Influencer Marketing: What Companies Should Know

Over the last decade, the number of companies that use social media “influencers” to market their products has skyrocketed. Influencers include not only celebrities with huge social-media followings, but also collegiate athletes, local chefs, and niche bloggers with a passion for the products in your industry. Typically, the arrangement is as follows: a company provides either monetary payment or a free gift to an influencer and that influencer, often in the form of a review, markets the company’s product to their followers. The Federal Trade Commission (“FTC”) has periodically released guidance outlining a company’s, and influencer’s, obligations regarding influencer marketing.

Notably, in March 2020, the FTC sued Teami, LLC, alleging, in part, that its influencers failed to disclosure material connections and made false or unsubstantiated efficacy claims. The final order imposed a $15.2 million judgment. More recently, the FTC sent warnings letters to over 700 companies, recommending that recipients review their practices related to endorsements and reviews (including their use of influencers) to ensure that those practices comply with FTC rules and regulations. The letters explained that the FTC is “widely distributing similar letters and the notice to large companies, top advertisers, leading retailers, top consumer product companies, and major advertising agencies.” FTC made clear that receipt of the letter did not indicate that the company was engaging in violative conduct. However, under the FTC’s Penalty Offense Authority, which the agency has shown a recent interest in reviving, and which the agency cited explicitly in these warning letters, the FTC can seek civil penalties of up to $46,517 per violation.

This alert provides a brief overview of the key areas that companies should be thinking about when engaging influencers. For more information, contact the authors.

Endorsement and Testimonial Guides

Influencers’ posts are governed by the FTC’s Endorsement guides, which require, among other things, that influencers disclose a “material connection” to the company. A material connection is a tie to a company that, if known to consumers, may make them question the credibility of the speaker or which may materially affect the weight consumers place on the endorsement. In other words, if a friend told you how much they loved a certain product, and you later found out that the friend was paid by the company selling that product, you may put less weight on the friend’s endorsement.  Providing an influencer payment for a post is an obvious “material connection” but the definition also includes:

• Free gifts;
• Discounted products;
• Free accommodation or travel;
• Personal, family, and employee relationships to the company.

An influencer must clearly and conspicuously disclose any “material connection,” the standards for which may differ depending on the platform. There is some flexibility in how to formulate a disclosure, but it must be easy to understand and clear to the consumer. For example, the FTC has explained that burying a disclosure in a series of hashtags or requiring a consumer to click “see more” to view the disclosure is not “clear and conspicuous.”

Content of Posts

A company is liable for the content of their influencer’s posts, which must be truthful and not misleading. Further, there must be substantiation for any claim that the influencer makes. The following rule of thumb is critical: if your company could not make the claim on its website (for example, because you do not have sufficient substantiation), then an influencer cannot make the same claim on social media. As explained below, it is best practice to periodically monitor your influencers for compliance.

How Can a Company Mitigate Risk?

First, ensure that your company has a social media endorsement policy before engaging with an influencer. The policy should:

• Outline the FTC’s requirements regarding material connections;
• Provide guidelines for a “clear and conspicuous” disclosure for each social media platform;
• Require periodic monitoring of influencer posts;
• Outline a procedure for handling compliance failures; and
• Outline corrective measures such as requiring that posts be altered, withholding payment, and/or terminating an influencer, when their posts violate your policy.

Second, enter into an influencer agreement. An influencer agreement can help ensure that an influencer is aware of its disclosure obligations and complies with those obligations. It should also outline:

• The frequency of posts;
• Payment obligations;
• Exclusivity provision;
• A so-called “morals clause” (allowing the company to terminate the agreement if the influencer becomes the subject of public disrepute or scandal, which may reflect poorly on the brand);
• A set of approved claims about your product or service that the influencer should stick to or, in the alternative, a requirement that a company review and approve posts before publication; and
• Recourse if the influencer fails to comply.

Third, vet the influencer. The influencer will be another face of your company, so be sure you are confident they are the right fit before engaging.

Finally, conduct training to ensure the appropriate parties understand their obligations.

Conclusion

Influencer marketing continues to grow, and with the FTC’s recent warning letters, now is a great time to review your influencer practices. If your company is already engaging influencers, or is planning to do so in the future, contact the authors to learn more about the regulations surrounding such an endeavor.