United States: Brands' Influencer Marketing Practices In Regulators' Crosshairs On Both Sides Of The Atlantic

Overview

The influence of influencers on social media is a modern day phenomenon that marketers harness to develop more organic and grassroots connections with consumers, and influencers are able to monetize those connections. It is a symbiotic relationship, though one that is not necessarily clear to consumers.

When an influencer gets something of value to promote a product, that may impact how a consumer interprets that endorsement, and thus consumer protection authorities worldwide have long required clear, conspicuous and effective disclosures of those kinds of material connections. Recently authorities in the US and the UK have turned up the heat on influencer marketing practices. We break these efforts down for you so that you can adapt your influencer marketing programs to avoid problems.

On October 13, 2021, the US Federal Trade Commission (FTC) put hundreds of businesses on notice about fake reviews and other misleading endorsements, warning that if a company "uses endorsements to deceive consumers, the FTC will hold them responsible with every tool at [the FTC's] disposal." A list of companies that received a copy of the FTC notice can be found here. The FTC flexed its penalty muscles again on October 26, 2021, and issued notice letters to more than 1,100 companies "that pitch money-making ventures ... that if they deceive or mislead consumers about potential earnings, the FTC won't hesitate to use its authority to target them with large civil penalties." The full list of recipients of this batch of notices is available here. The 1,100 companies that received the October 26 notice also received a copy of the notice regarding endorsements and testimonials.

Over in the UK, regulators have also recently turned their attention to similar advertising and marketing practices. On July 22, 2021, the UK's Advertising Standards Authority (ASA) provided seven key tips on how to ensure compliance with its CAP Code (which is the rulebook for UK non-broadcast advertising) in relation to the provision of testimonials and endorsements. These include ensuring that the advertiser holds evidence to demonstrate that any testimonials or endorsements used by it are genuine and accurately reflect what the person featured said. Additionally, advertisers and paid third parties must not pretend to be a consumer. Where influencers are engaged, they must make it clear that promotional activities are ads.

On October 16, 2020, the UK's Competition and Markets Authority (CMA) secured undertakings from a large social media company, requiring it to do more to prevent hidden advertising (which is unlawful in the UK) being posted on its Instagram platform. On March 18, 2021, following a monitoring sweep for ad disclosures in 122 UK-based influencers' social media posts, the ASA published its Influencer Monitoring Report, warning those influencers and a number of brands that spotchecks would be conducted in the future. We previously commented on this report here. On June 17, 2021, the ASA launched a dedicated page on its website, highlighting individual influencers who, despite being put on notice that they would face further sanctions for flaunting advertising rules, have repeatedly failed to disclose when their Instagram posts are ads. Named influencers will be on the webpage for three months and subject to a period of enhanced monitoring spotchecks. The ASA has further noted that if such influencers, or indeed their brand partners, continue to break the ASA rules on non-disclosure, the ASA will implement further sanctions, such as taking out ads against the influencers, working with social media platforms to have their content removed, or referring them to statutory bodies for possible fines.

Key Takeaways

• In the US, the FTC sent two rounds of notices to more than 1,800 companies warning that certain practices pertaining to endorsements, testimonials and potential earnings from moneymaking ventures may constitute unfair or deceptive acts or practices under the FTC Act.
• Violations of the FTC Act may result in steep civil penalties of up to US$43,792 per knowing violation of a clearly unfair or deceptive practice.
• Aside from the FTC, states attorneys general may enforce their own laws regarding unfair and deceptive acts and practices (UDAP), and false advertising, with legal consequences and penalties that are separate and distinct from the FTC Act.
• Further, a number of state UDAP laws provide for a private right of action, which would subject businesses to consumer lawsuits for misleading or deceptive endorsement, testimonial or earnings claims.
• Non-US businesses may be liable under the FTC Act for unfair or deceptive marketing and advertising practices too, if such conduct affects or targets US consumers.
• In the UK, when marketing communications include testimonials or endorsements, there are specific CAP Code Rules to be mindful of. These include not posing as a consumer (Rule 2.3); not using testimonials and endorsements in restricted product categories, such as to endorse medicines (Rule 12.18); holding documentary evidence of any such testimonial or endorsement and seeking permission to use the testimonial or endorsement (Rules 3.45 and 3.48); and only using testimonials that are relevant to the product and not taken out of context or misleadingly edited (Rule 3.46).

Prior ASA rulings, such as Official iPhone Unlock Ltd and Vindicta Digital indicate that directly and explicitly incentivizing consumers to leave positive reviews or testimonials is likely to be considered problematic.

• With respect to influencers, when a brand gives an influencer a "payment" (including monetary payment, free products/services, incentives or commissions), or where a brand has editorial control over an influencer's content, any resulting posts promoting the brand become subject to advertising regulation (including the CAP Code) and UK consumer protection law (which is enforced by the CMA).
• The overarching requirement for advertisers (and influencers) in Section 2 of the CAP Code is that all advertising must be obviously identifiable (i.e., when a consumer sees an ad, it should be apparent to them that they are looking at an ad). As a minimum, the ASA will expect such posts to include an "ad" label, which is prominent enough that consumers will easily notice it and early enough that they will do so prior to engaging with the content.
• The CAP Code also contains other important obligations for any marketing communications – for example, not to materially mislead or be likely to mislead consumers (Rule 3.1), not to omit material information (Rule 3.3) and not to exaggerate the capability or performance of a product (Rule 3.11).
• The ASA's sanctions for non-compliance with the CAP Code include the publication of upheld complaints on its website (and typically the associated bad publicity is a persuasive tool), arranging for advertisers to be refused advertising space or imposing pre-vetting requirements on advertisers' ads. To the extent that influencers repeatedly breach their advertising obligations, the ASA may refer matters to UK Trading Standards, which can issue court actions. Additionally, uncooperative broadcast advertisers could be referred by the ASA to Ofcom (the UK's communications regulator), which has the power to take regulatory action, including imposing financial penalties.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.