Proposed changes to the statutory rules

Under the Proposal, certain statements posted on social media shall be excluded from the general requirement to label commercial communications pursuant to section 5a(6) of the UWG. In particular, posts for which the influencer has not received any payment or similar consideration shall be exempt from the labeling requirement:

“As a general rule, a commercial activity is not to be deemed to have a commercial purpose if (a) it primarily serves informative purposes or the shaping of public opinion and (b) no payment or similar consideration has been granted.”

In the view of the BMJV, such posts are intended solely to shape public opinion and are not made in the pursuit of commercial purposes. The BMJV’s intention to achieve a sufficient level of legal certainty and exclude certain content from the labeling requirements is a step in the right direction. However, under the Proposal, various aspects still remain unclear. A main concern is that the Proposal gives no guidance on which scenarios should fall within the scope of “similar consideration.”⁶ While this question will not be of interest to successful celebrities and other leading influencers who receive considerable compensation for each single post, it will have a significant impact on rising stars who may receive products, including items of rather low value, for free instead of monetary compensation. The Proposal lacks clarification as to the circumstances under which non-monetary compensation shall trigger corresponding labeling requirements.

Recent case law

There is a tendency in recent decisions from German courts to consider all posts from influencers as commercial content, resulting in a general labeling requirement⁷. The courts have taken the view that influencer posts promote either (a) the business interests of organizations that are tagged or whose products are depicted, or (b) at least the influencer’s own business interests. In essence, a consequence of this approach is that each post from influencers qualifies as “commercial communication” in the meaning of section 5a(6) of the UWG and, therefore, needs to be labeled accordingly. This approach simply ignores the important questions of whether a certain influencer post qualifies as editorial content and whether the commercial nature is apparent from the circumstances so that there is no need for any further labeling.

Several German courts have taken the view that links that direct to manufacturer profiles trigger a labeling obligation. However, the Frankfurt Court of Appeal noted in a judgment that this is not a mandatory rule.⁸ In the view of the Frankfurt Court of Appeal, the mere tagging of a manufacturer’s profile shall only be a strong indication for commercial action. Ultimately, the Frankfurt Court of Appeal emphasized that the influencer maintained a business relationship with the manufacturer, whose products were presented on the influencer’s profile. Consequently, the Frankfurt Court of Appeal held that the influencer concerned had indeed a duty to label the posts as advertisements.

Also, in another judgment, the Frankfurt Court of Appeal considered an influencer post containing tags to corporate profiles to be commercial content.⁹ The influencer thanked a hotel that was tagged in her picture for inviting her for a free stay at the hotel. The Frankfurt Court of Appeal held that the commercial intent of this post follows from the influencer promoting her own influencer business. Notably, the Frankfurt Court of Appeal took the view that the commercial intent of the post was not directly apparent from the context, although the influencer concerned had more than 500,000 followers. Accordingly, the influencer had to label her post as advertising.

Also, the Braunschweig Court of Appeal applied a very low threshold on qualifying influencer posts as commercial activity. In the underlying case, the influencer presented certain products and tagged the manufacturers’ profiles, but did not label the posts as advertising¹⁰. The Braunschweig Court of Appeal emphasized that the consumer must be clearly pointed to the commercial nature of a post. The Braunschweig Court of Appeal based this finding on the idea that any influencer post is intended to be interpreted as a seemingly private and dispassionate recommendation.

At the end of June 2020, the Munich Court of Appeal took a more relaxed view. The Court held that the famous German influencer Cathy Hummels does not have to label a post on her Instagram account as advertising if she does not receive any payment or similar consideration for the relevant post¹¹. To determine the commercial nature of a communication, the Munich Court of Appeal follows a per-post approach. In essence, such a per-post approach is in line with the BMJV’s Proposal¹².

