Legal Thoughts on E-Commerce and Influencer Marketing

"Even though you are the expert at what you are selling, people trust other people's opinions more than they trust you as a salesperson. [...] Find influencers who can write blogs and create reviews for your products. Incentivize people to market and sell on your behalf. Influencer marketing is the best way to engage your audience."

― Greg Jameson

The digitalization of our society brings technologies and practices disrupting pre-established systems. In the field of marketing and more particularly audience targeting, community building practices on social media made new business models and marketing strategies possible.

So-called 'influencers' open brand new reachout possibilities for companies and marketers, who use their communities of loyal and engaged followers to sell products. As marketer Tom Fishburne said, "the best marketing doesn't feel like marketing." This marketing practice is called 'influencer marketing', which is revolutionizing the way companies reach out to their audience. Indeed, potential customers can be targeted specifically and without them even noticing through the individuals they follow on social media.

Marketing author and public relations consultant Stephen Waddington explained that "within any community on the web there will be one to three percent of people creating the content, up to twenty percent involved in the conversation around that and the remainder simply consume the media." Following this thought, the capacity of reaching out to potential customers having never seen the commercial or advertisement made by the influencer himself is huge. This explains the up trend of influencer marketing.

However, this brings new challenges to the law. Indeed, one of the main challenges raised by influencer marketing is that it is sometimes difficult to differentiate between sponsored content and free advice coming from the influencer's experience. Starting from this point, this creates several legal issues concerning the fairness of the advertising. Individuals can make a video online extolling the benefits of a product without having to comply to regulations concerning fair advertisement, which can be viewed as an unfair practice. Moreover, questions regarding the role of the influencer in the conclusion of the contract remains, as of several further issues.

How are national States and more specifically the European Union dealing with the new challenges raised by the practice of influencer marketing? Are the current regulations and guidelines sufficient to solve these issues?

This piece will first try to define in a legal sense these new emerging terms, then it will expose the legal framework on several levels.

Defining 'Influencer Marketing' And Other Related Legal Concepts

For legal methodology purposes it is important to clearly define the relevant terms. Since the latter are indeed broadly used in practice by professionals in the business and marketing branches, it is even more important to come up with clear legal definitions to be able to understand the legal consequences of their characterization.

Influencer - In the common language, an influencer is a person that influences somebody, especially a person with the ability to influence potential buyers of a product or service by recommending it on social media. Slightly differently but in the same sense, it can be someone who affects or changes the way that other people behave or a person who is paid by a company to show and describe its products and services on social media, encouraging other people to buy them. Both sources mostly defined influencers by their economic value to companies.

Legally, an influencer has been defined as a person who has a greater than average reach or impact through word of mouth in a relevant marketplace. Therefore according to this wording, influencers can be defined on their outreach capacities. In this sense, the greatest influencer in 2020 is football player Cristiano Ronaldo, with 220 millions followers. But influencers can also be called that on a shorter scale. So-called micro-influencers run accounts which have between 1.000 and up to 100.000 or 500.000 followers. These can be even more interesting and are nowadays used more by marketers, as they are accessible and more relatable for potential customers.

Influencer Marketing - Influencer marketing is a form of marketing that relies on promoting and selling products or services through individuals who have high reach or influence within a specific community. This involves that the influencer will create content in order to promote the product. This content is not exclusive, since it is directly made by the influencer for his/her community and has to remain authentic. Therefore influencer marketing mainly relies on the influencers and the content they creates. Most of the time, it will be a video or a picture posted with comments explaining how positive the experience with the product was.

Endorsement - The form of advertising in which influencers with high degree of recognition, respect, trust and/or awareness amongst people are used is called 'endorsement'. The approval given by the influencer to recommend the product favourably influences customers' behavior.

In a more legal sense, the US legislator gave its own definition to this term. According to US law, endorsement means "any advertising message [...] that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser." In the same sense, the endorser is the party whose opinions, beliefs, findings, or experience the message appears to reflect will be called the endorser and may be an individual, group, or institution.

Legal Framework

Influencer marketing is challenging the law on different scales. Some countries regulated this phenomenon on their own initiative.

Attempts To Regulate On A National Level - The US and UK have both released guidelines for influencers on social media, particularly focusing on advertising.

The American Federal Trade Commissions has been really active on this field and released guides to educate influencers active with commercial brands online to comply with fairness rules. The problem is that these guidelines are not legally binding and sometimes take non incentive forms, such as blog posts. Furthermore, they intended to incentivize platforms such as YouTube or Instagram to regulate themselves through their own guidelines.

This liberal behavior of the American and British authorities builds a more or less 'anglo-saxon' regulatory system. The latter is clearly in contradiction with the European legislations. European countries adopted a strict regulatory approach to protect consumers.

