WORTH THE CLICK: WHY GREATER FTC ENFORCEMENT IS NEEDED TO CURTAIL DECEPTIVE PRACTICES IN INFLUENCER MARKETING.

Author:Bladow, Laura E.
 
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TABLE OF CONTENTS INTRODUCTION 1124 I. INFLUENCER AND AFFILIATE MARKETING 1127 A. The Rise of Influencer Marketing 1128 B. The Appeal of Affiliate Marketing 1130 C. The Importance of Endorsement Enforcement in Influencer Marketing 1132 II. THE CURRENT DECEPTIVE ADVERTISING LEGAL REGIME AND DISCLOSURE REQUIREMENTS 1133 A. The FTC's Deceptive Advertising Framework 1134 B. Disclosure Requirements for Affiliate Links 1138 III. THE FTC'S ENFORCEMENT REGIME 1141 A. The FTC's Enforcement Mechanisms 1142 B. Insights from the FTC's Exercise of Its Enforcement Discretion 1146 1. Parties Subject to Endorsement Enforcement 1146 2. Closing Letter Commonalities and the Pursuit of Consent Orders 1150 3. Consent Order Terms 1153 IV. PROPOSAL: A MULTIPRONGED ENFORCEMENT APPROACH 1154 A. Targeting Top Influencers 1155 B. Targeting Affiliate Networks 1158 C. Pursuing Consent Orders 1159 D. Avoiding a Strict Liability Approach 1160 E. Increasing FTC Engagement with Individual Influencers 1161 CONCLUSION 1163 INTRODUCTION

Rach Parcell founded Pink Peonies in 2010 as a blog to document her first year of marriage. (1) Within three years, what had started as mere hobby had rapidly grown into a full-fledged business. (2) Today, Parcell has over 16,300 followers on Twitter, (3) over 98,000 'likes" on Facebook, (4) and over 931,000 followers on Instagram. (5) Parcell leverages the relationship she has built with her loyal followers to generate income from affiliate links, sponsored posts, and her recently launched clothing line. (6)

Parcell is an "influencer." Broadly defined, an influencer is anyone who has the ability to impact someone's purchase decisions. (7) In 2014, Parcell earned over $960,000 just from sharing affiliate links; (8) these links are specially coded to enable a brand to credit a consumer's purchase to an influencer and provide the influencer with a commission based on the sale. (9) Today, top influencers can make six figures a month, or at least $1.2 million annually, solely from affiliate links. (10)

Like Parcell, most influencers have built their followings by sharing insights and images of their everyday lives." Initially, influencers do not receive compensation for their posts; they personally purchase the products they choose to promote. (12) But as an influencer's following grows, so do the opportunities to generate profits from brand "partnerships" and "collaborations," as well as from affiliate links. (13) These profitable promotional opportunities, regardless of their moniker, are considered endorsements that the Federal Trade Commission (FTC) is empowered to regulate under section 5 of the FTC Act. (14) To protect consumers from deceptive advertising practices, the FTC requires clear and conspicuous disclosure of an endorsement when there is a material relationship between the influencer and the brand that a consumer might not reasonably expect. (15) Without clear and conspicuous disclosures of these material relationships, consumers struggle to determine the nature of the relationship between the influencer and the brand promoted in any given post and to accurately evaluate how much weight to give the influencer's endorsement. (16)

The FTC Guides Concerning Use of Endorsements and Testimonials in Advertising (the Guides) establish broad principles that govern endorsement disclosure requirements and provide the FTC's interpretation of how section 5 of the FTC Act applies to the use of endorsements in advertising. (17) Other scholarship in this area champions revisions to the Guides to further clarify when disclosures are required and what constitutes an adequate disclosure. (18) However, revisions are unnecessary because the Guides provide detailed examples that demonstrate how the principles apply to a wide range of endorsement situations. (19) Moreover, the adaptability of the Guides enables their application to endorsements across a variety of new and emerging advertising platforms. (20) The FTC has even provided specific guidance confirming that influencers must clearly and conspicuously disclose any endorsement compensated through affiliate links. (21) Yet, influencers do not disclose, and brands do not require influencers to disclose, these relationships at an alarming rate. (22) To date, the FTC's enforcement actions have failed to effectively address the nondisclosure of endorsements in the affiliate marketing industry because the FTC has generally limited

its enforcement power to discrete influencer marketing campaigns. (23)

