By Alexandra Howerton  

Imagine that a company sends teenagers free products to promote on their social media accounts. The teenagers, happy to receive free goods, post pictures on Instagram, tagging the company and captioning the pictures: “Check out my new stuff! #loveit =).” The next month, the company and the teenagers find out they are being sued by the Federal Trade Commission (FTC), a consumer protection agency, for violating proper endorsement procedures. This situation is not hard to imagine in the near future given the increasing regulations and watchful eye of the FTC.

This new problem developed with the rise of social media platforms and influencers, individuals with 10,000+ loyal followers who have established credibility in specific industries.[1] Influencer marketing contracts are arguably the best way to ensure FTC compliance and generate increased brand awareness, and as a result, they have created an emerging industry for lawyers. This article will explore the FTC’s recent updates to its published Endorsement Guides, briefly overview its actions against companies and individuals who violate them, and list ways to satisfy these rules on Instagram. It will then address how to draft satisfactory contracts between companies and influencers and analyze how this trend is creating new opportunities for lawyers.

Background

Instagram, a social media site where users can post captioned pictures or videos, now features one billion active monthly users worldwide.[2] When marketers realized that influencers had the power to generate positive word-of-mouth advertising for their products,[3] Instagram became one of the first places for brands to partner with influencers.[4] Influencers can charge $100,000 or more for sponsored posts.[5] It is estimated that advertisers spent $1 billion on Instagram influencers in 2017, which is projected to rise to $1.6 billion in 2018 and $2.38 billion in 2019.[6]

The Problem

Taking notice of this meteoric marketing rise, the FTC has become increasingly active in its efforts to ensure proper disclosure from both brands and influencers. In early 2017, 93 percent of celebrities on Instagram did not adhere to the FTC’s guidelines for adequate disclosure.[7]

In early 2017, 93 percent of celebrities on Instagram did not adhere to the FTC’s guidelines for adequate disclosure.

As a result, the FTC sent warning letters to more than 90 influencers and marketers, outlining new regulations that would apply to paid endorsements on all social media platforms, and settled its first lawsuit against two individual influencers who failed to adequately disclose their connection to a company.[8] The FTC’s message is clear: it is prepared to take aggressive legal action against anyone who does not comply with their written requirements.[9]

The FTC’s message is clear: it is prepared to take aggressive legal action against anyone who does not comply with their written requirements.

Since failure to meet FTC guidelines can lead to problems for all parties involved in an Instagram marketing campaign, brands must contractually require influencers to comply with the FTC’s disclosure requirements and make sure any agency involved is also a part of the process.

The Requirements

The FTC’s Endorsement Guides, published in 16 C.F.R. Part 255, require influencers to clearly and conspicuously disclose any material connection in their relationship with a marketer of a product.[10] A material connection is defined as “a connection that might affect the weight or credibility that consumers give the endorsement” and could consist of a family or business relationship, a monetary payment, or free products provided to an endorser.[11] Influencers must highlight their connections using unambiguous language that stands out and is easily viewable. If there is a connection that is not adequately disclosed, the endorsement will be “a deceptive business practice in violation of Section 5(a) of the Federal Trade Commission Act.”[12] The legal responsibility for disclosing the relationship between a brand and its endorser applies to both parties.[13] To prevent companies and influencers from violating this federal regulation and facing litigation, spreading awareness of the FTC’s Endorsement Guides is of paramount importance.

How to Satisfy Them

The FTC’s requirement for clear and conspicuous disclosure of a material connection between a brand and an influencer can be satisfied through various means on Instagram. Influencers can use hashtags, such as #paid, #ad, or #sponsored, or the phrase, “sponsored by [tagged brand],” in the post description.[14] However, ambiguous hashtags, such as #sp, #spon, #collab, or #ambassador, or the phrases, “thanks [tagged brand],” “partnering with…,” or “collaborating with…,” must be accompanied by additional means of proper disclosure.[15] At the top of an Instagram post, influencers can use the tag phrase, “Paid partnership with [tagged brand],” but should include additional proper disclosure in the caption.[16] Caption disclosure statements must be placed in the beginning of captions since Instagram hides the end of long posts that can be viewed only after clicking a “more” button.[17] Additionally, influencers must clearly disclose paying or sponsoring brands tagged in photos. If influencers choose to endorse a product on their Instagram stories, then they must superimpose a proper disclosure statement on top of their picture or video.[18] Disclosure cannot be buried among many other hashtags or shared in a comment to the post.[19]

