Social Influence Advertising Legal Guide     

The rise of the global influencer market affords opportunities for individuals seeking to become influencers and content creators with very little startup costs. However, because content creators often do not have legal guidance, their assets and interests are vulnerable to attack and theft, and they could also face costly legal actions from others or from the government. 

Social Influence Advertising Through TV

For many years, the most valuable form of consumer advertising involved television commercials.  Many television ads involved people extolling the virtues of various products and services, and these endorsements typically came from the ranks of athletes and celebrities who had gained fame through their success in sports, modeling, or entertainment.

However, an increasing number of consumers no longer watch traditional television, opting instead for commercial-free streaming services like Netflix, YouTube and Hulu.  This shift has forced makers of consumer products to find new ways to reach potential consumers.

Social Media and Social Influence

Fortunately for makers of consumer products and their advertising firms, the downturn in television viewership coincided with the rise of social media platforms like Facebook, YouTube, Instagram, and TikTok.  These platforms generated a new type of product spokesperson: content creators (commonly referred to as “influencers”). 

Most content creators are not anointed by a cabal of advertisers nor selected for prowess at throwing a baseball or making action films.  Instead, most start their own social media channels and produce content for a small number of followers.  No special sports talent or studio backing is required. All one needs is a camera and microphone, a creative hook, and commitment to post regularly.  A little luck never hurts, of course. Over time, they gain grassroots following which they grow and eventually gain the attention of advertisers who provide free products and direct compensation to content creators willing to share their endorsements and reviews via their own platforms. 

Monetizing Social Influence

So-called “influencer marketing” has become immensely lucrative.  According to some estimates, the global influencer market was less than $2 billion in 2016 but has exploded to more than $21 billion U.S. dollars as of 2023. The rise of the global influencer market affords opportunities for individuals seeking to become influencers and content creators with very little startup costs.

Of course, most do not become rich from their content creation venture.  While only a small percentage of content creators earn over $1 million, nearly a quarter make $50,000 or more a year.  Of those, about half are full time content creators, while the rest use social media platforms as a “side-hustle” or financially friendly hobby.

Legal Issues for Social Influencers

Unlike prior generations of ad spokesmodels, sports stars and other celebrities, today’s content creators typically don’t have teams of lawyers, managers, and agents protecting their interests.  As such, they often do not have legal guidance, and thus can fall prey to legal pitfalls costly legal issues.

Thus, whether a content creator makes $500 a year or $10 million, they must protect with legal rights, respect the rights of others, and comply with state and federal advertising laws.

In this article, we discuss some of typical legal considerations and issues that content creators commonly need to address.

Intellectual Property Considerations

Intellectual Property (“IP”) refers to a range of creative properties that content creators own, including the content they post and upload, as well as their own name, image, and likeness (“NIL”). These rights, which typically fall under either copyright or trademark law, must be identified, secured, and then enforced. Unfortunately, many content creators do not fully appreciate or understand their IP rights.  In addition, content creators must respect the IP rights of others, or risk legal action and social media bans for infringement.

Legal Entities for Safeguarding Earnings

Once a content creator begins to monetize their content, it often makes sense for them to form a legal entity.  These entities, like limited liability companies (“LLCs”) and corporations can provide a number of benefits, including limited liability protecting their personal assets from claims related to the business.  Choosing an entity requires consideration of a number of factors, such as tax implications and management flexibility, and should involve discussions with legal counsel as well as tax planning.

Contracts for Social Influencers

Like any business, contracts drive the relationships between content creators and their various clients, vendors, affiliates, and advertisers.  Contracts of principal importance for content creators include endorsement contracts and the terms of use for the platforms where their content appears.

Endorsement or “brand ambassador” relationships are an important source of income for many content creators, and these relationships are governed by contracts. These agreements outline what services the content creator is expected to provide, as well as what type of compensation they will receive.  Aside from the definition of services and compensation, key terms in these agreements often involve IP and NIL rights and termination provisions.

All users of social media platforms must comply with the terms of use for those platforms, and those terms are contractual obligations which govern a wide range of behavior on and with the sites.  Otherwise, they risk censure or even removal from the platform.  For content creators, having an account suspended or demonetized can effectively close their business.

