United States: Influencer Marketing: Tips For A Successful (And Legal) Advertising Campaign

In an age of explosive growth for social media and declining TV viewership numbers, companies are partnering with so-called "influencers" to help the companies grow their brands. Popular users of Instagram, Vine, YouTube and other social media sites have gained celebrity status, generating millions of views, impressions and "likes" with every upload.

Capitalizing on the shift from traditional media to online platforms, advertisers have begun to engage influencers in marketing campaigns. In a May 2015 study, 84% of marketers said they expect to launch at least one influencer marketing campaign in the next 12 months. Of those who had already done so, 81% said influencer engagement was effective. In a separate study, 22% of marketers rated influencer marketing as the fastest-growing online customer-acquisition method.

So what is an influencer, anyway? By its broadest definition, an influencer is any person who has influence over the ideas and behaviors of others. When it comes to social media, an influencer could be someone with millions of followers or a user with just a few loyal subscribers. One thing that all influencers seem to have in common is that their audiences trust them. As such, influencers can be powerful advocates, lending credibility, increasing engagement and ultimately driving consumer actions.

Influencer marketing can be an effective tool, but it's important to do right. As recent Federal Trade Commission (FTC) and Food and Drug Administration (FDA) investigations demonstrate, online advertising is an area of relatively active enforcement, and influencer marketing presents a number of potential legal issues. The following tips can help companies lead successful influencer marketing campaigns while lessening the risk of liability.

Disclosure Is Key

In September, the FTC settled a case with Machinima, a company that paid popular video bloggers to promote Microsoft's Xbox One system through YouTube. Despite the hefty sums paid out to the gamers (one of whom pocketed $30,000), Machinima did not require them to make any disclosures. The FTC alleged that the failure to disclose the relationship between Machinima and the gamers was deceptive, in violation of Section 5 of the FTC Act. In its Endorsement Guides, the FTC has taken the position that a failure to disclose unexpected material connections between companies and the individuals who endorse them is deceptive.

This case raises two important questions: (1) when is a disclosure required and (2) what constitutes adequate disclosure?

Both of these questions were addressed in the FTC's comments in its 2014 investigation of Cole Haan. The investigation involved a Pinterest marketing campaign in which the company encouraged users to create boards that included five Cole Haan shoe images as well as five images of the contestants' "favorite places to wander." Contestants were instructed to use the hashtag "#WanderingSole" in each pin description. The contestant with the most creative entry would receive a $1,000 shopping spree. The FTC alleged that the contest violated Section 5 of the FTC Act for failure to disclose contestants' connection to Cole Haan.

While the FTC ultimately decided not to pursue enforcement action, the agency explained in a closing letter that entry into a contest to receive a significant prize constituted a "material connection" giving rise to a disclosure requirement. According to the FTC Endorsement Guides, a disclosure is needed whenever an endorser is given an incentive (financial or otherwise), and where knowledge of that incentive would affect the weight or credibility that audiences give to the endorser's statements or actions. Companies that work with influencers to promote the companies' brands need to make sure that audiences are aware of the relationship between the company and influencer.

As to what makes a disclosure adequate, there are, unfortunately, no magical words. The FTC Endorsement Guides state that disclosures should be clear and unambiguous; consumers should be able to find them easily and should not have to look for them. In the Cole Haan case, the FTC did not believe that the #WanderingSole hashtag adequately communicated the financial incentive between the contestants and Cole Haan. According to the Endorsement Guides, hashtags like #Promotion, #Contest or #Sweepstakes probably would have done the trick.

Find the Right Influencer

Identifying the right influencer for a marketing campaign might seem like a business decision, rather than a legal one. From a return-on-investment perspective, it's certainly important that the influencer's personality and image align with the brand, and that the influencer's audience comprises a viable customer base.

Business concerns aside, finding the "right" influencer also has legal implications. According to the FTC Endorsement Guides, "You can't talk about your experience with a product if you haven't tried it." Further, "if you were paid to try a product and you thought it was terrible, you can't say it's terrific." Thus, it's important for companies to remember that influencers must be bona fide users of the products they endorse and, if they provide a positive review, must have actually had a positive experience with those products.

The Truth Will Set You Free

Influencers—and the companies they work with—can also get themselves into trouble for making false or misleading statements while endorsing a brand or product. In August 2015, the FDA took issue with an Instagram post by Kim Kardashian about a prescription drug for treating morning sickness. The post, which was sponsored by the drug manufacturer, promoted the medicine without mentioning its risks, a practice strictly forbidden by the FDA. The agency sent a warning letter alleging that post was "false or misleading in that it presents efficacy claims for [the drug], but fails to communicate any risk information associated with its use and it omits material facts." The post was taken down in response.

Companies should keep in mind that their influencers should not make any statements that their sponsoring companies can't themselves make—in other words, no false, misleading or unsubstantiated claims.

The Importance of Monitoring

In recent actions, the FTC has repeatedly emphasized the importance of monitoring regimes. Cole Haan avoided enforcement action partly because it had a social media policy in place that adequately addressed issues like those described above. Likewise, Microsoft narrowly avoided being swept up in the Machinima case because Microsoft had a robust compliance program.

Ideally, companies working with influencers should have programs in place to train and monitor the influencers. It may not be enough to have the influencer sign an agreement about what he or she can and can't do. According to the Endorsement Guides, sponsoring companies must instruct influencers on their responsibilities, explain the kinds of statements they can and can't make, periodically monitor influencers' behavior and follow up if they are not playing by the rules.

Know Your Intellectual Property Rights

Finally, companies should keep in mind the host of intellectual property and related issues that could arise in influencer marketing, including trademark, copyright, privacy and publicity concerns. For example, companies may give influencers the rights to use corporate logos, branded materials or other company-owned content, but these rights should be limited to intended uses in connection with particular marketing campaigns. Further, if companies wish to own or use any influencer-generated content, those rights would ideally be documented in an assignment or license to the company.

In sum, influencer marketing can be a powerful tool, but it is important to be cognizant of potential legal concerns. Advertisers who keep these issues in mind will be in a better position to make the most of this exciting new marketing strategy.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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