and incentivized reviews
  • Misleading pricing and sales claims; and
  • Misleading express claims that do not require review of complex evidence or substantiation, such as a review of clinical or technical testing or consumer perception evidence

Click here to read the full article.

Authors

Julia Matheson

Brendan Quinn

Hot topics
  • The promise and peril of “kidfluencers” for your business
  • Competitors and social media
    Defamation and negative posts
  • Tapping into influencer marketing in Southeast Asia
  • Virtual social influencers
  • Influencer fraud
    How to take advantage of a growing marketing movement without falling prey to influencer fraud
  • Ins and outs of celebrity influencers
Hot topics

The promise and peril of “kidfluencers” for your business

Children with a large following on social media, also known as “kidfluencers,” are the latest trend to watch. A prime example of the rise of kidfluencers is Ryan Kaji, a seven-year-old boy who topped the list of the highest-paid YouTubers in 2018. He reportedly made US$22 million reviewing toys on his YouTube channel in a year. 

For some time now, brand owners have engaged social media stars to sponsor or advertise their products or services on social media. Brand owners may also send free samples to them for reviewing or for giveaways or sweepstakes on social media. The benefit of engaging influencers is clear – they are considered relatable to their audience and have the potential to create a direct impact on their audience worldwide.

For businesses targeted at children, kidfluencers present a valuable marketing opportunity. But, all that glitters is not gold. While social media presents unprecedented opportunities for businesses, there are also risks, particularly when dealing with children.

Why do businesses need to take note?

Businesses working with kidfluencers to promote their products, services or brands on social media should be aware of the legal issues that may arise. Issues which merit particular attention when working with kidfluencers include:

  1. Contracts
  • Capacity to enter into contracts. In many jurisdictions, minors are considered not to have the capacity to enter into a contract. Different jurisdictions may have different ages of majority, ranging from 15 to 21. As such, a contract with a minor may be voidable at the minor’s option or be unenforceable against the minor. There may be exceptions, depending on the nature of the transaction and the age of the minor. Brand owners should bear these issues in mind when dealing with kidfluencers.
  • Defining the scope of engagement. The terms of the arrangement should be set out in writing, covering issues such as compensation, platforms for the posts, frequency and duration of the posts, accuracy of the product or service being reviewed or promoted, the right of the brand owner to approve the content in advance, consequences for non-compliant posts, ownership of intellectual property in the posts, and specific obligations of the parent/guardian and the kidfluencer with respect to the content and frequency of posting.
  1. Minor protection laws
  • Prohibition on employment. Many jurisdictions prohibit employment of children under 13. There may be exceptions for employers in fields such as entertainment or advertising, subject to complying with certain conditions on the child’s well-being. Employment of older children may also be permitted, subject to compliance with conditions such as working hours.
  • Data protection laws. Social media platforms have age limitations on registration. This is because certain data protection laws only allow the processing of personal data of children if they are above a certain age.

    For example, under the EU General Data Protection Regulation (GDPR), any collection of data from children under 13 is prohibited. For a child under 16, companies can only collect and process personal data with the consent of the child’s parent/guardian. For younger kidfluencers, such data protection laws may necessitate a social media account being opened in the name of, and managed by, the parent/guardian instead of the kidfluencer.
  • Specific child protection laws. Several jurisdictions have enacted specific child protection laws that may be applicable, though it is not clear if the current laws can protect kidfluencers from excessive labor or other exploitation. A key issue is whether a kidfluencer should have any legal entitlement to a share of the advertising revenue paid to the adult social media account owner by the social media platform. To protect the earnings of child “actors,” some states in the U.S. require parents/guardians to put a portion of the child’s earnings into a trust.
  1. Advertising laws
  • Disclosure of paid content. When conducting paid or sponsored advertising, both advertisers and kidfluencers alike need to be aware of specific advertising laws that require disclosure of paid content. We typically see more and more social media stars using conspicuous captions or hashtags such as #ad, #paidpartnership, or #sponsored to make the nature of the content clear to consumers.

    Even if the place where the campaign is run does not have specific laws on disclosure of paid or sponsored content, disclosure will need to be made if the posts are likely to be seen by and to affect consumers in a place with such laws.
  • Prohibition on child endorsers, etc. Some jurisdictions may have certain prohibitions on engaging children as endorsers. For example, in China, children under 10 must not be engaged as endorsers. Advertisements for products like online games or cosmetics on media targeting minors under 18 are also prohibited. Further, advertisements targeting children under 14 must not include content which persuades their parents to purchase or any content which encourages the imitation of dangerous acts.

    False or misleading claims. A failure to comply with applicable advertising laws may lead to false and misleading advertising claims against both companies and influencers. Brands should be truthful in their advertising when working with influencers.  

Looking forward

Currently, many jurisdictions do not have a single comprehensive set of online marketing or social media laws. As such, it can be challenging to navigate the rules of the game. The relevant areas may span, for example, intellectual property law, data protection law, defamation law, contests/gaming law and labor law. Particular challenges may arise where laws are playing catch up with issues surrounding online platforms and the internet’s emerging technologies.  

In recent years, we have seen some jurisdictions pass online marketing laws aimed at protecting children. For example, in the U.S., the Children’s Online Privacy Protection Act gives parents control over what information websites or other online services collect from children under 13. The GDPR is another example. In China, amendments were passed into the Advertising Law to protect minors in advertising. With the exponential growth of social media, we can expect more and more jurisdictions to adopt laws or release guidance regarding online marketing and the protection of children which are sure to impact kidfluencer marketing.

Authors

Eugene Low

PJ Kaur

 

Hot topics

Competitors and social media

Defamation and negative posts

Using social media to advertise your products may be an extremely economical and far-reaching way to reach consumers in the modern-day world. Celebrities, copywriters, hired-guns, bloggers, vloggers, and key opinion leaders post statements about products on social media at unbelievable frequency. Consumers rely on online reviews before purchasing products. Ads are often placed within content. Social media becomes the best way to directly reach out to customers…

…Until there's a negative post, or even an intentional comeback from a competitor. Your product is described to be bad and is being accused of certain things – what can you do to protect your brand without assuming additional legal risks?

Why do businesses need to take note?

Actions can be taken against false accusations or defamatory content posted online. One point of note is to differentiate whether the statement was an opinion or an alleged fact. For instance, there is a difference between when a person claims that a snack is not tasty and a false claim that the snack contains carcinogenic substances.

Depending on the circumstances, here are some options to consider:

  • Warning/cease and desist letters – writing to the person who issued the defamatory statement would be one option. The letter will serve as a warning to the writer not to further defame you, as well as, a request that the writer take down statements. The downside with this approach is that sometimes it may not be easy to track down who wrote the comment/statement.
  • Take-down requests – you may contact the ISP, website, or webhost directly to request that statements be removed, but this is usually applicable when you cannot identify the person who posted the defamatory statements. Depending on the statements, you may have a stronger argument to take statements down when they are also infringing your intellectual property, for example: a trademark or copyright.
  • Defamation law suit – initiating legal proceedings may be helpful to recover losses caused by defamatory statements. Obtaining injunctions to prohibit any further defamatory statements are also sometimes useful. But this can be a costly – and time intensive – option.

With the surge in the popularity of social media, there is more potential to see defamation law suits based on tweets, posts, and comments made on social media. One example is Tweets accusing a food writer of desecrating a war memorial – awarded US$29,000 (Monroe v Hopkins; UK). 

Looking forward

With increasingly more complaints by companies against misleading advertisements, consumer protection has heightened in many jurisdictions. In the UK and Hong Kong, there are trade description laws that prohibit false trade descriptions for goods or services. In the U.S., false advertising laws give consumers the right to sue businesses for misleading them into purchases. In China, significant penalties against business operators will be imposed if they are responsible for false or misleading advertisements. If businesses deploy social media without caution, they could be asked to take responsibility for false claims and face grave penalties under the laws.

Looking forward, businesses should be alert to statements and comments made about them online. To identify whether the writer was a competitor, a hired-gun, or just a typical end-user, companies can pay attention to the writer's name, social media usage history, or verify whether the person has indeed purchased your goods or services. You may also want to watch out for online "sponsored posts" in case those are defaming your products – Digg, Reddit, Twitter, and Instagram have utilized sponsored posts to help users and businesses identify which posts are sponsored and paid for.

Authors

Eugene Low

Charmaine Kwong

Hot topics

Tapping into influencer marketing in Southeast Asia

Social media is transforming Southeast Asia. Fifty eight percent of the region's 635 million people are online and more than half of them are active social media users, making it the world's third-largest population with respect to monthly social media usage.

With the region's rates of social media penetration among the fastest-growing in the world, social media has become a central part of consumer brands’ toolkit to enter or conquer the Southeast Asian market. A broad range of platforms are used across Southeast Asia. Facebook is popular across all 11 countries. WhatsApp has a strong user base in Singapore and Malaysia, LINE is popular in Thailand and Indonesia, and Vietnam has home-grown platform Zalo. In evaluating customer engagement and strategies, consumer brands will need to be aware of the unique social media dynamic in the region and understand the distinct capabilities of the different platforms.

The exponential growth of social media platforms and high smartphone penetration in Southeast Asia also has created a unique e-commerce model in the region that revolves around social media, with platforms serving as marketplaces. Consumer brands have come to recognize social media as a viable channel for showcasing their products and services, from setting up Facebook pages or corporate Instagram accounts to engaging social media influencers to promote their products online – the latter of which has skyrocketed in popularity in the region.

Why do businesses need to take note?

By 2020, the Instagram influencer industry is projected to become a US$5 billion to US$10 billion market, and Instagram influencer-sponsored posts grew by 189 percent in Asia from 2018 to 2019. Social media influencers started out as A-list celebrities, but recent times have seen a significant shift in the influencer landscape to the use of micro-influencers by consumer brands. Micro-influencers are influencers who own accounts commanding between 10,000 to 100,000 followers and are often fitness enthusiasts, travellers, or the boy/girl-next-door whose profile is designed to be relatable to the everyday consumer and who often comes with a readily available network of family and friends.

In Asia, micro-influencers account for more than 80 percent of Instagram influencers. This trend has grown exponentially for a number of reasons. First, micro-influencers project authenticity. This gives the consumer a more personalized perspective of a product and appeals to millennials eschewing celebrity endorsement in favor of peer endorsement. The most successful micro-influencers market products that align with their account and their audience's interest, leading users to trust their brand endorsements are based on genuine judgement.

Second, micro-influencers generate 11 times the rate of return compared to traditional advertising, as they come at considerably less cost to businesses and can grow organically. Most importantly, this trend is driven by the fact that in lieu of the computer-based online shopping habits of other countries, Southeast Asians primarily use mobile devices to access information.

The advent of a new trend inevitably brings with it new challenges. A growing issue surrounding social media influencers is the regulation of content entering the online market. Regulators are increasingly concerned that there should be transparency of information and consumers must be made aware if posts are, in fact, sponsored advertisements.

In the United States, the Federal Trade Commission (FTC) has issued guidelines requiring clear disclosure of any relationship between the influencer and any business sponsor. In response, Instagram introduced its Branded Content Tool which allows influencers to tag their business partners and indicate that a post is a sponsored post.

Within Southeast Asia, Singapore has been a driver of regulation in this space. Other Southeast Asian nations, including Malaysia, still are seeking to introduce frameworks to control the use of social media and create a safer online environment for consumers. Given the cultural, economic and political diversity in Southeast Asia, each country in the region is likely to approach the regulation of social media commerce with differing levels of scrutiny and consumer brands must remain conscious that there will not be a one-size-fits-all solution for the region.

Looking forward

With the growing trend of social media and influencer-led advertising, the direct impact of consumer brands' use of social media on their customers remains an on-going debate. Some believe influencers directly impact customer buying decisions, while others believe the social media influencer market is already saturated and customers are so overwhelmed with recommendations that direct buying impact is difficult to gauge.

What is clear, however, is that the growth of social media in Southeast Asia is unlikely to slow down in the next five to 10 years. With a rise in micro-influencers in the social media space, the ability for regulators to effectively monitor such activity will only become more challenging. Consumer brands engaging social media influencers in Southeast Asia will need to be agile and flexible in their marketing tactics to balance the changing political landscapes, as well as ever-changing customer habits in each country in the region.

Author

Stephanie Keen

Hot topics

Virtual social influencers

In the world of social media influencers and sponsorships, 2017 and 2018 were notable for the wave of FTC enforcement activity emphasizing the need for influencers and marketers alike to familiarize themselves with and comply with FTC’s Endorsement Guidelines. In its first wave of letters, the FTC chose a kinder, gentler approach, choosing not to disclose the recipients’ identities. But, it left no doubt that it is closely monitoring social media postings for violations.

Now that some time has passed since the issuance of its Endorsement Guidelines, and familiarity with their rules and principles can be assumed, we will likely see the FTC taking a tougher stance against violators by naming names and initiating more enforcement actions. At the same time, companies are likely to continue to innovate around who they use as influencers and the nature of those communications.

Why do businesses need to take note?

The introduction of virtual social media influencers is just one of those clever innovations. Virtual social media influencers are computer-generated imagery (CGI) created to portray an ideal lifestyle or image while allowing brands to retain more control. CGI Influencers won’t say the wrong things, get caught at the wrong party, or otherwise pose a potential risk to your company’s valued image.

But, the new CGI trend also brings its own new challenges. Not only has the FTC made clear that virtual social media influencers are subject to the same truth in advertising and disclosure requirements as all other social media influencers, but the use of virtual influencers also raises intellectual property ownership concerns and morality issues. As a creative work, intellectual property ownership rights accrue to the creator of the influencer character. As a result, companies should be sure to have an agreement in place clearly outlining the ownership of such rights.

Looking forward

And while the FTC does not currently require that brands disclose whether or not their influencers are real people or CGI, guidelines to this effect may be on their way. Virtual influencers have been criticized as setting unrealistic expectations, having suspect motivations, and lacking authenticity. 

Being upfront about the nature of social media influencers can help alleviate some of these concerns.


Authors

Julia Matheson

Meryl Bernstein

Hot topics

Influencer fraud

How to take advantage of a growing marketing movement without falling prey to influencer fraud

It may be a post of a carefree teen with a new brand of mascara; a fit, relaxed-looking mom in athleisure wear; or a construction worker promoting ethically sourced coffee. Whatever post caught your eye, it represents big business. As an industry, influencer marketing is set to grow to approximately US$9.7B this year, and the average earned media value per US$1 spent has increased to US$5.89. But, along with opportunities for companies in the consumer industry, influencer marketing brings risks as well. 

What happens when that fit mom isn’t who she says she is? What if her followers are bots? Her stories fake? Her influence a farce? According to the 2020 Influencer Marketing Benchmarking Report, 68 percent of respondents claim to have experienced influencer fraud, up from 63 percent last year. And 49 percent of respondents asserted that brand safety could be a concern when running an influencer marketing campaign. So how can companies take advantage of a growing and successful method of marketing, while protecting their brand and promoting trust with consumers? It all begins with proper due diligence.

Why do businesses need to take note?

True social media influencers have followers who view their posts on websites such as Instagram or Facebook and trust their opinion on any number of topics, often relating to consumer products and lifestyle philosophies. Companies then can hire these influencers, paying them to post sponsored ads to promote a certain product or brand. Social media fraud occurs when a paid influencer uses artificially inflated followers or falsified engagement statistics in order to convince a company to hire him or her, or pay the influencer a greater amount. 

Influencer fraud can happen in a number of ways, including by:

  • Paying people to follow a social media account, or paying for engagement.
  • Purchasing services that sell automated or “bot” “likes” or comments.
  • Forming “pods” or alliances in which social media users work together to increase one another’s engagement.

Influencer fraud is more than just a waste of money; it can tarnish consumer trust. To be sure, companies rarely know that they are paying for bots when they hire a fake social media influencer. But influencer marketing works because consumers feel that real influencers are genuine, relatable, and credible. When the influencers are fake, consumers are more likely to distrust the company paying for the posts.

How to Spot a Fake

Companies can and should take advantage of influencer marketing – after engaging in appropriate due diligence. There are various services and bot detecting tools in the market, but here are some key indicators to watch for to spot a fraud:

  • High number of followers yet little engagement (i.e., likes, comments).
  • Comments are consistently low quality, with very high numbers of emoji-only or generic comments (e.g., “nice pic”).
  • Very few followers with unusually high engagement, which could suggest that the comments have been bought, particularly if the comments are low-quality.
  • Significant numbers of comments that do not relate to the post.
  • High numbers of duplicative comments.
  • High number of “likes” but very few comments.
  • Followers do not appear to be real social media users (e.g., high numbers of followers with no photographs and unusual usernames).
  • Sudden spikes in followers that cannot be explained by a major, external event.

Conversely, there also are indicators that a potential brand sponsor may be legitimate, although these indicators should be viewed holistically. No one factor should convince a company that a social media influencer is genuine.

  • They have a verified badge or blue checkmark next to their names.
  • They drive conversations with their followers in the comments about the brands and issues they are promoting.
  • They have a smaller, but engaged, group of followers. In fact, fraud aside, smaller influencers with more targeted audiences may be a wise business choice for some brands, as nano-influencers (often defined as having 1,000 – 10,000 followers) and micro-influencers (often defined as having 10,000 – 100,000 followers) tend to have better engagement statistics than influencers with higher numbers of followers.
  • A mix of generic comments and specific, relevant comments.
  • Follower increases appear organic over time.
  • Influencers are otherwise engaged on social media, including communicating with other social media influencers.

Looking forward

Companies may choose to keep a record of any influencers deemed fraudulent and why, so as to streamline the vetting process for the future. Proper due diligence requires time and resources, but the additional effort on the front-end of the process can be invaluable for a company looking to maximize its resources through social media influencer marketing. Influencer marketing is on the rise with no sign of abating, soon to become a US$10 billion industry. With careful planning and due diligence, companies can take advantage of this burgeoning marketing opportunity, without falling prey to influencer scams.

Hot topics

Ins and outs of celebrity influencers

When partnering with influencers, companies need to be careful about the type of influencer to pursue. Experts classify influencers according to their individual reach, their engagement rate, or their influencing skill base. With regard to reach, influencers can be divided into five groups: mega-influencers (more than 1 million followers), macro-influencers (500,000 to 1 million followers), mid-tier-influencers (50,000 to 500,000 followers), micro-influencers (10,000 to 50,000 followers) and nano-influencers (1,000 to 10,000 followers).

By differentiating influencers based on their influencing skill base, companies can distinguish authority, niche, and celebrity influencers. The latter have the ability to affect culture and groups en masse. They embody a certain lifestyle that followers or fans aspire to have in some small or greater part, and they aim to have their fans join them.

Why do businesses need to take note?

The most significant advantage of working with celebrity influencers is increased attention for the company's products or services. But there are other positive aspects that could lead a company to selecting a celebrity influencer over another social media star, including the celebrity’s experience with legal contracts. It seems likely that a more professional partnership is possible, assuming celebrity influencers often work with a legal team or agency and are familiar with the customs of legal partnerships. As it is highly recommended to include written contracts with influencers, such legal background may help ensure the agreements are accurately fulfilled. Additionally, media coverage about the partnership could lead to increased attention for the company's products or services.

However, the overall engagement rate – the rate that indicates how strongly the group reached by the influencer reacts to a specific post – is rather low for celebrity influencers. Followers tend to be diverse and rarely personally connected with the celebrity influencer. In this regard, the potentially higher costs of engaging such influencers might not amortize. Because of these trends, companies have been turning less to A-listers to promote their products and services and more to micro- or even nano-influencers who have access to a particular target audience.

Working with celebrity influencers also might include some loss of influence over what is said about the product, how it is said, and when it is said. Potentially, a product could not only become a big seller overnight; the image of it also could be destroyed forever by one unflattering post. Hence, reputational damage could be quite considerable if the high-profile endorsement fails.

Lastly, the influencer marketing business is based on authenticity. Celebrity influencers may appear inauthentic, especially if they work with several companies promoting competing products. Compared to nano-influencers who focus on a specific topic or product, it is questionable whether celebrity influencers can claim their endorsements are genuine if they highlight the advantages of several different products.

Looking forward

The company-influencer relationship and the circumstances could vary significantly by situation. While it could make sense to engage a celebrity influencer at the beginning of a campaign to gain broad attention and exposure for the product or service, it also could make sense to focus on micro- or nano-influencers for later campaigns to better reach the target audience.

In any case, companies should establish internal social media policies and draft agreements with celebrity influencers to gain legal certainty and avoid any liabilities. From a public relations perspective, companies also should consider carefully vetting celebrity influencers they plan to work with to avoid any negative surprises.

Authors

Yvonne Draheim

Sabrina Mittelstaedt

Guides for your industry
  • Influencers in the fashion industry
  • Influencers in the pharmaceutical and medical device industry
Guides for your industry

Influencers in the fashion industry

Find the price of a hot new product. Learn how the latest and greatest gadgets work. Compare consumer experiences.

Increasingly, the public turns to the Internet to find out all of these things, and specifically, to social media. As a result, social media platforms such as Facebook, YouTube, Twitter, Instagram, and Pinterest have become the place for consumer-facing companies to promote their products and services.

Unlike more traditional media, social media marketing allows companies not only to advertise their products, but also to interact directly with consumers to obtain feedback about their products and monitor the impact. Plus, they can see firsthand consumer reaction to messaging.

And while companies have long understood the impact of individual recommendations over more corporate-style messaging (i.e., “I’m not a doctor but I play one on TV”), companies are turning less to A-listers to sponsor their products and services and more to a new type of social media influencer: the micro-influencer, a person with access to a particular target audience.

While a “micro-influencer” may be a celebrity, that consideration is often secondary; the real appeal of micro-influencers is that they share the same condition, or fall within the same category, as the people to whom they are speaking. For example, micro-influencers can be doctors who treat a particular type of condition or disease; a mom who actively blogs about the best ways to clean her kids’ clothes; or a model who suffers from acne. Micro-influencers allow businesses to get their advertising to an increased and/or more targeted audience, to discover what consumers are really looking for from their products, and to learn how their products are actually working for real consumers. 

