“TO DISCLOSE OR NOT TO DISCLOSE… THAT IS THE QUESTION!”
Guest post by Delia Graetz, Lucas Hieronimus & Florian Bachmann
Over the last years, the business of influencer marketing has practically exploded. Companies have begun to realise the multiplying factor of having influencers promote their brand through original and entertaining content. However, in combination with this marketing trend, several legal issues have come to the forefront. Is a post for which a brand sponsored the creator an ad? How should content creators label their posts so that their followers immediately recognise the content’s commercial purpose? Several jurisdictions are currently dealing with such questions, and by far, not all have found the right approach so far. Following, you will find an analysis of how three major European jurisdictions, Germany, the Netherlands, and the United Kingdom, are currently dealing with these issues and whether the approaches are in touch with the requirements of the social media reality.
In the last years, the German jurisdiction has shown that it has severe problems adapting to the increasing importance of influencers and social media advertising. So far, the Federal Court of Justice (BGH) has not issued any landmark ruling on the subject matter, and the legislator has not provided any specific legislation dealing with advertisements on social media outlets such as Instagram. Currently, influencer activities are mostly regulated through the Unfair Competition Law Act, the Telemedia Act, and the Broadcasting Treaty. As this lack of appropriate legislation has led to some confusion in recent case rulings and the importance of social media promotion is increasing daily, the Federal Government has already announced new influencer Regulations in 2019 that are currently debated.Another disadvantage of the current lack of specific regulations is that the German legal system provides no particular definitions for providers, distributors, online creators or even advertisement in this online sphere. Generally, an online contribution, for example, an Instagram post, must be labelled if it contains commercial communication. An exception is that companies are not strictly required to disclose a commercial intent where this is, due to the content’s context, obvious for the everyday user. Therefore, if a significant brand posts an image depicting one of its products on its own social media site, it is evident that this post has an advertising character. Therefore, it does not have to be labelled as such.One can, in principle, distinguish between three main situations regarding online advertisement through influencers. In the first situation, the influencer buys the product and promotes it on his/her channel. Under German law, the original assumption was that if the influencers post contains an objective and neutral evaluation of the product, the post is not considered to be an ad. Recent judgments, however, made this assumption somewhat blurry. For example, the courts demanded that particular caution is required if a business relationship between the influencer and the relevant companies exists or existed before the content was published.Additionally, in the infamous Cathy Hummels case, the German courts decided that an Instagram post that contains a product and corresponding links to the online presences of the relevant companies is an advertisement even if the influencer did not receive any compensation. In general, posts that contain any tap tags, which are links to other commercial profiles or brands, without the required labelling are prohibited. The distinction between a post containing merely editorial content and an advertisement is also not easy to make. Currently, German law does not assume such editorial intent if the relevant post includes unnecessary tap tags or does not provide any informative content.The second case group includes situations in which the good depicted in the online content are provided for free. If the company expects the influencer to make a positive reference in exchange for sending him/her a product, the post has a commercial character and must be labelled as an ad. However, as long as the company sends the product to a content creator without any prior agreement or expectations, there are no requirements to label the company’s contribution.Lastly, and relatively straightforward under German law, if a company pays a content creator to publish a post praising its services or products, this is always considered an ad and consequently has to be labelled appropriately.But how does proper labelling of an Instagram post look like under German law? The rule of thumb is that a post must be labelled so clearly that it is immediately apparent that the content has a commercial purpose. In practice, this means that a post description must contain the terms Anzeige (advertisement) or Werbung (promotion). So far, it is unclear whether the corresponding English terms are also sufficient. According to the State Media Authorities, content creators should avoid using these English terms to be on the safe side. Additionally, influencers cannot disguise the content’s promotional character by hiding the indicating terms in a cloud of hashtags. Rather the identification must be visible immediately. Another problematic aspect of the current regulation of influencer promotions is that it is not entirely clear who is liable for the undisclosed commercial intent. Generally, a company can be held liable under unfair competition law principles if it agrees with a content creator to publish posts with a commercial intent without labelling the advertising character. The infamous cases of Vreni Frost and Cathy Hummels (two famous German influencers) have shown that the courts usually impose a minor fine for first-time offenders and impose only in extreme cases fines of up to 250.000€.
