The endorsement of a celebrity or social media "influencer" can be a valuable tool for companies seeking to instantaneously advertise to the millions of individuals who follow a popular influencer. Companies pay very handsomely for these endorsements, with some celebrities earning over $1 Million per post. However, this explosion in paid endorsements and influencer marketing has led to the Federal Trade Commission ("FTC") cracking down on misleading ads where influencers fail to disclose their relationship with the promoted companies. Given the potential for large fines and negative press, companies must be aware of their obligations to ensure that their influencer marketing campaigns comply with applicable law.
How Should Companies Protect Themselves?
Best Practices for Influencer Marketing
There are several simple steps that companies can take to ensure that they do not run afoul of regulations enforced by the FTC, attorneys general, and other regulators. First and foremost, advertisers should consult published FTC guidance on this subject as they develop their influencer marketing policy.
To be protected, companies should enter into Influencer Marketing Agreements with each of their subject influencers/celebrity endorsers. By agreeing on the duties and responsibilities of both the company and the influencer well before the first post is published, errors are far less likely to occur. These agreements should cover everything from compensation to the content and placement of disclosures in social media posts. Entering into these agreements, alone, is not sufficient. Companies must also monitor influencers' social media posts and take action when these agreements are not complied with.
Disclosure is a critical part of any social media influencer advertisement. The FTC requires the disclosure of any financial, employment, personal, or family relationship between a brand and its influencers. Because these relationships are not limited to those where the influencer was paid, it is wise to always err on the side of transparency. In any post, the necessary disclosures must be clearly and conspicuously displayed. For Instagram posts, which are generally viewed on mobile phones, it is always best to feature the disclosure early in the post. This ensures that the disclosure is not truncated or hidden under the "more" button.
Recent FTC Action Serves as a Cautionary Tale
On March 5, 2020, the FTC commenced an enforcement action against Teami, LLC ("Teami"), a Florida-based company that markets, advertises, and distributes detox teas and skincare products. In addition to alleging that Teami's marketing materials contained materially misleading claims as to the supposed health benefits of Teami products, the FTC also alleged that Teami improperly employed social media influencers to market its products.
Prior to bringing suit, the FTC advised Teami that some of its influencer endorsements on social media did not properly disclose the influencer relationship with Teami. After it was contacted by the FTC, Teami implemented a social media policy, which instructed influencers to "ensure that all posts for which you receive free products or any type of compensation as an inducement to make the post . . . [u]se hashtags or words that clearly let the public know of the connection between you and Teami." The policy further required that all disclosures made on Instagram appear in the first part of an influencer's post so that they could be seen without a user needing to click the "more" button.
Although Teami claimed that it had disseminated its new policy to its social media influencers, the FTC alleged that its influencers continued to promote Teami products in posts that failed to comply with FTC requirements. Instagram posts published by well-known influencers paid by Teami to endorse its products included endorsements within the photos themselves (by clearly showing a Teami-branded product) or within the first two or three lines of the post's caption. However, many of the endorsement disclosures were hidden in text behind the "more" button. Teami's well-known endorsers included Cardi B, Jordan Sparks, Kylie Jenner, and Demi Lovato.
On the same day that the complaint was filed, Teami and the FTC filed a joint stipulated order for a permanent injunction and monetary judgment. The order (which must be approved by the court): 1) requires clear and conspicuous disclosures of any unexpected material connection in all future Teami influencer marketing; 2) mandates endorser monitoring requirements that Teami must follow in future social media marketing; and 3) imposes a $15.2 million judgment—constituting the total sales of the products at issue. However, that judgment will be suspended upon payment of $1 million, based on Teami's inability to pay the full judgment amount.
As readers of this blog know, the steep penalties faced by Teami are not uncommon. The FTC and state attorneys general frequently investigate and prosecute companies for deceptive influencer marketing practices. Accordingly, it is important that companies work with experienced marketing attorneys to guide them through state and federal consumer protection laws in order to avoid regulatory trouble.
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