Influencer Marketing: Top Business and Legal Considerations for 2020

Fenwick & West LLP

Fenwick & West LLP

Although influencer marketing is an ever-larger part of marketing budgets, questions have arisen about the longevity of influencers as a marketing channel. In addition, marketers are grappling with how to ensure that they and their influencer partners stay within regulatory bounds, and how to become better at measuring the true impact of influencer campaigns. In this article, we discuss what the Fenwick team has learned about influencer marketing programs following numerous conversations we have had with clients, industry professionals and in-house counsel, summarizing the principal issues marketers and their partners will need to consider in 2020.

The Current Landscape

Although regulators have been sounding the horn for a number of years—including calling for more specific enforcement and guidance efforts in recent months—not all influencers have adapted their disclosure practices to comply with regulations. Also, many businesses are still in the early stages of formalizing their influencer programs, focusing on hiring in-house marketing expertise and developing legal, marketing and related internal and external policies. In addition, marketers are trying to better understand the true impact of influencers’ campaigns, to determine whether to spend more or less time and budget on such efforts.

With the potential for ‘likes’ to be eliminated from platforms such as Instagram, measurement and fraud monitoring are likely to continue to be the focus of many marketers, along with ensuring transparency in marketer relationships with influencers and their own followers. As marketers evolve their practices, influencers and social media platforms must follow if they are to maintain influencer marketing as an impactful marketing channel.

Finally, along with regulatory and measurement challenges, influencers are becoming more and more like celebrity talent. Contracting with such influencers has therefore changed, and more formality will be needed in these arrangements for both parties.

Issues to Follow in 2020

The following list of key issues facing the industry in 2020 should provide guidance to those of you engaging in influencer marketing and contracting with influencer partners:

