Regulating Sponsored Influencer Marketing

The COVID-19 pandemic has led to a significant increase in social media engagement. Social media is increasingly used not only to connect with friends but also to find and buy products. Popular personalities on social media who partner with brands to sell items to their followers are called “influencers.” Although the industry is rapidly expanding, the uniquely personal marketing approach by influencers may require different regulation than traditional marketing. With the advent of social media, nearly anyone can be an influencer. Any person with a following on social media has an audience to influence. Influencers are key actors in many companies’ sales approach. In 2019, companies spent $6.5 billion on influencer marketing around the world. In 2021, the market was estimated at $13.8 billion. Even during worldwide market downtowns, social media influencer marketing continues to grow. Individuals actively choose who to follow based on the type of content or lifestyle promoted. Influencers often partner with companies whose products may be specifically of interest to followers. Companies benefit from direct access to a target audience, influencers benefit from getting paid to relay useful products to their followers, and followers benefit by getting testimonials about products from influencers they admire or even trust. The informal nature of influencer marketing may bring dangers along with its numerous benefits. The potential for misrepresentation, miseducation, or deceptive marketing is a significant concern for regulators like the Federal Trade Commission (FTC), which traditionally have regulated much larger, more sophisticated actors. Unlike marketing teams or celebrities with access to legal and marketing experts, influencers often navigate disclosure requirements and other marketing regulations on their own. Influencers are primarily regulated by the FTC under Section 5(a) of the FTC Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce.” The FTC clarified how influencers can comply with Section 5(a) in 2009 when it published a set of endorsement guides. The guides state that to comply with Section 5(a), influencers must, among other things, generally disclose the fact that the promotion is an advertisement, express their honest opinions, use the product they are endorsing, and accurately express the qualities or performance of a product. Violations of these guides can be particularly dangerous if they concern health-related products. In FTC v. Teami, a “wellness” tea brand faced a lawsuit for its social media advertisements that, the FTC argued, made false claims about the product’s health benefits and did not disclose that the influencers promoting the product were being paid to do so. The FTC alleged that Teami made deceptive claims by stating that its teas can help with significant weight loss, combat cancer, unclog arteries, and alleviate migraines. Teami disseminated this information to potential customers through influencers who allegedly failed to disclose adequately the material relationship between themselves and Teami. The FTC stated that the relationship between the influencer and company should be clear and conspicuous. To achieve this standard, the FTC argued that influencers should disclose the paid partnership in the first part of the caption of the Instagram post so that followers can easily distinguish the post as an advertisement. Although Teami provided these instructions to influencers in their contracts, FTC claimed that the influencers failed to comply with these guidelines, not the company. FTC guidance for influencers emphasizes that “as an influencer, it’s your responsibility to make these disclosures, to be familiar with the Endorsement Guides, and to comply with laws.” In Teami, however, the FTC did not bring claims against the influencers themselves, but against Teami. The lawsuit ended with a district court ordering Teami to pay $1 million to the FTC, which will distribute the money among customers who purchased Teami’s products. As suggested by Teami, the legal risks associated with deceptive advertising techniques are especially disastrous when influencers promote health products. A study by researchers at the University of Glasgow found that out of the nine most popular weight loss bloggers in the United Kingdom, only one met the study’s criteria for “transparency, evidence-based references, trustworthiness and adherence to nutritional guidance, and bias.” One of the study’s authors said that “the majority of blogs could not be considered credible sources of weight management information, as they often presented opinion as fact and failed to meet UK nutritional criteria.” A related study of Latin American influencer marketing of breastmilk supplements for infants found that social media influencers “induce risk” of misinformation and improper use of breastmilk supplements. The risk of spreading misinformation in the health arena can be dangerous not only to the public but also to the company paying the influencers. For example, Teami has so far borne the costs of its influencers’ violations of FTC guidelines. As a result, many companies buy liability insurance for their advertisements. Influencer advertising, however, is not typically covered, at least explicitly, in current insurance policies. Attorney Benjamin Tievsky has said that the issue of insurance coverage often hinges on whether the influencer is an “agent of the insured, meaning and agent of the manufacturer or the brand company, or are they some type of independent entity such that the company’s commercial general liability coverage wouldn’t apply.” Still, some experts argue that “currently influencer marketing is so cost-effective that marketers can afford to make mistakes, learn, and refine their process.” To address influencers directly, FTC released guidance in 2019 aimed at giving influencers advice on compliance with FTC regulations using accessible language, examples, and clear summaries. Educating influencers on their legal duties may help promote adherence, as the legalese used in Teami’s contract, for example, may not be easily understood by those without readily accessible counsel. FTC is currently undergoing a review on the effectiveness of its endorsement guides