AT YOUR DISCLOSURE: HOW INFLUENCERS' ENDORSEMENTS WILL BE PUT TO THE TEST BY THE F.D.A. AND F.T.C.

• Author: Martinez-Guasch, Sofia

1. Introduction

   For months during the COVID-19 pandemic, we have moved from the bedroom, to the kitchen, the work-from-home office, and most frequently to the social media platforms on our phones. (1) The global health crisis has fostered the need for both entertainment and reassurance during a continuous wave of the unknown. (2) As citizens who once sought the advice of sales associates at their go-to stores or doctors at their local walk-in clinic, people often resort to the Internet to make day-to-day decisions. (3) With the time consumers now spend online, they have discovered new brands through an abundance of social media accounts, often referred to as social media influencers. (4)

   The rise in consumer engagement on social media influencers' promotional posts during the COVID-19 pandemic have become a particular worry for the Federal Drug Administration ("FDA"), and the Federal Trade Commission ("FTC"). (5) Brands have been taking advantage of consumers' longing for a coronavirus cure by promoting products that falsely claim to mitigate or cure the virus. (6) These same brands, coupled with the effectiveness of influencer marketing, have led the two agencies to study the impact of advertisement features on an influencer's endorsement post and the effectiveness of current endorsement regulations. (7) While the studies are in the face of a global pandemic, it is essential that the FDA and the FTC modernize how pharmaceutical products are advertised online to protect consumers beyond COVID-19 as consumer decisions will increasingly continue to rely on access to health-related information online. (8)

   This Note will analyze the findings of the studies proposed by the FDA and the FTC as well as their impact on the marketing industry going forward. While the FTC takes a strong regulatory role with social media influencers, the FDA lacks appropriate regulatory oversight in online advertising. Given the historical impact of influencer marketing, the results of the FDA's studies coupled with the FTC's responses to its request for public comment will play a key role in determining any future regulatory updates to social media endorsements. Additionally, the FDA and FTC's investigations will have significant implications on the current contracts' influencers have with brands and will broaden consumer rights, brands' obligations, and influencers' obligations. Companies should be prepared to follow government regulations which go beyond mere "guidelines" because proper disclosure statements are no longer just a marketing tactic used by companies, but rather, they are the epicenter of consumer purchases.

2. History

   1. The Evolution of the FTC: From Pro-Business to Pro-Consumer

      The FTC, which was established by the Federal Trade Commission Act, was created because of the inadequacies of the Sherman Act and the FTC's predecessor, the Bureau of Competition. (9) Policies under the Sherman Act were so broad that judges--not the Bureau of Competition--assessed whether trade restraints were reasonable or not. (10) While the judicial branch went beyond the economic purposes intended by the legislative branch in its application of the Sherman Act, it did so in order to prevent limitations on the economy. (11) As businesses continued to grow exponentially following the Industrial Revolution, the public became increasingly concerned with unfair competition and large monopolistic trusts. (12) Almost ten years after its enactment, the Sherman Act's application on inter-company cooperation and operation remained unclear because of its broad application established by the Supreme Court's opinion in Standard Oil Co. of New Jersey v. United States. (13) The Supreme Court held that whether the Sherman Act applied to companies depended on the context and fairness of their contracts, a decision that the Court claimed could not be made by the government. (14) Over time, concerns regarding the Sherman Act's predictability and enforcement arose. (15)

      In an effort to provide businesses and law enforcement with clearer guidance, Congress created the Bureau of Corporations ("the Bureau"). (16) As part of the Department of Commerce and Labor, the Bureau's intended purpose was to make recommendations about regulating industries through documentation and investigations. (17) Despite Congress' efforts, the Bureau was ultimately unsuccessful due to its partisan governance. (18) As political parties began establishing economic power, consumers began to grow concerned over the parties' ability to create monopolies deemed as an affront to political freedom, and which consequently influenced the country to advocate more for the employee over the corporation. (19) As a result, the Federal Trade Commission Act created the FTC. (20)