Some European member states adopted their own legislations. The Netherlands is a role model, as it developed a whole Code about practices on social media. According to Dutch law, both brand and influencer can be held accountable if they fail to properly inform the consumer of the sponsored nature of the content posted online, exposing them to fines up to 450.000 euros.

Germany developed a theory of separation of editorial and commercial content through court rulings. If the influencer doesn't respect this principle, the content will be considered as 'hidden advertisement'. Recently, some courts ruled in this sense for some of the most popular influencers.

French law developed the principle of 'advertisement identification', stating that advertisement should always be labelled as such. Even if the content posted is not advertisement or economically rewarded by the brand, French influencers have to systematically inform their followers if they are commercially bound in any way with the brand.

The European Regulations Concerning Influencer Marketing Practices - The main regulation which can be used to determine whether acts carried out by a digital influencer on behalf of a brand or in their own name in the context of 'influencer marketing' are deemed unlawful, is the Unfair Commercial Practices Directive.. The latter was amended by the so-called 'New Deal' in 2018.

First of all, we can point out that Annex 1 of the UCPD lists the practices which are unfair in all circumstances. This includes "Using editorial content in the media to promote a product where a trader has paid for the promotion without making that clear in the content or by images or sounds clearly identifiable by the consumer (advertorial)". This possibility directly applies to influencer marketing, since influencers could use their content to promote a product in exchange of payment from the trader who sells it. This hypothesis also illustrates the main way in which influencer marketing carries out unfair practices, when this behavior does not clearly state that the promotion of the product was paid for.

Annex 1 UCPD also includes : "Falsely claiming or creating the impression that the trader is not acting for purposes relating to his trade, business, craft or profession, or falsely representing oneself as a consumer". In fact, Article 2 (b) UCPD defines a 'trader' this way, therefore it means that if a trader pretends to be a consumer, this behavior amounts to an unfair practice.

The UCPD identifies different ways in which untruthful and deceptive advertising can be claimed. Article 6 on 'misleading actions' states that in order to be misleading, a commercial practice must be untruthful or deceiving or have the potential to be deceiving, in relation to elements relating to the product such as its nature, characteristics, the extent of the trader's commitments, price, consumer's rights. Misleading actions are unlikely to be found in a digital marketing situation, therefore Article 6 might not be the best basis for this purpose. In fact, the influencer wouldn't be deceiving about the existence or nature of the product, provided they described it correctly, and since they aren't the entity selling the goods but only promoting them, they wouldn't be concerned with questions relating to price or consumer's rights for instance.

Article 7 offers a different basis for unfair practices, namely 'misleading omissions'. This particular behavior has to do with the material information an average consumer needs in order to make an informed transactional decision, and the way this information could be made misleading by the trader, either by hiding or omitting key information, or by making this information unclear or ambiguous. In this case, there would be a greater chance of finding an action against a digital influencer, since in their promotional message they could omit to mention that it is in fact a paid promotion and not a simple product review.

However, in the case that actions on the basis of Article 6 or 7 fail, consumers can always rely on the general clause laid out in Article 5. This article states that unfair commercial practices are prohibited, and that a practice can be considered unfair if it is contrary to the requirements of professional diligence and it materially distorts the economic behavior that can be expected of the average consumer or group of consumers whom the product is addressed to. Professional diligence is defined as "the standard of special skill and care which a trader may reasonably be expected to exercise towards consumers, commensurate with honest market practice and/or the general principle of good faith in the trader's field of activity". This is relevant to the issue of influencer marketing, since hiding the fact that a review of a product has a promotional nature and is not genuinely made by the content-creator, can be seen as both incompatible with professional diligence, and distorting the economic behavior of the average consumer since there is a probability they wouldn't have purchased the product hadn't it been for the review the influencer had done.

The first problem which arises from the question of influencer marketing and the potential claim which can be made against the influencer for unfair commercial practice due to the non-disclosure of the promotional nature of the message they relay about the product, is that the influencer must be considered a 'trader' in order for the UCPD to apply.

