Pursuant to an endorsement deal, an Instagram user with a large following—a so-called social media “influencer”— receives a new watch from a company, takes photos of herself wearing the wristwear, and posts about how much she loves the merchandise. The picture racks up hundreds of thousands of likes, generating sought-after impressions and exposure for both the company and its products. A successful advertising partnership is concluded.
Then, seemingly out of nowhere, the influencer receives a threatening letter from the Federal Trade Commission (FTC), warning that because the Instagram post did not reveal her financial interest in the sponsorship agreement between herself and the company, she may very well have run directly afoul of the FTC’s Endorsement Guidelines.
The foregoing is a typical predicament faced by many users of social media: While businesses are increasingly relying on relationships with influencers to advertise content and engender support for their brands, and influencers in turn are becoming more sophisticated and generating substantial revenue for themselves and such businesses, these relationships can and often do expose the parties to substantial legal risks.
The Endorsement Guidelines are laws promulgated by the FTC which mandate that anytime a “material connection”—for example, a business or family relationship, monetary payment, or gift of a free product—exists between a person endorsing a product and an advertiser, such a connection must be clearly and conspicuously disclosed. Merely saying “thanks” to a company in a post, stating how much one loves the product, or tagging the brand is insufficient.
While businesses and influencers undoubtedly want their advertisements to seem organic, the FTC seeks to protect consumers by ensuring they aren’t misled into thinking that paid sponsorships are unbiased testimonials.
In April 2017 the FTC sent 90 warning letters to individuals and brands, including singer-songwriter Akon, model Amber Rose, and actress Sofia Vergara. And in September, a second letter was sent by the FTC to 21 of those influencers. While the specific content of each letter varied, the FTC made clear that any celebrity or influencer who promotes a product on social media must disclose a “material connection” between the endorser and the product’s marketer, further insisting that the influencers detail their plans to ensure compliance with existing law moving forward.
The penalty for infractions under the Endorsement Guidelines can be steep: up to $16,000 per violation. Additionally, the FTC often directs influencers to take corrective action through settlement agreements. For example, the FTC has entered into high-profile settlements with several endorsers over the years, including with Trevor Martin and Thomas Cassell, two individuals who promoted the online gambling service CSGO Lotto but did not disclose that they owned the company. Settlements occasionally include financial penalties, but typically the most significant negative impact of a settlement is being subject to a 20-year consent order that requires legal compliance and FTC review of similar advertising and often obligates the influencer to share the existence of the settlement agreement with any future business partners.
How exactly does one comply with the Endorsement Guidelines so that these sorts of penalties can be avoided? Unfortunately, the FTC’s recommendations are often vague and dependent on the specific context under which an advertisement is made.
For example, a common practice today is to include “#ad” or “#sponsored” in social media posts. As the “material connection” standard relates to Instagram, the FTC recently announced in a public statement that “when multiple tags, hashtags or links are used, readers may just skip over them, especially when they appear at the end of a long post—meaning that a disclosure placed in such a string is not likely to be conspicuous.” In addition, the FTC stated that “consumers viewing Instagram posts on mobile devices typically see only the first three lines of a longer post unless they click ‘more,’ which many do not.” Accordingly, influencers utilizing hashtags such as “#ad” or “#sponsored” should disclose any material connection “above the ‘more’ button.” Instagram, to its credit, recently made it easier for endorsers to label posts as paid promotions, introducing a “Paid Partnership With” tag that appears above photos.
Best practices dictate that influencers pay attention to several factors when disclosing their sponsorship of a product, including the location and prominence of the disclosure, whether consumers can avoid seeing the disclosure, whether the disclosure language is understandable to the intended audience, and whether distractions on the social media page may divert attention away from the disclosure.
Ultimately, influencers may be best served by erring on the side of over-disclosure, even if such candor dilutes the authenticity of particular sponsorships. Better to be safe than sorry.
Patrick Gutierrez is an attorney in Greenberg Glusker’s Corporate and Intellectual Property groups where he represents both influencers and brands. He can be reached at [email protected].
