Since a man from Philadelphia bought a Sting album on his computer in 1994, marking the first ever online retail transaction, consumers have witnessed the continuous growth of e-commerce and online advertising. Online purchases, buy-online-pick-up-in-store sales, and holiday sales all saw significant growth early in the COVID-19 pandemic due to stay-at-home mandates and a resulting increase in free time. Some analysts predict that consumers may permanently adopt e-commerce as their preferred shopping experience even now that the height of the pandemic is long gone.
Advertising through social media – and particularly the use of influencers – has become increasingly popular. Influencing is a form of a native advertising, where the advertising, itself, mimics the format of the platform on which it appears. A brand may pay a content creator, or “gift” products in return for the content creator promoting the product in manner that suggests a personal endorsement posted in the ordinary course, such as a post that says, “I’m loving this dress from [brand], it’s perfect for my birthday party tonight!” Because this kind of advertising is published on digital platforms accessible worldwide, such as Instagram and TikTok, brands immediately benefit from a global reach.
The recent growth of e-commerce and the international appeal of influencers is positive for brands but comes with risks. Brands and influencers, alike, must take care to abide by laws governing misleading advertising, as well as the use of intellectual property. These laws vary across borders, meaning that the same influencer advertisement could be subject to different standards in different jurisdictions. Because brands can be held responsible if their contracted influencers violate applicable laws, it is up to them to take appropriate steps to ensure that their influencer content is compliant.
Misleading Advertising
The foremost concern with influencer advertising is that it can be seen as misleading. Consumers have a right to know when content is sponsored advertising, which is important given that influencer advertising is often designed to look organic, thereby making it less obvious that the content is paid advertising: therein lies the risk. If a brand pays an influencer to promote its brand and the influencer violates misleading advertising laws, the brand may be on the hook for the misconduct.
Various countries have taken different steps to require disclosure and to address non-disclosure to protect consumers against this risk. Because a brand might use influencers who are situated in another country, and because the influencers’ content can easily reach consumers in other countries, the scope of potential liability is huge. Any competent jurisdiction can enforce its rules and levy fines and other penalties against brands to stop the brands’ influencers’ misconduct; the financial cost of such action could be enormous. The first step in mitigating risk is to be familiar with the rules and regulations of countries in which influencers may advertise.
Even before the pandemic, an enforcement action was brought against both a brand and its influencers in Sweden, for example, for engaging in misleading advertising. At the same time, Canada’s Competition Bureau has warned that advertisers cannot shield themselves from liability by making representations to the public through an influencer instead of doing so directly. Meanwhile, in the United States, consumer law prohibits deceiving consumers by concealing an advertiser’s commercial relationship with the product. The Federal Trade Commission (“FTC”) has issued guidance detailing that it is the responsibility of influencers to make it “obvious” that their content is an advertisement when they have a “material connection” with the brand they are endorsing.
A “material connection” can range from employment by the brand, a financial relationship with the brand, or simply being given free products. To satisfy the requirement of “obvious,” an influencer’s sponsored content should include an explicit disclosure that is “hard to miss.” Brands risk likability for their influencers’ posts even if the influencers are not in the United States. U.S. laws apply if it is reasonably foreseeable that the post will affect U.S. consumers even if the post is created from abroad. The FTC has indicated that if law enforcement becomes necessary based on influencer misconduct, the FTC’s focus will usually be on the brand or the public relations and/or advertising agency hired by the brand.
The United Kingdom – has jurisdiction over advertising that originates outside of the UK but is available within the UK – similarly prohibits misleading omissions, such as not disclosing that a “trader” (the statutory name for a brand in the UK) has paid for a promotion. Influencers must “mak[e] clear in the content” that it is advertising.
