Overview

The statutory requirements for labeling commercial content as advertising are spread over several laws: While the statutory provisions on advertising with regard to video content are contained in the German Interstate Broadcasting Treaty (Rundfunkstaatsvertrag – RStV), in particular sections 58(3), 7 and 8 RStV, posts containing text and pictures are subject to the advertising-related provisions of the German Telemedia Act (Telemediengesetz – TMG), in particular section 6 TMG.

Irrespective of the relevant media used, the German Act against Unfair Competition (Gesetz gegen den unlauteren Wettbewerb – UWG) requires every market player to label commercial communications in a sufficiently transparent manner so that their commercial nature is clear to the recipients. More precisely, section 5a(6) of the UWG reads: “A person who does not identify the commercial purpose of a commercial activity [in the meaning of section 2(1) no. 1] commits an act of unfair competition [in the meaning of the UWG] if the commercial nature of such commercial activity is not directly apparent from the circumstances and the non-identification is likely to induce consumers to take a transactional decision which they would not have taken otherwise.”

The UWG entitles certain registered consumer protection associations to apply for and obtain injunctions against market players who fail to comply, inter alia, with the transparency requirements for commercial communications. On this legal basis, the consumer protection association (Verband Sozialer Wettbewerb) regularly sends cease and desist letters and sues German influencers before German courts. Various German courts, in particular first instance courts, apply a rather strict approach with regard to influencer advertising. Thus, many German influencers decided to label all their posts as “advertising”, irrespective of whether the post was actually regarded as a commercial communication.

Although German regulators have provided updated regulatory guidance, first instance courts across Germany issued inconsistent judgments against influencers, not taking into account the regulatory guidance. Clearly, it remains to be seen whether the various German Courts of Appeal – or at least the German Federal Supreme Court – will be able to provide some more legal certainty.

What content needs to be labeled as an advert?

Guidance paper from German State Media Authorities

In November 2018, the German media regulators, the State Media Authorities (Landesmedienanstalten), issued an updated version of their joint guidance paper on labeling adverts on social media (Guidance Paper).³ The Guidance Paper is intended to help organizations and individuals to comply with the applicable statutory provisions on labelling adverts and separating adverts from other content on social media, taking into consideration the different legal regimes that apply to different media.

The Guidance Paper explains that influencers are required to label their posts as ‘advert’ where they receive any type of consideration – either monetary compensation or other benefits – for mentioning certain brands, companies or groups of companies, organizations, products, services, geographic regions or journeys in their posts. By contrast, as long as there is no cooperation in place between the influencer and the relevant organization, but the influencer’s posts are based on the influencer’s own decision to talk about the product and free from any commercial incentive, no specific labeling will be required.

However, where in the perception of other users the influencer’s post is clearly intended to increase product sales, the influencer may be required to label the relevant post as advert, even where no contractual arrangement is in place between the influencer and the relevant organization. To determine whether such scenario is given, certain criteria may be taken into account, such as (i) extremely positive ratings of certain products and/or services, (ii) invitations to buy, (iii) repeatedly posting about the same products and/or services from one and the same brand, (iv) combination of the posts with affiliate links, and/or (v) indicating of prices and buying sources.

Inconsistent approaches by German courts

While the labeling requirements set out in the Guidance Paper appear to be rather relaxed, in the past several German first instance courts ruled against influencers who did not sufficiently label their posts as advert, even if no commercial agreement was in place with the relevant organization. The mere existence of certain links/tags to the organizations behind the relevant products was seen as sufficient to qualify the posts as commercial. The strictest approach was taken by the District Court Karlsruhe (Landgericht Karlsruhe) in a recent first instance judgment of March 21, 2019, against the German influencer Pamela Reif.⁴ In essence, the District Court Karlsruhe took the view that, pursuant to section 5a(6) UWG, influencers would be required to label all their posts as advertising, even where they do not receive any compensation whatsoever. The court explained that many of Pamela Reif’s 4.1 million followers would be minors who would not easily understand that the posts would be of commercial nature. In the court’s view this holds true in particular where the influencer’s account contains a mix of (allegedly) private and commercial posts. Notably, the reasoning of the judgment does not at all take into account the content of the Guidance Paper. According to press articles, Pamela Reif intends to appeal the judgment before the Court of Appeal Karlsruhe.⁵

Those judgments were driven by the plaintiff, Verband Sozialer Wettbewerb, who apparently intends to achieve a general labeling requirement for all posts made by influencers, irrespective of a case-by-case assessment of the relevant content.

