A heavily-followed influencer’s audience knows that her Instagram posts are commercial in nature, thereby, removing the need for disclosure language in some instances. That is what the Hamburg Higher Regional Court asserted in early July in a case that has seen the German competition authority (Bundeskartellamt) take on an unnamed “beauty, fashion, lifestyle and travel” influencer for failing to inform her followers that a number of her Instagram posts were the result of a connection with the brands whose products were featured and thereby, running afoul of German and European Union law.
According to the German watchdog’s complaint, the Hamburg-based influencer – whose name has not been released by the court but who maintains 1.7 million Instagram followers – posted at least three images to her account that endorse the products of third-party brands but that did not make use of the Instagram “Paid Partnership” feature and did not include any disclosure language, such as #gifted or #sponsored. Because the featured products were, in fact, gifted by the brands, the influencer had a duty under the EU’s Unfair Commercial Practices Directive, among other statutes, to clearly identify the commercial nature of the posts, the watchdog argued. As it turns out, the influencer does not specify posts for which she is not specifically paid – but which feature gifted products – as sponsored.
Despite the arguments of Bundeskartellamt, the Hamburg court found that when an influencer posts about gifted products without receiving compensation for the posts, he/she does not need to include disclosure language “if it is obvious to consumers” that the content is commercial in nature. In a decision that stands in contrast with those of its fellow district courts in Braunschweig and Kommanditgesellschaft (KG), Germany, but that is in line with a similar decision from the Higher Court of Munich, the Hamburg Higher Regional Court held that the commercial purpose of the influencer’s posts is “so obvious that there is no risk of [consumers] being misled or of the posts being mistaken for private or editorial content.”
The court held that the individual’s heavily-followed “business profile” and the content she shares – which consists of rare “private” posts in between those of a more obviously commercial nature – clearly “serve the goal of drawing attention to product manufacturers on the one hand and increasing the [breadth of the influencer’s following]” on the other. In short: the influencer’s account, as a whole, is commercial in nature. With that in mind, the court held that disclosure may not be not necessary – even in connection with such seemingly “private” posts – since consumers are not likely to be misled about the nature of the content. The inclusion of “advertisements in supposedly personal matters … have long been known as a means of promoting sales,” the court stated, which means that consumers are “aware that a private presentation of personal recommendations is often advertising.”
More than that, the court held that “express labeling or its omission has no effect on the behavior of a consumer” due to the way that influencer marketing works. For many Instagram users, who tend to follow influencers precisely because they promote relevant products, “the reasons why the product is presented are secondary” to the products, themselves. “The lack of explicit labeling is therefore not [likely] to prompt a consumer to make a [purchasing] decision that he would otherwise not have made,” the court stated.
In addition to finding that the influencer’s failure to include disclosure language is not anti-competitive in the case at hand, the court spoke to the seeming disparity between what is expected of influencers when it comes to disclosure versus what is common practice for magazines and their editors. The court noted that “editors of printed magazines often present and promote products, without disclosing [that such editorial content is pure] product placement.” Brands regularly gift products to magazines and their staffers, with those products likely to be given preferential treatment in the magazines and on Instagram (since heavily-followed editors are influencers in their own right). Yet, “the public is not misled by those magazines,” according to the court.
While the outcome may seem like a big win for the burgeoning number of big-name fashion influencers coming out of Germany, from Caroline Duar and Leonie Hanne to the likes of Maja Weyhe, the case is not necessarily a done deal since it may be subject to an appeal to the Federal Court of Justice, according to Constantin Eikel, counsel at Bird & Bird, who specializes in global branding and advertising regulations. Such an appeal would be significant, he says, given that “this aspect of influencer and advertising law [has not] found common ground throughout Germany” as indicated by the different outcomes in various district court level cases.
Relevance in the U.S.
The core question at issue in the case – essentially, whether such influencer posts are obvious examples of advertising in the minds of consumers – has relevance that extends beyond Germany and the European Union to the U.S., where the Federal Trade Commission (“FTC”)’s guidelines about influencer marketing contain similar language and thus, give rise to similar concerns.
According to the FTC, brand/product endorsements by influencers require disclosure when the influencer has a “material connection” to the brand at issue (which could be “a personal, family, or employment relationship or a financial relationship, such as the brand paying you or giving you free or discounted products or services,” per the FTC), and that material connection is not otherwise obvious to consumers. This issue of obviousness is a particularly interesting one in this realm due to the fact that the level of consumer understanding of influencer marketing is evolving.
To be exact, many consumers currently have a better understanding of the role of an influencer in the world of advertising and of the $8 billion-plus influencer economy than when the FTC most-recently amended its decades-old endorsement guidelines in 2009 and thereafter, supplemented those guides to specifically mention influencer endorsements. This is what a 2019 study by professors Alice Audrezet of the the Institut Supérieur de Gestion in Paris and Karine Charry of the Louvain School of Management in Belgium determined after finding that 88 percent of the consumers that they surveyed between 2015 and 2018 believed that influencers commonly recommend brands or products because they are compensated in some way to do so.
Beyond the basic level of understanding of the commercial nature of influencer marketing that the majority of consumers maintain, the two researchers found that while consumers’ purchasing decisions are increasingly informed by influencer endorsements, “Disclosure makes little – if any – difference to the impact of an influencer’s recommendation” or endorsement of a product. In other words, consumers are just as likely to purchase an influencer-endorsed product whether it is accompanied by a “Paid Partnership” tag or #ad disclosure or not.
Audrezet and Charry’s findings, paired with the overall rise in frequency of influencer and brand (and also, brand and the media) tie-ups, very well may suggest that the need for and the reasons for disclosures might be shifting. The German court’s decision, as it currently stands, may also be pointing in this direction. A potential appeal to harmonize the various district court decisions in German will be telling, as will any impending changes to the FTC’s endorsements guides, which are planned for this year as part of the agency’s systematic review of all current rules and guides.