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Companies (and Celebrity Influencers) Beware: Social Media Endorsements are Subject to FTC Guidelines

Did you see that rapper Cardi B told her millions of followers on Instagram that she loves Teami's detox tea? Did you know that was a paid advertisement? Those undisclosed advertisements got Cardi B and several other influencers in hot water with the Federal Trade Commission (FTC). As for Teami? It agreed to a $1 million settlement with the FTC.

Over 1 billion people log in to Instagram each month alone, and this has created a new platform for companies to market their products. Over the past five years, companies have begun to learn the importance of marketing using social media influencers. Just like traditional advertising, social media endorsements are monitored by the FTC.

People all over the world follow celebrities, athletes and influencers to see what they thinkare the new hot products, fashion trends, and up and coming brands to watch. Even ordinary people can amass hundreds of thousands of followers and become public figures just by posting about their everyday lives. Those same people can turn a hobby into a full-blown business by forming partnerships with popular brands.

In the recent years, the FTC has begun to crack down on companies' and influencers' failure to adhere to the disclosure guidelines for paid posts. Even retail giant Lord & Taylor has settled claims with the FTC for unfair and deceptive marketing in its use of social media influencers in 2016. While the FTC has pursued enforcement actions against brands and sent warning letters to influencers, it now seeks to impose tougher penalties and stricter guidelines for companies and influencers alike.

It is important for companies to ensure that their influencers are following the FTC's Guides Concerning the Use of Endorsements and Testimonials in Advertising, as the FTC can hold a company responsible for their influencer's unlawful endorsements. Companies should abide by the following guidelines for appropriate protection:

1. Written Agreement

The company and the influencer should enter into a written agreement which (a) offers guidance, training and disclosure requirements for the influencer, (b) ensures that the influencer abides by all state and federal rules for advertising, (c) defines the independent contractor relationship between the parties, and (d) provides guidelines on what the influencer can and cannot say.

2. Material Connection

In posting the endorsement, the influencer must disclose when he or she has any financial, employment, personal or family relationship with the brand. A financial relationship includes receiving anything of value (i.e., discounts or free products). The endorsement needs to make it obvious that the influencer has a relationship with the brand.

3. What to Disclose

The endorsement should use simple language, and the disclosure should be placed in a clear and conspicuous place within the endorsement. The influencer should use hashtags such as #ad, #sponsored or language such as "sponsored by [brand]" or "thanks to [brand] for the free products" toward the beginning of a post.

4. What Not to Disclose

The endorsement cannot contain claims about a product that requires scientific proof if the company does not have such proof. The influencer cannot discuss a product that he or she has not tried.

5. Monitoring

The brand should monitor their influencers to ensure that the influencers are complying with the FTC guidelines and, if not, instruct the influencer to correct his or her post.

Just like traditional advertising, false or misleading social media posts can result in claims filed by the FTC or from individual consumers against your company. Therefore, it is important for each company to (a) create contracts for its influencers which outline the FTC disclosure requirements and (b) monitor the company's paid influencers to ensure that the influencers are following the FTC guidelines.

© 2023 Varnum LLPNational Law Review, Volume X, Number 216

About this Author

Mallory Field Finance Lawyer Varnum Law Firm

Mallory is an attorney on Varnum’s Business and Corporate Services Practice Team, focusing on general corporate transactions and financial matters. She provides counsel to public and private corporate clients in business formations, mergers and acquisitions, regulatory compliance, environmental matters and other commercial transactions, including the sale and purchase of real estate. Mallory also advises financial institutions and is a published author with the American Bankruptcy Institute.

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