The Advertising Code Authority in the Netherlands has been dealing with matters of advertisement since 1963. This body has been promoting the self-regulation of advertising, which means that the advertising industry itself formulates the rules on advertising. However, these rules have to be compliant with current societal standards and expectations and constantly mirror a responsible way of advertising. Since 2014, Influencers must be transparent when advertising a product or service on social media platforms. This has been further detailed in the Social Media Advertising Code included in the Dutch “Reclame Code” or Advertising Code. Firstly, the Dutch Advertising Code contains a general section that deals with a body of rules with which all forms of advertisement must comply with. Secondly, the section of special advertising rules stipulates topics such as social media and influencer marketing. Due to the rapid developments in the sphere of social media, guidelines have to constantly be reviewed. In 2019, an update of the current Advertising Code was published under the name “Advertising Code Social Media & Influencer Marketing.” The ‘Advertising Code Social Media & Influencer Marketing’ discusses: First, it is important to mention that the distribution of the advertising message now mainly falls on a distributor who has frequently been instructed by the advertiser himself to pertain to a certain message to the consumer. In this case, a ‘distributor’ can be defined as the party that has a relevant relationship with an advertiser and that uses his/her/their social media platform to distribute advertising. This may be a natural person or a legal entity but is not understood to be the social network site themselves. The relevant relationship is then understood to be a connection between the advertiser and distributor whose aim is to advertise through social media for any type of remuneration or benefit. This benefit could also be in the form of additional ‘followers’ on the platform or publicity for its own site. What is laid down in this Code and relevant for advertising on social media, and as discussed here, on Instagram, is that where a relevant relationship is prevalent, the consumer must be informed of its existence. In the Netherlands, a specific duty is laid on the advertiser to inform the distributor about the relevant provisions in national law and to continually encourage the latter to obey those provisions and act if there is a failure to comply. The advertiser can only exonerate himself from the distributor’s failure if he had obliged with these standards. Certain guidelines on advertising that is distributed through a photo/message sharing platform such as Instagram elaborate on the mention of hashtags such as:#ad#adv#spon#collab#partner(ship)or through a text written in the description of the post containing a photo/ message such as:“Collaboration with @(advertiser)”“Made possible by @(advertiser)”“Received as a gift from @(advertiser)”Besides the mentioned Advertising Code, other relevant legislation on the topic is laid down in Articles 6:193a-6:193j of the Dutch Civil Code. These articles protect against unfair commercial practices and are subsequently applicable in situations of social media and influencer marketing. The Dutch Advertising Code has been issued by the Dutch Advertising Code Authority, also called Stichting Reclame Code. Furthermore, the ACM, or Netherlands Authority for Consumers and Markets, ensures that fair competition between businesses is ensured and aims to protect consumer interests. Ensuring that the guidelines issued are respected, the Advertising Code Committee (‘Reclame Code Commissie’), and if relevant, the Board of Appeal may judge on matters that concern advertisements and their compliance with the Dutch Advertising Code. Complaints can be submitted by anyone who feels that the rules of the Dutch Advertising Code have been violated, under certain conditions, of course. The Committee, which is an independent body, then decides after a ‘transparent and swift’ procedure whether a conflict is at hand. Further monitoring efforts by, for example, the Compliance Department enable the Dutch authorities to make decisions and publish recommendations in the consumer’s best interest. A relevant decision that the Reclame Code Committee has made was that the mentioning of a slogan could not be portrayed as sufficiently clear to the consumer. In the decision, it was discussed that the consumer could not be expected to establish a link between the advertiser and the business through only a mention of a slogan such as “Just Do It” and immediately realise that some form of advertisement is at hand. Anyone can have access to these decisions as they are all published in an online database accessible to third parties. If there is a continued violation in place, the advertiser in question may be labelled “non-compliant.”  The rules concerning social media and influencer marketing are laid down clearly and seem to have a transparent monitoring system that focuses on consumer protection. The self-regulation system has been in place for a long time. However, social media and influencer marketing rules are fairly new, and it has yet to be established whether enough protection is provided. It can be concluded, nevertheless, that everything is easily accessible for both Dutch and English-speaking parties. The information provided is positively structured and can be described as helpful to both the advertiser and the distributor.
