Rohit Chopra. Photo: Diego M. Radzinschi/ALM

Federal Trade Commissioner Rohit Chopra's statement earlier this month that the FTC had voted to launch a "close and careful review" of its non-binding endorsement guides and a "self-critical analysis" of its enforcement approach may signal an impending crackdown on social media influencers, advertisers and even their tech platforms, lawyers say.

"The FTC just voted to launch a review of our endorsement policies, which cover influencer marketing, fake reviews, and more," Chopra announced on Twitter. "We may need new rules for tech platforms and for companies that pay influencers to promote products. The review and your input will help us decide."

Jim Dudukovich, Barnes & Thornburg.

Barnes & Thornburg's Jim Dudukovich, who is of counsel in Atlanta, said, "The commissioner is signaling his desire for a sea change in enforcement and every stakeholder needs to be thinking about this." Dudukovich joined the firm after serving as associate general counsel with Chobani LLC in New York. Earlier, he was marketing and product counsel with food delivery retailer Blue Apron LLC in New York. He also spent 18 years in-house at The Coca-Cola Co. in Atlanta, according to his website bio.

Tamara Carmichael, an advertising and marketing partner at Olshan Frome Wolosky in New York, said: "From a perspective of brand owners and influencers and talent we work with in this space, it is clear that the FTC has been interested in social media and influencer marketing for some time, but the statements issued this month may have taken it up a notch." She said, "Legal and marketing in particular but also C-suite executives should have this issue on their radar."

Online product testimonials and reviews by celebrities and seemingly ordinary consumers who actually are paid shills for the products they tout have exploded in recent years on Instagram, YouTube and other social media platforms. Companies spent $8 billion on advertising through influencers last year, but that figure is projected to nearly double to $15 billion by 2022, according to a Business Insider Intelligence estimate based on Mediakix data. 

In the statement issued Feb. 12, Chopra said: "Misinformation is plaguing the digital economy, and recent no-money, no-fault FTC settlements with well-known retailers and brands to address fake reviews and undisclosed influencer endorsements may be doing little to deter deception."

The FTC will need to determine whether to create new requirements for social media platforms and advertisers and whether to activate civil penalty liability, Chopra said. He also said he hoped the commission, after hearing public comments, would consider taking steps "beyond the issuance of voluntary guidance" for platforms such as Instagram, YouTube and TikTok that facilitate and directly or indirectly profit from influencer marketing. The public comment notice was published Friday on the Federal Register, an FTC spokesman said. Chopra declined a requested interview.

In his statement, Chopra called on the FTC to codify elements of its existing endorsement guides into formal rules, so that violators can be liable for civil penalties and damages, and to specify the requirements companies must meet in contracts with influencers. 

Renée Appel, with Seyfarth Shaw.

Renee Appel, cosmetic and personal care products/advertising and marketing associate in the commercial litigation group at Seyfarth Shaw in Washington, D.C., said the statement by Chopra suggests disappointment in the efficacy of prior efforts and enforcement activity—which included the agency's sending out over 90 letters to influencers and marketers reminding them of their disclosure obligations and publishing pamphlets and videos. He "wants to now focus on technology platforms (e.g. Instagram, YouTube, and TikTok), which stand to directly or indirectly profit from influencer marketing," she said in an email.

Appel said in an interview that Chopra "is trying to highlight the platforms, too, who are either collecting data or getting compensation from the use of their platform."

Some recent examples of FTC actions against companies for fake or misleading reviews or testimonials include: 

• A February 2019 consent order with Cure Encapsulations Inc., a company that bought fake Amazon.com reviews to boost its product ratings for dietary supplements.
• An April 2019 consent order with UrthBox, for giving free products to consumers who posted positive reviews online without disclosing that reviewers being compensated.
• And an October 2019 court order against Devumi LLC and its owner CEO German Calas Jr. in the Southern District of Florida on charges the company unlawfully sold fake social media indicators including fake followers, likes, subscribers and page views to actors and businesses. It was the FTC's first-ever complaint about fake indicators of social media influence. The order included an injunction and monetary judgment of $2.5 million, which was the amount the company was allegedly paid under the scheme, but after the defendant paid $250,000 the rest was suspended because of his representations about his financial condition. The defendants didn't admit or deny the allegations.

Also in October 2019, the FTC obtained a consent order from the eponymous Sunday Riley Modern Skincare company and its founder and CEO for posting fake reviews by the owner and her employees promoting the brand. They did not admit or deny the allegations. 

Commissioners Chopra and Rebecca Kelly Slaughter issued a dissent in that case expressing frustration that the settlement didn't include financial penalties, which they argued would not deter similar conduct and sent the wrong message to the marketplace.

Appel said the FTC's activity is similar to efforts of the Food and Drug Administration that recently issued a notice of a proposed study that would extend research into disclosure of payments in direct-to-consumer drug promotions by celebrities, physicians, patients and influencers, signaling that with increased use of endorsers by advertisers, more regulations are likely to follow. In 2015, for example, the FDA warned a drug manufacturer about touting a morning sickness medication through an Instagram post by celebrity Kim Kardashian. The agency said the ad was false and misleading because it failed to disclose the risks. The Securities and Exchange Commission also has investigated celebrity endorsements of initial coin offerings in cryptocurrency recently.

Carmichael said in-house counsel for companies and influencers need clear guidance from the FTC that is in step with the rapid development in social media advertising and marketing: 

"Brands, advertisers and influencers alike seek detailed and relevant guidance from the FTC on this issue in a way that keeps up with the social media and influencer phenomenon as current in the marketplace. The request for public comment is welcomed as it may result in more clarity and consistency with respect to guidelines to be followed. If the FTC entertains the idea of civil penalties, brands, advertisers and influencers will need clear guidance on how to comply with guidelines and avoid such penalties, and how the penalties are calculated," she said.

Dudukovich, who has co-authored industry guidelines on social media marketing and native advertising, and developed social media training for clients, said, "This could be a turning point toward heftier punishment." 

He said, "The days that everyone else is doing it, so it must be OK, are over. I think the FTC has sent a strong shot across the bow that you had better not get comfortable with that. It's time to look at your social media policy and make sure every party understands the responsibilities and complies with them."