In navigating this world, companies must comply with FTC guidelines for influencers and marketers, which require, among other things, that ads and endorsements are clearly identified and relationships with influencers that include any exchange of value, monetary or otherwise, be clearly disclosed. Companies can take advantage of the many benefits of social media influencers, and particularly micro-influencers, without running afoul of the myriad advertising and promotional regulations and requirements for their products.

Click here to download the full guide.

Guides for your industry

Influencers in the pharmaceutical and medical device industry

All companies must be mindful of compliance with FTC guidelines for influencers and marketers, which require, among other things, that ads and endorsements be clearly identified and substantiated, and relationships with influencers that include any exchange of value, monetary or otherwise, be clearly disclosed.

Medical device and pharmaceutical companies, however, bear the additional burden of compliance with the detailed and often complex FDA regulations covering labeling and advertising requirements for drugs and medical devices. Regulatory agencies may hold drug and device firms accountable for statements made by social media influencers that they engage to promote their products. How, then, can these companies take advantage of the many benefits of social media influencers, and particularly micro-influencers, without running afoul of the myriad advertising and promotional regulations and requirements for their products?

Click here to download the full guide.

Guides for your region
  • Social media influencers in the U.S.
  • Dealing with social media influencers in China
  • Dealing with social media influencers in Germany
    Produced in partnership with Lexis Nexis
  • Social media influencers in Asia
  • Social media influencers in Germany
  • Social media influencers in the UK
  • Social media influencers in Italy
Guides for your region

Social media influencers in the U.S.

Social media platforms are evolving at breathtaking speed, yet subject to a relatively static regulatory framework that challenges regulators and industry alike to allow for innovation while protecting consumers from deceptive advertising practices. Savvy brands will leverage an understanding of both the regulatory framework and enforcement trends to maximize effective social media strategies while minimizing potential regulatory risks. The U.S. Federal Trade Commission’s (FTC) visible enforcement efforts underscore the real-world risk to brands, by their own action or entities enlisted to promote a product. Similarly, decisions by the National Advertising Division (NAD), a self-regulatory arm of the BBB National Programs, highlight suspect social media advertising tactics that have caught the attention of competitors.

Why do businesses need to take note?

There are several key actors in U.S. advertising regulation: the FTC, the federal agency tasked with regulating advertising; state attorneys general (state counterparts to the FTC); self-regulatory NAD; public advocacy groups; and private litigants.

Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45, prohibits “unfair or deceptive acts or practices” in advertising, which include the use of endorsements and testimonials on social media platforms. Since first issuing guidance in 1972 on endorsements and testimonials (the Guides), the FTC has updated this legal framework in response to the emergence and evolution of social media and other forms of communication. The Guides are currently under review and FTC has requested public comment on how they may be improved or adapted to better address the present advertising environment. The Guides can be accessed here and the accompanying FAQs can be accessed here.   

The essential principles of the Guides are adequate disclosure and that responsibility for compliance falls on all parties (product manufacturers, marketing firms, advertising platforms, and endorsers). Meaning, whether the use of endorsements or testimonials is deceptive turns on how clearly contextualized that endorsement/testimonial is. And, multiple parties in the advertising chain can be held responsible for inadequate disclosure. Does it disclose any financial relationship between the manufacturer and the endorser (which may include free product)? Has the endorser communicated objective product benefits beyond what the marketer itself can establish?

For many social media platforms, these disclosures can take the form of “#ad” or “#Sponsored” disclaimers at the beginning of posts to indicate a material connection between the product manufacturer and the influencer. In more complex scenarios, however, facially false advertising cannot be cured by a disclaimer. For example, a recently settled FTC action against social media influencers and the makers of Teami, a weight-loss beverage, charged the company not only with inadequate influencer disclosures, but also with making false health claims about their teas, suggesting they could provide rapid and substantial weight loss, “fight against cancerous cells,” decrease migraines, unclog arteries, and prevent colds and flu. 

In the past two years, the FTC has pursued civil action against celebrities and social media influencers, manufacturers, magazine publishers, and PR firms, alike. The FTC at times has also made use of informal “warning letters,” often to a group of companies, cautioning against a certain form of advertising or claim. These warning letters have been used especially frequently against social media claims related to COVID-19.  

While FTC civil enforcement resources are finite, the NAD provides an active alternative forum for industry self-regulation of advertising issues across a broad spectrum of industries and claims and regularly reviews the use of social media platforms. The NAD applies the FTC’s advertising principles to competitor-initiated challenges and also conducts its own surveillance reviews of industry adverting. If a challenged advertiser agrees to participate in the NAD proceeding, the parties will present briefs and evidence prior to the NAD issuing a decision.  Challenged advertisers who do not agree to participate in NAD proceedings, as well as those who do not agree to follow the recommendations set out in NAD’s decisions, are referred to FTC for possible enforcement. 

So, how can companies avoid FTC or NAD review? A well-developed and carefully monitored social media program pays dividends. Disclosure requirements should be clearly established in the terms of any agreements with social media influencers, and it should be made clear that influencers are equally responsible for complying with the law. Trainings and templates on the appropriate styles and content of endorsement and testimonial postings are also advised. Additionally, companies would do well to review influencer postings for compliance on a regular basis.  In the case of Teami, referenced above, many of the postings FTC identified as violative also violated the company’s social media policy.  Without an internal monitoring program in place, a company may not be aware of how its products are being communicated to consumers.

Looking forward

FTC’s Guides are currently under review. FTC is seeking stakeholder feedback on issues such as whether and how consumers’ perceptions regarding endorsements have changed, how young children understand endorsements, and how consumers perceive common practices on e-commerce and social media platforms. In July 2020, FTC delivered a report to U.S. Congress addressing concerns related to “social media bots,” non-human social media accounts that make up a significant percentage of social media communications. Although the focus on bots is largely tied to the dissemination of political information, rather than consumer product advertising, it may forecast issues that lie ahead for social media influencers.

Mechanisms for sharing key information with consumers continue to evolve, rewarding innovation of brands and benefitting consumers who want to know more about the origin, story, and benefits of a given product. But innovation must include legal compliance. Brands must take a strategic and creative approach working with influencers while ensuring that such campaigns do not run afoul of the FTC’s deceptive advertising mandate and parallel requirements enforced at NAD, by state attorneys general, and in private litigation. 

Authors

Steve Steinborn

Mary B. Lancaster

Guides for your region

Dealing with social media influencers in China

This Practice Note is aimed primarily at brands wishing to engage with influencers (or other talent) for particular social marketing campaigns and advertising promotions in China. It covers:

 •  Influencer endorsement

•  Disclosure requirements

•  Types of breaches and sanctions

•  Regulations, codes and guidelines and key information relating to influencers

•  Oversight of influencer endorsement activities

•  Ownership of the rights to sponsored content created by influencers

•  Responses to inaccurate brand messaging, rogue behaviour and mistakes

•  Key provisions found in influencer agreements

 This note was prepared for Lexis PSL.

 Influencer endorsement

Influencer ‘endorsement’ is mainly regulated under the Chinese Advertising Law (CAL), which is the main body of legislation governing commercial advertising activities in China. The CAL applies broadly to commercial advertising activities in which commodity dealers or service providers directly or indirectly present goods or services marketed by them within China.

Up to 2015, the CAL contained no provisions in relation to endorsements or influencer activities. When a new version of the CAL was adopted in 2015, however, a definition of ‘endorsers’ (in China also often called ‘Key Opinion Leader’, ‘KOL’) and specific provisions directed at endorser activities were enshrined in the CAL. Endorsers are defined in a broad and neutral way as: ‘natural persons, legal persons or other organisations other than advertisers that recommend or demonstrate products or services in their name or image in advertisements’ (see Article 2 of CAL). The CAL does not contain any definitions or other provisions regarding the elements of ‘payment’ or ‘control’ in endorsement activities, and neither has the administrative authority in charge of enforcing the CAL, i.e. the State Administration for Market Regulation (SAMR, formerly known as the Administration for Industry and Commerce), issued any administrative regulations in this regard.

Moreover, the 2015 CAL also clarifies that it is applicable to internet advertising activities (Article 44 of CAL) but does not provide many specific provisions in this regard. On this basis, the SAMR issued the administrative regulation ‘Measures for the Administration of Internet Advertising’ (Internet Advertising Measures) which further defined internet advertising activities broadly as ‘commercial advertising which directly or indirectly markets goods or services through websites, web pages, internet application programs, and other internet media in the form of text, images, audio, video, or other forms’.

On the basis of the above, influencer ‘endorsement’ is a broadly understood concept for both online and offline commercial advertising activities, and generally does not require direct payment, formal control or other established connections between influencer and advertiser, according to the provisions in the current laws and regulations in China. These concepts, influencer ‘endorsement’, ‘payment’ and ‘control’ may therefore be broadly interpreted by the authorities when assessing whether particular influencer activities constitute either regulated advertising endorsements or unregulated personal reviews posted by users of products or services.

One last thing worth mentioning is that the endorser has to be a party other than the advertiser. Therefore, if an influencer endorses its own products, or if an advertiser instructs one if its employees to recommend its own products, such acts are considered direct advertising and usually do not constitute influencer endorsement under the advertising laws and regulations.

Disclosure requirements

Article 14 of CAL provides for a general duty to display advertisements in a way that makes them distinguishable from other information, and in a way that enables consumers to identify them as such and pre-vents misinformation. The Internet Advertising Measures further provide that internet advertisements must be recognisable and marked with advertisement in a prominent way, to enable consumers to identify it as an advertisement. Failure to disclose advertisements as such may result in administrative penalties, such as correction of the violation (eg the deletion of the endorsement or posting or editing to give clear clarification that it constitutes an advertisement) as well as the imposition of a fine of up to RMB100,000 (approximately US$15,000), see Article 59 of CAL.

The extent of control over the endorsement message by the brand instructing the influencer, or the previous commercial arrangements between influencer and the brand are not directly relevant. As soon as an endorser is working on assignment for a brand and is not merely publishing an independent review, it will be considered advertising and the endorsement will have to be marked as advertisement or the relationship with the brand will need to be otherwise clearly disclosed, eg through an on-screen banner or highlighted caption etc.

The exact degree of brand control does not directly impact the influencer’s responsibility to make appropriate and clear disclosure statements as required under the relevant laws in China. While there are no official guidelines or regulations concerning this issue, as a general rule of thumb, as soon as an influencer endorsement is made commercially, i.e. on assignment for or on behalf of a brand, the endorsement needs to be disclosed as an advertisement. In practice, the administrative authority supervising advertising in China, namely SAMR and its local branches, usually investigates several factors to decide whether an endorsement constitutes an advertisement, including: payment by a brand to an influencer, whether in cash or in another form; and the communications between the brand and the influencer for the endorsement, such as contracts or communications in other forms etc. That being said, there are no clear official regulations or guidelines as to how to assess these factors.

Some specific examples:

  • material which is communicated with no obligation to do so (and with no control) after having received a freebie—this is likely to be considered an independent review of a product and service, with no duty to disclose it as advertising or ''??''. However, this assessment might change in case the value of the freebie is not symbolic or minor (eg a freebie sample cosmetic product v a freebie holiday in a luxury resort)
  • a freebie with or without payment about which there must be a communication but over which the brand owner has no control—regardless of the degree of control by the brand, as soon as a payment is made by the brand, the endorsement will normally be considered an advertisement and will need to be disclosed as such. If no payment is made, and only a symbolic or low-value freebie is offered, then the above analysis under the first bullet applies
  • a communication where the brand owner controls the content in return for payment—as soon as a payment is made by the brand, the endorsement is very likely to be considered an advertisement and will need to be disclosed as such

In practice, the administrative authority has broad discretion to interpret the payment, the content control etc. and decides on a case-to-case basis.

Types of breaches and sanctions

The sanctions for improper or inadequate disclosure of an endorsement as an advertisement, namely in situations where the advertisement is not distinguishable to the consumer or the online advertisement is not marked as ‘??’ (‘advertisement’), are stipulated in Article 59 of CAL. This includes correction of the violation (i.e. the deletion of the endorsement or posting or editing to give clear clarification that it constitutes an advertisement) as well as the imposition of a fine of up to RMB100,000 (approximately US$15,000) on the advertisement publisher, which can be the influencer in most influencer endorsement cases.

Other breaches include:

False advertising
Pursuant to Article 56 of CAL, the influencer may be held jointly and severally liable with the advertiser (i.e. the brand in most cases) for civil liability (ie in a civil procedure started up by the victim) in two different circumstances in relation to the false advertising: in the first instance, if the products or services it endorses concern the life and health of consumers and cause harm to the consumers, the endorser may be held jointly and severally liable for such harm. It should be noted that this is a form of strict liability for the endorser, i.e. the endorser may be held liable regardless of its intentions or knowledge of issues with the endorsed product or service. In the second instance, the endorser may be held jointly and severally liable for false advertising in general, if the endorser knew or should have known that the advertisement was false.

Moreover, under Article 62 of CAL, influencers who knew or should have known that their endorsements were false, but nevertheless still made them are additionally punished by the administrative authority with confiscation of the proceeds of their endorsement, coupled with a fine fixed at an amount of the minimum amount of such proceeds and maximum two times that same amount.

The brand, as advertiser, is likely to be pursued in administrative or civil proceedings for false advertising. In case of civil proceedings, the brand is more likely to be pursued as the primary target of liability, but if the conditions for joint and several liability are fulfilled, then the influencer is also likely to be pursued by the victims.

Prohibited endorsements

Other notable prohibitions for influencers are that influencers and other endorsers may not:

  • advertise medical treatments, pharmaceuticals or medical devices (Article 16 of CAL), this includes endorsing cosmetic as ‘cosmeceuticals’ or ‘medical skincare products’
  • advertise ‘health food’ (Article 18 of CAL)
  • recommend or demonstrate products or services that they have not used (Article 38 of CAL)
  • recommend or demonstrate products or services that are not based on facts or are not in compliance with the law, ie influencers may not commit false advertising or otherwise mislead consumers (Article 38 of CAL)
  • be a minor under ten years old, i.e. there is a strict age limit to influencing activities and small children are not allowed to conduct endorsement activities (Article 38 of CAL), although they can participate in advertisements as general actors

An important sanction to note for influencers is that when an administrative penalty is imposed for endorsing a false advertisement, the influencer is not allowed to serve as an endorser for three years starting from the imposition of the penalty (Article 38 of CAL).

Platform liabilities

Another key provision regarding legal liability relating to influencer‘s activities is the ‘safe harbour’ provision for internet service providers (ISPs). Both the CAL (Article 45) and the Internet Advertising Measures (Article 17) offer a safe harbour provision to ISPs. Liability for false endorsements and other false advertisements shall only be possible for ISPs who knew or should have known that false advertisements were published using its information services. This provision is of utmost importance to the platforms used by influencers to publish and divulge their messages and videos.

Regulations, codes and guidelines and key information relating to influencers

The key legislation relating to the influencer-brand relationship in China consists of the CAL and the Internet Advertising Measures, as discussed above.

Additionally, China also has specific regulations applicable to specific types of advertising activities that are particularly relevant to influencers. The most prominent and recent example is live-streaming activities, whereby products are demonstrated in real-time to consumers via social media platforms, often hosted by influencers. Live-streaming has become particularly common in China since the beginning of 2020, when many consumers had to stay indoors due to the outbreak of the coronavirus (COVID-19) pandemic. Examples of these specific regulations are the Administrative Provisions on Internet Live-Streaming Services , the SAMR Guidance on Strengthening the Supervision of Online Live Broadcast Marketing Activities and the Notice of the State Administration of Radio and Television on Strengthening the Management of Online Show Live and E-commerce Live Broadcast , which implement significantly stricter regulation for live-streaming activities such as real name authentications, announcements of major live-streaming actions and capping the total tips by any single viewer, no tips from minors etc.

On top of these laws and regulations, advertising industry organisations are also encouraged to develop industry rules and standards, to strengthen industry self-regulation (see Article 7 of CAL and Article 4 of Internet Advertising Measures). While such rules and standards are generally non-binding, compliance is often monitored by the industry organisations and non-compliance may both be sanctioned internally and reported to the authorities. Examples of such industry rules and standards are the China Advertising Association''s ‘Standards for Internet Livestream Marketing Activity’, in effect since 1 July 2020, and containing an elaborate code of conduct for endorsers conducting live-streaming marketing activities.

Oversight of influencer endorsement activities

The oversight over influencer endorsement activities is predominantly of an administrative nature and is conducted by SAMR and its local branches as mentioned above. The CAL (Article 49) and the Internet Advertising Measures (Article 19) give broad powers of administration and supervision to the SAMR and its local branches, including allowing them to:

  • conduct onsite inspections of the places involved in suspected illegal advertising activities
  • hear the parties involved in the suspected violations and conduct investigations into the relevant organisations or individuals
  • require the parties to provide relevant supporting documents within a specified time limit
  • consult or reproduce the contracts, instruments, account books, advertisements and other relevant materials relating to the suspected unlawful advertisements
  • seal up or seize the advertising items, business tools, equipment or other property directly related to the suspected lawful advertisements, and
  • order a moratorium on the release of the suspected unlawful advertisements that may result in serious consequences

This list of powers is not exhaustive, and other duties and powers may be granted to the SAMR and its local branches as prescribed by administrative laws and regulations. The parties have the legal obligation to cooperate with the investigations by the SAMR.

If the SAMR concludes, on the basis of its investigation powers listed above, that the influencer has committed a violation of the CAL and/or the Internet Advertising Measures, then it will generally order them to retract and/or correct the endorsement message, issue a fine and publish its penalty decision. It should be noted that SAMR penalty decisions can be appealed to the courts through administrative litigation.

Other types of enforcement of the applicable legislation, though much rarer in practice than administrative enforcement, are possible through either civil or criminal procedures. Civil litigation is mostly relevant where an influencer is subject to joint and several liability after committing false advertising with actual or purported knowledge, or after causing harm to consumers’ life or health. Criminal prosecution is also possible if the endorser’s infringements of the advertising legislation constitute a serious crime, eg in cases of criminal schemes or fraud in relation to large numbers of consumers.

Ownership of the rights to sponsored content created by influencers

Copyright is the main type of intellectual property right relevant to the sponsored content created by an influencer. The general rule under China’s Copyright Law (Article 2) is that the author of a work owns the copyright, which includes a set of assignable and licensable economic rights (eg the right of reproduction) as well as moral rights (eg the right to claim authorship), which are in principle not transferable.

Most influencer content created on assignment for a brand qualifies as a ‘commissioned work. As a general rule, Article 17 of China''s Copyright Law provides that for such works, the ownership must be agreed upon between the parties. Should the parties not have concluded an agreement, or should they not have included any provisions on the ownership of the copyright in such content, then Article 17 of the Copyright Law provides that the copyright shall vest in the creator, i.e. the influencer. It is therefore paramount for the parties to include clear-cut provisions on ownership of copyright in sponsored content.

It is also important to highlight that the use by influencers of third party works (eg images, songs, videos) in their content generally requires a licence from such third parties. While such use of third-party works may result in the creation of a new work owned by the influencer, such work will generally be considered only a ‘secondary’ or ‘derivative’ work, and its use therefore remains subject to the permission of the owner of the underlying copyright. This is illustrated by a recent judgment (Wuhan Douyu Network Technology Co., Ltd. v China Music Copyright Association) handed down by the Beijing IP Court on appeal, where the IP Court ruled that the unlicensed use of a song by an influencer during a live influencer broadcast infringed the copyright holder’s exclusive right of network dissemination.

Responses to inaccurate brand messaging, rogue behaviour and mistakes

In China, the responses to inaccurate brand messaging, rogue behavior and mistakes by influencers can be varied and depend largely on the seriousness of the inaccuracies and potential offences committed by the influencer:

  • the main response is usually limited to contractual remedies by the brand and public statements issued by the brand and/or influencer. Since most influencer contracts require the influencer to uphold high standards of behaviour and to refrain from inaccuracies in their endorsements, rogue behaviour and mistakes may lead to liquidated damages being paid by the influencer, suspension and termination of the agreement with the influencer, and in serious cases even civil claims for damages by the brand. If the inaccuracies also cause damage to the brand''s public image, then the brand and/or influencer often also issue a public statement or offer public apologies, often combined with a more comprehensive PR management campaign
  • there could be violations of the CAL, Consumer Protection Law or other laws and regulations that may result in administrative punishment to the brand and the influencer, and
  • there could also be infringement of third party’s rights which may subject the brand and the influencer to potential civil liabilities towards a third party.

Key provisions found in influencer agreements

There is no one-size-fits-all type of influencer agreement in China, and it is important for brands to enter into a clear, tailored and comprehensive agreement with their influencers, influencer management company or multi-channel network company. Some influencers may have a much stronger bargaining position in negotiating the agreement with the brand.

