In November 2019, the FTC issued its updated guidance Disclosures 101 for Social Media Influencers. The publication reasserted the fundamental tenet of the FTC’s Endorsement & Testimonial Guidelines (FTC Guides): influencers must disclose clearly and conspicuously any “material connection” to a brand. The release of Disclosures 101 signaled the agency’s continued interest in influencer marketing and its potential to deceive.

The FTC’s Disclosures 101 speaks to influencers rather than brands; however, brands cannot escape liability or shift full responsibility to the influencers. Indeed, case law makes it clear that a brand and its agencies have a duty to mandate disclosure best practices. The guide reflects the agency’s ongoing concern that consumers are often confused about the underlying motivations for influencer endorsements and testimonials.

What constitutes a material connection is unclear from the guide and could include merely tagging a brand or receiving a sweepstakes entry. Certainly, free products or other perks constitute a material connection and would trigger disclosure requirements. The FTC has been clear that there are many acceptable ways to make disclosures. It has also indicated that regardless of methodology, disclosures should be prominent and avoid abbreviations that consumers may misinterpret.

For the last two years, consumer protection regulators have shown a keen interest in targeting deceptive influencer practices.

The year 2019 began with the New York State Attorney General Letitia James announcing a groundbreaking settlement with Devumi LLC over Devumi's peddling of “fake followers” to influencers, celebrities, and brands. The case was the first to declare that selling fake social media influence is illegal. In October 2019, the FTC announced its own settlement with the company and its CEO, including a partially suspended $2.5 million judgment against the company’s owner and CEO.

The FTC also settled charges in 2019 against Sunday Riley Modern Skincare and its CEO. The cosmetics firm allegedly posted fake reviews of its products on the Sephora website. In particular, the FTC cited evidence that the company’s CEO had directed the company’s employees to draft and disseminate the fake reviews. The FTC alleged that the company’s actions constituted false advertising and violated the FTC's Endorsement & Testimonial Guidelines. In November 2020, the FTC approved a final consent agreement with the company, with no financial ramifications; however, Sunday Riley’s reputation suffered. In addition, some of the FTC's commissioners publicly voiced support for enhanced penalties in future cases.

In fact, the possible trend to enhanced penalties has already begun. In March 2020, the United States District Court in Florida entered a $15.2 million settlement order between the FTC and Teami, LLC, a marketer of teas and skincare products. The FTC alleged that Teami made unsubstantiated health benefit claims in advertising its teas and skincare products. The complaint also listed a host of famous influencers who had failed to include proper disclosures in social media posts (all of those influencers had previously received direct warning letters from the FTC). Additionally, the FTC asserted that the influencers persisted in using disclosures that did not meet the “clear and conspicuous” standard. Their disclosures were hidden under the “more” option of the Instagram posts and not easily viewed.

In September 2020, the National Advertising Division (NAD) of BBB National Programs issued a case report suggesting the need for enhanced attention to disclosures in social media posts. Procter & Gamble was promoting its Bounty paper towels on the popular platform TikTok, where Influencers participated in a dance challenge with music that touted it was time to “clean up my life.” Bounty paper towels appeared in all the videos, along with a #BountyPartner hashtag. Unfortunately, when TikTok viewers shared the videos to Instagram, the hashtag vanished. The NAD, concerned about the lack of disclosure, recommended that P&G institute contextualizing text or disclosures that would travel with the videos, regardless of platform.

In early 2020, as part of its “systematic review” of all agency guides, the FTC opened a public comment period on the FTC Guides. Originally enacted in 1980, and amended in 2009 to address the digital marketplace, the agency is taking a look at the FTC Guides to determine if they need updating for today’s marketplace.

The FTC posed several questions to the public. Among these questions are the following: Are the guides relevant and useful today? Do they benefit consumers? Are they effective in addressing deceptive and unfair practices? How is marketplace compliance? Have the FTC Guides created burdens on businesses? Are disclosures adequate when reviews are aggregated? Are composite reviews based on incentivized reviews misleading? Should the FTC Guides address affiliate links? Do review websites need a different system? Is there anything unique about making disclosures for children?

The FTC’s questions create a roadmap for potential regulatory activity in the future. When combined with the shift in power under the Biden administration to the commissioners who seek enhanced penalties, the FTC’s public comment queries signal that brands should take the agency’s Guides seriously and pursue compliance.

In February 2021, the Screen Actors Guild – American Federation of Television and Radio Artists (SAG-AFTRA) announced that influencers are eligible to join the union. The union considers any content creator who contracts with a brand for a promotional deal, regardless of the number of followers, to be an influencer. Despite this broad definition, the union does have limits around membership eligibility. Eligible content is available on the influencer’s or brand’s social feeds or websites. The influencer must perform alone with no third-party involvement in the content production and no editing to the content. In addition, the influencer must have a written contract with the brand. The influencer must be utilizing a corporate structure for its business, and the influencer must retain ownership of the content’s intellectual property. As of this writing, the brand has no obligation to contribute to the pension or health plans. The influencer must make the contributions through its company, similar to an advertising agency. The industry is watching closely for more guidance from SAG-AFTRA.

What action steps should a brand take to mitigate risk related to influencer marketing? How can a brand ensure that its influencer campaigns do not create legal liability for the brand? How can a company protect itself from an influencer peddling influence that is not real?

For more information about Influencer and Social Media Marketing, and other current trends impacting the practice of trademark law, check out Kyle-Beth’s Hot Topics in Advertising and Marketing Law program segment, available from PLI Programs On Demand.