In a recent second instance judgment of January 8, 2019,⁶  in court proceedings against the German influencer Vreni Frost, the Court of Appeal Berlin (Kammergericht Berlin) clearly disregarded such strict interpretation of the statutory labeling requirements for influencers. Instead, the Court of Appeal Berlin tried to apply a balanced approach: In the view of the Court of Appeal Berlin an influencer’s post that contains links/tags to the websites/accounts of certain commercial organizations should not generally be regarded as commercial communication. Rather, the specific content and the particular circumstances of the respective individual case should be taken into account: Statements of ideological, scientific or editorial nature that are not functionally connected with a particular sales or purchase promotion would not be subject to the UWG and, therefore, not necessarily require a labeling as advert. In the underlying case, Vreni Frost posted a picture showing herself on her way home. She expressed that she was tired and happy to go home. She wore a T-shirt, a brooch and a fanny pack and tagged the organizations selling those items. The influencer argued that she had only tagged the organizations to anticipate questions from her followers asking where she had got the products from. The Court of Appeal Berlin shared her view. In particular, it compared the scenario to readers of fashion magazines who often want to know where they can buy the fashion presented in the magazines. Consequently, the Court of Appeal Berlin regarded the influencer’s post as editorial, not commercial, content, and the links and tags related to such editorial content. Finally, the influencer achieved providing evidence that she had bought the items with her own money. This leads to the following preliminary conclusions.

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 the websites/accounts of products, services or brands require a sufficient connection to additional ideological, scientific or editorial content of the relevant post to avoid a labeling requirement. In the absence of such content-related connection, linking to the websites of product providers will likely trigger a labeling requirement. In any way, a per-case assessment will be required.

First instance judgment in the Hummels Case issued on April 29, 2019

In the Hummels Case, the scenario is slightly different: Verband Sozialer Wettbewerb alleged that a post from an influencer shall qualify as a commercial post already where it shows, among other things, a certain product, even when there is no link or tag to the relevant organization behind the product. One of the posts attacked by Verband Sozialer Wettbewerb contains a picture of Cathy Hummels’ son. His face is hidden behind a soft toy from a renowned manufacturer. Cathy Hummels argues that the soft toy was a gift from her family. Since Verband Sozialer Wettbewerb was not able to demonstrate that Cathy Hummels received any type of compensation in consideration for the attacked posts, the District Court Munich I had to make its decision on the assumption that no compensation was paid.

On April 29, 2019, the District Court Munich I issued the first instance judgment and dismissed Verband Sozialer Wettbewerb’s action.⁷ Following the press release of April 29, 2019, the District Munich I took the view that posts from influencers generally qualify as “commercial activities” in the meaning of sections 2(1) no. 1 and 5a(6) UWG. Therefore, there was no need for the District Court Munich I to deal with the question of how to distinguish commercial posts from posts of a purely private nature. Notably, the District Court Munich I further found that, as a result of an individual assessment of the specific posts at hand, the commercial nature of Cathy Hummels’ posts would be “apparent from the circumstances” in the meaning of section 5a(6) UWG so that there was no need for any further labeling. This is exactly the opposite view, as compared to the first instance judgment from the District Court Karlsruhe of March 21, 2019.

To substantiate its finding, the District Court Munich I referred not only to the fact that Cathy Hummels uses a verified Instagram account (blue tick badge visible) but also to the considerably high number of followers. In the Court’s view no one can reasonably expect that Cathy Hummels would have so many real-life friends. Even before the first instance judgment had been made, Verband Sozialer Wettbewerb’s lawyer announced that it would appeal a potential negative first instance judgment.

This is exactly the opposite view as compared to the position of the District Court Karlsruhe of March 21, 2019.

How are adverts to be labeled?

The Guidance Paper contains a certain “advertising labelling matrix” (Kennzeichnungs-Matrix – Matrix) that provides an overview of the State Media Authorities’ recommendations on how to properly label adverts. The recommendations are given separately for (i) video content (on YouTube, Facebook, etc.), (ii) pictures/text (on Instagram, Facebook, Twitter etc.) and (iii) blogs. The Matrix contains the State Media Authorities’ recommended wording that may be used for the labeling of posts, depending on the relevant content.