Generally speaking, the agreements typically at least contain the following key provisions:

  • intellectual property ownership: given the fact that the default position under China’s Copyright Law is to grant ownership to the influencer in absence of provisions to the contrary, it is essential for brands to include a clear intellectual property ownership clause, covering the brand''s ownership of copyrights, logos, slogans etc. used or created in the content, as well as covering the influencer''s own rights, such as name, nickname, account name etc.
  • portrait right: it is important for the brand instructing the influencer to include carefully crafted clauses about the influencer’s portrait right (i.e. the personality right in one’s image, allowing a person to prevent commercial exploitation of their image or likeness without permission or compensation), the permitted actions and about cross-platform posting and re-posting of the content
  •  deliverables: the agreement should contain a clear section and/or schedule on concrete deliverables, ie the services to be delivered by the influencer, linked to deadlines and goals. This section may or may not be tied to the fee calculation section, depending on the fee calculation method
  • fee calculation: multiple ways of calculating fees are possible, eg lump sum payments, payments dependent on the quantity of the content or on the views and popularity of the content etc. Regardless of the fee calculation method chosen, it is essential that it is simple and clear, and that it covers all relevant issues, such as tax, disbursements and other costs
  • degree of exclusivity: it is advisable for the brand to indicate the level of exclusivity of the brand with the influencer (eg total exclusivity, exclusivity within the same sector, exclusivity as to certain competing brands etc)
  • influencer behaviour and reputation: given that the reputation of the influencer will be essential to the brand and its consumers, the brand will need to include a clause covering maintenance of a standard of behaviour and reputation. This may be linked to the termination clauses, giving the right to terminate the brand in case the influencer becomes involved in a public scandal or otherwise badly reflects on the brand''s reputation
  • pre-publication review and post-publication takedown: most often (except for instance in live-streaming agreements), brands will want to reserve the right to review and approve publications by influencers before they are divulged. It is essential for the brand to retain the right to demand alterations and/or retractions or deletions of publications
  • representations and warranties: representations and warranties should be included, eg regarding no infringement of third-party rights, regarding having obtained all necessary permits and licences to conduct the influencer activities etc
  • Multi-Channel Network (MCN) specific clauses if MCN-related contract: should the brand hire influencers through an MCN, then a number of MCN-specific clauses should be included, eg selection of influencers, degree of control over influencers, direct relation with influencers etc
  • liquidated damages: depending on the bargaining position of the parties, certain clauses could also include liquidated damages, which would additionally provide the brand with a strong deterrent against rogue behaviour by the influencer
  • term and termination: the term and termination clause should include a clear standard term, possibilities for the brand to extend or shorten the term and set out clearly the right of the brand to terminate the agreement with immediate effect for serious breaches, including reputational damage caused by the influencer, unpermitted publications etc

This note was prepared for Lexis PSL, and the original publication can be found here.

Grace Guo

Stefaan Meuwissen

 

Guides for your region

Dealing with social media influencers in Germany

Produced in partnership with Lexis Nexis

This Practice Note is aimed primarily at brands wishing to engage with social media influencers (or other talent) for 
particular social marketing campaigns and advertising promotions in Germany. It covers:
• The nature of social media influencers
• Influencer labelling obligations—key regulations
• Manner of labelling
• Sanctions and oversights
• Requirements of other regulations
• Copyright protection for influencer content
• Key provisions in influencer contracts

Click here to read more.

Guides for your region

Social media influencers in Asia

Given the fact that Asia has a comparatively high social media penetration rate, it is an indispensable market for the influencer marketing business. Recent statistics show that sponsored influencer posts in Asia grew by no less than 189 percent from 2018 to 2019, which demonstrates Asia's strong growth in social influencer marketing throughout the past year.

Among the major Asian markets for influencers like China, Singapore, South-Korea, and Japan, some countries already have adopted special and relatively sector-focused laws and regulations setting forth explicit requirements for social media influencer marketing, while others regulate such activities under a higher-level guideline or piecemeal provisions. Other countries also are considering legislation to regulate influencers. In February 2019, the Malaysian government announced it is reviewing several proposals to introduce new legislation or a parliamentary committee to help curb the misuse of social media.

Why do businesses need to take note?

The legal framework in some key Asian jurisdictions

China

China is one of the Asian jurisdictions where social media influencing is of critical importance, as it has one of the highest rates of social media usage. This importance is increased by the fact that several Chinese social media platforms allow for direct in-app purchases or even adopted payment services (such as WeChat, which offers a ubiquitous ‘wallet’ option, allowing for direct payments through the application). Social media advertising and sales are very important in China, with research showing that more than 70 percent of China’s 250 million people ages 18 to 20 are willing to use social media to purchase products and services.

In China, social media influencing is mainly regulated through the Advertising Law adopted in September 2015 and through the Administrative Measures for Online Trading adopted in 2014. China’s Advertising Law has a very broad scope, and contains a specific chapter regulating online advertising, which includes social media influencing.

The key obligations for influencers are that advertisements must be identifiable, influencers may only recommend goods or services “based on facts,” and influencers may not recommend any good or service that they have not used. The Administrative Measures for Online Trading are more specific, providing that online influencers obtaining any type of remuneration for commenting on products or services must truthfully disclose the nature of their posts.

The Market Supervision Bureau is primarily responsible for enforcing the Advertising Law and has the power to issue administrative penalties for violations. Administrative penalties range up to RMB 100,000 for undisclosed advertisements and a fine of 3 to 5 times the advertising expenses, or up to RMB one million may be imposed for maliciously false claims, and the influencer may be jointly liable for the damages caused to consumers.

Singapore

Activities of influencers in Singapore are mainly regulated under the Singapore Code of Advertising Practice, administered by the Advertising Standard Authority of Singapore (ASAS). In August 2016, ASAS issued specific Guidelines on Interaction Marketing Communication & Social aimed at regulating advertising on social media.

The key provisions under these Guidelines are the identification of commercial messages, the distinction of all marketing communications from editorial or personal opinions, and the disclosure of connections between the endorser and the marketer of a product or service that may materially affect the weight or credibility of the endorsement.

Although the Guidelines are officially not binding, ASAS does have the power to request offenders to amend or withdraw their advertisements. ASAS could also impose sanctions, such as withholding advertising space or withdrawing trading privileges from offending marketers.

South Korea

Another key Asian influencer marketing jurisdiction is South Korea. South Korea adopted an approach similar to China by regulating influencers mainly through the Advertisement Law without but dedicating specific legal provisions to online influencers.

Influencers mostly are bound by Article 3 of the South-Korean Act on Fair Labeling and Advertisement, forbidding in a general way any false, deceptive or exaggerated advertising. Wrongful advertising is also prohibited by the Cosmetics Act.

The penalty for non-compliance is remarkably heavy in South Korea. Pursuant to the Act on Fair Labeling and Advertisement, infringements can be punished with imprisonment, with labor for not more than two years, or with a fine up to 150 million won may be imposed.

Japan

Unlike the other key Asian jurisdictions, Japan has no specific rules targeting online influencers. Applicable restrictions mainly are contained in piecemeal provisions spread throughout a number of sector-specific laws and regulations. One example of such sector-specific law is the Pharmaceutical Affairs Law, which, due to the sensitive nature of its subject matter, heavily restricts advertising activities. Most restrictions cover not only businesses but also individuals. Penalties for infringement range from imprisonment of up to two years and/or fines of up to 2 million yen.

Looking forward

While there are large differences in the level of detail of the regulation of social influencer activities between the key Asian jurisdictions (ranging from full detail Chinese law to piecemeal regulation in Japan), the connective thread is that influencers’ activities are regulated under advertising laws and that their key obligations are clear disclosure of their relationship with the advertised brand and factual honesty in their posts.

Looking forward, with the growing popularity of social media in Asia, the importance of social media influencers is likely to increase exponentially. It is important that companies perform due diligence on the influencers they hire and review their advertising practices against the companies brand policy, as well as the local legislation to ensure the influencer is delivering the right advertising to the consumers.

A development in Asia is that enforcement cases, which to date seemed to be mainly filed against the brands instructing media influencers (as advertisers) or against social media platforms (as advertising publishers), are now increasingly filed against the influencers themselves. Stay tuned.


Authors

Helen Xia

Grace Guo

Guides for your region

Social media influencers in Germany

Even though influencer marketing is no longer a new form of advertising, the legal assessment of the labeling requirements, in particular, is still unclear. Various courts in Germany have already had the opportunity to deal with this question, but they still come to different assessments in (apparently) comparable cases.

Why do businesses need to take note?

The General Advertising Principles are the starting point for any discussion on influencer marketing in Germany. They combine two principles: The separation principle, requiring a (visual) separation of editorial and advertising content, and the labeling principle, requiring advertisements to be labeled as such.

These principles are set out in the German Interstate Media Treaty (of November 2020), the Telemedia Act and the Act Against Unfair Competition. So far, the courts have focused on Sec. 5a (6) of the Act Against Unfair Competition (UWG). Pursuant to this provision, any person who fails to indicate the commercial purpose of a commercial practice is acting in an unfair way in case that this purpose is not immediately obvious from the circumstances, and the failure to indicate may lead the consumer to take a transactional decision which he would not have taken otherwise. According to Sec. 2 (1) 1 UWG, a commercial practice can be seen in any conduct by a person for the benefit of that person’s or a third party’s business when the conduct is objectively connected with promoting the sale or the procurement of goods or services, or with the conclusion or the performance of a contract regarding goods or services.

Two questions need to be answered: How to label the post as advertisement? When to label the post as an advertisement?  

How to label a post

The question how to label a post, for example on Instagram, has been quite clearly decided by the German courts. 

According to the case law so far, it is not sufficient to use the labeling in so-called "Hashtag-Clouds" at the end of the post because the label is then not visible at first glance. Rather, the label should be placed at the beginning of the post. In videos, the label should be clearly visible during the entire video. The term “sponsored by” is not considered as being adequate labeling, as it is not as precise as the word “advertisement.”

The decisions do not explicitly deal with the question if the labeling must be in German language. However, it is doubtful whether English terms such as “advertisement,” “ad,” or “collaboration” would be considered as being acceptable in Germany. It seems more likely that the courts would assume that the German-speaking public would not understand these labels due to a lack of knowledge of English language. Hence, it is strongly recommended using German language labeling in Germany.
Because companies working with an influencer can also be held liable for inadequate labeling, the above principles should be clearly specified in the underlying contract with the influencer. The company should also check regularly whether the labeling requirements are complied with. 

When to label a post

It is still unclear whether a post must be labeled if the influencer did not receive any compensation at all, but paid for the products or services  discussed and/or linked to the company's Instagram profiles. In this context, questions are often raised as to whether the posts are editorial statements, i.e. statements primarily serving to inform and shape the opinion of the addressees. If so, they would not need to be labeled as an “advertisement.” Influencers thus often argue that the links only serve the information interests of their followers and that they only get ahead of the expected inquiries regarding the products/services with the linking.

Most courts do not follow this line of argumentation. They assume that, even if no compensation is received, the activity is commercial and not editorial in nature. In their opinion, the presentation of the products and linking in any case serves the purpose of promoting the influencers' own company/business, as they wish to present themselves as (potential) advertising partners. In addition, promotion of the company is also regularly assumed.

However, there were also other judgments which – with different reasoning – denied an obligation to label certain posts as an advertisement.

The Higher District Court of Berlin argued that an editorial post could exist if there was a direct connection between the link and the post/image (in the specific case, only objects visible in the image were linked) and if no compensation was paid. In the court's opinion, the link to the company's website corresponded to the medium Instagram and did not mean that labeling as an advertisement was necessary.

The Higher District Court of Munich held that the mere posting/linking of a product – without payment – was not sufficient to assume an objective connection between the post and the promotion of either the influencer's own or the company's business. The promotion was rather a mere reflex of the self-portrayal of the influencer. It could therefore not be assumed that such posts were in favor of either business.

In a case handed down by the Higher District Court of Hamburg, the court assumed a commercial practice (even though there was no payment or any other compensation), but found sufficient evidence that the commercial purpose was directly apparent from the context. Amongst others, the “blue check mark” for verified accounts on Instagram, the number of followers as well as the number of likes were taken into account. In the specific case decided by the court, the court held that the consumers were immediately aware that the account was used for influencer marketing. Thus labeling as an advertisement was not required. However, this is an individual decision so that the question of the obviousness of an advertisement cannot be answered abstractly, particularly in view of the apparent private nature of many posts.

Looking forward

Fortunately, there are now several cases pending with the German Federal Supreme Court. So there is a good chance that a clarifying decision will soon be issued by Germany's highest court. 

The Federal Ministry of Justice also submitted a proposal for a new legal provision within the Act Against Unfair Competition. 

On the one hand, the definition of the "commercial practice" was amended. It shall not only require an objective, but also a direct connection between the act and the sales promotion. In the explanatory note to this adjustment of the definition of a commercial practice, it is, inter alia, explicitly stated that it appears possible that in the case of certain forms of promotion of one's own business there is no direct connection to any sales promotion. The explanatory note also provides an example: If an influencer recommends or mentions goods or services and does not receive any payment or similar consideration for this, then the mentioning may merely promote his or her own name recognition. This reasoning is rather similar to the decision of the Higher District Court of Munich. 

On the other hand, Sec. 5a UWG is amended. It is proposed to insert a clarification that a commercial purpose does not exist in the case of an act for the benefit of another's business if the person acting does not receive any remuneration or similar consideration for the act from the other's business. The explanatory note, inter alia, states that the new regulation is intended to provide a secure legal framework for the actions of influencers when they recommend the goods and services of other companies without obtaining any financial advantage. For such actions, per the explanatory note, it seemed inappropriate to require labeling as "commercial". 

It remains to be seen what the exact wording of the new provision will be in the end. The Ministry had previously submitted a different proposal, but this was widely criticized and therefore not included in the current draft. A debate in the German Bundestag (= German Legislating Organ) has not yet taken place. 

For now, influencers should carefully examine each and every post to determine whether labeling as an advertisement is necessary. In case of doubt, legal risks can only be avoided by labeling.

If companies work together with influencers and some form of compensation is paid (as is to be assumed), labeling obligations should be contractually agreed in order to avoid liability. Without a corresponding contractual provision, considerable liability risks for companies remain. 

Authors

Yvonne Draheim

Sabrina Mittelstaedt

Guides for your region

Social media influencers in the UK

Consumer brands have been using public figures to endorse their brands to great effect since time immemorial – think Father Christmas for Coca Cola, Michael Jordan for Nike, and Britney Spears for Pepsi. With the advent of the digital age and, more specifically, social media, the scope for endorsement has increased exponentially, both in consumer and territorial reach and into a wider pool of opportunities in the guise of "influencers.”

When managed carefully, use of influencers on social media can bring significant rewards to brand owners, with a relatively low level of investment when compared to the traditional celebrity endorsement model. One of the reasons they are so successful is because people trust personal recommendations much more than they do advertisements from brands. However, regulators will not stand for the public being duped when it comes to concealed advertising. In the past year both the public and the regulators in the UK have taken a stand against undisclosed advertisements, resulting in influencers and sponsors alike being named and shamed, often causing significant damage to a brand. This is one of the most significant risks faced by brands in relation to use of social media influencers in the UK.

There are recent cautionary tales that demonstrate the importance of transparency and trust to the UK consumer, how this requirement for trust has translated into the regulatory framework, and how brand owners can protect themselves against the risks posed to their reputation by a breach of trust.

Why do businesses need to take note?

The Advertising Standards Agency (ASA), one of the UK's consumer regulators, has cautioned between 200 to 300 social media influencers and brands for breaking the rules around sponsored posts. Two examples of recent ASA investigations that have received adverse publicity are: Louise Thompson and Olivia Buckland, both reality TV stars, faced an official investigation and a subsequent ban from the ASA for failing to disclose that a post was an advertisement for Daniel Wellington watches; and “Mrs Hinch,” a surprisingly successful Instagram star who posts tips on house-keeping, is being investigated together with Procter & Gamble for undisclosed advertisements for Flash and Febreze products. As well as damaging the public's trust in the influencer themselves (and so reducing their value with respect to other collaborations), such action also devalues the brand whose products have been promoted in the post.

So how is the UK addressing the issue of trust and transparency in influencer content? There are two key pieces of UK legislation that regulate this area: the Consumer Protection from Unfair Trading Regulations 2008 (CUPT); and the UK Code of Non-Broadcast Advertising and Direct & Promotional Marketing (the CAP Code). When a brand rewards an influencer with a payment, free gift, or other perk, or has any control over an influencer's content, it (and not just the influencer) becomes subject to these consumer protection laws. It is, therefore, very important that brand owners familiarise themselves with the regulatory framework, and seek advice where required, to ensure that all influencer content linked to their brand is compliant with it.

The ASA, the Committee of Advertising Practice (CAP), and the Competition and Markets Authority (CMA) are the regulatory bodies tasked with investigating breaches with respect to consumer advertising. They have recently launched a new guide to help brand owners and influencers stick to the rules by making clear when their posts are advertisements. The guidelines can be accessed here.

The ASA is the most active body in enforcing the regulations. Although it has the power to enforce penalties against brands and influencers that do not comply with the rules, such as fines and imposing pre-vetting requirements on marketing materials, their most persuasive sanction is publicity, essentially naming and shaming brands that break the code, which can result in serious damage to a brand's reputation.

Looking forward

Aside from complying with the relevant legislation and guidelines, what else can brand owners do to ensure the brand maintains the trust of its consumers to ensure the best return from social media collaboration?

First, brands must remember that influencers are individuals who do not usually have the benefit of legal advisors and so may not be aware of their responsibility to disclose ads. Brand owners should take the time to educate their influencers to ensure they understand the legal obligations in this area. They may also require the influencer to run proposed content past their legal/marketing team to ensure there are no inadvertent missteps.

Secondly, brands should conduct due diligence into influencers before working with them. If an influencer has recently been investigated by the ASA or has been subject to public criticism for not disclosing ads or being disingenuous, then the power of that individual to "influence" their followers may be diminished and the potential return on the advertisement reduced.

Thirdly, and to the extent it is not prohibited by restraint of trade laws, brands should seek to control the influencer's collaboration with other brands during their campaign. Consumers are often "turned-off" by influencers who saturate their feeds with sponsored content as it breaks the illusion of the "personal recommendation" that is so persuasive in influencer advertising.

Finally, the most successful influencer/brand collaborations are those that stem from a genuine relationship based on a true alignment of values and interests. Try to work with influencers who genuinely enjoy your product and support your brand values.


Author

Emily Sharkey

Guides for your region

Social media influencers in Italy

Italy is the homeland of worldwide known influencers and a leading country in the fashion industry – the first industry to use social media advertising. Italy is also, from a legal standpoint, at the forefront and a breeding ground to study the social media influencer phenomenon. Influencer marketing is becoming a key means through which companies advertise their products, engaging old and new consumers and making them feel more involved in the brand story and philosophy. And this sells very well.

To regulate the phenomenon, the Advertising Self-Regulatory Body (IAP) adopted the Digital Chart Regulation in 2016 as a guideline to social media advertising. In April 2019, the chart was formally adopted, becoming part of the Self-Regulatory Code and setting the standards to comply with for doing social media marketing correctly.

The Code is binding as long as the brand, the influencer, or the media on which the communication is distributed has accepted it. However, all IAP self-regulatory codes, even if not binding, are regarded by Italian courts as an authoritative source for best practices for advertising.

Moreover, the general rules on fair competition and non-misleading commercial communication apply to all players in the market. Reference should be made, in particular, to the Italian Consumer Code, punishing misleading omissions and unfair commercial practices.  The Italian Competition Authority (AGCM) is entrusted with enforcing European and Italian consumer protection law.

Why do businesses need to take note?

Most of the media and brands are part of IAP and comply with the rules set under the Chart. The rules include:

  1. Advertising shall be clearly recognizable as such. In influencer marketing, the disclosure of the promotional nature of the post should be ensured by using the hashtags suggested by the Chart. In particular, the content should include:
    • at the beginning of the post caption or of any other message posted online: “advertising,” “promoted by…brand,” “in collaboration with…brand
    • and/or within the first 3 hashtags, one of the following  labels: “#Advertising,” or “#Sponsored by…brand,” or “#ad” and “#brand
  2.   Captions including “thanks brand,” “#brand,” “@brand,” or “ann” (i.e., announcement) are not acceptable. “#ad” itself is not accepted by AGCM but IAP accepts it together with #brand.


Defining advertising is not an easy task for social media contents. The existence of a collaboration agreement between the brand and the influencer and of a material connection between the post and the agreement are considered clear indicators of the promotional nature of the content.

If a brand occasionally sends to the influencer its products for free or for a modest consideration in absence of any agreement between the parties, this is usually not considered advertising, provided that the brand does not have any control on the content.

Of course, specific rules apply due to the advertising nature of the communication. For example, alcohol and tobacco, foodstuff, cosmetics, and dangerous goods shall comply with restricted advertisement rules. Also, attention shall be ensured to social media advertising directed toward the young public.

Finally, the IAP code forbids the use of body images inspired by aesthetic models clearly associated with eating disorders that are harmful to health. So, companies need to be careful with the selecting influencers to collaborate with.

And what happens if you do something wrong? Notifications (injunctions or moral suasions) are sent by IAP or AGCM usually both to the influencer and the brand.

Injunctions from continuing or republishing the unfair message are granted by both authorities in case of unfair messages or non-compliance to the Chart. Also, AGCM may condemn the advertiser and/or the influencer to pay an administrative fine, the amount of which depends on the seriousness and duration of the unfair conduct. And this could end up not being “peanuts!” Also, AGCM may order the publication of the decision, which could be damaging, especially for the reputation of the brand or the influencer.

So far, civil court proceedings have not been used between competitors.

Looking forward

Italian Authorities (IAP and AGCM) are quite active in supervising social networks and don’t think twice before challenging content they believe to be illegitimate. AGCM sent moral suasion letters in the last three years to hundreds of influencers and brands. IAP has published various decisions on influencer’s marketing, concerning both posts and stories.

For example, a recent decision made clear that Instagram stories, albeit being visible for a short period of time (24 hours maximum) also can be the subject matter of a proceedings and, of course, of an injunction. The decision would prevent the brand and/or the influencer from repeating the same mistake, for example by reposting the same or similar stories. According to another decision, companies must, among other things, adopt specific guidelines setting the rules of conduct for influencers, to be included in any cooperation agreement with them.

In such a new and fast-evolving framework, it is vital to remain up-to-date with the case law, which is now putting down the markers for the future. Also, we suggest brands adopt social media marketing guidelines to make clear not only the brand policies, philosophy, and expectations from the influencers they collaborated with, but also parties' obligations and liabilities, so to have everything recorded in case of claims by the authorities. Making reference to the Chart or any other guidelines or best practices would surely make life easier for all parties, setting the standards to comply with. And, of course, we are here to assist.

