With social media popularity comes more followers. With more followers comes opportunities to market products online. But as the wellness-company Teami discovered, with online marketing comes increased FTC scrutiny.

The FTC has been closely monitoring the methods in which celebrities and online influencers advertise products on various social media platforms, as the popularity of this marketing tactic increasingly gains traction. The FTC’s enforcement over influencer-based marketing is derived from the FTC Act and its corresponding Endorsement Guidelines, which give the FTC authority to police deceptive advertisements. For example, this March, the FTC filed suit against Teami, which resulted in a judgment against Teami totaling in excess of $15 million as a penalty for its influencer-marketing tactics.

Since 2014, the FTC had been investigating Teami’s marketing of its family of wellness-tea products on Instagram. The two aspects of Teami’s business practices that were the primary subject of investigation were Teami’s health claims, and Teami’s use of social-media influencers for its marketing.

Central to Teami’s marketing strategy was its use of a vast network of social-media influencers to market its products. Influencer marketing on its own is neither uncommon nor inherently problematic. However, the FTC questioned the accuracy of the benefits Teami and its influencers were claiming for its products, such as “substantial weight loss,” “treating cold and flus,” and even “treating cancer.” The FTC found that these claims were unsubstantiated, and therefore, were false or misleading. These practices were allegedly in violation of the FTC Act for being a deceptive act or practice. However, what Teami was saying was not the only issue, because how they were saying it also concerned the FTC.

Teami permissibly relied on its network of social-media influencers to market its products. For example, one of Teami’s key assets was Kylie Jenner, who, at the time of this article, has 168 million followers on Instagram. Teami had Jenner and its vast array of other influencers post carefully scripted captions along with pictures advertising Teami’s products. The problem with this, according to FTC allegations, was that these curated posts lacked any disclaimers alerting consumers that they were paid advertisements connected to Teami. The FTC Endorsement Guidelines require the full disclosure of any material connection between an endorser and the seller of the advertised product. Here, there was no notice alerting consumers to the fact that the influencers’ posts were essentially Teami’s “paid ads.”

The FTC believed that this conduct was so worrisome that it notified Teami in April 2018 that Teami’s conduct was in violation of the FTC Act and Endorsement Guidelines. The FTC also sent warning letters to 10 of Teami’s influencers. Teami attempted to rectify the situation by implementing an in-house Social Media Policy. Nevertheless, Teami-affiliated influencers continued to post misleading ads. The FTC filed suit against Teami on March 6, 2020 in the District Court for the Middle District of Florida, alleging that Teami was liable under the FTC Act and the Guidelines.

As with many FTC lawsuits, Teami quickly reached a settlement in which it agreed stop its non-compliant marketing practices, and to pay back the earnings it made from the sale of the products at issue, which totaled approximately $15.2 million. Due to Teami’s inability to pay the full $15.2 million, that sum has been suspended upon payment of $1 million to consumers who were harmed.

In addition to filing lawsuits, the FTC is taking other steps to ensure adequate consumer protection in the area of influencer marketing. In February, the FTC unanimously voted to request public comment in an effort to update its Endorsement Guidelines. Of particular note is that FTC Commissioner Rohit Chopra expressed a desire to transform the currently non-binding Endorsement Guidelines into a codified part of the FTC’s formal rules. Codifying the Endorsement Guidelines would usher in a new era of enforceable civil penalties against violators, including the influencers themselves.

With the loosely-regulated days of influencer-centered marketing likely coming to an end, it is important to counsel your clients and your own marketing department on issues that can arise with content that is included, or excluded, in paid, influencer advertisements. It is important to include accurate statements that are not misleading to consumers, and to make sure that all postings contain adequate disclaimers with respect to paid content. As the FTC solicits and considers public comments, companies should take this time to audit their marketing practices to ensure compliance with this evolving area of the law.

For more coverage on the FTC’s enforcement of advertising guidelines, see here.

Editor: Catherine Holland

Written by: David C. O'Hair & Ian W. Gillies