In July 2020, the Hamburg Court of Appeal also took a more influencer-friendly approach. Unlike the Munich Court of Appeal, the Hamburg Court of Appeal assessed the commercial nature of the influencer’s posts on a per-account basis. In the view of the Hamburg Court of Appeal, every post from an influencer made via the influencer’s public Instagram account constitutes a “commercial communication” because of the overall commercial nature of the influencer’s Instagram account. However, the judges in Hamburg were convinced that consumers are not only able to realize “at first sight” the commercial nature of an influencer’s Instagram account, but are also perfectly aware of how influencer marketing works. Accordingly, the judges held that the influencer was not obliged to label the posts as advertising. Notably, the influencer concerned had 1.7 million followers, and received around 50,000 likes per post.¹³

Both the Munich Court of Appeal and the Hamburg Court of Appeal realized that the present scenario of numerous deviating decisions from various German courts is not satisfying. Accordingly, both courts granted leave for cassation appeal proceedings before the Federal Supreme Court which may now have the chance to issue a landmark decision creating a higher level of legal certainty for influencers.

Frequently asked questions

The existing case law leads to the following preliminary conclusions:

When to label?

1. Sponsored posts need to be labeled as advertising.
2. Non-sponsored posts that are obviously intended to increase product sales need to be labeled as advertising.
3. Non-sponsored posts linking to or tagging the websites/accounts of products, services, or brands should be labeled as advertising. The recent case law does not provide for a sufficient basis to argue that a connection to additional ideological, scientific, or editorial content of the relevant post may release the influencer from the labeling requirement.
4. Tendency: Posts that promote the influencer’s own business – Various German courts recently focused on the influencer’s own business (such as the influencer’s Instagram account) instead of the business of the organizations whose products were the subject of the relevant posts. Practically, this approach may lead to a general labeling requirement for all influencer posts that deal with products or services.
5. In each case, a case-by-case assessment will be required.

How to label?

1. Where the post is aimed at consumers in Germany, clear terms in German language should be used, such as “Werbung” (advertising) or “Anzeige” (advertisement) at the beginning of the post.
2. Likely not sufficient: Oral information on the commercial nature in Instagram stories or Snapchat snaps, since many followers mute their devices while watching video sequences.
3. Not sufficient: Notes that are hidden between other information (such as, for example, so-called hash tag clouds that are only shown after extending a drop-down); foreign language terms, in particular “sponsored by” or “#sponsoredby”, “PR sample” or “#PRsample”, as well as the widely spread hashtags “ad” or “#ad”.

Who may be held liable?

The influencer as well as the organization that engages the influencer may be accountable for improper labeling¹⁴. Organizations whose employees or freelancers publish posts as brand ambassadors may also be held liable by their competitors for improper labeling. The civil enforcement measures include, in particular, claims for cease-and-desist, damages, information, and cost reimbursement. Competitors and consumer protection associations may obtain restrictive orders, both in the form of interim injunctions for urgency and regular judgments from German courts.

What are the top three things you need to know about labeling requirements in Germany?

1. Influencer and brand ambassador posts are subject to strict labeling requirements. Following recent decisions from German courts, the threshold for influencer posts to be deemed as commercial activity, and thereby triggering a labeling requirement, is very low.
2. Tagging brands or other third-party social media accounts is likely to trigger a labeling requirement.
3. Influencers and organizations that engage in influencer marketing should carefully monitor developments in German case law, at least until the German Federal Supreme Court has the opportunity to decide on the scope of labeling requirements for influencers and, thereby, create a higher level of legal certainty. Furthermore, legislative changes to the labeling requirements may be possible in the near future.

United Kingdom

The authorities in the UK have given a lot of attention to influencer marketing over the last couple of years, including publishing advisory information specifically for influencers and upholding a number of complaints against both influencers and brands when social media posts have not been clearly labeled. In contrast to Germany, it is rare for the UK courts to get involved in decisions as to whether a social media post has breached the rules and instead it is up to the Advertising Standards Authority (the ASA) and the Competitions and Markets Authority (the CMA) to take enforcement action against misleading posts.

Legal framework

In the UK, the principal laws applicable to influencer marketing are the Consumer Protection from Unfair Trading Regulations 2008 (the CPRs) enforced by the CMA, and the UK Code of Non-broadcast Advertising and Direct and Promotional Marketing (the CAP Code), enforced by the ASA.

