STOP! Before you think of making another deal in the Influencer Marketing Arena, you MUST READ THIS!
Background
Under the FTC Act, the FTC is responsible for investigating and bringing cases involving deceptive advertising. Many of these cases relate to endorsements made on behalf of advertisers. To help advertisers stay within the boundaries of the law, the FTC published and periodically updates a lengthy document called the “Guides Concerning the Use of Endorsements and Testimonials in Advertising,” or the “Endorsement Guides” for short.
The FTC views influencer endorsements as advertisements, and as such, they must follow advertising guidelines. This includes a requirement to disclose any “material connection” (i.e., a family, employment, financial, or personal relationship) between the influencer and the brand and that the disclosures must be “clear and conspicuous.”
The most obvious material connection is where an influencer is paid to make a promotional post. But even receiving a free product, or a sweepstakes entry, or anything else of value, can trigger the disclosure requirement. And while “#ad” is often a sufficient disclosure, others like “#ambassador” or “#spon” might not be.
Liability for nondisclosure extends to “everyone who participates directly or indirectly in creating or presenting” the content. That means the brand, the ad agency, the marketing team, the individual influencer, and anyone else who touches the endorsement are ultimately responsible for “mak[ing] sure that ads don’t mislead consumers about their commercial nature.”
The FTC Sues Teami and Sends Warnings to Influencers
On March 6, 2020, the FTC announced a settlement with Teami, a marketer of teas and skincare products. The settlement included a $15.2M judgment related to inadequate disclosures in Teami’s influencer campaigns. Although the disclosure “#teamipartner” was used, that disclosure was not visible unless a user tapped “more,” and video posts did not include an audio disclosure. This case highlights how specific the FTC requirements are, and how strictly they will be enforced.
In addition to the judgment against the brand, the FTC sent warning letters to 10 influencers involved in the campaign who failed to make adequate disclosures, including Cardi B and Brittany Renner. Those letters stated that “[i]ndividual influencers who fail to make adequate disclosures about their connection to marketers are subject to legal enforcement action by the FTC.” The FTC added:
- Disclosures should not be buried in a string of hashtags;
- Disclosures must use clear language that stands out;
- Each post should contain the disclosure; and
- Videos require disclosure in the videos themselves, not just in the text part of the posts.
Why Should Influencers Care about Disclosures?
Complying with the law should be incentive enough, but it’s easy for influencers to think that the odds of an FTC action against them are low, so what’s the big deal? For starters, the Teami case shows that the FTC is paying more attention to influencers individually, so the gamble is only getting riskier. Additionally, among other things, your contract with your agency or brand probably requires you to comply with FTC rules (and if it doesn’t, it should). So, if you don’t comply, you are breaching your contract, which means you might not get paid, or the brand or agency may stop working with you.
By complying, you are protecting your business interests and your reputation. You are also signaling to other brands and agencies who see your content that you are someone who understands the rules and that you take your obligations seriously. That’s good personal branding.
Why Should Brands Care about Disclosures?
Again, the risk of FTC enforcement should be a good enough reason to comply. You want your brand to become famous, but not because the government is accusing you of deceiving the public.
Aside from government action, your competitors may also have grounds to sue you for failure to make appropriate disclosures through your influencers. Although there is no private right to sue for violations of the FTC Act directly (only the FTC can do that), the Guidelines may inform what constitutes false advertising under the Lanham Act—a federal law that allows business competitors to sue for “us[ing] in commerce any… false or misleading description of fact, or false or misleading representation of fact, which… is likely to… deceive as to the… sponsorship, or approval of… goods, services, or commercial activities by another person.” So if you are taking market share from a competing brand or agency that is playing by the rules and complying, they may have grounds to sue you for it.
Similarly, violations of the FTC Act (as described in FTC Guides) may form the basis of private claims under state consumer protection statutes, including California’s Unfair Competition Law.
Compliance is a smart business decision, not just a legal one.
Now Is the Time for Influencers, Brands, and Agencies to Focus on Training and Compliance
The Teami case shows that the FTC is continuing its trend of taking a closer look at disclosures and is emphasizing the responsibility of influencers to ensure that they comply with the rules. The Endorsement Guides are not that easy to digest, and many influencers might not know about the risks they are assuming when endorsing a brand. According to research reported by Forbes in 2018, only 1 in 4 influencers made disclosures in a way that complies with FTC rules, and almost half reported that they make disclosures only when asked.
The FTC wants to see brands and agencies taking a more proactive role in establishing compliance procedures and monitoring their campaigns. We know this from the FTC’s closing letters, which it sends after deciding not to turn an investigation into a full-blown enforcement action. For example, in 2015, the FTC took action against Machinima, a multi-channel network that paid influencers to promote the release of the Xbox One, but not Microsoft.
Why did Microsoft get off easy? The FTC cited that they had training and compliance procedures in place. The FTC’s closing letter said, “The failures to disclose here appear to be isolated incidents that occurred in spite of, and not in the absence of, policies and procedures designed to prevent such lapses. Microsoft had a robust compliance program in place when the Xbox One campaign was launched, including specific legal and marketing guidelines concerning the FTC's Endorsement Guides… and relevant training made available to employees…”
Influencers, brands, and agencies who invest in compliance training and certification can help limit their risk of seeing their name in the next FTC headline. From a liability standpoint, educating yourself about the rules is a smart move to protect yourself from legal issues and reputational damage.
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