Notably, the State Media Authorities take the view that using only the promotion disclosure tools offered by the social network providers shall not be sufficient to comply with the German law requirements for properly labeling posts as advert. Rather, the State Media Authorities stress that these tools may be used only as an additional means to properly label the advert.

Where posts containing adverts are made on German language channels, English language disclosures/labels, such as “ad”, “sponsored by” or “PR Sample”, shall not be sufficient; this is in line with previous decisions from German courts. Influencers should label their German language commercial picture/text posts on Facebook/Instagram/Twitter with the German language tags “Werbung” or “Anzeige”, in any event at the beginning of the relevant post.

United Kingdom

Overview

In the United Kingdom, the key laws and regulations aimed at ensuring influencers properly declare the promotional or paid-for nature of relevant social media posts are contained in the Consumer Protection from Unfair Trading Regulations (2008) (CPRs) and the UK Code of Non-broadcast Advertising and Direct & Promotional Marketing (the CAP code).

UK law requires that:

(a) All marketing communications are clearly identifiable as marketing;
(b) Marketers must not falsely claim, or imply, that the marketer is acting as a consumer; and
(c) Marketers must make clear that advertorials are marketing communications.

This law is focused on transparency and ensuring consumers understand what is advertising and what is genuine editorial content. This is of particular importance when considering influencers’ social media accounts, as these will likely include both personal posts (e.g. eating out at exotic locales) alongside paid-for promotions.

ASA/CMA guidance

The Advertising Standards Authority (ASA) and the Competition and Markets Authority (CMA), being two enforcement bodies in the UK, recently collaborated to launch new guidance on compliance in September 2018,⁸ which applies to:

(a) Any individual who uses their presence on social media to promote, advertise or display products or services for which they have received payment; and

(b) The owners of any social media account, with a “following”, which promotes, advertises or displays products or services for which the account owner or owners have received payment;

both of which would be considered “influencers”; and

(c) Brands and media agencies accountable for influencers’ content, who must ensure influencers they work with comply with the law and guidelines.

When does the CAP code apply?

This guidance makes clear that the ASA will only investigate, and potentially sanction, influencers and brands for breach of the CAP code in situations in which:

(a) the influencer has received payment; and

(b) the brand exerts a degree of control over the influencer’s content.

As such, if any one of these criteria does not apply, then the ASA will not consider the post to be within their remit and the CAP code will not apply. However, the guidelines of the CMA, whose remit is broader than the ASA, note that consumer protection legislation covers any content where there has been a form of payment by the brand, irrespective of whether the brand had any control over the influencer’s content.

The guidance notes that the definition of “payment” includes consideration of any form provided to the influencer (including products, gifts, services, trips and hotel stays that are given at a greatly reduced price, completely free or as a loan). If an influencer has a “commercial relationship” with a brand, such as acting as a paid ambassador for an organization, at the time of posting, this is also likely to be considered “payment”.

The definition of “control” is similarly broad. Naturally, this covers a situation where a brand tells the influencer what to say, such as including key messages or a particular hashtag, but it also covers scenarios where the brand specifies what should be included in an image, what actions should be featured in a video, specifies the type of content to be created, or where the influencer is required to post a specific number of times, on certain dates, or at particular times. If a brand has reserved the right to check and approve content before it is posted, and/or has the power to ask for content to be changed (before or after posting), this will be considered “control” even if these powers are never exercised.

The Hummels case under UK law

Under UK law, on the face of it, it is less likely that the facts of the Hummels case would fall foul of UK advertising regulation. With respect to the posts under scrutiny in Germany, we understand that Cathy Hummels did not receive payment or other consideration to promote the brands featured in the posts; the question is therefore whether Hummels is in essence undertaking advertising every time she is pictured with a brand, even if she does not directly benefit.

As mentioned above, the criteria for posts to fall within the remit of the CPRs and/or the CAP code require, firstly, for the individual to have received consideration, or to have a present or recent relationship under which they receive or received consideration, with the brand in question; and secondly (for the purposes of the CAP code) for the brand to exert control over the post. Consequently the posts would appear to fall outside the scope of the CPRs and the CAP code.