The influencer sector is regulated under the CAP Code jointly with the Consumer Protection from Unfair Trading Regulations 2008. The influencer and the brand share responsibility for making sure that content is labeled as advertising, and each can be held responsible for violating marketing rules. In this context, the effective investigation performed by the UK Competition and Market Authority (“CMA”) related to hidden advertising by influencers and celebrities on the Facebook-owned social media platform Instagram, in which the CMA determined that Instagram was not doing enough to address the problem of misleading advertising. In response, Facebook Ireland committed to (i) prompt its users to clearly disclose whether they have been paid to promote a particular product or service, and (ii) put systems in place to detect posts and content that do not comply with these disclosure obligations. Other commitments undertaken by Instagram will affect not only UK users, but also anyone globally who directs its posts to UK users as the UK is now obliged to regularly report to the CMA on its progress in regulating advertising on its platform. On the other hand, the role of monitoring and possibly sanctioning the advertising sector is entrusted to the Advertising Standards Alliance, which recently published An Influencer’s Guide to making clear that ads are ads.
Still yet, in the European Union, influencer content is considered to be misleading advertising if it conceals from the consumer the extent of the trader’s commitments, the motives for the commercial practice and the nature of the sales process, any statement or symbol in relation to direct or indirect sponsorship or approval of the trader or the product which causes, or is likely to cause, a person to take a transactional decision that he would not have taken otherwise.
To avoid violating this regulation, influencer communications must clearly identify that the content is commercial (i.e., advertising), and on whose behalf the communication is being made. This must be done also taking into account the Unfair Commercial Practices Directive (“UCPD”), which provides an immediate and preferred framework to frame influencer practices. The recent UCPD guidance jointly with the Digital Services Act (“DSA”) also provide further clarity on the obligations surrounding influencer marketing practices. The DSA provides influencer with a new definition of illegal content which establishes a link with the national regulations concerning online content. It is therefore to be considered illegal any information or activity, including the sale of products or the provision of services, that does not comply with Union law or the law of a Member State, regardless of the precise subject matter or nature of that law.
Therefore, in the event that influencers fail to comply with European and national laws on advertising content, this would result in content being identified as illegal also under the DSA and therefore subject to its provisions and sanctions.
Consistency Cross the EU
While this guidance seems simple, there are concerns about consistency across the EU, as advertising legislation is made at the EU level but interpreted and enforced at the member state level. This can lead to inconsistent results: the same advertising disclosure could pass legal muster in one member state but not in a neighboring state where it is just as likely to be viewed. For example, Germany (one of the most active jurisdictions in protecting consumers from misleading advertising through influencers) and France require disclaimers highlighting the promotional nature of the post to be in the respective local languages and have deemed disclaimers in English only to be insufficient. In Germany, influencers must tag their posts with expressions such as Anzeige (“advertising”) and Werbung (“promotion”).
In France, influencer advertising must bear the labels publicitè (“advertising”), sponsorisè par (“sponsored by”), or en partenariat avec (“in partnership with”). Furthermore, in France, a law was passed in April 2023 with the aim, inter alia, to set up a dedicated consumer protection team to investigate complaints in relation to influencer content, also providing for harsh penalties for those who violate the duty to declare the commercial intent of published content. Following this law, a Best Practice Guide was also published by the French Ministry of Economy and Finance in order to clarify influencers’ rights and duties.
On the other hand, in Italy, the Italian Antitrust Authority, as early as 2019, found that the disclaimers in English used by 13 influencers and celebrities were adequate to clearly and transparently highlight the promotional purpose of the posts published. Brands directing their advertising into the EU should take note that countries within the EU have used their own laws to hold brands liable for their influencers’ misleading advertisements. In Italy, an enforcement action was recently brought against both a company and its micro-influencers (micro-influencers are influencers with smaller audiences). Misleading advertising directed into the EU can run afoul of the European Advertising Standards Alliance (“EASA”), which acts as an aggregator of self-regulatory bodies. EASA comprises 28 national advertising self-regulatory organizations, 13 European and non-European advertising industry organizations, and corporate members.
The issue of EASA’s 2023 Best Practice Recommendation on Influencer Marketing clarifies the remit of advertising self-regulatory organizations when considering online influencer marketing content and provides recommendations for self-regulatory organizations to develop their own national guidance. Consumers who believe that an advertising communication coming from another country is not compliant may file a complaint either with their own country’s self-regulatory organization or directly with EASA, which will then forward it to the competent body in the relevant country. That body will then investigate according to its own regulations and forward the outcome to the originating country.