UK law aims to ensure influencers properly declare the promotional or paid-for nature of any sponsored social media posts. The CAP Code requires:

a) All marketing communications to be clearly identifiable as marketing

b) Influencers to not falsely claim, or imply, that they are acting as a consumer

c) Influencers to make clear that “advertorials” are marketing communications

The rules seek to promote transparency by ensuring consumers are able to distinguish between paid-for advertising and genuine editorial content. This is particularly important when considering influencers’ social media accounts, which are likely to include a mix of both personal posts alongside paid-for promotions.

The CMA has the power to investigate and take legal action to stop breaches that may harm consumer interests. Whenever an influencer posts incentivizes endorsements, whether for their own products or on behalf of a brand, this must be disclosed upfront and clearly so consumers know the endorsement has been “paid for.” For the CMA to take action, it does not matter whether the brand had “control” over the content published.

In contrast, the ASA can only take action when a brand has had some “control” over the content and “paid” an influencer in some way. Its broad remit for enforcement also covers when an influencer (a) advertises their own products; (b) runs a competition, prize draw or giveaway; and (c) posts affiliate marketing (i.e., where an influencer gets paid based on sales of products on a tracked hyperlink, like a commission).

Recent ASA/CMA guidance

In February 2020, the Committee of Advertising Practice (CAP) along with the CMA and ASA collaborated once again to launch updated guidance on how influencers can ensure compliance with the relevant ad rules and consumer protection legislation¹⁵ (the “Guidance”) following publication of its first edition of the guidance back in September 2018.

Whenever an influencer receives “payment” from a brand, they must disclose this in any relevant posts promoting or endorsing the brand or its products or services. This is the same when an influencer is posting about their own products or services. Additionally, if an influencer posts affiliate links or discount codes for products mentioned in the content (even when these are only provided for some of the products mentioned), they need to make clear that this is also advertising.

The Guidance provides a wide definition of “payment” that includes:

a) Being paid a specified amount of money to create and/or post content

b) Being given products, gifts, services, trips, hotel stays, etc. for free;

c) Being paid to be a brand ambassador

d) Having any kind of commercial relationship with the brand

Similarly, “control” is defined broadly to include:

a) Being told what to say (i.e. if there are particular words, phrases, themes, particular hashtags, or “key messages” which need to be included)

b) Being told what needs to be in an image

c) Being told to include a specific action in a video

d) Being told the specific type of content you need to create (e.g. an unboxing”’)

e) Being required to post a specific number of times on certain dates or at particular times

f) Where a brand reserves the right to check/approve the content before it is posted

g) Where a brand asks to change the post; and

h) Where a brand doesn’t ask for any changes but they could (i.e. the contract gives them the right to stop the influencer from posting).

When a post includes an ad, consumers should be able to recognize it as an ad without having to interact with it. If it is not obviously identifiable as an ad from the context of the post, a clear and prominent disclosure is needed. The Guidance advises influencers to use labels “that say how it is, in a way that consumers understand,” for example using a prominent label such as “Ad”. The Guidance also recommends that influencers avoid terms that are less clear and, in practice, it is usually only “Ad” labels that have been sufficiently clear to satisfy the ASA.

Recent examples of rulings by the ASA

• Instagram posts including “@ mention” of the brand name were deemed to be insufficient for disclosure of a commercial relationship (Brooks Brothers UK Ltd, September 18, 2019; The White Star Key Group Ltd, July 31, 2019). The influencers and brands were told to include a clear and prominent identifier such as “#ad” in future.
• Presentation of labels used must be clear and prominent (Sportswift Ltd t/a Card Factory, May 6, 2020). The label “AD” appeared in white lettering against a white background which meant it was unclear and lacking in prominence, blended into the background and was obscured as a result.
• “Affiliate” is unlikely to be sufficiently clear as a standalone label to identify an affiliate ad (Asos.com Ltd, April 22, 2020). The influencer and brand were told to ensure affiliate links were obviously identifiable as marketing communications by including a clear and prominent identifier such as “#ad” at a minimum.
• Promotional Instagram ‘stories’ equally require appropriate labeling (Vanity Planet, September 12, 2018).

Frequently asked questions

When to label?

