Bao M. Vu and Melissa Jones of Stoel Rives.

The use of celebrities to promote goods and services is nothing new. The practice has evolved over the ages to take advantage of new and innovative forms of media, dating from print advertising through to the current era of social media influencers. While the early years of the Internet may have presented the perception that the Internet provided a sense of anonymity and that no real rules applied to commercial messages transmitted online, we now know that this is not the case. Someone is watching, and in the case of Web-based advertising, one key observer is the Federal Trade Commission (FTC).

One of the most popular and effective means of web-based commercial promotion is the use of social media influencers. These are individuals who have the power to affect purchasing decisions in the marketplace by virtue of their authority, knowledge, position or relationships with their respective audiences or communities. These influencers usually have large followings on YouTube, Amazon, Instagram, Twitter or other popular social media platforms and blogging sites. Consequently, there is a powerful incentive for a company to employ an influencer for promotional purposes.

Companies' strategies to employ top influencers include paying significant remuneration. It is not uncommon for influencers with one million followers to get paid around $10,000 per post for endorsing a product or service. And those with millions of followers can earn significantly more. Celebrities often get multimillion-dollar deals to endorse services and products via social media, which brings us back to the FTC and its increased interest in monitoring the activities of influencers and the marketers who employ them.

What Type of Activity Is Not Permitted?

The FTC is one of the leading federal agencies in charge of consumer protection. Its role includes stopping individuals and businesses from using unfair and deceptive advertising, including online activity. In FTC parlance, a company employing the use of an influencer is known as a "marketer," and the influencer is commonly referred to as an "endorser." It is critical for a marketer to remember that they are liable for the representations made by its endorsers.

Recent enforcement activity by the FTC has served to remind marketers of their potential liability for not monitoring endorsers. The FTC has made clear its view that each of the following is an independent act of unfair and deceptive advertising:

• An endorser's failure to disclose any relationship with a marketer;
• An endorser's failure to warn of known risks of certain heavily regulated products; and
• An endorser's unsubstantiated health claims.

Three Recent Enforcement Trends

• Failure to Disclose

The FTC's Guides Concerning the Use of Endorsements and Testimonials in Advertising (endorsement guides) state that if there is a "material connection" between an endorser and the marketer of a product, it needs to be disclosed. The FTC has explained that material connections include business, family, or personal relationships; monetary payment; or the provision of free products to the endorser. In other words, if someone makes a statement about a product or service, the endorsement guides require that members of the public be informed that these statements may be biased.

For example, the FTC recently settled allegations against two Georgia-based companies that were alleged to have improperly paid Olympic athletes competing in the 2016 Rio de Janeiro Olympics to promote an insect repellent in Instagram posts, among other forums, without disclosing in the posts that the athletes were being compensated.

It is also not enough to simply disclose these relationships; it is imperative that the disclosure be "clear" and "conspicuous." The FTC recently sent letters to e-liquid manufacturers warning them that disclosure of material connections to endorsers need to be clear and conspicuous. The warning cautions that "consumers viewing posts in their Instagram streams on mobile devices typically see only the first two lines of a longer post unless they click 'more,' and many consumers may not click 'more.' Therefore, an endorser should disclose any material connection above the 'more' button. In addition, where there are multiple tags, hashtags, or links, readers may just skip over them, especially where they appear at the end of a long post."

• Failure to Warn

The FTC and courts have also deemed the failure to disclose material health and safety risks in advertisements, including social media posts, may be unfair or deceptive.

In the same warning letters to the e-liquid manufacturers discussed above, the FTC stated that, "given the significant risk of addiction [due to e-liquids' nicotine content], the failure to disclose the presence of and risks associated with nicotine raises concerns that the social media postings could be unfair or likely to mislead consumers. The FTC urges you to review your marketing, including endorsements by your social media influencers, and ensure that necessary and appropriate disclosures are made about the health risks of nicotine." The implications of this admittedly liberal FTC view could be sweeping for certain drugs that require warnings in advertisements under federal law, as well as alcoholic beverages that may be subject to the industry's self-regulatory standards.

• Unsubstantiated Health Claims

Not only is failing to warn of risks something that can get a marketer and an endorser in trouble, so too can making unsubstantiated health claims in advertisements. Though it's not surprising that unsubstantiated health claims are deemed deceptive, the standard to substantiate such claims may be surprising to some. The FTC and courts have deemed it unlawful to advertise that a product can prevent, treat, or cure a human disease without "competent and reliable scientific evidence," including, when appropriate, well-controlled human clinical studies. The FTC has even referred to the standard as one requiring a showing with "rigorous scientific evidence."

Last year, the FTC entered into a $2 million settlement with a marketer alleged to have used unsubstantiated health claims. This year, the FTC sent a warning to companies marketing cannabidiol (CBD) oil as treating diseases such as cancer, Alzheimer's, and fibromyalgia, because such claims may not be medically substantiated.

How to Avoid Running Afoul of the FTC

As with any other regulated activity, marketers should develop a compliance program to support its use of media endorsements because the first line of defense to an FTC investigation is to establish that a comprehensive compliance program was in place at all relevant times. At a minimum, a successful compliance program should include:

• Policies and Training

Develop policies and explain them to your endorsers. This can be as simple as a brochure or a streaming video. The policies and training material should teach or explain:

• The marketer's responsibilities under the FTC Act and similar regulations;
• The endorser's responsibilities;
• The process for submission and approval of posts to the marketer;
• What claims can be made;
• What claims can't be made; and
• How the business relationship between the marketer and the endorser must be disclosed.

• Detailed Contracts

The contract between the marketer and the endorser should incorporate the above requirements for training programs. In addition, the contract should contain standard provisions such as those discussing compensation, including cancellation clauses for breaking established guidelines.

• Monitoring

A successful compliance program should also include internal monitoring programs with follow-up or warning requirements for breaches. The internal monitoring program should have a procedure to review posts by endorsers with requirements for issuing warnings where breaches of the training materials and/or contract are discovered.

• Documentation

The compliance program should further include documentation requirements that describe the manner and methodology of essential recordkeeping protocol so that a marketer is in a position to easily defend any FTC or similar investigation.

Conclusion

There is little question that compliance with marketing using evolving technologies is a bit like trying to hit a moving target. The best course forward, however, is to develop a strong compliance program based upon sound business practices and as much transparency as possible.

Bao M. Vu and Melissa A. Jones are California-based attorneys with the law firm Stoel Rives. They advise clients on compliance with complex consumer protection and environmental statutes and regulations. They have proven track records successfully and aggressively defending clients in false and deceptive advertising and labeling, trade secret misappropriation, and unfair competition lawsuits, just to name a few. They also regularly help clients favorably resolve regulatory investigations.