By Jessica C. Engler, CIPP/US

Whether you keep up with the Kardashians or you are just a casual Instagram user, you have probably been exposed to social media influencer posts. Due to social media’s increased marketing importance, companies will offer free products, money or other compensation to social media “influencers”, i.e. users that boast at least 2,000 or more genuine followers. “Macroinfluencers” with millions of followers can often command $10,000 or more for a single product endorsement on Instagram. Influencers have been used by industries including hotels and travel services, fitness, cosmetics, clothing and accessories, food and beverage, restaurants, dietary supplements, and a litany of other consumer products and services. Similar to celebrity brand ambassadors, these influencers provide “peer” recommendations to their followers with the intent of directing the followers to purchase the endorsed products and services. These posts are often successful and have led to increased profits for many brands.

In addition to or in lieu of traditional social media influencers, companies are also looking to their own employees to serve as online brand ambassadors, participate in ad campaigns, and to share content on social media about the company. Since the advertising budget for “employee influencers” is relatively low, many companies are implementing employee advocacy programs and incentivizing employees to be spokesmen for the company in their own circles. Certain commentators have listed employee advocacy as one of the social media strategies to watch in 2019.[1]

This young, alternative form of advertising and endorsement has caught the attention of federal agencies. Starting in March 2017, the Federal Trade Commission began notifying companies using compensated influencers that the relationship between the company and the influencer needed to be made clear in a disclosure. The FTC’s Endorsement Guidelines state that if there is a “material connection” between an endorser and an advertiser (i.e., a connection that might affect the weight or credibility that a customer would give the endorsement), then that connection must be clearly and conspicuously disclosed.[2]  The FTC has stated that these guidelines apply to social media, and both marketers and endorsers are required to comply.[3] In April 2017, the FTC sent letters to almost 100 celebrities, athletes and other influencers, as well as the marketers of the brands endorsed, regarding the disclosure obligations.[4] Since that time, the FTC also settled its first formal complaint against social media influencers—gaming influencers Trevor “TmarTn” Martin and Thomas “Syndicate” Cassell.  These men were charged with failing to properly disclose that: (1) they owned the online gambling company that they were promoting; and (2) they paid other well-known online gaming influencers to promote the platform without disclosing the financial relationship.[5] Despite the additional FTC “educational notifications” to influencers[6] and complaints to the FTC by watchdog groups,[7] some marketing commentators claim that the majority of influencer posts are still not compliant.[8]

Most recently, the Securities and Exchange Commission entered the influencer realm when it charged boxer Floyd Mayweather Jr. and music producer DJ Khaled.  Mayweather and Khaled were promoting investing in Centra Tech, Inc.’s initial cryptocurrency offerings (ICO) on social media without disclosing that they had been paid for the promotions.[9] The SEC had previously warned that cryptocurrency sold in ICOs may be securities and that those who offer and sell securities in the U.S. must comply with federal securities laws— including disclosure of payment for promotional statements.[10] The SEC has since settled with Khaled and Mayweather, requiring them to return the $350,000 they collectively received from Centra Tech (who is currently under SEC investigation for fraud).[11] Mayweather also agreed to pay a $300,000 fine to the SEC, abstain from promoting other investments for three years, and to cooperate with the SEC’s investigation. Khaled also agreed to a $100,000 fine to the SEC and to abstain from similar promotions for two years.

The FTC’s continued letters and notifications shed light on the agencies’ interest in helping influencers and brands to be more transparent about their relationships. These educational letters are often the first step in an FTC crackdown, so influencers and brands would be well advised to ensure their posts are compliant. As businesses set their marketing plans for 2019, now would be the time to ensure that any arrangements with influencers or employee advocates are appropriately detailed. While the FTC regulations (or SEC for financial products) provide more specific guidance, the below items offer some general tips and considerations.

  1. Confirm whether social media posts need to include FTC disclosures. The FTC requires a clear and conspicuous disclosure if there is a “material connection” between an influencer and brand that might materially affect the credibility of the endorsement (meaning, where the connection is not reasonably expected by the audience).[12] Material connections can include, but are not limited to, a business or family relationship, employment relationship, monetary payments, or free products.

