Clifford Chance

A significant proportion of a brand owner's marketing budget is now likely to be allocated to advertising through social media platforms, as opposed to more traditional above the line marketing channels. Increasingly, such advertising takes the form of the use of "influencers" to market products.

"Influencers" are individuals who have developed a large (and hopefully loyal) following of consumers on their various social media platforms. When the influencer endorses or recommends a product by way of a favourable social media post, the brand owner hopes to benefit by the endorsement or recommendation influencing followers' purchasing decisions. In some instances, the influencer will be paid, in others merely supplied with the free products or services.

When a celebrity is used to promote a product in advertising, it is obvious to the majority of the target audience that the advertisement is in fact an advertisement. The target audience expects that the star of the advertisement has been paid, and that this forms at least part of the motivation for the star's participation. With influencers on the other hand, the message can be more opaque. The attractions of influencer marketing are that, as well as tending to be much cheaper than a traditional endorsement and being more measurable in terms of tracking interactions with the content, it is seen as delivering a more "authentic" message. This however creates unique challenges for brand owners.

One of the fundamentals of advertising and consumer protection laws is transparency, so that a consumer can make an informed purchasing decision. Advertising watchdogs and consumer protection authorities are now closely monitoring the use of influencers to ensure that consumers can properly distinguish between editorial and advertorial content. This impacts not only the influencers themselves but the companies who use them. An adverse finding from a regulator or court is likely to have a significant impact on the brand owner. Even if the financial penalty is minimal, the reputational damage can be long lasting.

United Kingdom

In the United Kingdom, influencer marketing is subject to both the Consumer Protection from Unfair Trading Regulations 2008 and the UK Code of Non-broadcast Advertising and Direct & Promotional Marketing (CAP Code), which is published and enforced by Advertising Standards Authority (ASA). This is in addition to any specific legislative regimes where the social media posts are found to constitute advertising, for example if the influencer makes health claims about a product then Regulation (EC) No. 1924/2006 will also apply. The Regulations are enforced by the Competition and Markets Authority (CMA), but in practice the CMA will give the ASA the opportunity to deal with a complaint in the first instance.

The Regulations apply where the influencer receives any payment, which can include free products. The Regulations contain a specific prohibition on using editorial content in the media to promote a product without making it clear that the content is advertorial. There are also general prohibitions which may apply, such as omitting material information required for a consumer to make an informed transactional decision. CMA guidance warns that the fact that an incentive was received to make a post should be clear, unambiguous, and immediately available to the consumer. It warns against the reliance on hashtags such as "#sp" and "#spon", which may not be clearly understood. It also warns against reliance on clearer hashtags such as "#ad" if the hashtag is not prominent because it is hidden amongst a long string of text or hashtags.

The CAP Code applies if payment is made (which, as with the Regulations, includes by way of free products) and where editorial control (see further below) is exercised by or on behalf of the brand owner. As with the Regulations, the CAP Code emphasises the need for it to be clear when content constitutes an advertisement and to avoid misleading consumers. The CAP Code also covers specific types of advertising, applying specific rules to prize draws, claims and age-restricted products. The primary sanction for an advertiser's failure to comply with the CAP Code is adverse publicity, but the ASA has the power to refer advertisers who refuse to comply to other bodies for further enforcement action, including Trading Standards. It also has the power to ask search engines to remove paid-for search advertisements which are non-compliant.

The ASA published guidance in September 2018 to help influencers understand their responsibilities. "Editorial control" is construed broadly by the ASA. In its guidance, the ASA advises that even being required to post content a certain number of times or on specific dates could constitute control. The right to approve content is also considered editorial control (even if it is not exercised), as are general statements in contracts requiring the influencer "to promote the brand and the products in a positive light" (see Warpaint Cosmetics (2014) Ltd t/a W7, Ref. A18-451516). Like the CMA, the ASA warns against potentially ambiguous hashtags such as "#sp".