Influence in China, Russia
While China has not created legislation explicitly regulating online or social media advertising, a collection of existing laws applies to advertising by influencers. Influencer ‘endorsement’ is mainly regulated under the Chinese Advertising Law (“CAL”), which is the main body of legislation governing commercial advertising activities in China. Endorsers and influencers are referenced broadly in the CAL as “natural persons, legal persons or other organizations other than advertisers that recommend or demonstrate products or services in their name or image in advertisements.” The CAL requires that advertising must be presented in a way that makes it identifiable to consumers as advertising. Advertising published in mass media must be clearly designated as “Advertising” to differentiate it from other non-advertising content and avoid misleading consumers.
Furthermore, the Administrative Measures for Internet Advertising (the “Measures”), which came into effect on May 1, 2023, further refine the dos and don’ts for online advertising in China and are expected to have important implications on the social media market. For example, the Measures include the following rules applicable to influencer conduct: (i) prohibiting disguised internet advertising for medical and health products; (ii) treating livestream promotions as internet advertising; (iii) requiring consent for advertisers to push intranet advertisements to smart devices; and (iv) requiring that internet content that advertises goods/services under the guise of knowledge introduction, experience sharing, consumption evaluation, etc. needs to be clearly marked as advertising, as is also the case for sponsored results and sponsored shopping links. China can and has fined foreign companies for directing misleading advertising into China.
In recent years, brands have been fined and even banned for violating advertising laws in China. These penalties are not limited to undisclosed advertising but include misleading advertising (including exaggerations such as “the best …”) and racial, ethnic, religious, and sexual discrimination. As such, it is always recommended that a brand seek review from local counsel to ensure that it and its influencers are complying with all local laws and rules.
Russia generally prohibits advertising that would not be consciously perceived by consumers as advertising because of its potential to mislead. The Federal Anti-Monopoly Service (“FAS”) makes case-by-case determinations of whether communications are this type of prohibited indirect advertising. If the FAS finds that content qualifies as misleading indirect advertising, it is authorized to impose administrative fines against both the brand and the influencer(s) in question. Notably, however, the FAS cannot levy fines against the brand if the brand is not registered to do business in Russia.
In addition to regulatory enforcement, some countries also provide a private right of action for consumers victimized by misleading advertising. In the U.S., for example, while there is not a federal statute that provides for a private right of action by consumers, state laws provide for consumers to sue false advertisers, or to report false advertising to a state’s attorney general for enforcement. In most states, consumer protection laws allow action against an advertiser when a consumer is harmed by it – for example, by being induced to purchase a product it would not otherwise have purchased if the purchase was induced by content it did not know was advertising. Under these state laws, brands found liable for misleading advertising may have to pay fines to the state, damages to consumers, or both.
So, how can brands ensure compliance with misleading advertising laws, when at a tap of an influencer’s phone an advertisement can be sent all over the world and therefore be subject to differing requirements? By erring on the side of caution. In laws, rules, regulations, and guidance from countries all over the world, the same term appears repeatedly: clear. Influencers should use visible, obvious, and clear disclaimers to identify their content as advertising, such that no reasonable consumer could think that it is not advertising. The FTC guide provides a useful review of best practices for various types of content, including photos, videos, livestreaming, and vanishing content.
Daniela Della Rosa is a Partner at Curtis, Mallet-Prevost, Colt & Mosle LLP based in Italy, who advises international premium brands on their commercial operations, M&A and IP portfolio management in Italy, the U.S. and internationally.
Eric Stenshoel is a Partner at Curtis based in New York and is notable for his breadth of intellectual property experience, which includes developing and protecting international portfolios of trademark rights, as well as compliance with U.S. copyright law.
Kaitlyn Devenyns is a litigation associate at Curtis based in New York with an emphasis on cosmetics litigation.
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