How should paid-for posts be labeled?

In January 2019, the CMA produced independent guidance,⁹ which states it is important to “make [an advertisement] obvious”. Practically, this means the influencer should always:

(a) Clearly state when they have been paid, given or loaned items (both in relation to the specific post, or more broadly within the previous 12-month period), to ensure that followers/subscribers, in whatever context, are able to understand that the influencer has received payment for the products, services or promotions as soon as they view the content;

(b) Be clear about their relationship with a brand, extending both to current relationships and relationships that have ended within the previous 12-month period;

(c) Avoid giving the impression that they:

(i) are “just a consumer” when they are acting for their own, or the relevant brand’s, business purposes;

(ii) have bought something given to them as a gift or loan; or

(iii) have used the service or product themselves when they have not; and

(d) Clearly explain how the product or services were received, and be open and conversational with their audience.

Influencers should also ensure maximum transparency and avoid ambiguity across their content, such as by:

(a) Using clear identifiers in the main medium of any post considered an advertisement, whether a hashtag (such as #ad or #advert), or as part of a main image;

(b) Where a brand does not exert control, but sent an item to post, using terms such as “partly paid with” or “gifted by”;

(c) If posting on Instagram or Facebook, using the “paid partnership” tool (contrary to the position of German State Media Authorities that using promotion disclosure tools offered by social networks is not sufficient to comply with the law); and

(d) Using a brand’s full name and ensuring they are clearly tagged in content.

Brands are advised to ensure they enter into written contracts with any influencers with which they have a relationship, including contractual provisions which oblige influencers to comply with all applicable laws, regulations and policies; monitor influencers’ content; and provide training to influencers on CMA compliance.

The CMA guidance also provides explicit examples of practices that do not go far enough and that should be avoided, including:

(a) Tagging brands, businesses or gifts in the text, picture or video of a post without additional disclosure;

(b) Using ambiguous language such as “thanks to” or “made possible by” without additional disclosure;

(c) Product placement where there is an associated, undisclosed payment;

(d) Disclosing the affiliation only on the influencer’s home or profile page, and not on the post itself;

(e) Using “unclear” hashtags such as “#spon”, “#sp”, “#client”, or “#collab”;

(f) Adding #ad directly after the name of the brand or business; or

(g) Using hashtags that are not prominent because they are hidden at the end of the text, or among other text of hashtags.

United States

Overview

In the United States, the Federal Trade Commission (FTC) is the government agency that is responsible for overseeing ads and advertising practices to ensure that the long-standing principles of consumer protection are being upheld in the digital space. Section 5 of the FTC Act (15 USC section 45) prohibits “unfair or deceptive acts or practices in or affecting commerce”, which applies to influencer marketing. The FTC has issued guidance for the public in the form of its Endorsement and Testimonial Guides (16 CFR section 255), which provides the basis for voluntary compliance with the law by advertisers and endorsers (also referred to as influencers). Advertisers, agencies and influencers are all responsible for compliance. Thus, advertiser, agency, and/or influencer practices inconsistent with these Guides may result in corrective action by the Commission under section 5 if, after investigation, the Commission has reason to believe that the practices fall within the scope of conduct declared unlawful by the statute.

FTC guidance for influencer marketing per its Endorsement and Testimonial Guides

1. What is an endorsement?

An endorsement is an advertising message that consumers are likely to believe reflects the views of someone other than the sponsoring advertiser. Endorsements must reflect the honest opinions, findings, beliefs or experience of the endorser.

2. When is an influencer “endorsing” a product (service, brand or company)?

An influencer is deemed to be endorsing a product any time they post something about a product that the audience may think conveys their opinions or beliefs about the product, even if the company or brand did not direct the influencer to publish the post. Disclosure is only needed when there is a “material connection” between the influencer and the referenced product.