In fact, article 3 (1) states that the Directive only applies to B2C relationships. Influencer marketing generally creates three kinds of relationships: influencer-followers ; influencer-brand ; influencer - social media platform. The specific relationship which we are focusing on is the one between the influencer and their audience (the followers). In this particular case, the followers are clearly the consumers, however, determining the influencer's nature is more complicated. It is therefore necessary to first of all determine whether the influencer is a trader or not, because if it isn't the case it will not be possible to claim they made a misleading advertisement. The UCPD defines the trader as any natural or legal person who, in commercial practices covered by the Directive, is acting for purposes relating to their trade, business, craft or profession and anyone acting on behalf of a trader. Moreover, the Kamenova case, despite concerning the sale of goods and not the provision of service like that is the case for influencers, can provide guidance on the qualification of trader. In fact, it stated that in order to be qualified as trader and for the activity to constitute a commercial practice, the individual must be acting for the purposes listed in the UCPD definition, and additionally, national courts have to determine this in the light of the circumstances on a case-by-case basis. Therefore, if a digital influencer has a considerable number of followers and shares content as their full-time job for instance, they are likely to be considered as a trader under the UCPD definition. The issue of identification of the influencer's nature concerns content-creators who are on the threshold between still being considered a consumer and having the status of trader. Influencer marketing also being a very recent field of activity, it is possible that the influencer is not aware of their trader status, and in such case it won't be possible to make a claim against them for unfair commercial practice because of their lack of awareness.

The second problem which arises is that in order for the UCPD to be actionable, the unfair act on the part of the influencer must cause or be likely to cause the average consumer to make a transactional decision they would not have otherwise taken. This requirement is set out in article 6 and 7 as previously established, as well as article 8 on aggressive commercial practices. The problem resides in the question of whether the influencer's act was the primary motivation for the purchase by the consumer, or if it simply strengthened a decision the consumer has already taken.

The E-Commerce Directive can be used in the context of the evaluation of the platform's role which hosts the digital influencer, in a claim from a consumer regarding an untruthful advertisement made by the former. First of all, the platform has to qualify as trader under the UCDP, which will often be the case for large social media companies. The Verband case established that the identity of the trader must be disclosed on the platform. Online platforms can invoke article 14 of the E-Commerce Directive to discuss the fact that the platform simply acts as an intermediary between the influencer and their followers, and is therefore not liable for the information stated in the content shared on it. Article 14 further explains that the platform is not liable as long as it wasn't aware of the illegal information (in this case, misleading advertising) which was being shared on it, and as long as it acted to remove or disable the access to that information as soon as it was made aware of it.

Conclusion

The analysis of the legal challenges to the new field of influencer marketing both in more liberal States such as the USA, and in regions favoring a more regulatory approach such as for the Member States of the EU, revealed that the current regulatory framework was not tailor-made for this new field. Even the latest reform on the question in the EU, known as 'The New Deal', wasn't able to tackle the specific issues raised by influencer marketing, by choosing instead to focus on the regulation of online platforms in an attempt to increase transparency, for instance by setting a framework for online searches ranking. However we can argue that the same rules imposed on online platforms can be applied for the influencers, and that the recently introduced collective action could be used for a claim against specific influencers by groups of followers-consumers.

Moreover, even where a regulation is in place to specifically tackle the issues of misleading advertisement by influencers on social media platforms, States often prefer carrying out their enforcement in last resort, and rather give simple warnings to the individuals concerned, about the illegal character of their acts, which they sometimes aren't even aware of, as previously established.

Influencer marketing is therefore now more than ever a thriving field of activity, which will only get more rooted into the current advertising landscape due to the exponential digitalization of our society. It will keep creating legal questions until a specialized regulation, ideally harmonized on a global level given the immaterial nature of online platforms hosting it, will be developed.

Additional literature:

Dr Riefa, Christine ; Clausen, Laura. "Towards fairness in digital influencers' marketing practices." ​EuCML Journal of European Consumer and Market Law​, #8, 2019.

Case law:

C-105/17 "​Komisia za zashtita na potrebitelite v Evelina Kamenova."​ 4 October 2018.

Landgericht Berlin, 52 O 101/18 ; Landgericht München, 4 HK O 4985/18.

C-422/16 "​Verband Sozialer Wettbewerb eV v TofuTown.com GmbH​." 14 June 2017.

Legal sources:

§ 255.0 (b) 16 CFR Part 255 - Federal Trade Commission 16.

UCPD: Article 2 "Definitions," (b, h) ; Article 5 "Prohibition of unfair commercial practices," §§1, 2 (a, b) UCPD ; Article 7 "​Misleading omissions​," (4) UCPD ; Article 14 §1 (a),(b) UCPD.

Dutch Advertising Code on Social Media.

Directive (EU) 2019/2161 of the European Parliament and of the Council of 27 November 2019 amending Council Directive 93/13/EEC and Directives 98/6/EC, 2005/29/EC and 2011/83/EU of the European Parliament and of the Council as regards the better enforcement and modernisation of Union consumer protection rules (and its Annex I "Commercial practices which are in all circumstances considered unfair." nr 11.)

​Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market.​ Hereinafter '​UCPD​'.

Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (​Directive on electronic commerce​)