1. Whenever an influencer receives “payment” from a brand, they must disclose this in any relevant posts promoting or endorsing the brand or its products or services.
2. Whenever an influencer is posting about their own products or services.
3. Whenever an influencer posts affiliate links or discount codes for products mentioned in the content.

How to label?

1. The absolute minimum should be including a prominent label upfront, such as “Ad”, “Advert”, “Advertising”, “Advertisement”, and “Advertisement Feature”, which can be used without or without the a hashtag.
2. Influencers are recommended to avoid using terms that are less clear, such as “Thanks to…”, “Gifted”, “Sponsored by”, or “Supported by”, and influencers are advised against the use of “Affiliate” or “aff”, “Spon” or “sp”, and any other abbreviations or words that consumers are unlikely to be familiar with.

Who may be held liable?

The influencer and the brand can both be held responsible for social media posts which breach the rules.

What are the top three things you need to know about labeling requirements in the UK?

1. Use “Ad” with or without a hashtag for labeling purposes, even where there are tools available on social media platforms (such as Instagram’s “paid-partnership” feature). The ASA in its decisions upholding complaints against influencers and brands often recommend using a clear and prominent identifier such as “#ad”
2. Even if an acceptable label is used, make sure it is clear to consumers (e.g., don’t let it blend into the background; use a colored font to highlight the label).
3. A label needs to be used in every post where an influencer has received a form of “payment” from a brand, is posting about their own products or services, or is posting affiliate links or discount codes for products.

United States

Legal framework

Influencer marketing continues to be a matter of primary concern in the United States, principally of the Federal Trade Commission (FTC) and the National Advertising Division of the BBB National Programs, Inc. (NAD). These protections are intended to uphold the principles of consumer protection set forth in section 5 of the FTC Act (15 United States Code, section 45), particularly the prohibition of “unfair or deceptive acts or practices in or affecting commerce.” Influencers and advertisers have relied upon the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising (first enacted in 1980 and amended in 2009), The FTC’s Endorsement Guides: What People are Asking (published in 2007), and Disclosures 101 for Social Media Influencers (published in 2019) to inform their social media policies and compliance practices.¹⁶

Historically, influencers who failed to make proper disclosures, their advertiser partners, and/or advertising agencies have faced FTC investigations culminating in no-money, no-fault FTC settlements, or they have been required by the NAD to discontinue or modify their advertising to include disclosures. In February 2020, the FTC sought public comment with the intention of issuing new guidance concerning its Endorsement Guides, particularly relating to recent changes in technology, reviews sites, unexpected material connections, and whether children understand required disclosures. In conjunction with the issuance of the request for public comment, Commissioner Rohit Chopra (one of five commissioners on the FTC) issued a statement that “[t]he FTC will need to determine whether to create new requirements for social media platforms and advertisers and whether to activate civil penalty liability.¹⁷” Commissioner Chopra went so far as to say, “When companies launder advertising by paying an influencer to pretend that their endorsement or review is untainted by a financial relationship, this is illegal payola.” Chopra urged the FTC to focus its compliance efforts on advertisers, who he believes are “pressuring influencers to post in ways that disguise that their review or endorsement is paid advertising.” The comment period ended in June 2020, and we expect the FTC may issue proposed changes to its Endorsement Guides as early as later this year. In the meantime, the FTC has issued its first order regarding the use of influencers, imposing a monetary judgment of $15.2 million, the total sales of the challenged products, which was suspended upon payment of $1 million, based on the defendants’ inability to pay the full judgment. See Teami, LLC description below.

Earlier this year, the NAD created a new “fast track” process entitled Fast-Track SWIFT. This process is an abridged procedure that allows matters to be resolved in approximately one month. This process is limited to certain single-issue claims, including “[t]he prominence or sufficiency of disclosures including disclosure issues in influencer marketing, native advertising, and incentivized reviews.” This expedited process will empower the NAD to review more alleged violations relating to influencer marketing laws and guidance.