Disclosure is not required when the material connection between the endorser and the marketer is expected. For example, if a doctor was featured in a television advertisement claiming that an anti-snoring product is, in his opinion, the best he has ever seen, a viewer would reasonably expect the doctor to be compensated for appearing in the ad and a disclosure would not need to be made. However, a viewer may be unlikely to expect that the doctor is an owner in the company or that the doctor received a percentage of the product sales, so the advertisement should clearly and conspicuously disclose such a connection.[13]

The time when the incentive is promised is also a factor. If a restaurant asks its patrons to post pictures and honest reviews of its food on Instagram, and the patrons have no reason to expect compensation or benefit from the restaurant before making the post, then the restaurant’s later decision to send the posters a free dessert coupon will likely not require a disclosure. However, if patrons were specifically informed that a social media post would result in being given the coupon or that their pictures and reviews may be used in the restaurant’s advertising, then those opportunities may be seen as having value and may need to be disclosed.

  1. The disclosure must be clear. Disclosures must be clear enough that an ordinary reader understands the relationship between the poster and the brand. The FTC has cautioned against vague references like “Thank you [Brand Name]”, “#ambassador”, “#[Product]_Rocks”, and similar language that shows just an appreciation of the product/company. Instead, the FTC encourages clear statements like “[Brand] gave me this product to try”, “Thanks [Company] for the free product”, “Sponsored”, “Promotion” or “Paid ad”. For platforms like Twitter that limit the number of characters you can use, the FTC recommends starting the tweet with “Ad:” or “#ad.”
  1. The disclosure must be conspicuous. The FTC advises that the disclosure should be: (1) close to the claims to which they relate; (2) in a font that is easy to read; (3) in a font shade that stands out against the background; (4) for video ads, on the screen long enough to be noticed, read, and understood; and (5) for audio disclosures, read at a cadence that is easy for consumers to follow and in words the listener will understand.

Certain platforms like Instagram limit the amount of text on photostreams when viewed on a smartphone, so longer descriptions are truncated with only the first few lines viewed unless the user clicks “more”. The FTC requires that the disclosure be presented without having to click “more”. It is not sufficient for an influencer to make a general disclosure on the influencer’s profile page or through links to a separate disclosure page; rather, a disclosure must appear on each endorsement post. Similarly, the FTC cautions that the disclosure should not be buried in a long string of hashtags.

In response to the FTC’s enforcement, platforms like YouTube and Instagram have added a feature where posts can be tagged as “paid”. While these can be helpful tools, they are not foolproof.  For example, the paid tag could be sufficient when only one product is pictured in an Instagram post. But if the sponsored product appears with other products—some compensated and others not compensated—then additional disclosures may need to be made. The brand and influencer need to carefully evaluate whether the tags are sufficient or if additional statements need to be made, as it is the brand or influencer that will be responsible for the failure to properly disclose—not the platform.

  1. The endorsement must be true. This requirement is true of all advertising. An influencer cannot provide a review of a service or product that the influencer has not personally used. The influencer also cannot post that the sampled product or service is amazing and #newfavorite when the influencer hated it and would never use it again. A brand looking to use influencers should not require the influencer to make a positive post if the influencer did not have a positive experience.
  1. Monitor the influencer. Even if the influencer claims they follow legal requirements, the brand or company is still responsible for ensuring that the influencer is true to their word. Brands should regularly monitor or review the influencer’s post(s) to ensure that the posting is compliant, as the brand can still be responsible for the failure to disclose.

These above tips provide some initial considerations to brands that are using influencers and the influencers make the posts. Any written agreement between the brand and influencers should include obligations to comply with FTC guidelines. Companies that are considering an employee advocacy program would be well advised to ensure that their employee social media policies carefully detail the requirements for employee endorsements online. Consultation with an attorney to prepare these agreements or social media policies or to review proposed influencer posts are a good step towards avoiding unwanted regulatory attention.

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[1] See Lilach Bullock, “5 Social Media Strategies That Will Grow Your Business in 2019”, Forbes (Dec. 20, 2018) (available at https://www.forbes.com/sites/lilachbullock/2018/12/20/5-social-media-strategies-that-will-grow-your-business-in-2019/). See also Ryan Erskine, “The Key to Increasing Your Brand’s Reach by 561%? Your Employees.”, Forbes (Jun. 30, 2018) (available at https://www.forbes.com/sites/ryanerskine/2018/06/30/the-key-to-increasing-your-brands-reach-by-561-your-employees/#3331b89429bb); Steve Cocheo, “Employee Advocacy in Banking: Aligning Culture & Content in Social Media Channels”, The Financial Brand (Nov. 15, 2018) (available at https://thefinancialbrand.com/76838/social-media-employee-trust-consumer-banking-postbeyond/).