Authors

Luigi Mansani

Maria Luigia Franceschelli

Events & Webinars
  • Social media influencers: Influencers around the world
    Influencer Snapshot webinar series
  • Social media influencers: The next frontier
    Influencer Snapshot webinar series
  • A Seat at the Table – What's new in food law
    Recent FTC actions on influencer marketing
Events & Webinars

Social media influencers: Influencers around the world

Influencer Snapshot webinar series

September 24, 2020

We presented our second webinar in our new series about what consumer-facing companies need to know when partnering with social media influencers to promote products and services online. The series is based on Influencer Snapshot, an interactive guide to help you partner with influencers.

This session focuses on the regulatory issues and challenges companies face when partnering with influencers in various jurisdictions, including the UK, Italy, China, and the U.S. 


Influencers in the UK

Josefine Crona will explore recent cautionary tales that demonstrate the importance of transparency and trust to the UK consumer, how this requirement for trust has translated into the regulatory framework, and how brand owners can protect themselves against the risks posed to their reputation by a breach of trust.

Influencers in Italy  

Italy is the homeland of worldwide known influencers and a leading country in the fashion industry – the first industry to use social media marketing. Luigi Mansani and Maria Luigia Franceschelli explore how influencer marketing is regulated under Italian law, focusing on the most relevant cases addressed by Italian Courts and the Advertising Self-Regulatory Body.

Influencers in China

China is one of the Asian jurisdictions where social media influencing is of critical importance, as it has one of the highest rates of social media usage. Research shows that more than 70 percent of China’s 250 million people ages 18 to 20 are willing to use social media to purchase products and services. Grace Guo discusses the China laws regulating social influencer activities and what companies need to know when engaging social influencers for advertising purposes.

Influencers in the U.S.

Consumers have tasked the U.S. Federal Trade Commission (FTC) with applying established norms of consumer protection to the fast-paced world of social media. Steve Steinborn discusses how brands must understand the FTC’s basic principles governing deceptive advertising and how they must carefully monitor and understand FTC’s enforcement of influencers. 

Events & Webinars

Social media influencers: The next frontier

Influencer Snapshot webinar series

August 6, 2020

We held the first webinar in our new series about what consumer-facing companies need to know when partnering with social media influencers to promote products and services online on Thursday, August 6, 2020. The webinars in the series feature updates on the latest trends and developments related to influencers, including regulatory challenges, recent enforcements, and other hot topics. 

Our first session focused on trending issues in the world of influencers, from children promoting products to leading celebrities partnering with global brands, and how companies can prepare for and maintain these relationships through a crisis. Please see below for the program agenda:

The promise and peril of "kidfluencers"

For businesses targeted at children, kidfluencers present a valuable marketing opportunity. But, all that glitters is not gold. PJ Kaur discussed contract challenges, minor protection laws, advertising law, and risks and other legal issues that can arise when dealing with children as influencers.

Ins and outs of celebrity influencers and recent developments in Germany

Celebrity influencers have the ability to affect culture and groups en masse. They embody a certain lifestyle that followers or fans aspire to have in some small or greater part, and they aim to have their fans join them. Yvonne Draheim and Sabrina Mittelstädt discussed the advantages and risks of working with celebrity influencers and how these high-profile influencer cases have contributed to recent court decisions and proposed regulations in Germany.

Influencers in a time of crisis  

Influencers have become the face of brands on social media but what happens when these online personalities make a mistake in the real world? These partnerships can create a significant risk for the companies relying on these foodies and fashionistas to promote their products. But they also can help companies change the narrative or recover from a crisis. Lillian S. Hardy discussed some of the challenges companies face when partnering with influencers and how they can protect their interests when a crisis occurs.

Events & Webinars

A Seat at the Table – What's new in food law

Recent FTC actions on influencer marketing

November 6, 2019

The first webinar in this new series features updates on the latest news and trends in the food and beverage industry. Our webinar focuses on updates regarding CBD, FSMA, and the FTC. Please see below for the program agenda:

Navigating the regulatory landscape for CBD: What the hemp is going on?

Although the 2018 Farm Bill created new legal distinctions between cannabis that is "marijuana" and cannabis that is "hemp," hemp-derived ingredients, including cannabidiol (CBD), remain subject to regulation by FDA, USDA, and the states. Samantha Dietle provides an update on the current regulatory landscape for hemp-derived products, including how FDA, USDA, and states are approaching regulation and enforcement.

FDA's escalation of FSMA enforcement

Elizabeth Fawell discusses recent inspection and enforcement trends related to FSMA implementation. She reviews frequent inspection citations and what companies should be focusing to ensure compliance and prevent the issuance of a FDA Form 483, as well as some lessons from recent FSMA related Warning Letters.

Recent FTC enforcement involving social media

Social media platforms provide unparalleled ways for marketers to interact with consumers. The concurrent complex legal responsibilities are evident from recent enforcement and other activities of the Federal Trade Commission. Steve Steinborn analyzes recent FTC actions. You will come away with a short-list of key areas to put on the agenda of your next internal social media compliance meeting and gain insight on best practices and practical tips.

Access the webinar recording here.

Get in touch
Meryl Bernstein
Meryl Bernstein
Partner, Washington, D.C. and New York
Susan M. Cook
Susan M. Cook
Partner, Washington, D.C.
Victor Fornasier
Victor Fornasier
Partner, London
Stephanie Keen
Stephanie Keen
Partner, Singapore
Eugene Low
Eugene Low
Partner, Hong Kong
Luigi Mansani
Luigi Mansani
Partner, Milan
Elena Pellicano
Elena Pellicano
Senior Associate, Milan
Steven Steinborn
Steven Steinborn
Partner, Washington, D.C.
Helen Xia
Helen Xia
Partner, Beijing
Grace Guo
Grace Guo
Counsel, Beijing
Jennifer Brechbill
Jennifer Brechbill
Senior Associate, Washington, D.C.
Clare Douglas
Clare Douglas
Senior Associate, London
PJ Kaur
PJ Kaur
Senior Associate, Hong Kong
Emily Sharkey
Emily Sharkey
Senior Associate, London
David Brzozowski
David Brzozowski
Associate, Washington, D.C.
Charmaine Kwong
Charmaine Kwong
Associate, Hong Kong
Mary B. Lancaster
Mary B. Lancaster
Associate, Washington, D.C.
Brendan Quinn
Brendan Quinn
Associate, Washington, D.C.
Other resources
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All things companies should consider when partnering with social media influencers

  • Contracting
    • Agreements with influencers and social media marketing agencies
      Terms you need to consider
    • Contracts and payments for influencers in Italy
    • Insurance considerations when partnering with influencers
      Are you covered for social media claims?
    • Social media policies
      What to tell your influencers and employees
    Contracting

    Agreements with influencers and social media marketing agencies

    Terms you need to consider

    Social media marketing has become a staple for any consumer facing brand that is looking to reach new customers or engage existing ones. And yet many brands engage social media influencers, or the marketing agencies that represent them, without formal agreements in place. Or, when there are agreements, they do not include the kinds of provisions that will protect a brand’s reputation and properly mitigate risk. In this piece, we lay out the most important terms to include in a social media marketing agreement with agencies or individuals, and some tips for working with influencers.

    Why do businesses need to take note?

    A written contract with a social media influencer or marketing agency should include the following:

    1. Crystal clear identification of the scope of the agreement, including the name of the social media profile where the content is permitted to be posted, the number and type of posts requested, the timing and frequency of those posts, and any requirements with respect to captions, hashtags, and tags (including their position, dimension, and color). 

      We suggest lending as much specificity as possible to the scope of the social media services procured, including whether reposts are permitted, whether the influencer can include third parties’ products in their posts, reference to other individuals or brands, and whether the social media content must be deleted after the termination or expiration of the agreement.

    2. Clear termination rights granting the brand discretion as to when it can unilaterally terminate an influencer’s activities. Termination rights should be considered under the relevant jurisdiction’s governing laws for enforceability. You should also consider including a right of termination in case of violation, by the influencer or agency, one of the core brand principles set out in the brand’s social media usage guidelines, as described in greater detail below.

    3. Broad license grants by the influencer or agency back to the brand with respect to the brand’s usage (preferably on an unlimited, perpetual basis) of the influencer’s posts and content. This enables brands to leverage social media content by influencers in other marketing campaigns and on other platforms.

    4. Adequate remedies in the event of liability arising out of the influencer’s conduct and insurance requirements imposed upon the influencer or agency. We recommend a broad indemnification provision requiring the influencer or agency to indemnify for its acts or omissions, breach of the agreement, failure to comply with laws or infringement matters - again with insurance requirements that are appropriately tailored to cover this type of liability.

    5. Clear guidelines with respect to how the brand expects its influencers to behave in the social media world, along with clear examples of content that is and is not acceptable for the brand. These guidelines should be drafted so as to be compliant with local laws. In the United States, we often attach social media usage guidelines that are compliant with FTC disclosure requirements to the agreement. In other countries, such as Italy, UK, or France, the same guidelines usually make reference to the codes or best practice recommendations issued by local authorities.

    6. Clear representations and warranties by the influencer or agency with respect to its compliance with applicable laws, with a call-out to the relevant guidelines for social media marketing in your jurisdiction that we describe directly above. Representations and warranties also should state that the influencer or agency will not infringe or violate the intellectual property rights of third parties in connection with their social media marketing activities.

    The choice of the law regulating the agreement often is key and shall be carefully evaluated. Also, making reference to a specific code or best practice recommendations issued by the local authorities is useful to clearly identify to the influencer which are the standards to comply with.

    Looking forward

    As social media evolves, we imagine legal issues relating to influencers will continue to change with it. Increasingly, brands are moving away from traditional celebrities and celebrity influencers. From CGI-enabled influencers to “deepfakes” to the adoption of micro and nano influencer models, it will become more and more challenging for brands to mitigate risk when marketing on social media. The legal provisions that we highlight here are likely to remain relevant looking ahead, though the way we tackle these provisions will surely change. 

    In this changing landscape, brands need to stay current on the latest FTC disclosure requirements in the U.S. and the relevant regulatory guidelines for other jurisdictions. Regulatory enforcement actions have shown that brands should implement regular monitoring and influencer education, and be sure to take corrective action if influencers do not heed the social media usage guidelines that have been provided.

    At a European level, the general rules on fair communications and advertising apply. But they often are not enough. Thus, the advertising authorities of various Member States are adopting codes, guidelines, and best practice recommendations which are extremely helpful in understanding how to implement social media marketing correctly. Albeit these are usually non-binding self-regulatory codes – applicable only to those companies that have accepted them – they are actually followed by most of the players active on the market. The case law is crucial to follow, particularly the one of the self-regulatory bodies, which is now putting down the markers for the future.

    Authors

    Meryl Bernstein

    Maria Luigia Franceschelli

     

    Contracting

    Contracts and payments for influencers in Italy

    In recent years, the development of the Internet has changed the way in which many companies usually advertise their products; indeed, the web is today considered the most efficient means for marketing purpose due to its capability to reach out to a potentially unlimited audience of customers connecting through a PC or a smartphone.

    Web marketing has significantly changed throughout the years: while it was originally carried out by bloggers using their own blogs to review certain products, once social networks developed, influencers started to use such social networks for their reviews. Using a social network is in fact much simpler than reviewing the products through a personal blog, since the influencers are often just requested to upload a picture – wearing a particular skirt or tasting a particular wine – with a brief description of the advertised product.

    Since a specific law applicable to social media influencers does not exist, companies have to assess all the implications that could potentially arise when delivering their products to influencers for marketing purpose. In this respect, please find below a summary of the main employment and tax related aspects.

    Why do businesses need to take note?

    The legal relationship between the influencer and brands can be governed by different regulations depending on the activity actually carried out and the way the enterprises manage it. Under an employment law perspective, the majority of influencers are managed as self-employees. This means that the influencer is not subject to any hierarchical power of the company. Influencers can receive only products for free and/or a money compensation.

    In case of money compensation, the influencer - depending on the activity carried out - can be considered as an ordinary self-employee or a self-employee of the show business making marketing and advertising activity. In such latter case, which is actually the most common one, particular obligations born on the company (such as the registration of the influencer within the labour office and the payment of the social security contribution to a special fund of the National Institute for Social Contribution called EX-ENPALS, the contribution is approximately equal to 35% of the compensation paid in whole amount by the company as withholding agent).

    Under a tax perspective, beyond the ordinary tax regime in case of money compensation, two different relationships may arise in case of delivery of the company products to the influencer:

    1. an exchange (permuta) between the delivery of a product and the provision of the marketing service, if the influencer is legally obliged to upload a review of the same product through its social network after receiving it. Such transaction results in (i) a sale of the product by the enterprise, generating a taxable income equal to the value of the product, and (ii) a cost incurred by the enterprise equal to the value of the service provided by the influencer. Such cost is qualified as advertising cost and fully deductible from the taxable base for income tax purposes; OR
    2. a free transfer of the product (dazione liberale) by the enterprise to the influencer, if the review is not mandatory for the influencer. Such transaction results in (i) a sale of the product by the enterprise, generating a taxable income equal to the value of the product, and (ii) a cost incurred by the enterprise equal to the value of the service provided by the influencer. Such cost is qualified as representation cost and partially deductible from the taxable base for income tax purposes.

    Having said the above, it is worth noted that executing a contract with all the specific provisions which will govern the relationship with the influencer - specifying his/her autonomy and freedom to choose timing and place to develop the activity of influencer coordinated with the indication of the company - is advisable.

    Details on particular clauses recommended for agreements with influencers are described in the “Agreements with influencers and social media marketing agencies” section.

    Looking forward

    The influencer business is likely set to grow in the near future. The influencers all around the world showed to be very adaptable to any kind of business, market and scenario. In particular, also the lockdown due to the COVID-19 emergency is been used as an opportunity to develop the influencer activity.

    The new conditions in which every sector is working in light of the COVID-19 emergency shall be analyzed and constantly checked to understand how the influencer business can help the business market.

    Additional resources

    https://engagepremium.hoganlovells.com/influencer/tool/influencers-tool-contracting-agreements-with-influencers-and-social-media-marketing-agencies

    https://engagepremium.hoganlovells.com/influencer/tool/influencers-tool-guides-for-your-region-social-media-influencers-in-italy

    Authors

    Serena Pietrosanti

    Elena Pellicano

    Andrea Nizza

    Contracting

    Insurance considerations when partnering with influencers

    Are you covered for social media claims?

    The last few years have seen a rapid expansion in the use of social media influencers to advertise products. This is no surprise when the average earned media value is $5.20 for every dollar spent. But big profits come alongside new risks, including legal risks. As regulators catch up with this rapidly developing sector of the advertising industry, firms need to understand their liability or they risk fines that can run into the millions.

    Why do businesses need to take note?

    With the European adoption of the General Data Protection Regulation (GDPR) and other countries interested in following suit with similar customer data protection legislation, targeted advertising through traditional avenues has become more difficult. A potential replacement can be found in social media influencers, but B2C firms should approach this expanding opportunity with a proper awareness of any legal risks attached.

    Influencers themselves can turn to insurance providers for Personal Media Profile Insurance adjusted specifically to their needs. This can cover any legal expenses and compensation costs for matters from breach of license to defamation and negligence. But coverage does not extend to the firms who hire them in the first place, leaving them to need their own insurance solutions.

    One risk for firms is that companies may be held responsible for their influencers infringing the intellectual property and other rights of third parties. With more recent entrants to the influencer market not necessarily having in-depth knowledge of the relevant regulatory rules, for example, the rules on comparative advertising, falling foul of such rules is a real possibility. Firms need to recognize that they do not control the content disseminated in their name. Companies need to make sure the "advertising injury" section of the company's commercial general liability policy is not limited to content directly distributed by the company, but also includes advertisements posted on social media platforms by influencers.

    Influencers also might be accused of making false or deceptive posts about the products or services provided by the firm, and if so the firm could be liable. Elon Musk demonstrated this in 2018 when he tweeted that he had "funding secured" to take Tesla private, a claim which when found to be false cost not just him $20 million in fines, but also his company an equivalent fine. It also led to lawsuits from shareholders who alleged market manipulation. Directors and officers liability insurance, or D&O insurance, could be crucial in protecting against exposure to third-party lawsuits and in providing coverage for defense costs in a regulatory investigation, particularly if it covers wrongful acts alleged against the company, directors, and officers. But this is unlikely to cover the fine itself.

    The same is the case if a firm falls foul of the requirement to clearly inform consumers that what they are viewing is an advertisement. Different regulatory bodies have varying guidelines on how to achieve an acceptable level of clarity. The U.S. Federal Trade Commission (FTC) requires a post's status as an advertisement to be disclosed in the top three lines of the post – any later and mobile-phone viewers would have to click the "more" button to find out. While this may seem to be the influencer's responsibility, in 2016 the FTC still took action against the department store Lord & Taylor, LLC for failing to disclose that Instagram posts by influencers were advertisements. The UK's Competition and Markets Authority (CMA), in collaboration with the Advertising Standards Authority (ASA), has released guidelines which make clear that it too will hold brands accountable for content released by influencers they pay, whether or not the brands have any control over the material released by the influencers. The CMA and ASA have also gone so far as to threaten the possibility of not just fines, but also civil and criminal liability for those who don't comply. D&O insurance won't cover fines, but could cover any lawsuit costs.

    Looking forward

    As the social media influencing industry expands ever further brands can expect governments to introduce further regulatory protections for consumers – and to enforce these more frequently. And this is a trend which is likely to play out beyond the UK, and certainly in other markets. In this context, insurance coverage only goes so far, and crucially does not protect against the biggest risk of all: huge government fines.

    Authors

    Victor Fornasier

    Clare Douglas

    Contracting

    Social media policies

    What to tell your influencers and employees

    For some time now, it has been the hot topic in the advertising industry: influencer marketing. Primarily, this young form of marketing is about winning brand or product advocates who are in demand as experts in certain subject areas. The aim is to increase the value and credibility of a company’s brand on the basis of the respective target group's trust in the influencers. Influencer marketing via social media has become a rapidly growing global market. For example, every fifth German has already bought a product advertised by an influencer.

    Influencer marketing is not limited to topics around fashion, food, and lifestyle. In fact, influencers are more than successful in other economic sectors. The automotive, healthcare, insurance, entertainment, and finance industries have for a long time recognized the potential of influencers for themselves and will continue to invest in this auspicious new way of marketing.

    Why do businesses need to take note?

    Authenticity, credibility, and honest enthusiasm

    Influencers provide a robust platform for marketing a company's brands and products. Following idols on Instagram and viewing content created by social media celebrities has become a regular part of many people’s everyday lives. The opportunities for companies in almost all industry sectors to profit from collaborations with influencers have probably never been better.

    However, companies also should keep an eye on the risks. If a "brand ambassador," "social partner," "brand enthusiast," or other influencer posts misleading or inappropriate content, this can have devastating consequences for a company, its reputation, and its brands. Once a video, picture, or Tweet has gone viral on the Internet, it is out there. The risks of a social media crisis are not to be underestimated. 

    Better safe than sorry!

    When collaborating with influencers to promote a company’s brands and products, it is of highest importance to minimize possible risks by setting up a Social Media Policy (SMP). An SMP is addressed to one's own employees to make sure they know how to engage and interact with the influencer at every step of the collaboration. This SMP is separate from a social media usage policy which companies often put in place to govern employees’ use of their own social media.

    A policy might also help the influencer to understand what to do and – most importantly – what not to do. Therefore, an SMP may consist of two versions: the first for internal use, with all the information about how to deal with influencers, and the second for external use, clarifying the questions the influencers might have regarding the collaboration.

    An SMP should include a few basic key points to safeguard and simplify the process of one's social media collaborations. The SMP should differentiate between the two chief ways to engage in influencer collaboration:

        1. Is a company paying the influencer (or giving something for free)?

        2. Is the company providing free products without specifically asking for something in return (but most likely hoping that the influencer will post about the product)?

    With respect to question 1, the employees should check whether one of the following actions is part of the collaboration with the influencer:

        • Requesting the influencer to post content in return for money and/or free products; to be positive about or to present the brand in a certain way; to use the company's hashtags or special key messages; to use the content the company provides, or to post content in line with the company's instructions;
        • Asking the influencer for approval of the posts; for having exclusive rights to use them, or for any other form of control, especially in a way that prevents the influencer from posting about other brands and their products;
        • Engaging the influencer as affiliated "brand ambassador" or rewarding the influencer based on click-throughs to the company's website or purchases of its products.

    If one or more of these actions are part of the collaboration, the company should provide the influencer with a clear summary containing all rights and duties of the collaboration, including:

    The subject matter of the agreement; commencement and termination of the collaboration; execution and remuneration of the activity; provision and use of products, as well as their return; the labeling of contributions; loyalty; information and confidentiality obligations; rights of use and data protection; and the question of liability.

    If the brand is providing free products without specifically asking for something in return (see question 2 above), companies should look at the relevant legal system. When sending free products to influencers, it might – in some jurisdictions – be sufficient to include a note asking them to clarify in any blog post that the product was a gift. In other jurisdictions, however, it might be necessary to label such posts prominently as an advertisement.

    In both cases, if a company wants to use the influencer's posts for its own social media accounts, the company should ask the influencer for permission which might lead to a contractual relationship as outlined above. Companies should always monitor the relevant influencers to ensure they disclose their connection with the company.

    Looking forward

    We strongly recommend setting up at least a basic SMP for the employees and the influencers your company plans to collaborate with. If the rough framework of the collaboration is defined, the risk of unpleasant surprises can easily be minimized. A team of experienced lawyers can help setting up an SMP in accordance with the individual requirements of each case. ­­

    Authors

    Yvonne Draheim

    Sabrina Mittelstaedt

     

  • Intellectual Property
    • Third-party IP use in social media
    • Trademarks as hashtags, not hashtags as trademarks
    Intellectual Property

    Third-party IP use in social media

    Social media hashtags and handles are not exempt from intellectual property infringement claims. The fact that a trademark owner may use its trademarks as a hashtag in its own social media communications, and encourage members of the public to do the same, does not mean that the hashtag is freely available for use by your business or organization on social media posts, campaigns, or advertisements. 