Recent ruling by the FTC

• Teami, LLC. In March 2020, Teami, LLC, a marketer of dietary supplement teas and skincare products, agreed to settle charges by the FTC. The FTC alleged that Teami used deceptive health claims and endorsements without adequate disclosures. Such claims relate to rapid weight loss, increased energy levels, quickened metabolism, and colon cleansing. The FTC also sent warning letters to ten of Teami’s influencers, reminding them of their legal obligations to disclose their material connections with advertisers and requesting a response confirming that they will make all necessary disclosures. The FTC was not satisfied with disclosures that appear “below the fold” or require viewers to click a “more” button to view it. Along with standard cease-and-desist, record-keeping, and monitoring obligations, the FTC’s order imposed a $15.2 million judgment – the total sales of the challenged products – which was suspended upon payment of $1 million, based on the defendants’ inability to pay the full judgment the individual defendants (corporate officers of Teami, LLC) as well as the company itself.

Recent ruling by the NAD

• Pyle Audio, Inc. (NutriChef Vacuum Sealers). In August 2019, the NAD determined that Pyle Audio, Inc., a maker of the NutriChef brand vacuum sealers, encouraged users of its products to write positive reviews, including on Amazon, in exchange for free products while failing to disclose that the reviews were incentivized. Specifically, product packaging included review solicitation cards that read “Leave us a Review on Amazon…Claim a FREE Gift on US!” Pyle argued that the reviews were solicited by third-party sellers who advertise the product and questioned whether the FTC guidelines even relate to these kinds of consumer reviews. Pyle also asserted that there is no evidence that only positive reviews are rewarded. The NAD clarified that “[i]ncentivized consumer reviews may be considered endorsements that require the disclosure of any material connection not reasonably anticipated by the consumer.” The NAD further explained that a “[f]ree product, either provided by the advertiser prior to the posting of a review or promised by the advertiser as a reward for posting a review, may be a material connection requiring such disclosure.” The NAD determined that these reviews were incentivized and require an applicable disclosure. The NAD also determined that consumers would believe they have to post a positive review to be eligible for the incentive. Endorsements, like all marketing claims, must be truthful and reflect the honest opinion of the endorser. As such, the NAD recommended that Pyle implement clear and conspicuous disclosure requirements, including removing or modifying existing non-compliant reviews, and not suggest to consumers that a positive review is necessary to receive an award.

Frequently asked questions

When to disclose?

Influencers must disclose a material connection with an advertiser when they make or publish an endorsement.

• An endorsement is an advertising message that consumers are likely to believe reflects the views of someone other than the advertiser.
  • Endorsements must reflect the honest opinions, findings, beliefs, or experience of the endorser.
  • An endorsement may occur even if the company or brand did not direct the influencer to publish the post.
• Disclosure is only required when there is a “material connection” between the influencer and the referenced product.
  • A material connection is one that might affect the weight or credibility that consumers give the endorsement (e.g., a free product, cash payment, royalties from the sale of the product, ownership in the advertising company, etc.).

How to disclose?

Disclosures must be “clear and conspicuous.” The FTC describes appropriate disclosures as ones that stand out and are made using “plain and unambiguous language.” In recent orders, the FTC has clarified that a “clear and conspicuous” disclosure must comply with the following:

1. In any communication that is solely visual or solely audible, the disclosure must be made through the same means through which the communication is presented. In any communication made through both visual and audible means, such as a television advertisement, the disclosure must be presented simultaneously in both the visual and audible portions of the communication even if the representation requiring the disclosure is made in only one means.
2. A visual disclosure, by its size, contrast, location, the length of time it appears, and other characteristics, must stand out from any accompanying text or other visual elements so that it is easily noticed, read, and understood.
3. An audible disclosure, including by telephone or streaming video, must be delivered in a volume, speed, and cadence sufficient for ordinary consumers to easily hear and understand it.
4. In any communication using an interactive electronic medium, such as the Internet or software, the disclosure must be unavoidable.
5. The disclosure must use diction and syntax understandable to ordinary consumers and must appear in each language in which the representation that requires the disclosure appears.
6. The disclosure must comply with these requirements in each medium through which it is received, including all electronic devices and face-to-face communications.
7. The disclosure must not be contradicted or mitigated by, or inconsistent with, anything else in the communication.
8. When the representation or sales practice targets a specific audience, such as children, the elderly, or the terminally ill, “ordinary consumers” includes reasonable members of that group.