The Contracts

To satisfy the FTC’s requirements and inform influencers of campaign expectations, Instagram influencer contracts should be as detailed as possible and tailored specifically to the campaign.[20] They should explicitly document: (1) the duration of the campaign; (2) the deadlines an influencer must meet in creating sponsored content for review; and (3) the dates and times, written in the influencer’s own time zone, that an influencer must share sponsored content.[21] This includes image and payment specifications and timelines.[22] Contracts should identify the format of talking points, which could require an Instagram influencer to sponsor a product in a video, a picture, or a text caption.[23]

Additionally, when a company so desires, contracts should include ownership and exclusivity clauses. Ownership of an Instagram post belongs to its creator;[24] however, if a brand wants to reuse sponsored content for its future marketing initiatives, it should include a provision specifying that it retains content ownership for a specified length of time.[25] Brands and influencers should be in agreement as to copyrights, licenses, and clearances for third-party use of content.[26] To avoid an influencer partnering with a direct competitor, brands should list the names of competing companies that the influencer agrees not to endorse for a specified period of time.[27] Standard contract clauses covering non-disparagement, indemnification, and termination should also be included in Instagram influencer contracts.[28]

A New Legal Industry

Companies and now individual influencers take a risk when they endorse products without consulting a legal team. Curtis Midkiff, Jr., a Senior Advisor for Social Business at Southwest Airlines, describes Instagram influencer endorsements as “an emerging area for marketers” and states that “attorneys play a pivotal role in helping . . . navigate the rules and regulations . . . that impact influencers.”[29] All contract details and marketing rates are negotiable, and lawyers are well-suited to negotiate on a company or influencer’s behalf.[30] Lawyers typically handle deals for companies and high-profile celebrity influencers. Their goal is to make sure that the parties are well-informed of their obligations, which include materially complying with applicable laws and staying current with the FTC Endorsement Guides.[31]

When brands began contacting influencers for product promotions, there was no regulation.[32] In 2014, Roosh Williams, a former underground rapper from Houston, signed a six-month influencer contract with Simple Mobile, a prepaid network visual operator.[33] His social media posts could be as simple as: “Using my @simplemobile phone to schedule tonight’s studio session. My new album will be finished THIS WEEK!”[34] Four years later, the legal landscape has changed dramatically. With more complex deals, terms, and regulations, legal advice is increasingly necessary for brands and influencers. Lawyers are in the best position to handle the “ever-changing legal nitty-gritty” so that their clients do not have to worry about unintentional violations.[35] #ANewLegalIndustryIsBorn.

[1] Jaia Thomas, 1 Million Followers: Understanding Social Media Influencer Agreements, ABA for Law Students: Before the Bar Blog (March 8, 2018), https://abaforlawstudents.com/2018/03/08/understanding-social-media-influencer-agreements/; What Is a Social Media Influencer?, Pixlee (2018), https://www.pixlee.com/definitions/definition-social-media-influencer.

[2] Salmon Aslam, Instagram by the Numbers: Stats, Demographics, & Fun Facts, Omnicore.com (Sept. 17, 2018), https://www.omnicoreagency.com/instagram-statistics/.

[3] Legal Considerations for Influencer Marketing Partnerships, Investis Blog (Nov. 16, 2017), https://blog.investis.com/legal-considerations-for-influencer-marketing-partnerships.

[4] The Rise of Influencer Marketing on Instagram, Influencer Marketing Hub, https://influencermarketinghub.com/the-rise-of-influencer-marketing-on-instagram.

[5] Aslam, supra note 2. The most expensive influencer, Beyoncé, has charged up to $1 million to share a sponsored post with her 118 million followers. Thomas, supra note 1. See also Beyoncé (@beyonce), Instagram (last visited Sept. 29, 2018).

[6] Thomas, supra note 1.

[7] CSGOLotto Scandal: What Marketers Need to Know, Mediakix (Sept. 18, 2017), http://mediakix.com/2017/09/csgolotto-scandal-what-marketers-need-to-know/#gs.oIw91bc.

