Social Media Influencer Marketing & Related Legal Issues
Businesses sometimes try to reach a broader audience by enlisting “social media influencers,” a term for people who have achieved some level of popularity or recognition online. Social media influencers endorse a product or service offered by a business on platforms like Facebook, Instagram, Twitter, YouTube, or TikTok. In exchange, the business provides them with money, free products or services, or a combination. There are four main tiers of influencers:
Nano influencers: 10,000 or fewer followers
Micro influencers: 10,000-100,000 followers
Macro influencers: 100,000-1,000,000 followers
Mega influencers: 1,000,000 or more followers
Using social media influencers can be a creative and cost-effective marketing strategy, but it does not come without potential problems and risks. The Federal Trade Commission has provided key guidelines in this area. Businesses and sometimes influencers may face legal trouble if they fail to comply with the guidelines. Moreover, poorly crafted contracts between businesses and influencers can lead to disputes between them down the road. Each side thus should understand their rights and obligations, to the public and to each other, before embarking on a business relationship.
FTC Guides for Endorsements
Section 5(a) of the Federal Trade Commission Act prohibits unfair or deceptive acts or practices that affect commerce. This law empowers the FTC to regulate endorsements. The agency has released guides concerning the use of endorsements and testimonials in advertising, which affect the activities of influencers. The guides define “endorsement” broadly as any advertising message that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of someone other than the sponsoring advertiser.
Not Regulations, But...
While the guides are not regulations, and people do not face civil penalties simply for deviating from them, failing to comply with the guides may open the door to an FTC investigation into potential unfair or deceptive practices.
Among other things, the FTC guides provide that an endorsement should reflect the honest opinions, findings, beliefs, or experience of an influencer or other endorser. An endorsement should not convey a representation that would be deceptive if made by the business. It should not be presented out of context or otherwise distort an influencer’s opinion or experience. An influencer should have been a good-faith user of the product when the endorsement was given if an advertisement represents that the influencer uses the product. An advertisement containing an endorsement about the performance of a product or service will be interpreted as representing that the product or service is effective for the purpose depicted in the advertisement. If an advertisement contains an endorsement relating the experience of an influencer on a central or key attribute of the product or service, this will be interpreted as representing that the influencer’s experience is representative of what consumers will generally achieve with the product or service.
Distinctive guidelines apply to expert endorsements. When an advertisement says or implies that an influencer is an expert with respect to the endorsement message, their qualifications should give them the expertise that they are represented as possessing. For example, an endorsement of a car by a person described as an “engineer” would be deceptive if they work in the field of chemical engineering. An expert should actually exercise their expertise in evaluating product features or characteristics.
Prescription Drugs and Medical Devices
The Food and Drug Administration provides further rules for endorsements involving prescription drugs and medical devices. For example, an influencer cannot exaggerate the benefits of a medication. Businesses and influencers considering these endorsements should review FDA rules for advertising.
Disclosures by Influencers
An influencer should fully disclose any connection with a business that might materially affect the weight or credibility of an endorsement. This might be a personal or employment relationship, such as when the influencer is a relative of the business owner or is a full-time employee of the business. More often, the relationship is financial, such as when a business provides an influencer with money or free products. (A financial relationship involves anything of value exchanged.) The FTC has released specific disclosure tips for social media influencers.
These tips illustrate the broad scope of situations in which influencers should make disclosures. For example, they should make disclosures about receiving a free product from a business in exchange for an endorsement even when they are not endorsing that particular product. They should not assume that their followers already know about their relationship with the brand. Disclosures are critical even if the influencer feels confident that they are not biased.
When an influencer makes a post containing an endorsement while they are outside the U.S., they still should make disclosures and comply with other FTC rules if the post foreseeably would affect U.S. consumers. (They also might need to comply with laws in the foreign country.)
If a disclosure is required, an influencer should make the disclosure in simple and clear language. They should present it where it is easily visible, rather than inserting it at the very end of a post, below a Read More jump, or in the midst of a series of hashtags. When an influencer endorses a product in a video, they should make the disclosure in the video. For a live stream, the influencer should repeat the disclosure at various stages, since some viewers may not watch the entire live stream.
Contracts Between Influencers and Businesses
Devising an agreement with an influencer to market a product or service may seem straightforward, and some provisions of the contract are. For example, the business and the influencer should agree on the scope of the influencer’s activities and the compensation for the influencer, including when compensation will be provided and whether it will involve money, other items of value, or a combination. Sometimes a contract might provide bonuses if the partnership achieves a certain level of success, which should be clearly specified. The parties should set out the duration of the relationship and any grounds for termination other than the expiration of the agreement term. The agreement should require the influencer to comply with applicable laws (and the FTC guides) and cooperate with the business in any regulatory action related to their content.
Other provisions may be less obvious, such as:
Messaging priorities: while the influencer should have some control over the content of the posts so that they are authentic, a business might provide certain facets of a product or service that it wants to emphasize
Content restrictions: the business may have certain types or styles of content that it wants the influencer to avoid
Editing rights: the business may want the influencer to submit the content in advance for review and approval
Content auditing: if the business does not review the content in advance, it likely will want to reserve the right to review the content after it has been posted and require the influencer to edit or remove non-compliant content
Content removal: the business may want to limit the ability of the influencer to take down content containing an endorsement once it has been live for a certain time
Tracking processes: the business may want the influencer to integrate certain elements in their content that will help with measuring its impact
Morals clause / behavior clause: this allows the business to back out of the deal immediately if the influencer engages in certain specified conduct that reflects poorly on the business
Non-compete clause / exclusivity provision: the business may want to prevent the influencer from endorsing similar products or services by their competitors, since this would dilute the strength of their endorsement
Intellectual property: while the influencer likely will retain ownership of their content, the business may want to have a license to use their content for certain purposes, which should be clearly outlined
A contract should designate the influencer as an independent contractor rather than an employee. However, a business still should avoid exerting too much control over the influencer’s work, since this could lead to their classification as an employee even if the agreement says otherwise. In case something goes wrong, moreover, the business may want to get insurance that covers liabilities created by the influencer’s activities.