ENTREPRENEURSHIP

A Look At The Complicated Rules Governing Influencer Partnerships

Rachel Brown·August 8, 2019·5 min read

The 30-second read

In a Twitter post late last year, makeup brand founder and social media sensation Jeffree Star compared beauty companies compensating influencers for shout-outs to Pepsi paying to appear in a movie. “It’s advertising,” he proclaimed. Indeed, influencer endorsements are advertising and regulated as such by the Federal Trade Commission, the agency policing deceptive marketing. Aliza Karetnick, a partner at the law firm Ballard Spahr whose client list has included cosmetics, fragrance and personal care manufacturers, distributors and retailers, emphasizes social media sponsorships can’t legally be hidden. “The nature of the connection between the influencer and the brand should be clear, so that the consumer can evaluate the endorsement,” she says. “That really strikes at the heart of what the FTC is looking for in terms of truth in advertising.” Beauty Independent asked Karetnick to elaborate on the scope of FTC regulation over influencer partnerships, brands’ exposure to liability from false social media posts, and whether incentivized product reviews fall into the permissible marketing milieu.

When money is exchanged between an influencer and a brand, any posts by the influencer about the brand must reveal they’re sponsored. “Brands should tell their influencers to clearly and conspicuously indicate that the influencer has a material connection to them,” says Karetnick. She maintains disclosure has to be comprehendible and can’t be veiled. For example, Karetnick insists unreadable funny fonts aren’t appropriate for disclosure purposes. The oft-used #ad is suitable, she continues, “provided that it’s on the screen long enough that the average consumer would understand there’s a connection between the influencer and the brand.”

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The FTC’s regard for free product is more nebulous than its stance on direct compensation. Karetnick advises brands to err on the side of caution and, should it seem like they’re supplying free product to an influencer with the expectation of promotion, influencer disclosure of the swag is warranted. “If the product is something of value, whether it’s a mascara or face cream, there’s a strong argument that it needs to be disclosed properly if the influencer is allowed to keep the product,” says Karetnick. For beauty services, she recommends influencers make known they’ve been given the services gratis. Karetnick stresses, “The consumer or reader can decide for themselves how much credibility to give that review. That is really key.”

Karetnick laments beauty brands tend to forget they’re ultimately responsible for what influencers post about their products. Brands seldom closely monitor social media messages concerning them, but she contends they should. Karetnick suggests brands implement programs to oversee their advertising networks, including influencers. She adds brands should train influencers on the sorts of posts they’re putting up. Specifically, Karetnick asserts, “Honesty is critical even if the influencer is being paid, tried the product and really has it. If they don’t like it, for them to give a glowing review is misleading.” She points out external social media agencies don’t take the responsibility off of brands. Karetnick says, “I often find that companies, particularly newer companies, seem to think that the liability and the exposure rests with the middle person they hire, and that’s just not the case.”

The penalty for violating FTC policy is fines, but fines aren’t common in the influencer arena. The lack of enforcement has led to a proliferation of disclosure gaps. However, Karetnick warns brands not to test the FTC. “You never want to be at odds with a government agency. If you can avoid it, you should avoid it,” she says, underscoring the harm to brand reputation that could result from running afoul of the law. Consumer disapproval and lawsuits are likelier possibilities than federal fines. Karetnick figures, “Perhaps more damaging is the cost of a private civil action by consumers who believe they were misled in some fashion. Proper disclosure is one way to defend against a potential class action.”

Karetnick sees no difference between seeding influencers and seeding employees. “If you are going to provide products to your employees and ask them to review the products, your employees have to disclose their material connection to the brand,” she explains. Like influencers, employees are mandated to supply honest reviews. They can’t wax poetic about a product they hate. Karetnick conjectures, “If an employee gave a negative review because that was their opinion of the product and the employee was then terminated, that could be problematic for the company.”

While they may not have a work relationship with the brand, reviews by relatives of brand founders are handled in a similar manner. Karetnick elucidates, “If I as an individual produce a product and I ask my siblings to review it, my siblings should disclose that they are connected to me because that familial connection has a tendency to impact the review and that could be viewed as false or misleading.” Discounts encouraging reviews should be out in the open, too. Karetnick expounds, “In almost every instance, any kind of cashback offer or percentage-off discount offer is going to be viewed as potentially affecting a review in which case the FTC will say you have to have a disclosure upfront from the reviewers.”

An earlier version of this story appeared on December 18, 2018.