Canada’s Intellectual Property Firm

Like & Follow! What to know when #advertising with #influencers

Authored byJamie-Lynn Kraft and Reagan Seidler

If a latte is poured without anyone to photograph it, does it make a design?

Instagram, TikTok and YouTube are this century’s silver screen. They’re the way people stay in touch, share artistry, and learn about the trends and fashions impacting the world they live in. While showcasing the heights (and depths) of modern self-expression, such expression has limits when brands sponsor content.

From athletes to celebrity teachers, fashionable grandmas, and now even computer-generated “simfluencers”, social media stars are increasingly leveraging followers into pricey endorsement deals. The personal nature of the medium offers brand owners something unique – a blurring of opinion and advertisement that lends their marketing an air of authenticity. Yet it is precisely this softening of the line between fad and ad that is catching the attention of regulators – and getting some brand owners in trouble.

In Canada, influencer marketing is regulated by the federal government under the Competition Act (administered by the Competition Bureau) as well as the self-regulatory body, Ad Standards Canada. According to guidelines set out by these bodies, there are two “Golden Rules” advertisers must abide by when marketing through influencers:

Golden Rule #1: Disclose any material connections

If an influencer talks about a product, service or brand, and there is a connection between the influencer and the product/service/brand which may affect the weight or credibility of that statement, then the connection must be disclosed. This is known as a “material connection”. Of course, the most obvious form of material connection is payment. But a material connection can also include such arrangements as gifts, contest entries, event invitations, family relationships employment relationships and ownership stakes.

As soon as there is a material connection between the influencer and the product/service/brand, the influencer must disclose it in a meaningful way.

Hashtags are a disclosure tool that everyone can easily understand, but influencers and advertisers should make sure that they choose an appropriate hashtag. Acceptable and widely recognized hashtags include #ad, #sponsored, #[brand]_partner and #[brand]_ambassador. Unacceptable hashtags are generally those that are too ambiguous, such as #Spon, #Collab, #Ambassador, #Promo and #[brand].

The disclosure must be clear, prominent and inseparable from the content of the post and must be specific to each sponsored post (rather than a blanket disclosure in an influencer’s bio).

There is no exact formula for disclosure, and the door may be open for influencers and advertisers to get creative. What ultimately matters, and will determine compliance, is that the consumer is not manipulated and clearly understands that a connection exists and that the content is sponsored.

If there is inadequate disclosure, then the influencer’s content could be considered false or misleading, contrary to the Competition Act.

Golden Rule #2: No misleading marketing

As with all forms of advertising, any statements made in the course of influencer marketing must not be false or misleading. It is important that all parties involved ensure that any statements made by an influencer about a product/service/brand are:

  • Genuine opinions based on experience,
  • Claims based on facts, or
  • Performance claims based on proper and adequate testing.

AI influencers

Proving no job is safe, bots and animated characters are now entering the ranks of social media’s elite.

Doing everything typical posters do – modelling clothes, sharing stories, asking for discounts – virtual influencers are trending as a way to reach online audiences without the pesky interferences of humanity.

And just like other influencers, the same rules should apply (in addition to Asimov’s laws).

The primary difference is that “experience” can no longer form a basis for making product claims.  Until these bots become self-aware, attributing positive feedback to AI influencers runs the risk of “astroturfing” – the practice of making fake reviews for an organization’s own gain. Since Canadian authorities have yet to provide public guidance on the specific issues posed by AI influencers, advertisers should proceed with caution when deploying AI influencer marketing. Thought should be given to whether sponsored posts from AI influencers should include additional disclosures regarding the influencer’s humanity (or lack thereof).

That said, AI influencers can be contrasted with dedicated AI mascots. If an AI mascot speaks for one company only, repeated reminders of the material connection to its creator are probably not necessary since the connection is clear, similar to when dedicated human spokespeople promote their affiliated brand.

Consequences for breach

Ad Standards reviews several hundred ads each year, with 50-60 being referred for a full adjudication. When one is found to contravene Canadian standards, the advertiser is asked to change or withdraw the ad. Ad Standards also publishes public reports detailing why, after its assessment, the advertisement was found to be in breach.

Beyond these reports, there has been little enforcement by Canadian authorities so far.  Regulators are choosing an educational approach – as when, in December 2019, the Competition Bureau sent letters to nearly 100 brands and agencies involved in influencer marketing, warning them to make sure their practices complied with the law.

There is, however, one notable exception. In 2015, Bell was fined $1.25 million by the Competition Bureau for directing Bell employees to write favourable reviews of Bell products on various websites and web application platforms without disclosing their employment status. It remains to be seen if the Competition Bureau will continue with this penalty-focussed approach against individual influencers and advertisers.

In the United States, where influencer marketing is regulated by the Federal Trade Commission (FTC), the FTC sent a “Notice of Penalty Offences” to more than 700 companies (including top consumer product companies, leading retailers and retail platforms, and major ad agencies) in October 2021. While not alleging that the recipients had acted unlawfully the Notice put the recipients on notice that the misleading use of endorsements could lead to major financial penalties.

In the United States, where influencer marketing is regulated by the Federal Trade Commission (FTC), the FTC sent more than 90 letters to advertisers and high-visibility mega influencers, reminding recipients of the requirement to clearly and conspicuously disclose any material connection in influencer posts. This type of focus on education rather than punishment is another way in which we may see future action by the Canadian authorities.

Proper and lawful marketing is viewed as a shared responsibility. When the regulators review influencer marketing, they look at all entities involved and hold everyone accountable. This includes not only the influencer and the advertiser, but also intermediaries such as the advertising agency and the social media platform.

By observing the Golden Rules, advertisers and influencers ensure both compliance with Ad Standards Canada and the Competition Act and the maintenance of audience trust (because, of course, the greatest risk of bad marketing is bad press). Proper disclosure of sponsorship or promotion demonstrates advertiser and influencer integrity. Even if the Competition Bureau is unlikely to go after a particular breach, implementing the Golden Rules promotes consumer confidence.

Best practices

Advertisers can take steps to adhere to the Golden Rules of influencer marketing by putting in place strong agreements with the influencers they engage. These agreements should clearly set out what type of content is acceptable and what type of content is unacceptable, including the requirement to disclose a material connection and to only make claims about a product which are truthful and based on adequate testing.

To ensure compliance, advertisers should have the right under their influencer agreement to remove an influencer’s posts for any reason, as well as provisions which limit the advertiser’s liability if the influencer “goes rogue” and does not follow the Golden Rules.

In light of the potential pitfalls in influencer marketing, it is crucial that all those engaged in such activity seek legal advice from their advertising counsel to ensure that they abide by the Golden Rules. If you have any questions or would like further information, please contact a member of our firm’s  Marketing and Advertising group.

The preceding is intended as a timely update on Canadian intellectual property and technology law. The content is informational only and does not constitute legal or professional advice. To obtain such advice, please communicate with our offices directly.