[2] 16 C.F.R. § 255; “The FTC’s Endorsement Guides: What People Are Asking”, Federal Trade Commission (Sept. 2017) (available at https://www.ftc.gov/tips-advice/business-center/guidance/ftcs-endorsement-guides-what-people-are-asking).

[3] “FTC Staff Reminds Influencers and Brands to Clearly Disclose Relationship”, Federal Trade Commission (Apr. 19, 2017) (available at https://www.ftc.gov/news-events/press-releases/2017/04/ftc-staff-reminds-influencers-brands-clearly-disclose). One survey done in May 2017 showed that at least 90% of celebrity influencer posts were not compliant with the FTC guidelines. “93% of Top Celebrity Social Media Endorsements Violate FTC Guidelines”, Mediakix (May 31, 2017) (available at http://mediakix.com/2017/05/celebrity-social-media-endorsements-violate-ftc-instagram/#gs.SHytKyU).

[4] Lesley Fair, “Influencers, are you #materialconnection #disclosures #clearandconspicuous?”, Federal Trade Commission (Apr. 19, 2017) (available at https://www.ftc.gov/news-events/blogs/business-blog/2017/04/influencers-are-your-materialconnection-disclosures).

[5] “CSGO Lotto Owners Settle FTC’s First-Ever Complaint Against Individual Social Media Influencers”, Federal Trade Commission (Sept. 7, 2017) (available at https://www.ftc.gov/news-events/press-releases/2017/09/csgo-lotto-owners-settle-ftcs-first-ever-complaint-against).

[6] Id.; see also Sam Sabin, “DeGeneres, Minaj Among Celebrities Whose Social Posts Drew FTC Interest in Past Year”, Morning Consult (Oct. 5, 2018) (available at https://morningconsult.com/2018/10/05/degeneres-minaj-among-celebrities-whose-social-posts-drew-ftc-interest-in-past-year/).

[7] See, e.g., “TINA.org Files FTC Complaint Against Diageo for Deceptive Influencer Marketing of Ciroc”, Truth in Advertising, Inc. (Dec. 11, 2018) (available at https://www.truthinadvertising.org/ciroc-press-release/).

[8] See Sam Sabin, “A Year After Major Actions, FTC’s Influencer Marketing Guidelines Still Overlooked”, Morning Consult (Oct. 4, 2018) (available at https://morningconsult.com/2018/10/04/a-year-later-ftcs-influencer-marketing-guidelines-still-largely-ignored/).

[9] Ahiza Garcia, “DJ Khaled, Floyd Mayweather Jr. charged with promoting cryptocurrency without disclosing they were paid”, CNN Business (Nov. 30, 2018) (available at https://www.cnn.com/2018/11/29/tech/dj-khaled-floyd-mayweather-coin-crypto-sec/index.html). Part of the increased scrutiny by the SEC is likely due to the SEC’s criminal charges of fraud against Centra Tech, which allege that Centra Tech “sold investors on false promises of new technologies and partnerships with legitimate businesses.” Frances Coppola, “SEC Fines Floyd Mayweather and DJ Khaled for Illegally Promoting a Fraudulent ICO”, Forbes (Nov. 29, 2018) (available at https://www.forbes.com/sites/francescoppola/2018/11/29/floyd-mayweather-and-dj-khaled-were-paid-to-promote-a-fraudulent-ico/#9c4b6c14665e).

[10] “Two Celebrities Charged with Unlawfully Touting Coin Offerings”, U.S. Securities and Exchange Commission (Nov. 29, 2018) (available at https://www.sec.gov/news/press-release/2018-268).

[11] Nathaniel Popper, “Floyd Mayweather and DJ Khaled Are Fined in I.C.O. Crackdown”, The New York Times (Nov. 29, 2018) (available at https://www.nytimes.com/2018/11/29/technology/floyd-mayweather-dj-khaled-sec-fine-initial-coin-offering.html).

[12] 16 C.F.R. § 255.5.

[13] 16 C.F.R. § 255.5.