3. What constitutes a material connection that needs to be disclosed?

A material connection for disclosure purposes is any connection that might affect the weight or credibility that consumers give the endorsement (i.e., the connection is not reasonably expected by the audience). The scope of a material connection, as stated in the Endorsement Guides and as interpreted by the FTC, including in its FAQs, is quite broad. Such connections include, but are not limited to:

(a) The influencer received monetary payments or gift cards for the endorsement

(b) The influencer is an employee or business associate of the advertiser

(c) Friendship between the influencer and advertiser

(d) The influencer is related to the advertiser

(e) The influencer received free or discounted products or services from the advertiser

The FTC’s philosophy is illustrated by this example from its Endorsement Guide FAQs:

Say you’re planning a vacation. You do some research and find a glowing review on someone’s blog that a particular resort is the most luxurious place he has ever stayed. If you knew the hotel had paid the blogger hundreds of dollars to say great things about it or that the blogger had stayed there for several days for free, it could affect how much weight you’d give the blogger’s endorsement. The blogger should, therefore, let his readers know about that relationship.

4. When is disclosure of the material connection necessary?

Disclosure of a material connection is always necessary. An influencer must clearly and conspicuously disclose their material connection in each and every post that endorses the product, service brand or company, as readers may not see other places that include such a disclosure. 

How should disclosure statements in influencer content be labeled according to the FTC?

In order to make a disclosure “clear and conspicuous”, the FTC prescribes that the influencer should use “plain and unambiguous language” and make the disclosure “stand out”. In general, disclosures should be:

(a) In close proximity to the claims to which they relate

(b) In a font that is easy to read

(c) In a shade that stands out against the background

(d) For video ads, on the screen long enough to be noticed, read and understood

(e) For audio disclosures, read at a cadence that is easy for consumers to follow and in words consumers will understand

Examples of effective disclosure language according to the FTC include, but are not limited to:

(a) #ad or ad

(b) sponsored

(c) promotion

(d) #[COMPANY NAME] ambassador

Examples of ineffective disclosure language include such ambiguous terms as:

(a) #thanks

(b) #collab

(c) #spon

(d) #ambassador

The FTC Guides do not dictate where disclosure language such as #ad must be placed in an influencer social media post as long as the disclosure is easily noticed and understood by the consumer. However, the following recommendations offer clear solutions to influencers for what can otherwise be an ambiguous, complicated disclosure issue. If an endorsement is found in a narrative, the influencer should place #Ad at the very beginning of the post. For a video endorsement, the influencer should place #Ad for the entirety of the video. Lastly, for an endorsement in the context of a picture, the influencer should place #Ad in an easy-to-read font prominently on the photo itself.     

Representative cases 

In 2016, the FTC launched its first complaint against a brand for its use of social media influencers. The FTC alleged that the fashion brand Lord & Taylor, in an effort to promote its new Design Lab collection, gifted a dress to 50 “fashion influencers” and paid them to post photos of themselves wearing the dress on their Instagram accounts. While the influencers could style the dress any way they chose, Lord & Taylor contractually obligated the influencers to use the @lordandtaylor Instagram user designation and hashtag #DesignLab in the caption of the photo that they posted, and the company pre-approved each proposed post. According to the FTC, Lord & Taylor’s role in the promotional effort was not appropriately disclosed. The FTC thus alleged that the company violated section 5’s prohibition on deceptive practices by, among other things, failing to disclose that the influencers’ Instagram posts did not reflect their independent and impartial statements, but rather were specifically created as part of an advertising campaign in which they were paid to participate. Lord & Taylor agreed to a proposed consent decree that prohibits it from misrepresenting that a paid endorser is an independent user or ordinary consumer of the product. 

In 2017, the FTC launched its first enforcement action against individual online influencers. The FTC’s complaint against CSGO Lotto, Inc. and two of its officers allege that the company provided two individuals (the owners and officers of the company) with free virtual currency to gamble on the site and that the two individuals did not disclose their material connections to the company when they promoted it online. Both individuals created YouTube videos promoting CSGO Lotto and disseminated tweets linking to their videos and directly promoting the site (e.g., “Bruh … I’ve won like $8,000 worth of CS:GO Skins today on @CSGOLotto I cannot even believe it!”). 

