The question going forward is to what degree the new guidelines will change the way marketers approach the use of social media influencers. To get at the issue, it is helpful to review the substance of the FTC’s revisions.

 

 

Definitions (16 CFR § 255.0)

While many of the features of the updated guidelines concern endorsements broadly, they also have great relevance for the use of social media as a marketing channel, including the use of influencers. For instance, in an effort to address virtual and fabricated endorsers, the FTC’s definition of an endorser now encompasses a party who “could be or appear to be an individual, group, or institution.” The Commission intends this to address virtual influencers, non-existent entities, and fake reviews. Under the definition of endorsement, the Commission has explicitly laid out that tags in social media posts can be endorsements.

In addition to the definitional changes regarding endorsements, the FTC provided multiple clarifying examples to illustrate that a statement can be an endorsement without a material connection with the advertiser. Specifically, Spokespersons who do not speak on the basis of their own opinions or personal experiences are not endorsers. However, certain aspects about characteristics of spokespersons and their relationship with the advertiser may make them an endorser.

Additionally, effective disclosures must be clear and conspicuous, and the FTC has revised its definition of that standard, adopting a definition that generally requires disclosures to be “difficult to miss and easily understandable.” Disclosures on social media and the internet must be “unavoidable.” To illustrate this point, the FTC provided an example based on a recent case: a marketer’s social media disclosure required users to click on a separate link in order to see it, and due to the extra link, the FTC determined that it was not unavoidable and, therefore, not clear and conspicuous. The Commission clarified that advertisers may not solely rely on a platform’s built-in disclosure tool when ensuring the disclosure is clear and conspicuous. Another example illustrated how the clear and conspicuous requirement is analyzed in an advertisement targeted to a discrete group. If the advertisement is targeted at a discrete group of speakers of a “particular language who are unable to understand English,” then the disclosure must also be presented in that particular language.

These revisions to key terms and concepts demonstrate how social media marketing complicated the older definitions. While the updated definitions can be applied to marketing broadly, the FTC clearly had social media in mind in working through its new guidelines.

General Considerations for Liability (16 CFR § 255.1)

In its proposed revisions, the FTC stated that advertisers would be liable for misleading or unsubstantiated statements in endorsements when there is a connection between the advertiser and endorser. However, the final version of the guidelines removes the requirement for there to be “a connection between the advertiser and endorser.” To support this change, the Commission explained that an advertiser becomes liable when they retweet or republish a third-party statement in an advertisement because that statement becomes an endorsement, despite the lack of a connection between endorser and advertiser. This follows the FTC’s long standing policy that a marketer cannot use an endorser to make deceptive or misleading claims that the marketer could not otherwise make itself.

The Commission states an expectation that advertisers are responsible for and must monitor their endorsers for compliance. The guidance clarifies that the advertiser’s liability may extend to “deceptive endorsements” and not just the veracity of an endorser’s statement, even when the endorser is not liable.

The new guidance also adds a section regarding liability of endorsers. Endorsers may be liable for their statements when they make representations that they know or should know to be deceptive. They may not make statements about a product or service where they lack personal experience. Endorsers may be liable for failing to disclose any unexpected material connection between themselves and an advertiser (such as being provided free product or payment for the endorsement).

The FTC also addressed the concept of liability for intermediaries. Advertising agencies, PR firms, and other similar intermediaries may also become liable for deceptive endorsements. A new section in the guidance document explains that intermediaries may be liable for spreading endorsements that they know or should have known were deceptive. They will also be on the hook for any role they play in the creation of an endorsement that they know or should know to be deceptive.

Consumer Endorsements (16 CFR § 255.2)

The Commission articulated a new principle that advertisers should avoid “procuring, suppressing, boosting, organizing, or editing consumer reviews” when it would distort or misrepresent a consumer’s true thoughts about the product. This principle applies whether or not the review is considered an endorsement. Specifically, the guidance clarifies that forwarding only favorable reviews to a third-party review website is a misleading practice. Sellers may still apply a policy to remove reviews that are unlawful, obscene, abusive, harassing, or that the seller reasonably believes are fake, as long as the policy is applied consistently to all reviews. Basically, the FTC expects that an advertiser will not suppress unfavorable reviews so that reviews are truly representative of the experience of a user.

The FTC also has announced a public hearing to receive information from stakeholders on a proposed rule that would regulate advertisers and their use of consumer reviews and testimonials. As such, advertisers should monitor further developments in this space.

Disclosure of Material Connections (16 CFR § 255.5)

Instead of requiring material connections to be “fully” disclosed, the Commission will now require a “clear and conspicuous” disclosure. The guidance clarifies that a material connection may exist when there is a business, family, or personal relationship; monetary payment; the provision of free or discounted products or services to the endorser, including products or services unrelated to the endorsed product; early access to a product; or the possibility of winning a prize, of being paid, or of appearing on television or in other media promotions. The existence of a material connection will not depend on whether the advertiser required an endorsement in return for the payment or free or discounted product.

The FTC recognizes that a connection may be too insignificant to be material but did not provide any examples because the inquiry is too fact specific. The most recent version of the Guides described the type of connection that must be disclosed as one that “is not reasonably expected by the audience.” The first proposed revision would have restated this as “material connections do not need to be disclosed when they are understood or expected by all but an insignificant portion of the audience for an endorsement.” The final revisions instead state that “a material connection needs to be disclosed when a significant minority of the audience for an endorsement does not understand or expect the connection.” While the document does not clarify what exactly is a “significant minority,” the FTC suggested that it could be a number lower than 10% in a footnote that compared the guidance to the context of a net claim takeaway from an ad, where a “net takeaway of 10%—or even lower—supported finding that the ads communicated the claims at issue.” See Telebrands Corp., 140 F.T.C. 278, 325 & n.47 (2005), aff’d, 457 F.3d 354 (4th Cir. 2006).

Endorsements Directed to Children (16 CFR § 255.6)

A new section in the Guides states that advertisements and endorsement directed to children may be analyzed differently because they are of special concern. Some practices that would not usually be concerning in advertisements directed to adults may be questioned in those directed to children. The Guides leave it at this general principle and indicate that the FTC will continue to research this issue.

Conclusion

Collectively, these newly revised provisions could have a chilling effect on the use of influencers and could also have far-reaching impacts on the network that supports influencer marketing, including PR and marketing firms and the insurance companies that provide products—such as content creation insurance—that purport to cover third-party lawsuits aimed at influencers. At the least, the updates contain significant changes that all marketers need to consider before crafting campaigns for social media channels.

More specifically, the revisions need to be considered carefully from a more product- or service-specific perspective. For instance, the regulatory framework that governs healthcare, alcoholic beverages, or consumer products aimed at children are very different from those that regulate, say, automobiles or cruise lines. Furthermore, when relatively novel marketing approaches—like social media influencer marketing—are paired with new or fast-evolving categories of products and services, risk management can get very complicated and outstrip the competency of in-house legal and risk management teams.

Take, for example, the emerging area of functional foods, which blur the traditional distinctions between conventional foods, dietary supplements, and drugs. The unsettled nature of the product-specific regulatory law entails its own compliance challenges, and when such products are promoted via newer methods of marketing, it can create a perfect storm of legal liability. Small wonder that many of the recent lawsuits filed against social media influencers trace back to products that tout health benefits.

The newly revised guidelines, while much needed, do not provide bright-line certainty for marketers. Managing the risks of utilizing social media influencers—and social media more generally—will continue to be a challenge where the best course of action is to build internal and external resources fit for purpose.

Written with the assistance of Emily Loftis, a summer associate in Husch Blackwell’s Washington, DC office.

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