[8] Legal Considerations for Influencer Marketing Partnerships, supra note 3. Natalie Koltun, 5 Must-Have Considerations When Working with Influencers, According to P&G’s Legal Counsel, Marketing Dive (April 16, 2018), https://www.marketingdive.com/news/5-must-have-considerations-when-working-with-influencers-according-to-pg/520545/. See also Jeff Brown, How to Comply with FTC Social Media ‘Influencer’ Rules, AdAge.com (Nov. 10, 2017), http://adage.com/article/digitalnext/fall-afoul-ftc-social-media-influencer-rules/311113/.

[9] The FTC issues “an administrative complaint when it has ‘reason to believe’ that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $40,654.” CSGO Lotto Owners Settle FTC’s First-Ever Complaint Against Individual Social Media Influencers, Federal Trade Commission (Sept. 7, 2017) https://s3.amazonaws.com/v3-app_crowdc/assets/2/26/26af5c1f418c3cad/06._CSGO_Lotto_CSGO_Lotto_Owners_Settle_FTC’s_First-Ever_Complaint_Against_Individual_Social_Media_Influencers.original.1505933587.pdf?1505933589.

[10] Letter Template from Mary K. Engle, Associate Director, Division of Advertising Practices, Federal Trade Commission, https://www.ftc.gov/system/files/attachments/press-releases/ftc-staff-reminds-influencers-brands-clearly-disclose-relationship/influencer_template.pdf.

[11] Id.

[12] David Kluft, The FTC, Like, Revises Its Social Media Endorsement Guides, Bruh!, Trademark and Copyright Law Blog (Sept. 26, 2017), http://www.trademarkandcopyrightlawblog.com/2017/09/the-ftc-like-revises-its-social-media-endorsement-guides-bruh/.

[13] See Lesley Fair, Influencers, are your #materialconnection #disclosures #clearandconspicuous?, Federal Trade Commission (April 19, 2017), https://s3.amazonaws.com/v3-app_crowdc/assets/5/57/57c169153a796d64/09._IInfluencers__are_your__

materialconnection__disclosures__clearandconspicuous.original.1505933593.pdf?1505933595.

[14] FTC Endorsement Guidelines for 2018, Mediakix (Oct. 10, 2017), http://mediakix.com/2017/10/ftc-endorsement-guidelines-sponsored-infographic/#gs.ZOxRPc0. See also Kluft, supra note 12.

[15] FTC Endorsement Guidelines for 2018, supra note 14.

[16] Id. Although Instagram’s Terms of Use do not directly address product endorsement by influencers, Instagram added the voluntary “paid partnership with” label in 2017 to aid users in complying with the FTC’s truth-in advertising rules. Reuters, Instagram Plans to Make It Easier to Label Posts as Paid Product Endorsements, Fortune.com (June 14, 2017), http://fortune.com/2017/06/14/instagram-paid-product-posts/.

[17] FTC Endorsement Guidelines for 2018, supra note 14.

[18] Id.

[19] Id.

[20] See Thomas, supra note 1; Influencer Agreements: Everything You Need to Know, Mediakix (March 23, 2016), http://mediakix.com/2016/03/crafting-the-perfect-influencer-agreement/#gs.hRaL=R8.

[21] Marketer’s Guide: The 6 Essentials of an Influencer Marketing Contract, Mediakix (March 22, 2018), http://mediakix.com/2018/03/influencer-marketing-contracts-clauses-example/#gs.dYGnggc.

[22] Influencer Agreements: Everything You Need to Know, supra note 20.

[23] Marketer’s Guide: The 6 Essentials of an Influencer Marketing Contract, supra note 21.

[24] See Terms of Use, Instagram (Apr. 19, 2018), https://help.instagram.com/581066165581870?ref=dp.

[25] Marketer’s Guide: The 6 Essentials of an Influencer Marketing Contract, supra note 21.

[26] Influencer Agreements: Everything You Need to Know, supra note 20.

[27] Marketer’s Guide: The 6 Essentials of an Influencer Marketing Contract, supra note 21.

[28] Id.

[29] Thomas, supra note 1.

[30] See id.

[31] Kimberly B. Rosenblum, Weintraub Tobin, Popularity Is Where the Money Is: The Economics of Branding Deals in the Social Media Age Panel at the USC-BHBA Entertainment Institute (Oct. 21, 2017).

[32] Telephone Interview with Roosh Williams, J.D. Candidate, USC Gould School of Law (Sept. 26, 2018).

[33] Id.

[34] Roosh Williams (@rooshwilliams), Instagram (Sept. 15, 2014).

[35] Koltun, supra note 8.