The complaint also alleged that the company paid gamer influencers thousands of dollars to post on their social media about their experiences using the gambling site. However, the company’s contract with the influencers made clear that the influencers could not make statements, claims or representations that would impair the reputation and goodwill of CSGO Lotto. As a result, the FTC charged the respondents with falsely claiming that their videos and social media posts (and those of the influencers they hired) reflected the independent opinions of impartial users. The FTC also alleged that the officers of the company engaged in violation of section 5 of the FTC Act as influencers by, among other things, failing to disclose that they were owners and officers of the company, which “would be material to consumers in their decisions regarding using CSGO Lotto”. The FTC’s investigation led to a settlement in the case, which dictated that the respondents must clearly disclose any material connections with products and services they endorse. Also, they may not represent their independence from any such product or service. 

While the FTC is yet to bring an enforcement against an influencer alone, the CSGO Lotto case and continued violations by celebrity social media influencers appears to set the stage for the FTC to bring enforcement actions against celebrities and the brands with which the celebrities are associated. 

Special issues relating to influencer marketing directed towards children 

The FTC is yet to issue policy guidance for the unfair and deceptive practice of aiming influencer ads at children. However, the Children’s Advertising Review Unit (CARU), administered by the Council of Better Business Bureaus (CBBB), is the advertising industry’s primary self-regulatory organization for monitoring content – across all media channels – directed at children. 

CARU’s self-regulatory program sets standards for the industry to assure that advertising directed to children is not deceptive, unfair or inappropriate – taking into account the special vulnerabilities of children (e.g., their inexperience, immaturity, susceptibility to being misled or unduly influenced, and their lack of cognitive skills needed to evaluate the credibility of advertising). Like the FTC, CARU has instituted a set of guidelines entitled, “Self-Regulatory Program for Children’s Advertising”, which provide, among other things, that advertising should not be presented in a way that blurs the distinction between advertising and program or editorial content. The CARU guidelines further provide that disclosures must be clear and proximate to, and in the same format (i.e., audio or graphic) as the claims to which they relate. Concerned that children are becoming more vulnerable to new technologies and techniques used by marketers, CARU has begun taking a stand with respect to child-directed influencer marketing.

For example, in 2016, CARU brought an action against EvanTube, a popular YouTube channel featuring a boy unboxing and reviewing toys provided by sponsoring advertisers. Evan’s channel has millions of subscribers. While EvanTube argued that the inclusion of terms such as “brought to you by [brand]” or “sponsored by [brand]” in many of his videos constituted adequate disclosures to children that the videos were advertising, CARU was not persuaded. CARU indicated that EvanTube’s use of text disclosure was not helpful for young children who do not know how to read. Additionally, his comments in sponsored videos did not make clear that the products had been paid for, and pre-roll ads at the beginning of the videos only added to the confusion. Following its review, CARU concluded that going forward, each EvanTube sponsored video should be labeled with a prominent audio disclosure at the outset of the video stating that the video is an advertisement. 

Despite CARU’s guidelines and enforcement activity in this space, unlike the FTC, CARU’s evaluations result only in non-binding recommendations for the advertiser to consider implementing. As a result, coalitions of advocacy groups have recently urged the FTC to issue policy guidance for influencer marketing directed towards children. 

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1. The study can be found at www.bvdw.org.
2. On February 15, 2019, the University of Applied Sciences Berlin published the results of a study on the role and strategies of influencer marketing (Prof. Dr. Julian M. Kawohl/Florian Lieke Sven Wedig, Influencer-Marketing und Strategien digitaler Superstars – was kann man von Kardashian & Co. für den Erfolg im Netz lernen? (English: Influencer-marketing and strategies of digital superstars – what can we learn from Kardashian & Co. for digital success?), available at www.wixstatic.com.
3. Leitfaden der Medienanstalten, Werbekennzeichnung bei Social Media-Angeboten (English: Guidance Paper from the State Media Authorities, How to properly mark advertising in social media), available in German at www.die-medienanstalten.de.
4. Judgment dated March 21, 2019, case no. 13 O 38/18 KfH; full text available at lrbw.juris.de.
5. https://bit.ly/2JgdcQq.
6. Judgment dated January 8, 2019, case no. 5 U 83/18; full text available at www.berlin.de.
7. Cf. the press release from the District Court Munich I of 29 April 2019, which is available at www.justiz.bayern.de. As of the date of this article, the fully reasoned judgment has not yet been published.
8. An Influencer’s Guide to making clear that ads are ads. Available at www.asa.org.uk.
9. Social media endorsements: being transparent with your followers. Available at www.asa.org.uk.

Client Alert 2019-118