      The FTC's goal was to address issues that the Sherman Act and the Bureau could not. (21) The FTC was created to prevent "unfair methods of competition" and "unfair or deceptive acts or practices" in commerce for the protection of consumers. (22) Contained in Section 5 of the Federal Trade Commission Act, the FTC has both the power and the authority to sue private companies even if there is no evidence of injury to an actual or potential consumer. (23) Since the FTC's establishment, there has been a growing and robust body of administrative law that determines whether a practice is an unfair or deceptive method of competition. (24) As commercial practices have evolved, so have the FTC's regulations. (25)

      Particularly during the 1970s, the FTC expanded its scope of authority to accommodate consumer needs. (26) As companies restricted consumers choices with their business practices, Congress authorized the FTC to identify unfair competitive practices that harm consumers. (27) The Supreme Court granted the FTC the power to take action against companies involved in unfair practices whose acts did not necessarily impair competition. (28) Ultimately, as the FTC continued to evolve, both judicial decisions from the Supreme Court and criticism from Congress led to the current standard of unfair practices under today's Section 5 regulations. (29)

      While actions considered "unfair" under Section 5 of the Act are often also considered "deceptive" under the Act, determining whether an act is deemed an unfair practice or a deceptive practice involves evaluating the act under two different standards. (30) The FTC considers an act or practice unfair if it: (1) causes consumers substantial injury, that is (2) not outweighed by any countervailing benefits to consumers or competition that the practice produces; and if the act (3) offends public policy as established by statute, the common law, or otherwise. (31) On the other hand, an act or practice is considered deceptive if it misleads a reasonable consumer, in a way that puts the consumer at risk. (32) These standards are especially important as they form the foundation for the FTC's Endorsement Guidelines that direct unfair and deceptive practices on social media by influencers. (33)

   2. The Rise of the Endorsement Guidelines

      Over the past thirty years, commercial practices have advanced alongside the technological advancements of radio, television, and the Internet. (34) These mediums have led to the widespread distribution and access of advertisements to consumers. (35) Given the particular vulnerability of online consumers to deceptive practices, the FTC has shifted its focus over the years to advertising agencies. (36) Online consumers became more susceptible to deceptive influences with the development of the Internet. (37) This allowed for anonymity and less resources to set up store-fronts; consequently, this made it harder for consumers to verify the truthfulness of claims. (38) In advocating for consumer protection, the FTC produces guidelines known as Guides Concerning the Use of Endorsements and Testimonials in Advertising ("Guidelines"), that demonstrate how advertisers should comply with Section 5 of the Act. (39)

      First known as the 1980 Guidelines, they originally intended to share how the FTC views marketing tactics involving endorsements. (40) Specifically, the Guidelines intended to provide both advertisers and influencers with a better understanding of how Section 5 may apply to marketing activities that they and their consumers may engage in. (41) The 1980 Guidelines described the general considerations that advertisers should take into account when using endorsements, gave a broad overview of sponsored posts, and described "disclosures of material organizations." (42) Given the adaptation of marketing strategies since 1980, the FTC has revised its guidelines to explicitly require social media influencers to disclose whether they are being paid for their endorsements. (43)

   3. The Role of the FTC Endorsement Guidelines in Influencer Marketing Today

      1. The Makeup of a Social Media Influencer

         The "social media influencer" is a product of social media advertising that emerged during the "social era" of digital advertising, when Facebook began its "social ads" to promote credit card companies. (44) As companies began targeting specific audiences on social channels, companies realized that some consumers on social media have a loyal following that meets their target audience. (45) Consequently, the FTC closely monitors social media influencers because of the significant impact that their actions and opinions have on their followers. (46) Many influencers differ from traditional celebrities. (47) Well-known celebrity-influencers on social media platforms, like Kim Kardashian, typically have more than one million followers. (48) However, many social media users that do not rise to celebrity fame and have significantly less followers are nonetheless subject to the FTC's regulations. (49) The FTC does not simply assume that a reasonable consumer understands that an influencer is being paid for his or her posts. (50) This is because non-celebrity influencers are perceived as...