Who may be held liable?

The FTC and the NAD have found influencers, advertisers, and, in some cases, agencies liable for violating their disclosure and/or monitoring obligations.

What are the top three things you need to know about labeling requirements in the United States?

1. Using “#ad” or “ad”, “sponsored”, “promotion”, or “#[COMPANY NAME] ambassador” is considered effective disclosure language.
2. Make the disclosure stand out by using a font that is easy to read, in a shade that stands out against the background and in close proximity to the post, making sure that disclosures on video ads are on the screen long enough to be noticed, read and understood and that audio disclosures are read at a cadence that is easy for consumers to follow.
3. The FTC is re-evaluating the way in which it articulates its “Guides” relating to testimonials and endorsements, which underlie its enforcement against undisclosed material connections in the context of influencers. Whether or not the FTC will reign in the overbroad “guidance,” which has been applied in a knee-jerk manner by the NAD, will determine whether “materiality” will remain a core element in the enforcement of such disclosures or whether every potential connection, regardless of how tenuous, must be disclosed. Revised “Guides” are expected by early 2021.

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1. Further details on these prior orders can be found in our previous article “#Advert – Transparency requirements for influencers, A German British, and American review” at reedsmith.com
2. The BMJV’s press release of February 13, 2020 is available in German at bmjv.de.
3. Numerous stakeholders have submitted their opinions on the Proposal in the course of a public consultation. These stakeholder submissions are available in German at bmjv.de.
4. The relevant provisions of the MStV on advertising are contained in sections 22 (transparency), 74 (specific requirements for on-demand audio and audiovisual media services), and 99 (specific requirements for video sharing services).
5. Leitfaden derMedienanstalten,Werbekennzeichnung bei Social Media-Angeboten, edition as of January 2020 (English: Guidance Paper from the State Media Authorities: How to properly mark advertising in social media), available in German at die-medienanstalten.de
6. For example, see Deutscher Industrie- und Handelskammertag, Stellungnahme, (English: Opinion from the Association of German Chambers of Industry and Commerce), available in German at dihk.de.
7. For instance: Karlsruhe Regional Court, judgment of March 21, 2019, docket no. 13 O 38/18 KfH, available in German at lrbw.juris.de. Braunschweig Court of Appeal, court order of January 8, 2019, docket no. 2 U 89/18; and Munich Regional Court I, judgment of April 29, 2019, docket no. 4 HK O 14312/18, available in German at gesetze-bayern.de
8. Frankfurt Court of Appeal, judgment of June 28, 2019, docket no. 6 W 35/19, available in German at rv.hessenrecht.hessen.de
9. Frankfurt Court of Appeal, judgment of October 24, 2019, docket no. 6 W 68/19, press release available in German at ordentliche-gerichtsbarkeit.hessen.de
10. Braunschweig Court of Appeal, judgment of May 29, 2020, docket no. 2 U 78/19, press release available in German at oberlandesgericht-braunschweig.niedersachsen.de.
11. The Munich Court of Appeal confirmed the first instance decision from the District Court Munich I, but on the basis of a different legal justification. The court of first instance took the view that the posts at hand would principally constitute “commercial communications,” but the commercial nature was “apparent from the circumstances” in the meaning of section 5a(6) of the UWG. We discussed the first instance judgment in the course of our previous article on May 10, 2019, titled “#Advert – Transparency requirements for influencers, A German, British and American review” which is available at reedsmith.com
12. Munich Court of Appeal, judgment of June 25, 2020, docket no. 29 U 2333/19, cf. dejure.org.
13. Hamburg Court of Appeal, judgment of July 2, 2020, docket no. 15 U 142/19, press release available in German at juris.de.
14. Section 8(1) and (2) of the UWG.
15. Influencers’ guide to making clear that ads are ads, available at Asa.org.uk.
16. See ftc.gov asking; ftc.gov/
17. Rohit Chopra, Commissioner, Fed. Trade Comm’n, Statement of Commissioner Rohit Chopra Regarding the Endorsement Guides Review Commission File No. P204500 (February 12, 2020).

Client Alert 2020-455