  1. Monitor continuous regulatory developments. Regulators continue to closely monitor this space. The FTC has been very active, publishing specific guidance for brands—and, more recently, for influencers themselves—that can help guide compliance. State and federal regulators have also been active on enforcement cases, including the New York and Florida Attorneys General, who announced settlements in 2019 with Devumi, LLC, declaring that it is illegal for a company to sell fake followers, likes and views to users of social media platforms to increase a user’s influencer popularity. This past October, the FTC followed with its own settlement with Devumi as well as its owner and CEO individually. The agency also entered into a settlement with Sunday Riley Modern Skincare, whose CEO instructed its employees to create fake profiles and post fake positive reviews of its products on a major retailer’s website without appropriate disclosures (including that the reviewers were Sunday Riley employees).
  2. Develop an influencer policy in your voice. Whether you are an influencer agency, social media platform or brand, all businesses involved in influencer marketing should develop influencer guidelines to provide to their partners. Such guidelines should focus on transparency, disclosure and best practices. Keep the policies simple and clear, and put them in your company’s unique voice. As a marketer or agency partner, it is critical to attach this policy to each of your contracts to ensure enforcement with your influencer partners.
  3. Be active: train, monitor and enforce. The FTC has explicitly indicated in enforcement actions that every party (e.g., brand, agency, influencer, technology supplier) has responsibility to adhere to the FTC Endorsement Guidelines. Make sure you train in-house staff on your influencer policies, and reasonably monitor partners, influencers or vendors on their compliance with both the FTC Guidelines and your influencer policies. If yours is a more sophisticated brand, consider adopting or mandating training for your influencer partners to the extent such partners are also engaging in media training. If you are a marketer, you also cannot be passive in your partner relationships in 2020, thinking you can just pass the buck. Even including language in your agreements or having a policy is not sufficient. The FTC examines the various actions taken or not taken by any company involved in the execution of a marketing campaign in both complying and ensuring its partner’s compliance. Make sure you terminate non-compliant partners (although the FTC has indicated you may allow a partner to cure a breach in certain cases).
  4. Up your measurement game. Marketers typically rely on influencers or agencies to provide them with metrics. Given that likes may be going away, if you are a marketer, you will need to ensure that you are contractually getting the right data. If you are a brand, you will also need to look beyond the numbers and delve deeper into the composition of the followers and other engagement metrics. Brands will have help as the industry matures; Nielsen, for example, recently launched an influencer measurement tool aiming to help marketers with analyzing brand awareness, ad recall, favorability, and purchase intent. In addition, Instagram recently launched a new tool called Brand Collabs Manager that helps brands find influencers by enabling brands to specify the desired audience they want to reach (i.e. country, gender, age, interests) and then matching brands to appropriate influencers. The tool also provides insights on sponsored ads, and coupled with the matchmaking capability of the tool, will provide more effective influencer strategies as brands can more precisely reach the audiences they are targeting.
  5. Adopt fraud tools and talk to your partners. Advertising transparency tools for media buying are now widely adopted across the industry, and marketers routinely obligate their partners to use these tools and contractually prohibit any payments for fraudulent clicks. However, companies are still in the early stages of truly understanding measurement in the influencer marketing space. Many influencer agency and technology companies have or are developing software to help track measurement or ferret out fraudulent activity. There are also independent third-party measurement tools and technologies in the marketplace. Start having the conversation with your partners and industry colleagues to adopt or otherwise consider using technology as another tool in your toolbox to guide marketing campaign impact. If you are an influencer agency and do not have such a toolbox, licensing third-party solutions on behalf of your clients will meet what is likely to be a consistent demand going forward from marketers. The social media platforms through which influencers engage in marketing are also essential to the conversation of minimizing fraud in the industry. Without the participation and coordination of the platforms themselves, it will be difficult for the other parties involved to reliably determine if fraud is taking place and to what extent. It is essential that all primary stakeholders come to the table to strategize how to combat the issue of fraud.
  6. Address key contractual protections and legal risks. Develop an influencer contract or terms of service that address the various key contractual terms necessary to implement an influencer marketing campaign. Determine who you are contracting with, and if not directly with an influencer, whether or not the right protections are still in place. If you are simply providing free products to influencers, a more informal communication about transparency and the obligation for influencers to disclose that they received such product may be sufficient. However, as digital marketing campaigns evolve to include branded content or co-marketing executions, additional issues should be addressed and analyzed in a more formal “talent agreement,” including content clearance, ownership rights, takedown and enforcement rights, exclusivity, morals clauses and measurement/data reporting obligations. For certain campaigns, additional legal analysis may need to be performed to consider legal and business risks related to background checks, independent contractor status of influencers, applicability of talent union obligations (e.g., SAG/AFTRA), and compliance with not only the FTC Endorsement Guides but also other regulations, including FDA regulations and the California Talent Agencies Act. Traditional copyright, trademark and rights of privacy/publicity issues that content creators are used to addressing in the context of more traditional media campaigns will also come into play.                                                                                                                  One example worth noting is a case involving esports pro Turner “Tfue” Tenney. The 21-year-old video game athlete is currently in a lawsuit with FaZe Clan, Inc.—an esports entertainment company that Turner had contracted—claiming FaZe Clan violated the CTAA because it is engaging with Turner but is not licensed as a talent agency. Under Labor Code 1700.4 and 1700.5, the CTAA requires any person or corporation who “engages in the occupation of procuring, offering, promising, or attempting to procure employment or engagements for an artist” to be licensed as a talent agency by the labor commissioner. Penalties for violations include the potential disgorgement of profits the talent agency made from the violation. Accordingly, Turner is arguing that his contract with FaZe Clan should be voided and FaZe Clan is not entitled to any of his earnings. FaZe Clan countersued, claiming they are entitled to a portion of Turner’s $20,000,000 in income, and a jury trial is expected to occur in March 2020.
  7. Always think about privacy. As discussed in relation to measurement and fraud, data is becoming more valuable in connection with influencer engagements. It is important to address key considerations with your partners regarding data, both contractually and in terms of process. This includes who owns the data being collected in connection with a campaign, whether or not such data can be shared or reported by influencers, how new privacy laws impact the overall data privacy analysis, and how such data can or cannot be used to benefit each player in the influencer marketing ecosystem. To the extent that such data is identifiable to either influencers or consumers, a deeper analysis and discussion is necessary to ensure privacy and data security compliance depending on who is controlling, processing or storing such data. Engaging with influencers internationally or targeting international audiences may also implicate key considerations of the EU’s General Data Protection Regulation and additional country-specific privacy obligations or laws. Also closely review terms of use for third party platforms as they may include restrictions for how data from their platforms can be used and/or monetized in certain circumstances.

2020 Forecast

In a nutshell, 2020 should show continued growth, but also growing pains, for the influencer marketing industry. The FTC and individual states are likely to increase enforcement, which should push the industry to reach a consensus around best practices and contract terms.

Whether you are an influencer, agency, brand or even a tech partner, formalizing your influencer program and policies and having more in-depth discussions with your partners will be key for continued success—and for staying out of hot water with regulators.

DISCLAIMER: 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.

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