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Paying Instagram “Influencers” to Endorse Products

More and more e-commerce retailers are turning to social media influencers on Instagram for product endorsements. At the same time, influencers with large online followings are increasing efforts to monetize their followings.

Marketing agencies are cropping up worldwide focusing on connecting social media influencers with online retailers. Some believe that paying Instagram or YouTube influencers can result in a better return on investment than paid online ads. But what are the legal pitfalls to watch out for? In this post, we wanted to explore some of the issues from both sides of the table (as the social media influencer and as the online retailer hunting for an endorsement deal).

Risks for Influencers

Influencers and marketers must be careful not to unwittingly breach advertising and competition laws. The Canadian Competition Bureau is making it clear that endorsing products using social media sites, without disclosing the fact you are being paid, or receiving some form of benefit, can be illegal. Aside from being paid, disclosing a financial interest may include things like receiving free products or the fact the influencer is a shareholder or employee.

Not making such a disclosure is likely contrary to legislation governing false, misleading and deceptive marketing practices. Marketing agencies should also review the Canadian Marketers Association Code of Ethics which requires the disclosure of any “material connection between the endorser and the marketer”.

In addition, influencers who endorse a product or service must actually use the product before commenting on it. That is, product endorsers should have a sufficient degree of experience or knowledge about the product before promoting it.

While there are some exceptions to disclosing a financial interest, they likely do not apply to smaller online retailers, for example, the Bureau’s website states:

Where a prominent figure offers an opinion, the public would normally assume that that person has been paid or has otherwise benefited from making the representation. In such cases, non-disclosure of payment would not be misleading. Exceptions could arise, however, if the format of a commercial suggested that the party had volunteered his or her services…

Determining whether you (or your influencer) is a “prominent figure” is certainly an issue in its own right to seek legal advice on.

I’ve Only Got 140 Characters

But with limited real estate space for making such disclosure (e.g. Twitter’s 140 character limit) complying with competition and advertising laws can be complicated.

This is especially true when the United State Federal Trade Commission’s (“FTC’s”) Endorsement Guide indicates that merely linking to a disclosure statement is not sufficient in some cases:

Would a button that says DISCLOSURE, LEGAL, or something like that which links to a full disclosure be sufficient?

No. A hyperlink like that isn’t likely to be sufficient. It does not convey the importance, nature, and relevance of the information to which it leads and it is likely that many consumers will not click on it and therefore miss necessary disclosures. The disclosures we are talking about are brief and there is no reason to hide them behind a hyperlink.[1]

That said, the FTC does have a separate guide on “How to Make Effective Disclosures in Digital Advertising” with a seemingly contradictory statement:

However, when it is not possible to make a disclosure in a space-constrained ad, it may, under some circumstances, be acceptable to make the disclosure clearly and conspicuously on the page to which the ad links.[2]

Risks for Online Retailers and their Marketing Agencies

If you are an online retailer or a marketing agency hunting for an endorsement deal you too can be held liable for the acts of the influencer.  As just one example, the FTC prosecuted a case in which they alleged that it is misleading and deceptive to pay “influencers” to post YouTube videos endorsing products.

In that case, a California-based online entertainment network agreed to settle FTC charges that it engaged in deceptive advertising by paying “influencers” to post YouTube videos endorsing Microsoft’s Xbox One system.

In Canada, there are reports that the Competition Bureau is increasingly focusing its policing on the digital economy and e-commerce. As a result, we can expect similar enforcement cases on social media advertising, especially as paying influencers continues as a trend in online marketing.

Because e-commerce spans national borders, the Canadian Competition Bureau is working towards greater enforcement cooperation with its policy partners in other jurisdictions.  If your endorsements are targeted globally (as they are for most online retialers), you will also need to consider international marketing and advertising laws in the jurisdictions to which you sell.

Are you Considering a Social Media Endorsement Deal?

The legal issues at play make entering a clear social media endorsement agreement important. As social media lawyers, Wires Law can assist clients on both sides of the table by drafting social media product endorsement contracts. Contact us for more information.

[1] https://www.ftc.gov/tips-advice/business-center/guidance/ftcs-endorsement-guides-what-people-are-asking

[2] https://www.ftc.gov/sites/default/files/attachments/press-releases/ftc-staff-revises-online-advertising-disclosure-guidelines/130312dotcomdisclosures.pdf

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