In December 2019, the Competition Bureau of Canada (the Bureau) sent nearly 100 warning letters to brands and marketing agencies across the country. Why? To send the message that in the online arena of influencer marketing, you still need to play by the rules.
In the past decade, influencer marketing has thrived on the principle that consumers will follow the activities, interests, and opinions of the online personalities they follow on social media. Influencers routinely share their opinions on brands and products yielding incredible effects on the consumption habits of their followers. Offering a direct and trusted line to consumers, advertisers have jumped at the opportunity to have influencers create and share content that features their products or brands. With billions of active users on social media, influencer marketing is showing no signs of slowing down.
Why should we care about influencer marketing?
The endorsement of a product can have a significant impact on impressionable followers and their purchasing habits. The appeal of influencer marketing is the seamless manner in which advertisements are embedded into the influencer’s regular social media feed. A well-done post is typically not indicative of a paid endorsement since the more authentic the endorsement appears, the more commercially effective it can be. By masking traditional advertising signals that consumers have learned to disregard, content disguised as genuine validation can generate a massive impact.
However, the by-product of these advertisements can be an inability for audiences to determine when the influencer is providing an unbiased opinion of a product or service and when that opinion has been paid for. Without any disclosure to this effect, the public may not clearly see, or may misunderstand, the material relationship between the influencer and the product or service they are promoting.
This outcome risks undermining consumer confidence in a brand over time and may well be offside Canadian legal and industry ad standards requirements, namely that representations made to the public should not be deceptive or misleading. At the intersection of advertising and commercial practices, the influencer marketing industry is not immune to legal risk. Influencers and the companies that endorse them must follow the standards that have been set by traditional advertising even if the medium has evolved.
So, what are the rules and how do we play within them?
In Canada, “influencer law” finds its home in the Competition Act (the Act).This federal law governs most business conduct in Canada and is aimed at preventing anti-competitive practices. While the Act does not contain specific instructions regarding how to disclose material relationships in social media posts, the Act applies to influencer marketing just as it does to traditional forms of advertising.
The Competition Act has a civil and a criminal framework to regulate false or misleading representations. Influencers and the companies behind them may both be liable under the Act. Making a materially false or misleading representation is generally categorized as a civil matter and can lead to financial and reputational consequences (see section 74.01). If the representation rises to the level of being made “knowingly or recklessly”, it may substantiate a criminal charge and fines of up to $200,000 (see section 52). In determining the gravity of the misrepresentation, the Act provides that both the general impression created by the advertisement as well as the literal meaning of the text should be taken into account. For most purposes, the consumer’s “general impression” is the basic rule.
The Bureau has released a series of guidelines and directives that identify how to comply with existing law through the lens of influencer marketing. For example, the Bureau routinely releases Deceptive Marketing Practice Digests to provide this guidance to law-abiding influencers and marketers. Specifically, Volume 4 discusses influencer marketing and provides technical guidance on how to comply with the legislation from the Bureau’s perspective.
Other non-governmental organizations also play a role in supporting compliance. For example, Advertising Standards Canada (Ad Standards) is the advertising industry’s self-regulated body tasked with safeguarding the integrity and viability of Canadian advertising. Ad Standards has been a strong advocate for accuracy and clarity in social media marketing. Working together with an industry panel of influencer marketing companies, Ad Standards prepared Influencer Marketing Disclosure Guidelines, last updated in 2019. If Ad Standards receives a consumer complaint, or a competitor dispute, about the failure to disclose a commercial relationship, an independent panel can review the complaint and make recommendations on improved compliance under the Canadian Code of Advertising Standards, which prohibits false and misleading advertising based on similar principles to those underpinning the Competition Act. Adverse decisions may be published on the Ad Standards website, and in some cases will be picked up by Canadian media.