    Why do businesses need to take note?

    Ownership of a trademark includes the right to control the nature of its use.

    This includes the use of the trademark in social media and other communications, as well as in broader marketing and advertising. Use of someone else’s mark as a hashtag is subject to the same legal standards as a regular trademark use. Hashtagging someone else’s trademark does not insulate you or your business from claims of trademark infringement or offer a way to use another’s trademark freely without the owner’s permission.  For example, whether represented as “NIKE” or “#NIKE,” it still can qualify as a trademark use. Always consult your counsel before using any third-party trademarks in social media or otherwise.

    Tweets or social media posts by commercial entities are different from posts by individuals. 

    While individuals (not influencers) generally have free reign to post about their favorite celebrity or a company’s products or services, the same does not hold true for a corporation. Unlike a non-commercial individual, whose speech is protected by the First Amendment, when businesses communicate, it is for the purpose of conducting business and engaging in commerce, which is entitled to substantially less First Amendment protection.

    Even content intended only for internal communications can result in liability.

    The reality these days is that very few, if any, communications can be kept solely as internal. The risks of internal communications ending up outside the company grow exponentially depending upon your size, even with the best of intentions. And whether you intended the communication to be internal, or external, it will be considered a commercial communication entitled to lesser protection and increased risk of liability.

    Posts that relate to celebrities raise concerns about that individual’s right to privacy and publicity.

    Celebrity influencers get to capitalize on fame by getting paid for sponsorship and endorsement agreements with companies. Consumers know about these business relationships and make assumptions about sponsorship or endorsement when they see links between companies and celebrities/influencers on social media. Even posting a photo online of a celebrity using your product or shopping at your store can lead to infringement of rights of privacy and publicity claims. 

    Looking forward

    What matters is the overall commercial impression you leave with the consumer based upon your social media post (including the hashtags that you use). The key question in your mind should be “does this post suggest an affiliation, sponsorship, or other relationship between the subject of my post/hashtag and my business?” 

    Remember that just because another business posted something does not mean it is available for your business to repost/retweet. The other business may have an agreement in place with the IP owner, or they could be infringing that owner’s IP themselves!


    Authors

    Julia Matheson

    Meryl Bernstein

    David Brzozowski

    Intellectual Property

    Trademarks as hashtags, not hashtags as trademarks

    If Jane Austen were a U.S. trademark lawyer, she might say, "It is a truth universally acknowledged that a hashtag is registrable as a trademark." And Jane would be correct; the U.S. Patent and Trademark Office has stated that it will allow social media hashtags to proceed to trademark registration when the applicable criteria are met. But, rather than ask whether hashtags can be registered as trademarks, consider the inverse: Can and should registered (or unregistered, for that matter) trademarks be used as hashtags? Taking this query one step further, what are the legal and practical implications when a brand owner uses its trademark as a hashtag? What about when a third party uses another company's brand as a hashtag?

    These questions are difficult to answer by reference to existing case law. And the inherent nature of social media - where a brand's identity is no longer controlled by the brand owner - is in many ways inimical to the traditional tenets of trademark law. By its nature, a trademark is a communicative vehicle. Legally, it communicates that the goods or services it identifies come from a single source and are consistent in quality and purpose. Practically, it is a repository for a host of other information for the consumer - a favorite taste or texture, a feeling, an experience, a way of being, and much more. Control is a concept entirely absent from the social media universe; once a user posts certain content (assuming his or her account is not private), it is forever in the ether, for anyone to view, repost, comment upon, retweet, abbreviate, illustrate, meme, and more. But, this is the new reality of the brand market­place. And these days, even brand-savvy and protective trademark owners are using their marks as hashtags. By doing so, brand owners are ceding potentially even more control than usual over their trademarks to the public and taking a chance with their brand's reputation and associated goodwill.

    Click here to read the full article.


    Authors

    Julia Matheson

    Meryl Bernstein

  • Regulatory & litigation
    • Influencer litigation risks
    • Who influences the influencers?
      Responses to FTC’s call for public comment on updates to the Endorsement Guides
    • FTC enforcement in the social media space
    • Hey influencers! The FTC is talking to you - new guidance from the FTC
    • Spilling tea at the FTC
      Increasing regulatory scrutiny of influencer marketing and an opportunity for public comment
    • New process to move SWIFT-ly at NAD on some influencer claims
    Regulatory & litigation

    Influencer litigation risks

    The relationship between a brand and a social media influencer usually starts out like any other new relationship - heady and exciting - but sometimes it sours quickly. When it does, the fault lines are familiar. Because these relationships are, by definition, highly public, the resulting litigation can be as painful for both parties as any break-up,  but considerably more expensive. 

    Companies that use social media influencers should be mindful of the ways in which their relationships with influencers may result in litigation. Brands would be well-advised to take active steps both before and after the influencer relationship is formed to avoid the most common pitfalls. 

    Why do businesses need to take note?

    Disputes between brands and influencers: influencers who fail to influence

    Disagreements sometimes arises between a brand (or its PR firm) and the social media influencer itself. These disagreements typically share a common set of facts: disputes have erupted when the influencer has failed to make the contractually-mandated number of social media posts, failed to obtain brand approval before posting specific items, or otherwise failed to comply with contractual guidelines governing social media behavior. Disagreements also have arisen over an influencer’s failure to share analytics relating to the contracted-for social media posts with the brand or its PR firm after they are posted.    

    When a conflict arises between a brand and an influencer, the brand has a difficult decision to make: whether to file a lawsuit against the influencer alleging breach of contract, fraud, or some other cause of action, thus alerting the world to the fact that the relationship has soured. Such litigation is not without reputational risk to the brand. The same market dynamics that make influencer advertising so powerful in the first place can work in reverse when the company ends up embroiled in public litigation with the influencer. For that reason, it is far preferable in most cases for brands to take active steps to avoid disagreements with influencers in the first place.

    That said, several high-profile lawsuits have recently been filed against influencers, claiming that they have failed to live up to their contractual obligations. These lawsuits should serve to put influencers on notice that brands can, and will, take action when necessary to protect their contractual rights. 

    To minimize litigation risks, brands should perform due diligence before selecting their influencers. They also should have in place a carefully vetted written contract that clearly spells out the expectations of both parties. When it comes to payment, brands should consider scheduling staged, partial payments to be due after completion of each post, rather than making a lump-sum payment to influencers up-front.  Sometimes, even with careful planning, disputes cannot be avoided.  For that reason, companies should consider including in their social influencer agreements a binding arbitration clause with a confidentiality restriction to keep any resulting litigation out of the public eye.  

    Third-party claims against brands based on influencer behavior

    Equally vexing (but potentially even more expensive) is the possibility that a brand might face a third-party lawsuit based on the actions of a social media influencer. There are a number of different types of influencer behavior that could lead to third-party litigation risk for the brand: 

    First, if an influencer fails to clearly and conspicuously disclose his or her relationship to the brand (including, most principally, the fact that he or she is being compensated for the social media post), the brand might find itself the subject of a lawsuit alleging false advertising or unfair competition. This could theoretically take the form of a competitor claim, a consumer class action, or a state attorney general enforcement action.   

    Notably, in cases filed by private plaintiffs alleging an influencer’s failure to adequately disclose the nature of the relationship with the brand, it may not be enough for the plaintiff to simply allege a violation of the FTC guidelines governing social media influencers. At least one court has found that, because “the FTC does not provide a right of action, [a plaintiff] cannot engineer one through [state] law.”  Nonetheless, a plaintiff might argue that an influencer’s failure to adequately disclose the nature of the relationship could independently cause consumer confusion about the nature and strength of the endorsement. In response to this type of claim, a defendant might be able to argue that consumers are savvy enough to understand (and indeed expect) that social media influencers are compensated for their promotion of particular brands. This issue is still being sorted out by the courts. 

    Other types of litigation risks arise not from what influencers don’t do, but instead from what they do. If an influencer goes beyond merely promoting the brand and instead also makes derogatory comments about a competitor’s products, that could open the door for competitor claims against both the influencer and the brand for product defamation, corporate defamation, false advertising, and/or tortious interference with prospective business advantage. Similarly, if an influencer shares copyright-protected works (for example, a photograph taken by someone else) or posts a photo that includes someone else’s likeness without obtaining appropriate releases, both the influencer and the brand could find themselves named in a third-party claim for copyright infringement or invasion of the right of privacy.  

    Looking forward

    Like any good relationship, the one between brands and influencers is not without risk. The best way for brands to minimize influencer-related litigation risks is to take affirmative steps throughout the relationship to carefully spell out and then actively monitor the activity of influencers, seeking to ensure strict compliance with all contractual and regulatory requirements.

    Author

    Susan Cook

    Regulatory & litigation

    Who influences the influencers?

    Responses to FTC’s call for public comment on updates to the Endorsement Guides

    Much has changed in the world of advertising and promotions since 1980 when the Federal Trade Commission (“FTC”) first published its “Guides Concerning the Use of Endorsements and Testimonials in Advertising,” more commonly known as the Endorsement Guides (the “Guides”). The Internet has become a staple of modern life and the backbone for social media platforms, which seemingly multiply in number each day. Frequently found on these platforms are social media influencers – individuals who, through their large number of followers, trending content, or general popularity, leverage a high degree of social “influence” on other users on the platform. Influencers often monetize their reputations on social media platforms by partnering with companies to endorse products and services through sponsored posts. Despite the clear technological advancement and evolution in advertising methods, the Endorsement Guides were last amended over a decade ago in 2009. The FTC recently sought public comment on the current state of the Guides and opportunities for reinvention. 

    At the close of the comment period in late June, the FTC received over 100 comments from companies, trade associations, consumer advocacy groups, and consumers. Commenters were keen on having their voices heard to shape the FTC's approach in this brave new world of advertising, particularly with respect to the behaviors of (and the FTC’s approach to) social media influencers.

    We combed through the areas where the FTC requested comment and the responses received – so you don’t have to. We also analyzed the responses based on the identity of the commenter to search for common themes and were able to streamline the dozens of comments into a handful of key takeaways.  Let’s take a look at some of the issues on the commenters’ minds.

    No consensus as to the effectiveness, format, and clarity of the Guides

    The FTC called for comment as to the effectiveness of the Guides and whether their flexible nature should be maintained. In response, the majority of commenters call the Guides a necessary tool to navigate the maze of online endorsement activities, but insist that the Guides’ associated materials remain as guidance and not be codified into further regulations. Commenters also appear united on the need for further clarity in the Guides, specifically surrounding disclosure obligations.

    Although most commenters, particularly companies, industry associations, and consumers, agree on the form of the Guides and need for greater clarity in certain areas, numerous industry associations disagree on whether the Guides are ultimately effective or not. Roughly half of the substantive comments, including those from the Association of National Advertisers and Consumer Reports, suggest the Guides are too outdated to be effective. However, many organizations favoring industry self-regulation, such as Better Business Bureau (BBB) National Programs and the Interactive Advertising Bureau, argue the current Guides are effective and should remain flexible to adapt to technological innovation.

    Some argue for self-regulation, others more enforcement

    The Guides currently allow significant flexibility in disclosure obligations – that is, how and where an advertiser, influencer, or endorser reveals that they have “material connection” to the brand or product they’re promoting. While about half of the commenters, mainly consumers and consumer advocacy groups, advocate for clearer, bright-line rules to standardize disclosure practices, others prefer continued self-regulation, especially within particular industries.

    For example, the Entertainment Software Association (ESA) expresses specific apprehension over how stricter, uniform rules would affect the video game industry, which frequently has product endorsements in the form of long-form videos called playthroughs. Such content, the ESA argues, in which influencers record themselves playing and commenting on new games, are well understood to be endorsements among their consumer base and therefore should not be held to the same standard disclosure obligations as are applied to other goods or services.

    Others, including Consumer Reports and Truth in Advertising, Inc., argue that allowing industries to self-regulate their advertising leaves room for bad actors to justify deceptive practices. These commenters contend that the FTC's current enforcement of the Guides (or lack thereof, in their view) has enabled fraudulent activity and misinformation to permeate all types of promotional material on the web, warranting more aggressive implementation of the Guides. Consumer Reports goes even further, suggesting that the FTC's authority may be insufficient to address widespread issues and legislative solutions may need to confront the violations. By contrast, other commenters, such as the Association of National Advertisers, contend that certain practices should be exempt from enforcement, advocating instead for safe-harbor provisions in the Guides so long as an advertiser follows the spirit of the Guides.

    Commenters like Consumer Reports also suggest that the current media landscape actively disincentivizes social media platforms and influencers from following the Guides. Amplified engagement, even if artificial, they claim, attracts users and investors to platforms and consumers to marketers. As a result, these commenters argue, platforms and influencers should have some responsibility to monitor their content for proper disclosure practices.

    Alignment as to need for clearer guidance as to social media disclosure obligations

    Commenters nearly universally agree that the FTC should provide further clarity on influencers' disclosure obligations. This not only includes the types of relationships and content requiring disclosure, as well as how such disclosures should be displayed on various platforms. Many commenters request guidance on what relationships warrant disclosures. Specifically, there is concern around companies incentivizing consumer or reviewer engagement without disclosing these incentives. Commenters like BBB National Programs and the American Influencer Council also suggest that promotion and engagement through fake social media accounts should either be disclosed or prohibited.

     In terms of how to present disclosures, many commenters agree that the endorsement guides need to mention whether the default disclosure buttons provided on social media platforms are sufficient. The American Influencer Council even suggests that the FTC collaborate with the "Big 6" social media platforms – Instagram, Twitter, Snapchat, TikTok, Facebook, and YouTube – to standardize disclosure practices across platforms when displaying sponsored content.

     A call for action regarding children's advertising and consumer research for all ages

    Some consumer advocacy groups, especially those with a special interest in children's advertising, strongly believe that children cannot adequately understand disclosures of material connections and, as a result, the Guides should contain targeted guidance for children's advertising, especially native advertising directed at children. Notably, groups like the Center for a Commercial-Free Childhood (“CCFC”) and Common Sense Media's policy arm, Common Sense Kids Action (“Common Sense”), propose hard line rules, such as prohibiting influencer or native advertisements to children below the age of 12 or 13. Research conducted by these commenters purport to show that most children under the age of 12 do not possess the cognitive ability to discern when an ad is an ad and, even if they can recognize content as an advertisement, they do not fully comprehend what that means.

    Moreover, both Common Sense and the CCFC take issue with the practice of encouraging young people to post photos or participate in viral meme challenges that are product-based or company-driven, turning children and teenagers into unwitting influencers. These commenters believe these practices to be exploitative and inherently unfair. The BBB's Children's Advertising Review Unit (CARU) similarly agrees that the FTC should provide more explicit guidance regarding children's advertising in the age of influencers, and asks the FTC to conduct additional research to better understand children's comprehension of native content versus advertising across the numerous platforms now available to them. However, some commenters, including the Association of National Advertisers, argue against specialized guidelines for children as they could prove challenging to implement and fairly enforce.

    Relatedly, commenters suggest that the FTC should itself invest time and resources into conducting more research regarding consumer understanding in the age of social media and influencers, both for children and for all consumer age groups. These commenters request additional research regarding many topics, including whether how much, if at all, incentives affect consumer reviews. Some commenters, including the Interactive Advertising Bureau, note such research has already been conducted by external trade associations, opening the door for further FTC consideration.

     Next steps

    The FTC’s comment request was merely that – a call for comments in response to a number of open-ended inquiries the agency is considering addressing. There is no clear timeline for when – or even whether – the FTC would issue a notice of proposed rulemaking with revisions to the Endorsement Guides. The collection of comments makes clear, however, that the public is interested in receiving additional clarification on various aspects of the Guides and wants the agency to stay current with advertising issues in the age of social media, even if there is still a strong preference for industry self-regulation.

    The Regulations.gov docket, where all public comments can be found, is located here.

    Meryl Bernstein

    Brendan Quinn

    Regulatory & litigation

    FTC enforcement in the social media space

    The proliferation of social media platforms and the myriad of ever-emerging means of communication with consumers have tasked the U.S. Federal Trade Commission (FTC) with applying established norms of consumer protection to the fast-paced world of social media. A great deal can be gleaned from FTC enforcement, giving savvy brands an edge in maximizing the effectiveness of social media platforms while minimizing potential regulatory risks.  

    Innovation in extending the reaches of social media involves endless possibilities and attendant risk. Understanding and mitigating risk is a two-fold exercise. First, brands must understand the FTC’s basic principles governing deceptive advertising which apply, no matter the constraints of social media (e.g., the limit on the length of a Tweet). Second, a careful monitoring and understanding of FTC enforcement is an invaluable way to learn from the mistakes of others. 

    Why do businesses need to take note?

    Many FTC enforcement matters involving social media have implications well-beyond specific claims or product categories. Several FTC enforcement principles involve the failure to disclose information material to a consumer’s purchasing decision. In June 2019, joint FTC/Food and Drug Administration (FDA) Warning Letters were sent to four sellers of vaping liquid containing nicotine. The FTC alleged unrelated third-parties promoted the companies’ products on Facebook, Twitter, and Instagram without disclosing that the nicotine-containing products pose a serious public health risk. Significantly, the FTC’s apparent theory of liability was that the four companies were deemed to engage in deceptive advertising even though the offending content about its products do not appear on the companies’ social media platforms. Companies need to pay attention to what others are saying about their product and take action.

    During the Summer Olympics in Brazil, athletes were recruited to market insect repellant. It was alleged they did not disclose that they had received compensation for the product endorsement. The FTC alleged that the compensation paid was material information that could affect a consumer’s credibility associated with the endorsements portrayed. FTC entered into a consent agreement that will last for 20 years and exposes the advertiser to substantial civil penalties if the order is violated. 

    Parties that disclose required material connections still may be the target of FTC attention when the disclosure is not clear. Social media does not lend itself well to traditional disclosure practices, but FTC is no less adamant that disclosures must appear, for example, as part of a Tweet. Similarly, a disclaimer should typically appear in the first three lines of an Instagram post when the remainder of the post is not readily visible above the “more” designation. The complexity of how to disclose advertising information in social media does not excuse non-compliance. Again, FTC enforcement is instructive.

    Two additional examples reflect a sharp rise in enforcement – a trend that is likely to continue. The nature of the conduct and the entities targeted by the FTC are telling. 

    • The sellers of Geniux Dietary Supplement making cognitive improvement claims resulted in decisive FTC enforcement in April 2019. Marketing under various brand names, the products were touted to vulnerable, elderly populations promising improvement in memory and cognitive skills based on non-existent clinical studies. Allegations included use of sham news websites and fraudulent celebrity endorsements. The FTC also alleged that fake consumer endorsements were used and social media postings failed to disclose compensation to the firm placing the advertising.
    • Cure Encapsulations entered into a consent order in February 2019 after the FTC found unsubstantiated weight-loss claims promoted by a paid third-party website that was paid to write and post fake reviews on a highly visible website. The reviews were crafted to appear as actual purchaser’s opinions.

    Numerous other enforcement actions taken by the FTC provide a critical place to start when crafting a new social media campaign.  

    Looking forward

    Social media has proven a dynamic, constantly evolving tool for brands to engage with consumers in ways that “break through the clutter” in ways unimaginable just decade ago. But the FTC’s visible enforcement efforts underscore the real-world risks to brands, by their own action or entities enlisted to promote a product.

    Key messages and how such information is shared with the consumer continue to evolve, rewarding innovation of brands and benefiting consumers who want to know more and more about the origin, story, and benefits of a given product. But innovation must include legal compliance. Brands must take a strategic and creative approach working with influencers while ensuring that such campaigns do not run afoul of the FTC’s deceptive advertising mandate. 

    Author

    Steven Steinborn

    Regulatory & litigation

    Hey influencers! The FTC is talking to you - new guidance from the FTC

    The Federal Trade Commission (FTC) released new guidance regarding influencer marketing. The FTC breaks down the basics of advertising disclosures for social media influencers through a series of do’s and don’t’s as to how, when, and where to disclose a “material connection” to a brand.

    As social media platforms seemingly multiply by the day, savvy brand owners and their influencers alike seek new ways to engage with consumers and raise brand awareness. Yet as brands disperse their advertising among a fleet of influencers, all involved must understand and abide by basic truth-in-advertising principles. To this end, the Federal Trade Commission recently released new guidance aimed at explaining these requirements to influencers so that they – and the brands they represent – comply with federal law.

    Why do businesses need to take note?

    What’s happening?

    The FTC’s new Disclosures 101 for Social Media Influencers and its accompanying videos represent the first time the FTC is speaking directly to influencers themselves to remind them of their legal obligations when posting on social media. These publications build upon and clarify key guidance from the FTC concerning influencer marketing, namely the FTC’s Endorsement Guides and a 2017 Frequently Asked Questions guidance document.

    The new guidance comes as no surprise because FTC enforcement action against influencers is on the rise. This trend began in 2017 when the FTC sent dozens of educational warning letters to numerous influencers and settled its first formal complaint against two influencers in the online gambling industry for failing to disclose their ownership of the company they endorsed.

    The FTC’s thinking

    This new guidance applies to all posts – even those posted by influencers abroad – if it is reasonably foreseeable that a post may affect U.S. consumers.

    As such, the FTC reiterates that it is the influencer’s own responsibility to disclose any “material connection” to a brand, which includes any personal, family, employment, or financial relationship. Financial relationships are not limited to monetary compensation but refer to the influencer’s receipt of “anything of value” from the brand, such as free or discounted products or any other perk in exchange for mentioning any product or service offered by the brand.