Since "editorial control" is so broadly defined, it is likely that a brand owner seeking to ensure that an influencer complies with the Regulations, e.g. by an obligation to use a specific hashtag or statement to ensure that the posts were compliant, would then also be subject to the CAP Code. In the UK brand owners should therefore approach influencer agreements as if the CAP Code and the Regulations will apply. Even if no control over the content is sought, which would be unusual, control should be exercised to ensure that the influencer complies with the Regulations and CAP Code through specific requirements to identify the content as being advertorial in nature.

Germany

In Germany, where influencer advertising has been a particularly hot topic in recent months, the emphasis is also on transparency. In contrast to the UK position, the responsibility to ensure fair advertising does not vest in official authorities. German Law  adopts a "horizontal market control", in that competitors or specific consumer associations are entitled to police market participants.

The main statutory provision which provides for transparency in advertising under German Law is Sec. 5a (6) of the German Unfair Competition Act (UCA). This requires that the "commercial intent" of a "commercial practice" must be identifiable. In addition, Sec. 6 (1) No. 1 Telemedia Act (TMG) also stipulates that commercial communications must be clearly identifiable. This provision also applies to social media posts as they fall within the definition in § 2 No. 1 TMG.

The courts have stressed that a social media account should not be considered a "commercial practice" in general, as this would be contrary to Article 11 of the Charter of Fundamental Rights of the European Union. An influencer's account is rather a hybrid between personal fulfilment and commercial interests. Consequently, a court must examine each contested post on a case‑by‑case basis and in compliance with the UCA‑criteria outlined above.Regional courts dealing with "influencer cases" have generally agreed that if an influencer includes links to or tags a brand owner's product, this may constitute a "commercial practice" under the UCA. German courts have however taken differing approaches to the assessment of the additional requirement of "commercial intent". Some courts have stated that such commercial intent shall only be found to exist in cases where a financial compensation was paid, which includes the receipt of free products.

Once a social media post is determined to have a commercial intent, then such intention must be disclosed to the consumer. The UCA provides that in certain circumstances the activities of influencers can also be attributed to the brand owner, in particular if the influencer and the brand owner have entered into a contract and have agreed, for example, that the influencer would promote certain products. In this case, the brand owner may even be held liable for the actions of influencers even if they are not entirely aware of how the influencer will advertise the products. Brand owners should be mindful that consumer associations are currently seen to be more willing to issue warming letters in respect of non-compliant content.

 Case law indicates that the marking of an advertisement by using the hashtags '#ad' or '#sponsoredby[...]' is insufficient by itself, at least if these hashtags are within a longer sequence of hashtags. The main reasoning for this case law is that German print media law expressly requires the inclusion of the German word "Anzeige" (which translates to "Advertising" in English). Some courts argue that this strict labelling applies also to internet advertising, and hence to influencer marketing. Under German law, the assessment of the recognisability of advertisements is directly linked to the perception of the average consumer. Therefore, the mere use of English terms such as "PR Sample" or "collaboration" is not advisable, as it cannot be expected that the average member of the German public is able to understand these terms correctly.

Conclusion

Influencer marketing presents an opportunity for brand owners to engage with consumers on a more personal level. The value, duration and scale of an influencer-led campaign should be reflected in the approach taken to the agreement with the influencer, but legal teams should be particularly vigilant around the issue of transparency. A balance needs to be struck between giving the influencer freedom to create authentic content whilst ensuring that the brand's reputation remains protected and that legal risks are properly managed.

Brand owners also needs to factor in that an influencer is unlikely to appreciate the nuances of advertising and consumer protection law, and may require guidance to ensure compliance with applicable law. Brand owners are best placed to provide this guidance, and liable to bear the brunt of the consequences if they do not. In both the UK and Germany brand owners, both through their agreements and through their marketing teams, should provide influencers with the guidance and support necessary to comply with the applicable marketing regimes.

Key take-away points

• Influencer marketing is seen as more "authentic", but must still be treated like other advertising.
• Legislation/marketing codes require that adverts must be recognizable or clearly labelled as such.
• Brand Owners should monitor influencers' compliance to avoid reputational harm.