Influencers: What Every Brand and Legal Counsel Should Know

• Author: Mark Goodrich - Jason Howell
• Position: Mark Goodrich is an associate with Perkins Coie LLP in Seattle, Washington, and advises clients on a variety of advertising and regulatory compliance matters. Jason Howell is a partner with Perkins Coie LLP in Seattle, Washington, and cochairs the firm's Advertising, Marketing & Promotions group.
• Pages: 17-45

Published in Landslide® magazine, Volume 11, Number 1, a publication of the ABA Section of Intellectual Property Law (ABA-IPL), ©2018 by the American Bar Association. Reproduced with permission. All rights reserved.

This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

LANDSLIDE 15

Influencers

What Every Brand and Legal Counsel Should Know

By Mark Goodrich and Jason Howell

Photo: Getty Images

Published in Landslide® magazine, Volume 11, Number 1 , a publication of the ABA Section of Intellectual Property Law (ABA-IPL), ©2018 by the American Bar Association. Reproduced with permission. All rights reserved.

This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

The growth of social media and “inuencers”

represents a sea change in how brands, celeb-

rities, spokespersons, and consumers interact.

An “inuencer” is any person with credibility

who can inuence the opinions or purchase

decisions of others. For example, inuencers

are often social media stars, gamers, bloggers, brand ambassa-

dors, and celebrities. While brands previously relied primarily

on traditional advertising such as print, television, radio, and

even their websites to disseminate carefully structured mes-

sages to consumers, inuencers now allow brands to engage

with millions of consumers more organically than before.

In fact, a 2017 study found that 86 percent of marketers sur-

veyed now use inuencer marketing, and 92 percent of those

marketers found it effective.1 And a 2018 study estimates that

of brands currently using inuencer marketing, 43 percent

intend to increase inuencer marketing budgets in the next 12

months.2 However, inuencer campaigns create a number of

legal challenges to navigate, and in particular make it difcult

for consumers to discern whether the inuencer simply likes

a product or is being paid to promote the product or brand.

As a result, the Federal Trade Commission (FTC) has made

“endorsement” compliance a point of emphasis in recent years,

issuing a policy statement, periodic guidance, and enforce-

ments to encourage clear and truthful inuencer advertising,

and to ensure that consumers are aware of material connections

between inuencers and brands.

The consequences of noncompliance with the FTC’s guid-

ance can be signicant. For example, failure to comply may

result in injunctions, consumer redress, reputational harm,

and ongoing monitoring and reporting to regulators for years,

with severe penalties for further violations. This article intro-

duces various issues and compliance tips that brands and

their agencies should understand for inuencer campaigns.

First, it discusses the FTC’s requirements related to endorsers

and inuencers, and in particular the FTC’s 2017 updates to

its endorsement FAQs. Second, the article analyzes enforce-

ments and examples of challenged inuencer or endorser

campaigns. Third, the article identies other legal consider-

ations relevant to inuencers, including intellectual property

rights, contract formation, and promotional considerations.

Finally, it offers compliance tips and best practices to reduce

the risks associated with inuencer campaigns.

FTC Endorsement Standards

The FTC establishes requirements and principles for brands

and inuencers in its “Guides Concerning Use of Endorsements

and Testimonials in Advertising” (Guides)3 and “The FTC’s

Endorsement Guides: What People Are Asking” (FAQs).4 Under

the authority of the FTC Act,5 the Guides and FAQs include

examples and applications related to endorsements, which gen-

erally encompass three principles: (1) endorsements must

Mark Goodrich is an associate with Perkins Coie LLP in Seattle,

Washington, and advises clients on a variety of advertising and

regulatory compliance matters. Jason Howell is a partner with

Perkins Coie LLP in Seattle, Washington, and cochairs the rm’s

Advertising, Marketing & Promotions group.

reect the honest opinions, ndings, beliefs, and experiences

of the endorser; (2) advertisers must not make claims through

endorsements that would be false, misleading, or unsubstanti-

ated if made directly (in other words, general truth-in-advertising

requirements apply); and (3) inuencers and advertisers must

disclose material connections.6 The FAQs have evolved since

their issuance in 2009, and now address new forms of social

media and marketing tactics, and in particular when and how to

effectively disclose material connections.

“Material connections” are any relationships that would

impact the weight or credibility that the audience gives the

endorsement.7 The FTC takes a broad view of what consti-

tutes a material connection, applying it to family members,

employees, recipients of free products, and people receiving

payment of any kind (even if small). The FTC has repeatedly

warned brands and inuencers about these obligations and

has brought enforcement actions from time to time. There-

fore, compliance should be a team effort between brands and

inuencers, with brands encouraging effective disclosure and

inuencers taking compliance obligations seriously in every

post or social media touch that promotes the brand.

To be effective, disclosures must be clear and easy for the

audience to read and understand. There are no “magic words”

needed to comply. Rather, a simple statement about the rela-

tionship is often the best option (e.g., “I received free product

from [brand name]” or “I was paid by [brand name]”), while

unambiguous hashtags would also be permissible on social

media (e.g., #ad, #sponsored, or #PaidAd). A disclosure at

the beginning of a post or other media is best, but the FTC

does not require any specic location. Whether a disclosure is

effective depends on the context of the overall advertising or

promotional content, so brands and inuencers must evaluate

each execution to determine whether a reasonable consumer

is likely to understand the connection.

Recent Developments

The FTC’s recent inuencer- and endorsement-related activi-

ties clearly signal that it will continue to hold both brands

and inuencers responsible under the Guides (although his-

torically primarily brands had been targeted). First, in April

2017, the FTC sent 90 “educational letters” to marketers and

social media inuencers, including Heidi Klum, Victoria

Beckham, Sofía Vergara, Sean Combs, Jennifer Lopez, and

Allen Iverson, reminding them that they must disclose mate-

rial connections.8 In September 2017, 21 inuencers received

follow-up warning letters regarding potential failures to dis-

close their material connections with brands.9

Also in September 2017, the FTC brought its rst

enforcement action directly against social media inuenc-

ers. Specically, the FTC targeted CSGO Lotto, alleging that

Trevor “TmarTn” Martin and Thomas “Syndicate” Cassell—

two popular social media inuencers with the online gaming

community—failed to disclose in social media postings

that they jointly owned the company, passing off their com-

mentary as independent opinions of impartial users.10 While

these inuencers were also owners, brands may use this case,

together with the warning letters, to convey to inuencers that

their disclosure obligations are essential.

T