    Even connections such as tags, likes, pins, or other similar ways of showing someone likes a brand or product can constitute endorsements that require disclosure. Influencers cannot rely on others for disclosures nor presume their followers’ knowledge of their existing relationship with a brand.

    Where and how to disclose

    Influencers must always ensure that consumers can see and understand a required disclosure.

    • As to placement, disclosures should be placed within the endorsement itself. Disclosures should not be mixed among a string of hashtags nor appear only:
      • on a profile page or “About Me” page,
      • at the end of a post or video or in a video’s description, or
      • anywhere that requires a consumer to click “More.”

    Consumers are also more likely to notice disclosures conveyed both visually and aurally. For example, when endorsing a product during a live video stream, any disclosure should be repeated periodically so viewers who only see part of the stream receive and understand the disclosure.

    The FTC is therefore cracking down on influencers who bury their disclosures at the end of posts among numerous hashtags or distract from a small-print written disclosure during an engaging video. Instead, the FTC encourages influencers to make their disclosures one of the first things consumers see or hear.

    • As to content, disclosures should be simple and clear, using terms like “advertisement,” “ad,” “sponsored,” “[Brand] Partner,” or “[Brand] Ambassador” with or without hashtags. The FTC cautions against using vague and confusing terms like “sp,” “spon,” and “collab,” or stand-alone terms like “thanks” or “ambassador.”
    • A platform’s built-in disclosure tool may not be sufficient and influencers should always consider adding their own disclosures.

    Finally, influencers must also remember basic truth-in-advertising principles such as (i) don’t endorse a product you haven’t tried, (ii) don’t say you think a product is great when you actually believe it’s bad, and (iii) don’t invent claims that require proof the brand may not or does not have, such as health claims.

    Looking forward

    The FTC states that these disclosures are an important step towards keeping influencer recommendations honest and allowing consumers to weigh the value of influencer endorsements. This new guidance also ensures that brands and their influencers will know what to do to stay on the right side of the law and avoid enforcement action by the FTC.

    With the FTC’s enforcement focus now clearly directed at influencers themselves – and not just the brands they represent – be on the look-out for more #bad #ads caught in the FTC’s crosshairs.


    Authors

    Julia Matheson

    Brendan Quinn

    Regulatory & litigation

    Spilling tea at the FTC

    Increasing regulatory scrutiny of influencer marketing and an opportunity for public comment

    The kettle’s on at the Federal Trade Commission (FTC), where quite the storm has been brewing lately for social media influencers and their sponsoring brands. The FTC is continuing a streak of increased scrutiny for social media advertising in general, but with a stronger emphasis on the responsibility of influencers themselves, building on last fall’s Disclosures 101 for Social Media Influencers.

    Big changes are ahead with the agency looking to comprehensively revise its Endorsement Guides, as well as issuing a $15.2 million judgment against a detox tea manufacturer who advertised through a fleet of well-known influencers like Cardi B and Jordin Sparks (these influencers also received individual FTC warning letters as a result of the settlement).

    How should the FTC regulate influencers? Let your voice be heard!

    The advertising world looks nothing like it did 40 years ago when, in 1980, the FTC first published its “Guides Concerning the Use of Endorsements and Testimonials in Advertising,” more commonly known now as the Endorsement Guides. With the advent of the internet and proliferation of social media platforms, it comes as no surprise that the FTC voted 5-0 to publish a Federal Register notice requesting public comment on the Endorsement Guides as part of a comprehensive regulatory review. The Guides were last amended in 2009.

    Click here to read the full article.

    Authors

    Julia Matheson

    Meryl Bernstein

    Brendan Quinn

    Regulatory & litigation

    New process to move SWIFT-ly at NAD on some influencer claims

    The National Advertising Division (NAD) recently announced new procedures to resolve straightforward digital advertising disputes in a matter of weeks. The new procedures – called the SWIFT process – represent a new way for advertisers to enforce against their competitors’ (or defend their own) influencer marketing practices.

    The NAD is a self-regulatory body housed within the Better Business Bureau that offers an alternative venue for dispute resolution among advertisers beyond the federal courts, the Federal Trade Commission (FTC), or state regulators. Usual NAD proceedings last several months. To streamline the time to reach a decision, NAD recently developed new SWIFT (Single Well-defined Issue Fast Track) procedures to contend with single-issue claims such as:

    • The prominence or sufficiency of disclosures, including disclosures in influencer marketing, native advertising, and incentivized reviews
    • Misleading pricing and sales claims; and
    • Misleading express claims that do not require review of complex evidence or substantiation, such as a review of clinical or technical testing or consumer perception evidence

    Click here to read the full article.

    Authors

    Julia Matheson

    Brendan Quinn

  • Hot topics
    • The promise and peril of “kidfluencers” for your business
    • Competitors and social media
      Defamation and negative posts
    • Tapping into influencer marketing in Southeast Asia
    • Virtual social influencers
    • Influencer fraud
      How to take advantage of a growing marketing movement without falling prey to influencer fraud
    • Ins and outs of celebrity influencers
    Hot topics

    The promise and peril of “kidfluencers” for your business

    Children with a large following on social media, also known as “kidfluencers,” are the latest trend to watch. A prime example of the rise of kidfluencers is Ryan Kaji, a seven-year-old boy who topped the list of the highest-paid YouTubers in 2018. He reportedly made US$22 million reviewing toys on his YouTube channel in a year. 

    For some time now, brand owners have engaged social media stars to sponsor or advertise their products or services on social media. Brand owners may also send free samples to them for reviewing or for giveaways or sweepstakes on social media. The benefit of engaging influencers is clear – they are considered relatable to their audience and have the potential to create a direct impact on their audience worldwide.

    For businesses targeted at children, kidfluencers present a valuable marketing opportunity. But, all that glitters is not gold. While social media presents unprecedented opportunities for businesses, there are also risks, particularly when dealing with children.

    Why do businesses need to take note?

    Businesses working with kidfluencers to promote their products, services or brands on social media should be aware of the legal issues that may arise. Issues which merit particular attention when working with kidfluencers include:

    1. Contracts
    • Capacity to enter into contracts. In many jurisdictions, minors are considered not to have the capacity to enter into a contract. Different jurisdictions may have different ages of majority, ranging from 15 to 21. As such, a contract with a minor may be voidable at the minor’s option or be unenforceable against the minor. There may be exceptions, depending on the nature of the transaction and the age of the minor. Brand owners should bear these issues in mind when dealing with kidfluencers.
    • Defining the scope of engagement. The terms of the arrangement should be set out in writing, covering issues such as compensation, platforms for the posts, frequency and duration of the posts, accuracy of the product or service being reviewed or promoted, the right of the brand owner to approve the content in advance, consequences for non-compliant posts, ownership of intellectual property in the posts, and specific obligations of the parent/guardian and the kidfluencer with respect to the content and frequency of posting.
    1. Minor protection laws
    • Prohibition on employment. Many jurisdictions prohibit employment of children under 13. There may be exceptions for employers in fields such as entertainment or advertising, subject to complying with certain conditions on the child’s well-being. Employment of older children may also be permitted, subject to compliance with conditions such as working hours.
    • Data protection laws. Social media platforms have age limitations on registration. This is because certain data protection laws only allow the processing of personal data of children if they are above a certain age.

      For example, under the EU General Data Protection Regulation (GDPR), any collection of data from children under 13 is prohibited. For a child under 16, companies can only collect and process personal data with the consent of the child’s parent/guardian. For younger kidfluencers, such data protection laws may necessitate a social media account being opened in the name of, and managed by, the parent/guardian instead of the kidfluencer.
    • Specific child protection laws. Several jurisdictions have enacted specific child protection laws that may be applicable, though it is not clear if the current laws can protect kidfluencers from excessive labor or other exploitation. A key issue is whether a kidfluencer should have any legal entitlement to a share of the advertising revenue paid to the adult social media account owner by the social media platform. To protect the earnings of child “actors,” some states in the U.S. require parents/guardians to put a portion of the child’s earnings into a trust.
    1. Advertising laws
    • Disclosure of paid content. When conducting paid or sponsored advertising, both advertisers and kidfluencers alike need to be aware of specific advertising laws that require disclosure of paid content. We typically see more and more social media stars using conspicuous captions or hashtags such as #ad, #paidpartnership, or #sponsored to make the nature of the content clear to consumers.

      Even if the place where the campaign is run does not have specific laws on disclosure of paid or sponsored content, disclosure will need to be made if the posts are likely to be seen by and to affect consumers in a place with such laws.
    • Prohibition on child endorsers, etc. Some jurisdictions may have certain prohibitions on engaging children as endorsers. For example, in China, children under 10 must not be engaged as endorsers. Advertisements for products like online games or cosmetics on media targeting minors under 18 are also prohibited. Further, advertisements targeting children under 14 must not include content which persuades their parents to purchase or any content which encourages the imitation of dangerous acts.

      False or misleading claims. A failure to comply with applicable advertising laws may lead to false and misleading advertising claims against both companies and influencers. Brands should be truthful in their advertising when working with influencers.  

    Looking forward

    Currently, many jurisdictions do not have a single comprehensive set of online marketing or social media laws. As such, it can be challenging to navigate the rules of the game. The relevant areas may span, for example, intellectual property law, data protection law, defamation law, contests/gaming law and labor law. Particular challenges may arise where laws are playing catch up with issues surrounding online platforms and the internet’s emerging technologies.  

    In recent years, we have seen some jurisdictions pass online marketing laws aimed at protecting children. For example, in the U.S., the Children’s Online Privacy Protection Act gives parents control over what information websites or other online services collect from children under 13. The GDPR is another example. In China, amendments were passed into the Advertising Law to protect minors in advertising. With the exponential growth of social media, we can expect more and more jurisdictions to adopt laws or release guidance regarding online marketing and the protection of children which are sure to impact kidfluencer marketing.

    Authors

    Eugene Low

    PJ Kaur

     

    Hot topics

    Competitors and social media

    Defamation and negative posts

    Using social media to advertise your products may be an extremely economical and far-reaching way to reach consumers in the modern-day world. Celebrities, copywriters, hired-guns, bloggers, vloggers, and key opinion leaders post statements about products on social media at unbelievable frequency. Consumers rely on online reviews before purchasing products. Ads are often placed within content. Social media becomes the best way to directly reach out to customers…

    …Until there's a negative post, or even an intentional comeback from a competitor. Your product is described to be bad and is being accused of certain things – what can you do to protect your brand without assuming additional legal risks?

    Why do businesses need to take note?

    Actions can be taken against false accusations or defamatory content posted online. One point of note is to differentiate whether the statement was an opinion or an alleged fact. For instance, there is a difference between when a person claims that a snack is not tasty and a false claim that the snack contains carcinogenic substances.

    Depending on the circumstances, here are some options to consider:

    • Warning/cease and desist letters – writing to the person who issued the defamatory statement would be one option. The letter will serve as a warning to the writer not to further defame you, as well as, a request that the writer take down statements. The downside with this approach is that sometimes it may not be easy to track down who wrote the comment/statement.
    • Take-down requests – you may contact the ISP, website, or webhost directly to request that statements be removed, but this is usually applicable when you cannot identify the person who posted the defamatory statements. Depending on the statements, you may have a stronger argument to take statements down when they are also infringing your intellectual property, for example: a trademark or copyright.
    • Defamation law suit – initiating legal proceedings may be helpful to recover losses caused by defamatory statements. Obtaining injunctions to prohibit any further defamatory statements are also sometimes useful. But this can be a costly – and time intensive – option.

    With the surge in the popularity of social media, there is more potential to see defamation law suits based on tweets, posts, and comments made on social media. One example is Tweets accusing a food writer of desecrating a war memorial – awarded US$29,000 (Monroe v Hopkins; UK). 

    Looking forward

    With increasingly more complaints by companies against misleading advertisements, consumer protection has heightened in many jurisdictions. In the UK and Hong Kong, there are trade description laws that prohibit false trade descriptions for goods or services. In the U.S., false advertising laws give consumers the right to sue businesses for misleading them into purchases. In China, significant penalties against business operators will be imposed if they are responsible for false or misleading advertisements. If businesses deploy social media without caution, they could be asked to take responsibility for false claims and face grave penalties under the laws.

    Looking forward, businesses should be alert to statements and comments made about them online. To identify whether the writer was a competitor, a hired-gun, or just a typical end-user, companies can pay attention to the writer's name, social media usage history, or verify whether the person has indeed purchased your goods or services. You may also want to watch out for online "sponsored posts" in case those are defaming your products – Digg, Reddit, Twitter, and Instagram have utilized sponsored posts to help users and businesses identify which posts are sponsored and paid for.

    Authors

    Eugene Low

    Charmaine Kwong

    Hot topics

    Tapping into influencer marketing in Southeast Asia

    Social media is transforming Southeast Asia. Fifty eight percent of the region's 635 million people are online and more than half of them are active social media users, making it the world's third-largest population with respect to monthly social media usage.

    With the region's rates of social media penetration among the fastest-growing in the world, social media has become a central part of consumer brands’ toolkit to enter or conquer the Southeast Asian market. A broad range of platforms are used across Southeast Asia. Facebook is popular across all 11 countries. WhatsApp has a strong user base in Singapore and Malaysia, LINE is popular in Thailand and Indonesia, and Vietnam has home-grown platform Zalo. In evaluating customer engagement and strategies, consumer brands will need to be aware of the unique social media dynamic in the region and understand the distinct capabilities of the different platforms.

    The exponential growth of social media platforms and high smartphone penetration in Southeast Asia also has created a unique e-commerce model in the region that revolves around social media, with platforms serving as marketplaces. Consumer brands have come to recognize social media as a viable channel for showcasing their products and services, from setting up Facebook pages or corporate Instagram accounts to engaging social media influencers to promote their products online – the latter of which has skyrocketed in popularity in the region.

    Why do businesses need to take note?

    By 2020, the Instagram influencer industry is projected to become a US$5 billion to US$10 billion market, and Instagram influencer-sponsored posts grew by 189 percent in Asia from 2018 to 2019. Social media influencers started out as A-list celebrities, but recent times have seen a significant shift in the influencer landscape to the use of micro-influencers by consumer brands. Micro-influencers are influencers who own accounts commanding between 10,000 to 100,000 followers and are often fitness enthusiasts, travellers, or the boy/girl-next-door whose profile is designed to be relatable to the everyday consumer and who often comes with a readily available network of family and friends.

    In Asia, micro-influencers account for more than 80 percent of Instagram influencers. This trend has grown exponentially for a number of reasons. First, micro-influencers project authenticity. This gives the consumer a more personalized perspective of a product and appeals to millennials eschewing celebrity endorsement in favor of peer endorsement. The most successful micro-influencers market products that align with their account and their audience's interest, leading users to trust their brand endorsements are based on genuine judgement.

    Second, micro-influencers generate 11 times the rate of return compared to traditional advertising, as they come at considerably less cost to businesses and can grow organically. Most importantly, this trend is driven by the fact that in lieu of the computer-based online shopping habits of other countries, Southeast Asians primarily use mobile devices to access information.

    The advent of a new trend inevitably brings with it new challenges. A growing issue surrounding social media influencers is the regulation of content entering the online market. Regulators are increasingly concerned that there should be transparency of information and consumers must be made aware if posts are, in fact, sponsored advertisements.

    In the United States, the Federal Trade Commission (FTC) has issued guidelines requiring clear disclosure of any relationship between the influencer and any business sponsor. In response, Instagram introduced its Branded Content Tool which allows influencers to tag their business partners and indicate that a post is a sponsored post.

    Within Southeast Asia, Singapore has been a driver of regulation in this space. Other Southeast Asian nations, including Malaysia, still are seeking to introduce frameworks to control the use of social media and create a safer online environment for consumers. Given the cultural, economic and political diversity in Southeast Asia, each country in the region is likely to approach the regulation of social media commerce with differing levels of scrutiny and consumer brands must remain conscious that there will not be a one-size-fits-all solution for the region.

    Looking forward

    With the growing trend of social media and influencer-led advertising, the direct impact of consumer brands' use of social media on their customers remains an on-going debate. Some believe influencers directly impact customer buying decisions, while others believe the social media influencer market is already saturated and customers are so overwhelmed with recommendations that direct buying impact is difficult to gauge.

    What is clear, however, is that the growth of social media in Southeast Asia is unlikely to slow down in the next five to 10 years. With a rise in micro-influencers in the social media space, the ability for regulators to effectively monitor such activity will only become more challenging. Consumer brands engaging social media influencers in Southeast Asia will need to be agile and flexible in their marketing tactics to balance the changing political landscapes, as well as ever-changing customer habits in each country in the region.

    Author

    Stephanie Keen

    Hot topics

    Virtual social influencers

    In the world of social media influencers and sponsorships, 2017 and 2018 were notable for the wave of FTC enforcement activity emphasizing the need for influencers and marketers alike to familiarize themselves with and comply with FTC’s Endorsement Guidelines. In its first wave of letters, the FTC chose a kinder, gentler approach, choosing not to disclose the recipients’ identities. But, it left no doubt that it is closely monitoring social media postings for violations.

    Now that some time has passed since the issuance of its Endorsement Guidelines, and familiarity with their rules and principles can be assumed, we will likely see the FTC taking a tougher stance against violators by naming names and initiating more enforcement actions. At the same time, companies are likely to continue to innovate around who they use as influencers and the nature of those communications.

    Why do businesses need to take note?

    The introduction of virtual social media influencers is just one of those clever innovations. Virtual social media influencers are computer-generated imagery (CGI) created to portray an ideal lifestyle or image while allowing brands to retain more control. CGI Influencers won’t say the wrong things, get caught at the wrong party, or otherwise pose a potential risk to your company’s valued image.

    But, the new CGI trend also brings its own new challenges. Not only has the FTC made clear that virtual social media influencers are subject to the same truth in advertising and disclosure requirements as all other social media influencers, but the use of virtual influencers also raises intellectual property ownership concerns and morality issues. As a creative work, intellectual property ownership rights accrue to the creator of the influencer character. As a result, companies should be sure to have an agreement in place clearly outlining the ownership of such rights.

    Looking forward

    And while the FTC does not currently require that brands disclose whether or not their influencers are real people or CGI, guidelines to this effect may be on their way. Virtual influencers have been criticized as setting unrealistic expectations, having suspect motivations, and lacking authenticity. 

    Being upfront about the nature of social media influencers can help alleviate some of these concerns.


    Authors

    Julia Matheson

    Meryl Bernstein

    Hot topics

    Influencer fraud

    How to take advantage of a growing marketing movement without falling prey to influencer fraud

    It may be a post of a carefree teen with a new brand of mascara; a fit, relaxed-looking mom in athleisure wear; or a construction worker promoting ethically sourced coffee. Whatever post caught your eye, it represents big business. As an industry, influencer marketing is set to grow to approximately US$9.7B this year, and the average earned media value per US$1 spent has increased to US$5.89. But, along with opportunities for companies in the consumer industry, influencer marketing brings risks as well. 

    What happens when that fit mom isn’t who she says she is? What if her followers are bots? Her stories fake? Her influence a farce? According to the 2020 Influencer Marketing Benchmarking Report, 68 percent of respondents claim to have experienced influencer fraud, up from 63 percent last year. And 49 percent of respondents asserted that brand safety could be a concern when running an influencer marketing campaign. So how can companies take advantage of a growing and successful method of marketing, while protecting their brand and promoting trust with consumers? It all begins with proper due diligence.

    Why do businesses need to take note?

    True social media influencers have followers who view their posts on websites such as Instagram or Facebook and trust their opinion on any number of topics, often relating to consumer products and lifestyle philosophies. Companies then can hire these influencers, paying them to post sponsored ads to promote a certain product or brand. Social media fraud occurs when a paid influencer uses artificially inflated followers or falsified engagement statistics in order to convince a company to hire him or her, or pay the influencer a greater amount. 

    Influencer fraud can happen in a number of ways, including by:

    • Paying people to follow a social media account, or paying for engagement.
    • Purchasing services that sell automated or “bot” “likes” or comments.
    • Forming “pods” or alliances in which social media users work together to increase one another’s engagement.

    Influencer fraud is more than just a waste of money; it can tarnish consumer trust. To be sure, companies rarely know that they are paying for bots when they hire a fake social media influencer. But influencer marketing works because consumers feel that real influencers are genuine, relatable, and credible. When the influencers are fake, consumers are more likely to distrust the company paying for the posts.

    How to Spot a Fake

    Companies can and should take advantage of influencer marketing – after engaging in appropriate due diligence. There are various services and bot detecting tools in the market, but here are some key indicators to watch for to spot a fraud:

    • High number of followers yet little engagement (i.e., likes, comments).
    • Comments are consistently low quality, with very high numbers of emoji-only or generic comments (e.g., “nice pic”).
    • Very few followers with unusually high engagement, which could suggest that the comments have been bought, particularly if the comments are low-quality.
    • Significant numbers of comments that do not relate to the post.
    • High numbers of duplicative comments.
    • High number of “likes” but very few comments.
    • Followers do not appear to be real social media users (e.g., high numbers of followers with no photographs and unusual usernames).
    • Sudden spikes in followers that cannot be explained by a major, external event.

    Conversely, there also are indicators that a potential brand sponsor may be legitimate, although these indicators should be viewed holistically. No one factor should convince a company that a social media influencer is genuine.

    • They have a verified badge or blue checkmark next to their names.
    • They drive conversations with their followers in the comments about the brands and issues they are promoting.
    • They have a smaller, but engaged, group of followers. In fact, fraud aside, smaller influencers with more targeted audiences may be a wise business choice for some brands, as nano-influencers (often defined as having 1,000 – 10,000 followers) and micro-influencers (often defined as having 10,000 – 100,000 followers) tend to have better engagement statistics than influencers with higher numbers of followers.
    • A mix of generic comments and specific, relevant comments.
    • Follower increases appear organic over time.
    • Influencers are otherwise engaged on social media, including communicating with other social media influencers.