In addition to homegrown directives and organizations, the Bureau has indicated that the guidelines produced by the Federal Trade Commission (the FTC) in the United States are indicative of acceptable ways to comply with the Act. In the United States, the FTC has led the charge on disclosure and compliance within influencer marketing. Similar to the regulatory system in Canada, the FTC’s goal is to ensure compliance with the Federal Trade Commission Act which prohibits unfair competition. The detailed FTC Endorsement Guides provide useful instruction and when it comes to examining compliance, the FTC has been vocal. In 2017, the FTC charged two influencers with deceptively endorsing an online gambling service, CSGO Lotto, for failing to disclose that the pair jointly owned the company. Video titles such as “HOW TO WIN $13,000 IN 5 MINUTES (CS-GO Betting)” moved the FTC to charge the influencers for failing to disclose information that “would be material to consumers in their decisions regarding using CSGO Lotto”. Although no monetary penalty was awarded, the influencers and company received a hefty compliance order and continue to act as the FTC’s representative case.
Certain social media platforms are even taking action themselves. Instagram requires creators and publishers to tag business partners in their branded content posts when there is an exchange of value between a creator or publisher and a business partner. On Youtube, starting September 2020, all videos that are marked as containing paid promotions will show a disclosure message. However, the ultimate responsibility to disclose remains with the influencer and their business partners.
What are the best practices?
The deceptive marketing provisions of the Act and the duty to disclose apply to anyone promoting a product or service when they have a material connection to it. Connections are considered “material” if they could have an effect on how consumers evaluate the influencer’s independence from the product or service they are promoting. Material connections can include:
- Receiving payment in money or commissions
- Receiving free products or services
- Receiving discounts
- Receiving free trips or tickets to events
- A personal or family relationship
In terms of the disclosure itself, Volume 4 of the Bureau’s Deceptive Marketing Digest contains two checklists that provide practical tips on how to do this correctly. For influencers, the checklist states:
- Ensure that disclosures are as visible as possible. Consumers must not need to dig around.
- Disclose material connections in each post. It is insufficient to mention the relationship only once if the Influencer is promoting a product or service on multiple posts.
- Use clear and contextually appropriate words and images. For example, “I received this product from Company X to try”.
- Ensure disclosures are inseparable from the content. The disclosures should travel together with the content when shared.
- Base all reviews and opinions on actual experience. Influencers’ opinions must be genuine and based on actual experience (the Bureau recommends that influencers refer to its other technical guidance in Volume 1 for further details on this topic).
- Avoid ambiguous references and abbreviations. “Thank You Company X!”, “Ambassador”, “Partner”, “Company X”, “SP”, “Spon” are insufficient.
Since the responsibility of compliance is shared with brands and companies, the Bureau also included a checklist for advertisers that states:
- Ensure that influencers clearly and conspicuously disclose material connections.
- Disclose material connections in each post.
- Ensure that representations aren’t false or misleading.
- Verify that influencers aren’t making unauthorized performance claims about a product or service.
When entering into agreements with influencers, companies should also consider who bears the risks associated with investigations or penalties that arise from non-compliance. Agreements should specify that the influencer undertakes to comply with the Act and may want to include a content approval process by the company.
For more specific “do’s” and “don’ts”, review the Ad Standards Influencer Marketing Steering Committee Influencer Marketing Disclosure Guidelines. The Guidelines reflect input from Canadian influencer marketing companies, and present useful scenarios and examples.
The connection with consumers that was once achieved through carefully curated print and broadcast campaigns can now often be attained, and frankly surpassed, by a quick post on social media. The novelty and dynamism of this marketing practice has challenged app developers, law makers, and users with assessing advertising practices on the basis of existing regulation. Compared to the US, Canada does not yet have a critical mass of guidance and case law to help influencers and brands know what the specific rules are. As a result, influencer marketing law relies more often on a “gut-check” of the practical risks and consequences that come with it. As social media continues to dominate the advertising industry, it is important for influencers and advertisers alike to align with the core values of advertising in Canada. Doing so properly will prevent adverse decisions from the Bureau or Ad Standards, fines, negative PR and more importantly, maintain consumer trust and loyalty.