By: Timothy Chien
As it turns out, millennials aren’t the only ones scrolling through the various news feeds on social media. In recent years, the Federal Trade Commission (FTC) has taken a keen interest in perusing the numerous social media platformsWith the rise of social media usage, many companies have started harnessing the power of influencer marketing as a way to reach millions of potential new customers. As one of our previous blog posts mentioned, influencer sponsorships are big business, with some celebrity figures commanding hundreds of thousands of dollars for product endorsements.
Endorsement advertising is not a new concept, but the growth of social media has dramatically shaped the way that companies advertise and promote their products in the digital space. According to a Business Insider report, companies are on track to spend $15 billion on influencer marketing by 2022, up from as much as $8 billion in 2019. This type of endorsement advertising relies on companies reaching out to individuals with significant online presence (or in some cases, influencers initiating contact with companies) to promote the company’s products or services to the influencer’s audience. Unlike traditional advertising, it is not always clear to the consumer whether an influencer’s endorsement represents an authentic and genuine opinion of the product or service, or whether it is just another form of company-sponsored advertising.
To help navigate the space of influencer marketing, the FTC has provided general guidelines and recommendations to influencers and companies. These Endorsement Guidelines, as they are now called, are what the FTC believes influencers and companies need to follow to be compliant with Section 5 of the FTC Act (15 USC §45), which is the law that deals with consumer protection and unfair competition. Moreover, in November 2019, the FTC released a new disclosure guide to summarize in plain-language existing guidance and to provide “tips from FTC staff about what triggers the need for a disclosure and offers examples of both effective and ineffective disclosures.”
The disclosure guide (Disclosures 101 for Social Media Influencers) provides that if there is a “material connection” between an endorser and a brand, the influencer must make it obvious that such a relation exists. The FTC made clear that a “material connection” includes “personal, family, or employment relationship” in addition to any financial relationship. The guide also explains that disclosures are required even if the influencer believes that his or her evaluations were unbiased. The general concern, as highlighted by the guide, is whether the connection between endorser and company might affect the weight that consumers give to that endorsement—if it does, then that connection must clearly be disclosed.
The FTC has increasingly scrutinized this growing form of marketing because of its potential for false and misleading advertising. On February 12, 2020, the FTC announced that it was seeking public comment on whether to make changes to its Endorsement Guides as part of a larger regulatory review of the agency’s rules and regulations. Some of the questions the FTC posed for public comment included whether the guides have had an effect on curtailing deceptive advertising, whether technological or economic changes have necessitated modifications to the guides, and whether the FTC needs to consider additional enforcement action to address deceptive and unfair advertising practices.
Along with the public notice, in a separate statement, FTC Commissioner Rohit Chopra expressed concern over the prevalence of deceptive influencer marketing practices and advocated for a stronger enforcement position by the FTC. While pointing to recent no-money, no-fault FTC settlements against well-known brands using fake reviews and unmarked influencer endorsements, he expressed that the current agency’s response may not be enough to deter future acts of marketing deception. Chopra further explained that he hopes the “Commission will consider taking steps beyond the issuance of voluntary guidance,” including whether to “create new requirements for social media platforms and advertisers and whether to activate civil penalty liability.”
Going forward, as influencer advertising becomes even more ubiquitous, social media influencers and companies are going to be increasingly scrutinized by the FTC. If Commissioner Chopra’s statement is any indication, we could be seeing a stronger response from the agency against deceptive influencer advertising in the near future.