    Looking forward

    Companies may choose to keep a record of any influencers deemed fraudulent and why, so as to streamline the vetting process for the future. Proper due diligence requires time and resources, but the additional effort on the front-end of the process can be invaluable for a company looking to maximize its resources through social media influencer marketing. Influencer marketing is on the rise with no sign of abating, soon to become a US$10 billion industry. With careful planning and due diligence, companies can take advantage of this burgeoning marketing opportunity, without falling prey to influencer scams.

    Hot topics

    Ins and outs of celebrity influencers

    When partnering with influencers, companies need to be careful about the type of influencer to pursue. Experts classify influencers according to their individual reach, their engagement rate, or their influencing skill base. With regard to reach, influencers can be divided into five groups: mega-influencers (more than 1 million followers), macro-influencers (500,000 to 1 million followers), mid-tier-influencers (50,000 to 500,000 followers), micro-influencers (10,000 to 50,000 followers) and nano-influencers (1,000 to 10,000 followers).

    By differentiating influencers based on their influencing skill base, companies can distinguish authority, niche, and celebrity influencers. The latter have the ability to affect culture and groups en masse. They embody a certain lifestyle that followers or fans aspire to have in some small or greater part, and they aim to have their fans join them.

    Why do businesses need to take note?

    The most significant advantage of working with celebrity influencers is increased attention for the company's products or services. But there are other positive aspects that could lead a company to selecting a celebrity influencer over another social media star, including the celebrity’s experience with legal contracts. It seems likely that a more professional partnership is possible, assuming celebrity influencers often work with a legal team or agency and are familiar with the customs of legal partnerships. As it is highly recommended to include written contracts with influencers, such legal background may help ensure the agreements are accurately fulfilled. Additionally, media coverage about the partnership could lead to increased attention for the company's products or services.

    However, the overall engagement rate – the rate that indicates how strongly the group reached by the influencer reacts to a specific post – is rather low for celebrity influencers. Followers tend to be diverse and rarely personally connected with the celebrity influencer. In this regard, the potentially higher costs of engaging such influencers might not amortize. Because of these trends, companies have been turning less to A-listers to promote their products and services and more to micro- or even nano-influencers who have access to a particular target audience.

    Working with celebrity influencers also might include some loss of influence over what is said about the product, how it is said, and when it is said. Potentially, a product could not only become a big seller overnight; the image of it also could be destroyed forever by one unflattering post. Hence, reputational damage could be quite considerable if the high-profile endorsement fails.

    Lastly, the influencer marketing business is based on authenticity. Celebrity influencers may appear inauthentic, especially if they work with several companies promoting competing products. Compared to nano-influencers who focus on a specific topic or product, it is questionable whether celebrity influencers can claim their endorsements are genuine if they highlight the advantages of several different products.

    Looking forward

    The company-influencer relationship and the circumstances could vary significantly by situation. While it could make sense to engage a celebrity influencer at the beginning of a campaign to gain broad attention and exposure for the product or service, it also could make sense to focus on micro- or nano-influencers for later campaigns to better reach the target audience.

    In any case, companies should establish internal social media policies and draft agreements with celebrity influencers to gain legal certainty and avoid any liabilities. From a public relations perspective, companies also should consider carefully vetting celebrity influencers they plan to work with to avoid any negative surprises.

    Authors

    Yvonne Draheim

    Sabrina Mittelstaedt

  • Guides for your industry
    • Influencers in the fashion industry
    • Influencers in the pharmaceutical and medical device industry
    Guides for your industry

    Influencers in the fashion industry

    Find the price of a hot new product. Learn how the latest and greatest gadgets work. Compare consumer experiences.

    Increasingly, the public turns to the Internet to find out all of these things, and specifically, to social media. As a result, social media platforms such as Facebook, YouTube, Twitter, Instagram, and Pinterest have become the place for consumer-facing companies to promote their products and services.

    Unlike more traditional media, social media marketing allows companies not only to advertise their products, but also to interact directly with consumers to obtain feedback about their products and monitor the impact. Plus, they can see firsthand consumer reaction to messaging.

    And while companies have long understood the impact of individual recommendations over more corporate-style messaging (i.e., “I’m not a doctor but I play one on TV”), companies are turning less to A-listers to sponsor their products and services and more to a new type of social media influencer: the micro-influencer, a person with access to a particular target audience.

    While a “micro-influencer” may be a celebrity, that consideration is often secondary; the real appeal of micro-influencers is that they share the same condition, or fall within the same category, as the people to whom they are speaking. For example, micro-influencers can be doctors who treat a particular type of condition or disease; a mom who actively blogs about the best ways to clean her kids’ clothes; or a model who suffers from acne. Micro-influencers allow businesses to get their advertising to an increased and/or more targeted audience, to discover what consumers are really looking for from their products, and to learn how their products are actually working for real consumers. 

    In navigating this world, companies must comply with FTC guidelines for influencers and marketers, which require, among other things, that ads and endorsements are clearly identified and relationships with influencers that include any exchange of value, monetary or otherwise, be clearly disclosed. Companies can take advantage of the many benefits of social media influencers, and particularly micro-influencers, without running afoul of the myriad advertising and promotional regulations and requirements for their products.

    Click here to download the full guide.

    Guides for your industry

    Influencers in the pharmaceutical and medical device industry

    All companies must be mindful of compliance with FTC guidelines for influencers and marketers, which require, among other things, that ads and endorsements be clearly identified and substantiated, and relationships with influencers that include any exchange of value, monetary or otherwise, be clearly disclosed.

    Medical device and pharmaceutical companies, however, bear the additional burden of compliance with the detailed and often complex FDA regulations covering labeling and advertising requirements for drugs and medical devices. Regulatory agencies may hold drug and device firms accountable for statements made by social media influencers that they engage to promote their products. How, then, can these companies take advantage of the many benefits of social media influencers, and particularly micro-influencers, without running afoul of the myriad advertising and promotional regulations and requirements for their products?

    Click here to download the full guide.

  • Guides for your region
    • Social media influencers in the U.S.
    • Dealing with social media influencers in China
    • Dealing with social media influencers in Germany
      Produced in partnership with Lexis Nexis
    • Social media influencers in Asia
    • Social media influencers in Germany
    • Social media influencers in the UK
    • Social media influencers in Italy
    Guides for your region

    Social media influencers in the U.S.

    Social media platforms are evolving at breathtaking speed, yet subject to a relatively static regulatory framework that challenges regulators and industry alike to allow for innovation while protecting consumers from deceptive advertising practices. Savvy brands will leverage an understanding of both the regulatory framework and enforcement trends to maximize effective social media strategies while minimizing potential regulatory risks. The U.S. Federal Trade Commission’s (FTC) visible enforcement efforts underscore the real-world risk to brands, by their own action or entities enlisted to promote a product. Similarly, decisions by the National Advertising Division (NAD), a self-regulatory arm of the BBB National Programs, highlight suspect social media advertising tactics that have caught the attention of competitors.

    Why do businesses need to take note?

    There are several key actors in U.S. advertising regulation: the FTC, the federal agency tasked with regulating advertising; state attorneys general (state counterparts to the FTC); self-regulatory NAD; public advocacy groups; and private litigants.

    Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45, prohibits “unfair or deceptive acts or practices” in advertising, which include the use of endorsements and testimonials on social media platforms. Since first issuing guidance in 1972 on endorsements and testimonials (the Guides), the FTC has updated this legal framework in response to the emergence and evolution of social media and other forms of communication. The Guides are currently under review and FTC has requested public comment on how they may be improved or adapted to better address the present advertising environment. The Guides can be accessed here and the accompanying FAQs can be accessed here.   

    The essential principles of the Guides are adequate disclosure and that responsibility for compliance falls on all parties (product manufacturers, marketing firms, advertising platforms, and endorsers). Meaning, whether the use of endorsements or testimonials is deceptive turns on how clearly contextualized that endorsement/testimonial is. And, multiple parties in the advertising chain can be held responsible for inadequate disclosure. Does it disclose any financial relationship between the manufacturer and the endorser (which may include free product)? Has the endorser communicated objective product benefits beyond what the marketer itself can establish?

    For many social media platforms, these disclosures can take the form of “#ad” or “#Sponsored” disclaimers at the beginning of posts to indicate a material connection between the product manufacturer and the influencer. In more complex scenarios, however, facially false advertising cannot be cured by a disclaimer. For example, a recently settled FTC action against social media influencers and the makers of Teami, a weight-loss beverage, charged the company not only with inadequate influencer disclosures, but also with making false health claims about their teas, suggesting they could provide rapid and substantial weight loss, “fight against cancerous cells,” decrease migraines, unclog arteries, and prevent colds and flu. 

    In the past two years, the FTC has pursued civil action against celebrities and social media influencers, manufacturers, magazine publishers, and PR firms, alike. The FTC at times has also made use of informal “warning letters,” often to a group of companies, cautioning against a certain form of advertising or claim. These warning letters have been used especially frequently against social media claims related to COVID-19.  

    While FTC civil enforcement resources are finite, the NAD provides an active alternative forum for industry self-regulation of advertising issues across a broad spectrum of industries and claims and regularly reviews the use of social media platforms. The NAD applies the FTC’s advertising principles to competitor-initiated challenges and also conducts its own surveillance reviews of industry adverting. If a challenged advertiser agrees to participate in the NAD proceeding, the parties will present briefs and evidence prior to the NAD issuing a decision.  Challenged advertisers who do not agree to participate in NAD proceedings, as well as those who do not agree to follow the recommendations set out in NAD’s decisions, are referred to FTC for possible enforcement. 

    So, how can companies avoid FTC or NAD review? A well-developed and carefully monitored social media program pays dividends. Disclosure requirements should be clearly established in the terms of any agreements with social media influencers, and it should be made clear that influencers are equally responsible for complying with the law. Trainings and templates on the appropriate styles and content of endorsement and testimonial postings are also advised. Additionally, companies would do well to review influencer postings for compliance on a regular basis.  In the case of Teami, referenced above, many of the postings FTC identified as violative also violated the company’s social media policy.  Without an internal monitoring program in place, a company may not be aware of how its products are being communicated to consumers.

    Looking forward

    FTC’s Guides are currently under review. FTC is seeking stakeholder feedback on issues such as whether and how consumers’ perceptions regarding endorsements have changed, how young children understand endorsements, and how consumers perceive common practices on e-commerce and social media platforms. In July 2020, FTC delivered a report to U.S. Congress addressing concerns related to “social media bots,” non-human social media accounts that make up a significant percentage of social media communications. Although the focus on bots is largely tied to the dissemination of political information, rather than consumer product advertising, it may forecast issues that lie ahead for social media influencers.

    Mechanisms for sharing key information with consumers continue to evolve, rewarding innovation of brands and benefitting consumers who want to know more about the origin, story, and benefits of a given product. But innovation must include legal compliance. Brands must take a strategic and creative approach working with influencers while ensuring that such campaigns do not run afoul of the FTC’s deceptive advertising mandate and parallel requirements enforced at NAD, by state attorneys general, and in private litigation. 

    Authors

    Steve Steinborn

    Mary B. Lancaster

    Guides for your region

    Dealing with social media influencers in China

    This Practice Note is aimed primarily at brands wishing to engage with influencers (or other talent) for particular social marketing campaigns and advertising promotions in China. It covers:

     •  Influencer endorsement

    •  Disclosure requirements

    •  Types of breaches and sanctions

    •  Regulations, codes and guidelines and key information relating to influencers

    •  Oversight of influencer endorsement activities

    •  Ownership of the rights to sponsored content created by influencers

    •  Responses to inaccurate brand messaging, rogue behaviour and mistakes

    •  Key provisions found in influencer agreements

     This note was prepared for Lexis PSL.

     Influencer endorsement

    Influencer ‘endorsement’ is mainly regulated under the Chinese Advertising Law (CAL), which is the main body of legislation governing commercial advertising activities in China. The CAL applies broadly to commercial advertising activities in which commodity dealers or service providers directly or indirectly present goods or services marketed by them within China.

    Up to 2015, the CAL contained no provisions in relation to endorsements or influencer activities. When a new version of the CAL was adopted in 2015, however, a definition of ‘endorsers’ (in China also often called ‘Key Opinion Leader’, ‘KOL’) and specific provisions directed at endorser activities were enshrined in the CAL. Endorsers are defined in a broad and neutral way as: ‘natural persons, legal persons or other organisations other than advertisers that recommend or demonstrate products or services in their name or image in advertisements’ (see Article 2 of CAL). The CAL does not contain any definitions or other provisions regarding the elements of ‘payment’ or ‘control’ in endorsement activities, and neither has the administrative authority in charge of enforcing the CAL, i.e. the State Administration for Market Regulation (SAMR, formerly known as the Administration for Industry and Commerce), issued any administrative regulations in this regard.

    Moreover, the 2015 CAL also clarifies that it is applicable to internet advertising activities (Article 44 of CAL) but does not provide many specific provisions in this regard. On this basis, the SAMR issued the administrative regulation ‘Measures for the Administration of Internet Advertising’ (Internet Advertising Measures) which further defined internet advertising activities broadly as ‘commercial advertising which directly or indirectly markets goods or services through websites, web pages, internet application programs, and other internet media in the form of text, images, audio, video, or other forms’.

    On the basis of the above, influencer ‘endorsement’ is a broadly understood concept for both online and offline commercial advertising activities, and generally does not require direct payment, formal control or other established connections between influencer and advertiser, according to the provisions in the current laws and regulations in China. These concepts, influencer ‘endorsement’, ‘payment’ and ‘control’ may therefore be broadly interpreted by the authorities when assessing whether particular influencer activities constitute either regulated advertising endorsements or unregulated personal reviews posted by users of products or services.

    One last thing worth mentioning is that the endorser has to be a party other than the advertiser. Therefore, if an influencer endorses its own products, or if an advertiser instructs one if its employees to recommend its own products, such acts are considered direct advertising and usually do not constitute influencer endorsement under the advertising laws and regulations.

    Disclosure requirements

    Article 14 of CAL provides for a general duty to display advertisements in a way that makes them distinguishable from other information, and in a way that enables consumers to identify them as such and pre-vents misinformation. The Internet Advertising Measures further provide that internet advertisements must be recognisable and marked with advertisement in a prominent way, to enable consumers to identify it as an advertisement. Failure to disclose advertisements as such may result in administrative penalties, such as correction of the violation (eg the deletion of the endorsement or posting or editing to give clear clarification that it constitutes an advertisement) as well as the imposition of a fine of up to RMB100,000 (approximately US$15,000), see Article 59 of CAL.

    The extent of control over the endorsement message by the brand instructing the influencer, or the previous commercial arrangements between influencer and the brand are not directly relevant. As soon as an endorser is working on assignment for a brand and is not merely publishing an independent review, it will be considered advertising and the endorsement will have to be marked as advertisement or the relationship with the brand will need to be otherwise clearly disclosed, eg through an on-screen banner or highlighted caption etc.

    The exact degree of brand control does not directly impact the influencer’s responsibility to make appropriate and clear disclosure statements as required under the relevant laws in China. While there are no official guidelines or regulations concerning this issue, as a general rule of thumb, as soon as an influencer endorsement is made commercially, i.e. on assignment for or on behalf of a brand, the endorsement needs to be disclosed as an advertisement. In practice, the administrative authority supervising advertising in China, namely SAMR and its local branches, usually investigates several factors to decide whether an endorsement constitutes an advertisement, including: payment by a brand to an influencer, whether in cash or in another form; and the communications between the brand and the influencer for the endorsement, such as contracts or communications in other forms etc. That being said, there are no clear official regulations or guidelines as to how to assess these factors.

    Some specific examples:

    • material which is communicated with no obligation to do so (and with no control) after having received a freebie—this is likely to be considered an independent review of a product and service, with no duty to disclose it as advertising or ''??''. However, this assessment might change in case the value of the freebie is not symbolic or minor (eg a freebie sample cosmetic product v a freebie holiday in a luxury resort)
    • a freebie with or without payment about which there must be a communication but over which the brand owner has no control—regardless of the degree of control by the brand, as soon as a payment is made by the brand, the endorsement will normally be considered an advertisement and will need to be disclosed as such. If no payment is made, and only a symbolic or low-value freebie is offered, then the above analysis under the first bullet applies
    • a communication where the brand owner controls the content in return for payment—as soon as a payment is made by the brand, the endorsement is very likely to be considered an advertisement and will need to be disclosed as such

    In practice, the administrative authority has broad discretion to interpret the payment, the content control etc. and decides on a case-to-case basis.

    Types of breaches and sanctions

    The sanctions for improper or inadequate disclosure of an endorsement as an advertisement, namely in situations where the advertisement is not distinguishable to the consumer or the online advertisement is not marked as ‘??’ (‘advertisement’), are stipulated in Article 59 of CAL. This includes correction of the violation (i.e. the deletion of the endorsement or posting or editing to give clear clarification that it constitutes an advertisement) as well as the imposition of a fine of up to RMB100,000 (approximately US$15,000) on the advertisement publisher, which can be the influencer in most influencer endorsement cases.

    Other breaches include:

    False advertising
    Pursuant to Article 56 of CAL, the influencer may be held jointly and severally liable with the advertiser (i.e. the brand in most cases) for civil liability (ie in a civil procedure started up by the victim) in two different circumstances in relation to the false advertising: in the first instance, if the products or services it endorses concern the life and health of consumers and cause harm to the consumers, the endorser may be held jointly and severally liable for such harm. It should be noted that this is a form of strict liability for the endorser, i.e. the endorser may be held liable regardless of its intentions or knowledge of issues with the endorsed product or service. In the second instance, the endorser may be held jointly and severally liable for false advertising in general, if the endorser knew or should have known that the advertisement was false.

    Moreover, under Article 62 of CAL, influencers who knew or should have known that their endorsements were false, but nevertheless still made them are additionally punished by the administrative authority with confiscation of the proceeds of their endorsement, coupled with a fine fixed at an amount of the minimum amount of such proceeds and maximum two times that same amount.

    The brand, as advertiser, is likely to be pursued in administrative or civil proceedings for false advertising. In case of civil proceedings, the brand is more likely to be pursued as the primary target of liability, but if the conditions for joint and several liability are fulfilled, then the influencer is also likely to be pursued by the victims.

    Prohibited endorsements

    Other notable prohibitions for influencers are that influencers and other endorsers may not:

    • advertise medical treatments, pharmaceuticals or medical devices (Article 16 of CAL), this includes endorsing cosmetic as ‘cosmeceuticals’ or ‘medical skincare products’
    • advertise ‘health food’ (Article 18 of CAL)
    • recommend or demonstrate products or services that they have not used (Article 38 of CAL)
    • recommend or demonstrate products or services that are not based on facts or are not in compliance with the law, ie influencers may not commit false advertising or otherwise mislead consumers (Article 38 of CAL)
    • be a minor under ten years old, i.e. there is a strict age limit to influencing activities and small children are not allowed to conduct endorsement activities (Article 38 of CAL), although they can participate in advertisements as general actors

    An important sanction to note for influencers is that when an administrative penalty is imposed for endorsing a false advertisement, the influencer is not allowed to serve as an endorser for three years starting from the imposition of the penalty (Article 38 of CAL).

    Platform liabilities

    Another key provision regarding legal liability relating to influencer‘s activities is the ‘safe harbour’ provision for internet service providers (ISPs). Both the CAL (Article 45) and the Internet Advertising Measures (Article 17) offer a safe harbour provision to ISPs. Liability for false endorsements and other false advertisements shall only be possible for ISPs who knew or should have known that false advertisements were published using its information services. This provision is of utmost importance to the platforms used by influencers to publish and divulge their messages and videos.

    Regulations, codes and guidelines and key information relating to influencers

    The key legislation relating to the influencer-brand relationship in China consists of the CAL and the Internet Advertising Measures, as discussed above.

    Additionally, China also has specific regulations applicable to specific types of advertising activities that are particularly relevant to influencers. The most prominent and recent example is live-streaming activities, whereby products are demonstrated in real-time to consumers via social media platforms, often hosted by influencers. Live-streaming has become particularly common in China since the beginning of 2020, when many consumers had to stay indoors due to the outbreak of the coronavirus (COVID-19) pandemic. Examples of these specific regulations are the Administrative Provisions on Internet Live-Streaming Services , the SAMR Guidance on Strengthening the Supervision of Online Live Broadcast Marketing Activities and the Notice of the State Administration of Radio and Television on Strengthening the Management of Online Show Live and E-commerce Live Broadcast , which implement significantly stricter regulation for live-streaming activities such as real name authentications, announcements of major live-streaming actions and capping the total tips by any single viewer, no tips from minors etc.

    On top of these laws and regulations, advertising industry organisations are also encouraged to develop industry rules and standards, to strengthen industry self-regulation (see Article 7 of CAL and Article 4 of Internet Advertising Measures). While such rules and standards are generally non-binding, compliance is often monitored by the industry organisations and non-compliance may both be sanctioned internally and reported to the authorities. Examples of such industry rules and standards are the China Advertising Association''s ‘Standards for Internet Livestream Marketing Activity’, in effect since 1 July 2020, and containing an elaborate code of conduct for endorsers conducting live-streaming marketing activities.

    Oversight of influencer endorsement activities

    The oversight over influencer endorsement activities is predominantly of an administrative nature and is conducted by SAMR and its local branches as mentioned above. The CAL (Article 49) and the Internet Advertising Measures (Article 19) give broad powers of administration and supervision to the SAMR and its local branches, including allowing them to:

    • conduct onsite inspections of the places involved in suspected illegal advertising activities
    • hear the parties involved in the suspected violations and conduct investigations into the relevant organisations or individuals
    • require the parties to provide relevant supporting documents within a specified time limit
    • consult or reproduce the contracts, instruments, account books, advertisements and other relevant materials relating to the suspected unlawful advertisements
    • seal up or seize the advertising items, business tools, equipment or other property directly related to the suspected lawful advertisements, and
    • order a moratorium on the release of the suspected unlawful advertisements that may result in serious consequences

    This list of powers is not exhaustive, and other duties and powers may be granted to the SAMR and its local branches as prescribed by administrative laws and regulations. The parties have the legal obligation to cooperate with the investigations by the SAMR.

