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6th Edition: Trends in Marketing Communications Law

Social Media / Influencer Marketing / Native Advertising >> A Must “Follow”: Stricter Groundwork for Influencer Marketing

July 10, 2019

Throughout 2018, regulators and self-regulators stayed focused on deceptive influencer marketing campaigns and native advertising practices across the United States.

In an action against Creaxion Corporation, a public relations agency, and Inside Publications, a magazine publisher, the Federal Trade Commission (FTC) alleged that these companies misrepresented paid endorsements for a marketer’s new insect repellent as independent consumer opinions. According to the FTC, the companies paid thousands of dollars to two Olympic gymnasts to post endorsements for the repellent on social media without requiring them to disclose that they were paid to do so. In addition, the companies paid employees and their “friends” to purchase the product and post reviews for it on social media (again, without instructing these individuals to disclose their relationship with the marketer in their posts). The FTC also alleged that Inside Publications violated the Native Advertising Guides by running paid ads for the product that were disguised as independent editorial features. Notably, the FTC looked to the agency’s and publisher’s contracts, as well as their degree of involvement in the marketing materials to determine which parties should be named in the action.

In a new development in influencer marketing, the Securities & Exchange Commission (SEC) brought its first cases involving violations of endorsement regulations in connection with cryptocurrency investments. In the first action, the SEC claimed that music producer DJ Khaled failed to disclose a $50,000 promotional payment he received from Centra Tech Inc., a company that conducted an initial coin offering (ICO) for its “Centra tokens.” DJ Khaled had promoted the ICO on his Instagram and Twitter posts, and he ultimately agreed to pay over $150,000 to the SEC in disgorgement and penalties to settle the claims. Similarly, in a separate case, the SEC alleged that retired boxer Floyd Mayweather Jr. failed to disclose $300,000 in promotional payments he received from three ICO issuers, which he had promoted on his Instagram, Twitter, and Facebook accounts. Mayweather agreed to resolve the SEC’s claims by paying over $300,000 in disgorgement and penalties.

The National Advertising Division of the Better Business Bureau (NAD) will continue to scrutinize paid influencer and native advertising practices in 2019, particularly as the line between advertising and editorial content blurs even further. In a recent action, the NAD asked Buzzfeed to substantiate various claims it made about a St. Ives moisturizer in a digital “shopping guide” of products that its editorial staff recommended to readers. After the investigation, the NAD agreed that the shopping guide was not “national advertising” under its jurisdiction because it was not a “paid commercial message,” since the content was created independently without advertiser input and without commercial motivation, despite the presence of affiliate links in the article (which were added after the editorial content was fully developed).

Key Takeaways:

  • Influencers must disclose when their social media endorsements are paid, as failure to do so could result in actions against the influencers — and their sponsoring marketers — by the FTC, state attorneys general, the NAD and even the SEC.
  • Regulators will take action against marketers, agencies and publishers when their influencer campaigns fail to disclose sponsored content and will more closely scrutinize the facts, chronology and context of these campaigns to determine which party should ultimately be held responsible.
  • Online publishers and marketers should be mindful of the steps that Buzzfeed and similar publishers have to take maintain independence between editorial content and commercial affiliate marketing activities if they want to avoid their own regulatory or self-regulatory actions.