Until 2017, the FTC made individual influencers seemingly invincible by declining to pursue enforcement actions against them. (24) Moreover, the FTC's few attempts to enforce endorsement disclosure requirements against individual influencers are insignificant in comparison to the number of influencers that face no scrutiny. (23) Notably, the FTC still has not pursued action against an individual influencer for failing to properly disclose an endorsement in connection with an affiliate link. (26) And the practices of the affiliate networks--which comprise a $4.5 billion industry (27)--appear to have escaped scrutiny, as they are entities distinct from any individual marketing campaign or any particular brand. (28) Therefore, to effectively protect consumers from deceptive affiliate marketing, the FTC must pursue enforcement actions against individual influencers and affiliate network companies for failing to clearly and conspicuously disclose endorsements compensated through affiliate links.

The FTC should leverage consent orders to set the industry standard for clear and conspicuous disclosures of affiliate links and effective influencer endorsement disclosure monitoring programs. (29) To protect its enforcement legitimacy, the FTC should avoid pursuing enforcement mechanisms that would result in strict liability for any failure to disclose an endorsement. (30) The FTC should also increase its outreach efforts to individual influencers to minimize endorsement disclosure issues with up-and-coming influencers. (31)

Part I of this Note discusses the rise and appeal of influencer marketing, which highlights the importance of enforcing endorsement disclosure requirements to protect consumers from deceptive advertising practices. Part II provides an overview of the FTC's deceptive advertising legal regime, explaining its application to endorsement disclosures in the influencer and affiliate marketing context. Part III explores the FTC's prophylactic mission, enforcement mechanisms, and enforcement discretion by examining how the FTC exercises its enforcement discretion with respect to influencer endorsements and affiliate marketing. Part TV proposes the FTC pursue a multipronged enforcement approach to better protect consumers from influencers who fail to meet affiliate link disclosure requirements. This approach includes pursuing enforcement actions against top influencers and affiliate marketing companies and increasing engagement with the influencer community to improve voluntary compliance with disclosure requirements.

  1. INFLUENCER AND AFFILIATE MARKETING

    The influencer marketing industry is growing exponentially, and it shows no signs of slowing down. Affiliate marketing, a subset of influencer marketing, enables brands to monitor the return on their investment and reap the benefits of working with influencers to promote their products. Together, the rise and appeal of influencer marketing highlight the importance of the FTC enforcing endorsement disclosure requirements.

    1. The Rise of Influencer Marketing

      An influencer is anyone "who ha[s] the power to affect purchase decisions of others because of their (real or perceived) authority, knowledge, position, or relationship." (32) This Note specifically focuses on noncelebrity, professional influencers. (33) These are individuals who have developed loyal followings by sharing insights and images from their everyday lives online. (34) The FTC defines influencers as endorsers because influencers provide "advertising message[s] ... that consumers are likely to believe reflect [] the opinions, beliefs, findings, or experiences of [the influencer, and not] the sponsoring advertiser." (35)

      Endorsements from influencers are distinguishable from traditional celebrity endorsements. As ordinary people sharing their everyday lives on social media, influencers are more relatable and their endorsements are seemingly more authentic than endorsements from traditional celebrities. (36) An influencer's endorsement is often equivalent to a peer recommendation and can carry significant weight with her followers. (37)

      This "trusted voice speaking to their personal audience... is the most effective and organic exposure a brand can get." (38) One study found that 49 percent of consumers rely on influencer recommendations when making purchasing decisions. (39) Approximately 40 percent had purchased an item after seeing an influencer endorsement on social media, and 20 percent had shared a product they learned about from an influencer with their own friends and family.' (40) Accordingly, companies are increasingly diverting money from traditional advertising and investing in the power of influencers. (41)

      Influencers often leverage their followings across multiple social media platforms, including personal blogs, YouTube, Facebook, Instagram, Twitter, and Snapchat. (42) Influencers post over 200,000 sponsored images every month on Instagram, an image-based social media platform. (43) An influencer with three to seven million followers can earn on average $75,000 per Instagram post. (44) An influencer with one to five hundred thousand followers can earn on average $5,000 per Instagram post. (45) Compensation ranges from $2,000 to $300,000 per post depending on the social media platform and the influencer's number of followers. (46) Accordingly, top influencers have the potential to earn between $1 million and $3 million per year simply by...

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