    If the SAMR concludes, on the basis of its investigation powers listed above, that the influencer has committed a violation of the CAL and/or the Internet Advertising Measures, then it will generally order them to retract and/or correct the endorsement message, issue a fine and publish its penalty decision. It should be noted that SAMR penalty decisions can be appealed to the courts through administrative litigation.

    Other types of enforcement of the applicable legislation, though much rarer in practice than administrative enforcement, are possible through either civil or criminal procedures. Civil litigation is mostly relevant where an influencer is subject to joint and several liability after committing false advertising with actual or purported knowledge, or after causing harm to consumers’ life or health. Criminal prosecution is also possible if the endorser’s infringements of the advertising legislation constitute a serious crime, eg in cases of criminal schemes or fraud in relation to large numbers of consumers.

    Ownership of the rights to sponsored content created by influencers

    Copyright is the main type of intellectual property right relevant to the sponsored content created by an influencer. The general rule under China’s Copyright Law (Article 2) is that the author of a work owns the copyright, which includes a set of assignable and licensable economic rights (eg the right of reproduction) as well as moral rights (eg the right to claim authorship), which are in principle not transferable.

    Most influencer content created on assignment for a brand qualifies as a ‘commissioned work. As a general rule, Article 17 of China''s Copyright Law provides that for such works, the ownership must be agreed upon between the parties. Should the parties not have concluded an agreement, or should they not have included any provisions on the ownership of the copyright in such content, then Article 17 of the Copyright Law provides that the copyright shall vest in the creator, i.e. the influencer. It is therefore paramount for the parties to include clear-cut provisions on ownership of copyright in sponsored content.

    It is also important to highlight that the use by influencers of third party works (eg images, songs, videos) in their content generally requires a licence from such third parties. While such use of third-party works may result in the creation of a new work owned by the influencer, such work will generally be considered only a ‘secondary’ or ‘derivative’ work, and its use therefore remains subject to the permission of the owner of the underlying copyright. This is illustrated by a recent judgment (Wuhan Douyu Network Technology Co., Ltd. v China Music Copyright Association) handed down by the Beijing IP Court on appeal, where the IP Court ruled that the unlicensed use of a song by an influencer during a live influencer broadcast infringed the copyright holder’s exclusive right of network dissemination.

    Responses to inaccurate brand messaging, rogue behaviour and mistakes

    In China, the responses to inaccurate brand messaging, rogue behavior and mistakes by influencers can be varied and depend largely on the seriousness of the inaccuracies and potential offences committed by the influencer:

    • the main response is usually limited to contractual remedies by the brand and public statements issued by the brand and/or influencer. Since most influencer contracts require the influencer to uphold high standards of behaviour and to refrain from inaccuracies in their endorsements, rogue behaviour and mistakes may lead to liquidated damages being paid by the influencer, suspension and termination of the agreement with the influencer, and in serious cases even civil claims for damages by the brand. If the inaccuracies also cause damage to the brand''s public image, then the brand and/or influencer often also issue a public statement or offer public apologies, often combined with a more comprehensive PR management campaign
    • there could be violations of the CAL, Consumer Protection Law or other laws and regulations that may result in administrative punishment to the brand and the influencer, and
    • there could also be infringement of third party’s rights which may subject the brand and the influencer to potential civil liabilities towards a third party.

    Key provisions found in influencer agreements

    There is no one-size-fits-all type of influencer agreement in China, and it is important for brands to enter into a clear, tailored and comprehensive agreement with their influencers, influencer management company or multi-channel network company. Some influencers may have a much stronger bargaining position in negotiating the agreement with the brand.

    Generally speaking, the agreements typically at least contain the following key provisions:

    • intellectual property ownership: given the fact that the default position under China’s Copyright Law is to grant ownership to the influencer in absence of provisions to the contrary, it is essential for brands to include a clear intellectual property ownership clause, covering the brand''s ownership of copyrights, logos, slogans etc. used or created in the content, as well as covering the influencer''s own rights, such as name, nickname, account name etc.
    • portrait right: it is important for the brand instructing the influencer to include carefully crafted clauses about the influencer’s portrait right (i.e. the personality right in one’s image, allowing a person to prevent commercial exploitation of their image or likeness without permission or compensation), the permitted actions and about cross-platform posting and re-posting of the content
    •  deliverables: the agreement should contain a clear section and/or schedule on concrete deliverables, ie the services to be delivered by the influencer, linked to deadlines and goals. This section may or may not be tied to the fee calculation section, depending on the fee calculation method
    • fee calculation: multiple ways of calculating fees are possible, eg lump sum payments, payments dependent on the quantity of the content or on the views and popularity of the content etc. Regardless of the fee calculation method chosen, it is essential that it is simple and clear, and that it covers all relevant issues, such as tax, disbursements and other costs
    • degree of exclusivity: it is advisable for the brand to indicate the level of exclusivity of the brand with the influencer (eg total exclusivity, exclusivity within the same sector, exclusivity as to certain competing brands etc)
    • influencer behaviour and reputation: given that the reputation of the influencer will be essential to the brand and its consumers, the brand will need to include a clause covering maintenance of a standard of behaviour and reputation. This may be linked to the termination clauses, giving the right to terminate the brand in case the influencer becomes involved in a public scandal or otherwise badly reflects on the brand''s reputation
    • pre-publication review and post-publication takedown: most often (except for instance in live-streaming agreements), brands will want to reserve the right to review and approve publications by influencers before they are divulged. It is essential for the brand to retain the right to demand alterations and/or retractions or deletions of publications
    • representations and warranties: representations and warranties should be included, eg regarding no infringement of third-party rights, regarding having obtained all necessary permits and licences to conduct the influencer activities etc
    • Multi-Channel Network (MCN) specific clauses if MCN-related contract: should the brand hire influencers through an MCN, then a number of MCN-specific clauses should be included, eg selection of influencers, degree of control over influencers, direct relation with influencers etc
    • liquidated damages: depending on the bargaining position of the parties, certain clauses could also include liquidated damages, which would additionally provide the brand with a strong deterrent against rogue behaviour by the influencer
    • term and termination: the term and termination clause should include a clear standard term, possibilities for the brand to extend or shorten the term and set out clearly the right of the brand to terminate the agreement with immediate effect for serious breaches, including reputational damage caused by the influencer, unpermitted publications etc

    This note was prepared for Lexis PSL, and the original publication can be found here.

    Grace Guo

    Stefaan Meuwissen

     

    Guides for your region

    Dealing with social media influencers in Germany

    Produced in partnership with Lexis Nexis

    This Practice Note is aimed primarily at brands wishing to engage with social media influencers (or other talent) for 
    particular social marketing campaigns and advertising promotions in Germany. It covers:
    • The nature of social media influencers
    • Influencer labelling obligations—key regulations
    • Manner of labelling
    • Sanctions and oversights
    • Requirements of other regulations
    • Copyright protection for influencer content
    • Key provisions in influencer contracts

    Click here to read more.

    Guides for your region

    Social media influencers in Asia

    Given the fact that Asia has a comparatively high social media penetration rate, it is an indispensable market for the influencer marketing business. Recent statistics show that sponsored influencer posts in Asia grew by no less than 189 percent from 2018 to 2019, which demonstrates Asia's strong growth in social influencer marketing throughout the past year.

    Among the major Asian markets for influencers like China, Singapore, South-Korea, and Japan, some countries already have adopted special and relatively sector-focused laws and regulations setting forth explicit requirements for social media influencer marketing, while others regulate such activities under a higher-level guideline or piecemeal provisions. Other countries also are considering legislation to regulate influencers. In February 2019, the Malaysian government announced it is reviewing several proposals to introduce new legislation or a parliamentary committee to help curb the misuse of social media.

    Why do businesses need to take note?

    The legal framework in some key Asian jurisdictions

    China

    China is one of the Asian jurisdictions where social media influencing is of critical importance, as it has one of the highest rates of social media usage. This importance is increased by the fact that several Chinese social media platforms allow for direct in-app purchases or even adopted payment services (such as WeChat, which offers a ubiquitous ‘wallet’ option, allowing for direct payments through the application). Social media advertising and sales are very important in China, with research showing that more than 70 percent of China’s 250 million people ages 18 to 20 are willing to use social media to purchase products and services.

    In China, social media influencing is mainly regulated through the Advertising Law adopted in September 2015 and through the Administrative Measures for Online Trading adopted in 2014. China’s Advertising Law has a very broad scope, and contains a specific chapter regulating online advertising, which includes social media influencing.

    The key obligations for influencers are that advertisements must be identifiable, influencers may only recommend goods or services “based on facts,” and influencers may not recommend any good or service that they have not used. The Administrative Measures for Online Trading are more specific, providing that online influencers obtaining any type of remuneration for commenting on products or services must truthfully disclose the nature of their posts.

    The Market Supervision Bureau is primarily responsible for enforcing the Advertising Law and has the power to issue administrative penalties for violations. Administrative penalties range up to RMB 100,000 for undisclosed advertisements and a fine of 3 to 5 times the advertising expenses, or up to RMB one million may be imposed for maliciously false claims, and the influencer may be jointly liable for the damages caused to consumers.

    Singapore

    Activities of influencers in Singapore are mainly regulated under the Singapore Code of Advertising Practice, administered by the Advertising Standard Authority of Singapore (ASAS). In August 2016, ASAS issued specific Guidelines on Interaction Marketing Communication & Social aimed at regulating advertising on social media.

    The key provisions under these Guidelines are the identification of commercial messages, the distinction of all marketing communications from editorial or personal opinions, and the disclosure of connections between the endorser and the marketer of a product or service that may materially affect the weight or credibility of the endorsement.

    Although the Guidelines are officially not binding, ASAS does have the power to request offenders to amend or withdraw their advertisements. ASAS could also impose sanctions, such as withholding advertising space or withdrawing trading privileges from offending marketers.

    South Korea

    Another key Asian influencer marketing jurisdiction is South Korea. South Korea adopted an approach similar to China by regulating influencers mainly through the Advertisement Law without but dedicating specific legal provisions to online influencers.

    Influencers mostly are bound by Article 3 of the South-Korean Act on Fair Labeling and Advertisement, forbidding in a general way any false, deceptive or exaggerated advertising. Wrongful advertising is also prohibited by the Cosmetics Act.

    The penalty for non-compliance is remarkably heavy in South Korea. Pursuant to the Act on Fair Labeling and Advertisement, infringements can be punished with imprisonment, with labor for not more than two years, or with a fine up to 150 million won may be imposed.

    Japan

    Unlike the other key Asian jurisdictions, Japan has no specific rules targeting online influencers. Applicable restrictions mainly are contained in piecemeal provisions spread throughout a number of sector-specific laws and regulations. One example of such sector-specific law is the Pharmaceutical Affairs Law, which, due to the sensitive nature of its subject matter, heavily restricts advertising activities. Most restrictions cover not only businesses but also individuals. Penalties for infringement range from imprisonment of up to two years and/or fines of up to 2 million yen.

    Looking forward

    While there are large differences in the level of detail of the regulation of social influencer activities between the key Asian jurisdictions (ranging from full detail Chinese law to piecemeal regulation in Japan), the connective thread is that influencers’ activities are regulated under advertising laws and that their key obligations are clear disclosure of their relationship with the advertised brand and factual honesty in their posts.

    Looking forward, with the growing popularity of social media in Asia, the importance of social media influencers is likely to increase exponentially. It is important that companies perform due diligence on the influencers they hire and review their advertising practices against the companies brand policy, as well as the local legislation to ensure the influencer is delivering the right advertising to the consumers.

    A development in Asia is that enforcement cases, which to date seemed to be mainly filed against the brands instructing media influencers (as advertisers) or against social media platforms (as advertising publishers), are now increasingly filed against the influencers themselves. Stay tuned.


    Authors

    Helen Xia

    Grace Guo

    Guides for your region

    Social media influencers in Germany

    Even though influencer marketing is no longer a new form of advertising, the legal assessment of the labeling requirements, in particular, is still unclear. Various courts in Germany have already had the opportunity to deal with this question, but they still come to different assessments in (apparently) comparable cases.

    Why do businesses need to take note?

    The General Advertising Principles are the starting point for any discussion on influencer marketing in Germany. They combine two principles: The separation principle, requiring a (visual) separation of editorial and advertising content, and the labeling principle, requiring advertisements to be labeled as such.

    These principles are set out in the German Interstate Media Treaty (of November 2020), the Telemedia Act and the Act Against Unfair Competition. So far, the courts have focused on Sec. 5a (6) of the Act Against Unfair Competition (UWG). Pursuant to this provision, any person who fails to indicate the commercial purpose of a commercial practice is acting in an unfair way in case that this purpose is not immediately obvious from the circumstances, and the failure to indicate may lead the consumer to take a transactional decision which he would not have taken otherwise. According to Sec. 2 (1) 1 UWG, a commercial practice can be seen in any conduct by a person for the benefit of that person’s or a third party’s business when the conduct is objectively connected with promoting the sale or the procurement of goods or services, or with the conclusion or the performance of a contract regarding goods or services.

    Two questions need to be answered: How to label the post as advertisement? When to label the post as an advertisement?  

    How to label a post

    The question how to label a post, for example on Instagram, has been quite clearly decided by the German courts. 

    According to the case law so far, it is not sufficient to use the labeling in so-called "Hashtag-Clouds" at the end of the post because the label is then not visible at first glance. Rather, the label should be placed at the beginning of the post. In videos, the label should be clearly visible during the entire video. The term “sponsored by” is not considered as being adequate labeling, as it is not as precise as the word “advertisement.”

    The decisions do not explicitly deal with the question if the labeling must be in German language. However, it is doubtful whether English terms such as “advertisement,” “ad,” or “collaboration” would be considered as being acceptable in Germany. It seems more likely that the courts would assume that the German-speaking public would not understand these labels due to a lack of knowledge of English language. Hence, it is strongly recommended using German language labeling in Germany.
    Because companies working with an influencer can also be held liable for inadequate labeling, the above principles should be clearly specified in the underlying contract with the influencer. The company should also check regularly whether the labeling requirements are complied with. 

    When to label a post

    It is still unclear whether a post must be labeled if the influencer did not receive any compensation at all, but paid for the products or services  discussed and/or linked to the company's Instagram profiles. In this context, questions are often raised as to whether the posts are editorial statements, i.e. statements primarily serving to inform and shape the opinion of the addressees. If so, they would not need to be labeled as an “advertisement.” Influencers thus often argue that the links only serve the information interests of their followers and that they only get ahead of the expected inquiries regarding the products/services with the linking.

    Most courts do not follow this line of argumentation. They assume that, even if no compensation is received, the activity is commercial and not editorial in nature. In their opinion, the presentation of the products and linking in any case serves the purpose of promoting the influencers' own company/business, as they wish to present themselves as (potential) advertising partners. In addition, promotion of the company is also regularly assumed.

    However, there were also other judgments which – with different reasoning – denied an obligation to label certain posts as an advertisement.

    The Higher District Court of Berlin argued that an editorial post could exist if there was a direct connection between the link and the post/image (in the specific case, only objects visible in the image were linked) and if no compensation was paid. In the court's opinion, the link to the company's website corresponded to the medium Instagram and did not mean that labeling as an advertisement was necessary.

    The Higher District Court of Munich held that the mere posting/linking of a product – without payment – was not sufficient to assume an objective connection between the post and the promotion of either the influencer's own or the company's business. The promotion was rather a mere reflex of the self-portrayal of the influencer. It could therefore not be assumed that such posts were in favor of either business.

    In a case handed down by the Higher District Court of Hamburg, the court assumed a commercial practice (even though there was no payment or any other compensation), but found sufficient evidence that the commercial purpose was directly apparent from the context. Amongst others, the “blue check mark” for verified accounts on Instagram, the number of followers as well as the number of likes were taken into account. In the specific case decided by the court, the court held that the consumers were immediately aware that the account was used for influencer marketing. Thus labeling as an advertisement was not required. However, this is an individual decision so that the question of the obviousness of an advertisement cannot be answered abstractly, particularly in view of the apparent private nature of many posts.

    Looking forward

    Fortunately, there are now several cases pending with the German Federal Supreme Court. So there is a good chance that a clarifying decision will soon be issued by Germany's highest court. 

    The Federal Ministry of Justice also submitted a proposal for a new legal provision within the Act Against Unfair Competition. 

    On the one hand, the definition of the "commercial practice" was amended. It shall not only require an objective, but also a direct connection between the act and the sales promotion. In the explanatory note to this adjustment of the definition of a commercial practice, it is, inter alia, explicitly stated that it appears possible that in the case of certain forms of promotion of one's own business there is no direct connection to any sales promotion. The explanatory note also provides an example: If an influencer recommends or mentions goods or services and does not receive any payment or similar consideration for this, then the mentioning may merely promote his or her own name recognition. This reasoning is rather similar to the decision of the Higher District Court of Munich. 

    On the other hand, Sec. 5a UWG is amended. It is proposed to insert a clarification that a commercial purpose does not exist in the case of an act for the benefit of another's business if the person acting does not receive any remuneration or similar consideration for the act from the other's business. The explanatory note, inter alia, states that the new regulation is intended to provide a secure legal framework for the actions of influencers when they recommend the goods and services of other companies without obtaining any financial advantage. For such actions, per the explanatory note, it seemed inappropriate to require labeling as "commercial". 

    It remains to be seen what the exact wording of the new provision will be in the end. The Ministry had previously submitted a different proposal, but this was widely criticized and therefore not included in the current draft. A debate in the German Bundestag (= German Legislating Organ) has not yet taken place. 

    For now, influencers should carefully examine each and every post to determine whether labeling as an advertisement is necessary. In case of doubt, legal risks can only be avoided by labeling.

    If companies work together with influencers and some form of compensation is paid (as is to be assumed), labeling obligations should be contractually agreed in order to avoid liability. Without a corresponding contractual provision, considerable liability risks for companies remain. 

    Authors

    Yvonne Draheim

    Sabrina Mittelstaedt

    Guides for your region

    Social media influencers in the UK

    Consumer brands have been using public figures to endorse their brands to great effect since time immemorial – think Father Christmas for Coca Cola, Michael Jordan for Nike, and Britney Spears for Pepsi. With the advent of the digital age and, more specifically, social media, the scope for endorsement has increased exponentially, both in consumer and territorial reach and into a wider pool of opportunities in the guise of "influencers.”

    When managed carefully, use of influencers on social media can bring significant rewards to brand owners, with a relatively low level of investment when compared to the traditional celebrity endorsement model. One of the reasons they are so successful is because people trust personal recommendations much more than they do advertisements from brands. However, regulators will not stand for the public being duped when it comes to concealed advertising. In the past year both the public and the regulators in the UK have taken a stand against undisclosed advertisements, resulting in influencers and sponsors alike being named and shamed, often causing significant damage to a brand. This is one of the most significant risks faced by brands in relation to use of social media influencers in the UK.

    There are recent cautionary tales that demonstrate the importance of transparency and trust to the UK consumer, how this requirement for trust has translated into the regulatory framework, and how brand owners can protect themselves against the risks posed to their reputation by a breach of trust.

    Why do businesses need to take note?

    The Advertising Standards Agency (ASA), one of the UK's consumer regulators, has cautioned between 200 to 300 social media influencers and brands for breaking the rules around sponsored posts. Two examples of recent ASA investigations that have received adverse publicity are: Louise Thompson and Olivia Buckland, both reality TV stars, faced an official investigation and a subsequent ban from the ASA for failing to disclose that a post was an advertisement for Daniel Wellington watches; and “Mrs Hinch,” a surprisingly successful Instagram star who posts tips on house-keeping, is being investigated together with Procter & Gamble for undisclosed advertisements for Flash and Febreze products. As well as damaging the public's trust in the influencer themselves (and so reducing their value with respect to other collaborations), such action also devalues the brand whose products have been promoted in the post.

    So how is the UK addressing the issue of trust and transparency in influencer content? There are two key pieces of UK legislation that regulate this area: the Consumer Protection from Unfair Trading Regulations 2008 (CUPT); and the UK Code of Non-Broadcast Advertising and Direct & Promotional Marketing (the CAP Code). When a brand rewards an influencer with a payment, free gift, or other perk, or has any control over an influencer's content, it (and not just the influencer) becomes subject to these consumer protection laws. It is, therefore, very important that brand owners familiarise themselves with the regulatory framework, and seek advice where required, to ensure that all influencer content linked to their brand is compliant with it.

    The ASA, the Committee of Advertising Practice (CAP), and the Competition and Markets Authority (CMA) are the regulatory bodies tasked with investigating breaches with respect to consumer advertising. They have recently launched a new guide to help brand owners and influencers stick to the rules by making clear when their posts are advertisements. The guidelines can be accessed here.

    The ASA is the most active body in enforcing the regulations. Although it has the power to enforce penalties against brands and influencers that do not comply with the rules, such as fines and imposing pre-vetting requirements on marketing materials, their most persuasive sanction is publicity, essentially naming and shaming brands that break the code, which can result in serious damage to a brand's reputation.

    Looking forward

    Aside from complying with the relevant legislation and guidelines, what else can brand owners do to ensure the brand maintains the trust of its consumers to ensure the best return from social media collaboration?

    First, brands must remember that influencers are individuals who do not usually have the benefit of legal advisors and so may not be aware of their responsibility to disclose ads. Brand owners should take the time to educate their influencers to ensure they understand the legal obligations in this area. They may also require the influencer to run proposed content past their legal/marketing team to ensure there are no inadvertent missteps.

    Secondly, brands should conduct due diligence into influencers before working with them. If an influencer has recently been investigated by the ASA or has been subject to public criticism for not disclosing ads or being disingenuous, then the power of that individual to "influence" their followers may be dim