Regulations and Disclaimers – Compliance in Social Influence Advertising

In addition, content creators must comply with state and federal advertising laws, including Federal Trade Commission (“FTC”) regulations and guidelines against false and deceptive advertising.

If a content creator agrees to serve as a brand ambassador or otherwise endorse a product through social media, their endorsement message should make it obvious when they have a relationship (i.e., a “material connection”) with the brand. A “material connection” to the brand includes a personal, family, or employment relationship or a financial relationship, such as the brand paying the content creator or giving them free or discounted products or services. 

Financial relationships aren’t limited to money and can include anything of value to mention a product. For example, if a brand gives a content creator free or discounted products or other perks who mentions one of its products, they must make a disclosure.

Telling followers about these kinds of relationships is important because it helps keep recommendations honest and truthful, and it allows people to weigh the value of content creator  endorsements.

It is the responsibility of the content creator to make these disclosures, to be familiar with the FTC’s Endorsement Guides, and to comply with laws against deceptive ads.  A content creator cannot offload this responsibility to the advertiser or manufacturer who compensates them to promote their products.

According to the FTC’s publication, “Disclosures 101 for Social Media Influencers” which is available on the FTC website, it is important to make disclosures even if the content creator believes their evaluations are unbiased.  Content creators should not assume their followers already know about their brand relationships, and they should keep in mind that tags, likes, pins, and similar ways of showing they like a brand or product are also considered endorsements. Of course, if a content creator has no brand relationship and are just telling people about a product they bought and happen to like, they don’t need to declare that they don’t have a brand relationship.

Disclosures in Advertising and Proper Endorsements

In making a disclosure, content creators must ensure people will see and understand the disclosure.  Place it so it’s hard to miss.  If possible, the disclosure should be placed with the endorsement message itself. Disclosures are likely to be missed if they appear only on an “About Me” or profile page, at the end of posts or videos, or anywhere that requires a person to click or look elsewhere for the information.

A content creator should not mix disclosures into a group of hashtags or links. If an endorsement is in a picture on a platform like Snapchat and Instagram Stories, they should superimpose the disclosure over the picture and make sure viewers have enough time to notice and read it.

If making an endorsement in a video, the disclosure should be in the video and not just in the description uploaded with the video. Viewers are more likely to notice disclosures made in both audio and video. Some viewers may watch without sound and others may not notice superimposed words. If making an endorsement in a live stream, the disclosure should be repeated periodically so viewers who only see part of the stream will get the disclosure.

In making disclosures, use simple and clear language. Simple explanations like “Thanks to xxxx [brand] for the free product” can be sufficient, as are terms like “advertisement,” “ad,” and “sponsored.”  On a space-limited platform like Twitter, the terms “xxxx [brand]  Partner” or “xxxx [brand] Ambassador” are also options.  It may also be advisable to include a hashtag with the disclosure, such as “#ad” or “#sponsored”. 

Finally, content creators cannot talk about experience with a product they haven’t tried. If a content creator is paid to talk about a product and thought it was terrible, they can’t say it is terrific.  Also, content creators cannot make up claims about a product that would require proof the advertiser doesn’t have, such as scientific proof that a product can treat a health condition.

Conclusion

As noted above, the rise of the global influencer market affords opportunities for individuals seeking to become influencers and content creators with very little startup costs. Because content creators often do not have legal guidance, they can face costly legal issues or fail to protect their rights and interests.

It is a well-established principle of law that, “Ignorance of the law is no excuse.”  As such, content creators must seek and obtain legal counsel to protect their rights, respect the rights of others, and ensure they do not run afoul of any laws or regulations.

For more information about Social Media Law, see our Internet Law and eCommerce Legal Services and Industry Focused Legal Solutions pages.

About the Author: Jim Chester is a technology business lawyer at Klemchuk PLLC in Dallas and is Professor of Practice at SMU’s Cox School of Business, teaching courses in business law & entrepreneurial legal strategies. He can be reached at: jim.chester@klemchuk.com.