The United Kingdom
As online consumption continues to increase and more budget is allocated to online advertisement, influencer marketing has grown exponentially. The global influencer marketing industry is currently estimated to be worth 5.5 billion dollars and predicted to grow to 20 billion dollars in the next four years. According to Mediakik, in the United Kingdom alone, brands have spent more than 700 million pounds on Instagram influencers as they are considered to have a personal relationship with their audience and provide more interesting and engaging content. Nevertheless, influencer advertising can sometimes be ambiguous or deceiving if it is not clear to the users that the content has been paid for or sponsored by the advertised brand. A recent report from the United Kingdom Advertising Standard Authority disclosed that a considerable number of users had had issues identifying whether a specific post by an influencer was an advertisement or not. In the report, the ASA revealed that 98 per cent of the complaints received by the regulation authority in 2018 were from members of the public and that 70 per cent of them concerned potentially misleading ads. This highlights the importance of influencer marketing regulation. In the United Kingdom, various rules are applicable depending on the circumstances, but the two main bodies of law are the UK Code of Non-Broadcast Advertising and Direct and Promotional Marketing and the Consumer Protection from Unfair Trading Regulations, hereby respectively referred to as CAP and CPR. The CAP addresses non-broadcast advertisements, marketing communications, and sales promotions. It is primarily concerned with the content of marketing communications and not with the products themselves or the contractual relationship between the influencer and the brand. The peculiarity of this instrument is that it establishes a self-regulating system. Similarly to the Netherlands, the Code rules are not statutory but developed by the Committee of Advertising Practice, an independent and self-regulatory body composed of organisations that represent the advertising, marketing and promotion, and other media businesses. Self-regulation is an alternative to statutory supervision and allows the marketing community to produce communications that ensure the integrity of advertising but remain practicable for the community. The Advertising Standards Authority is the independent body that approves and enforces the Code and ensures that the self-regulatory system operates properly. The Consumer protection legislation is also applicable to influencer marketing. This instrument prohibits engaging in unfair commercial practices with consumers and aims to protect consumers from aggressive sale strategies and unfair or misleading trading practices. The Consumer Protection from Unfair Trading Regulations for its part is enforced by the Competition and Markets Authority (CMA) which is also an independent organisation that has the responsibility to investigate and regulate markets and industries and enforce consumer and competition law in the United Kingdom. According to Section 2, as a general rule, all advertisements covered by the CAP Code must be obviously recognisable as such. This means that consumers should be able to identify that something is an advertisement without having to search for it. Both the advertiser and the publisher are responsible for making clear that specific content is advertisement. If it is not obvious from the context that the content is an advertisement, additional steps have to be taken to make it clear. If the influencer promotes his or her own products or services, users are usually capable of recognising that the influencer is advertising his or her own items and, consequently, no specific label is required. This, however, is not so clear for affiliate marketing and advertorial content. If the content published by the influencer promotes a product or a service and contains a discount code or a hyperlink, the influencer is required to make clear that either parts of the content are related to affiliate-linked products and are thus advertisement or that the whole content is about affiliate-linked products and is thus an advertisement. Comparably, if an influencer collaborates with a brand to create content, is paid, and has editorial control over the content, the influencer has to disclose the commercial relationship and that the content is either a sponsor or an advertisement. Both payment and control are required for the content to be considered an advertisement under the CAP. There are various means to indicate that content has been paid for and is an advertisement, but the most effective one is to label it as such. The ASA recognises several labels, including “Ad”, “Advertisement”, “Advertising” “Advertising feature”. The adequate label will be based on the degree of editorial control the brand has on the product or service. If the brand has editorial control over the content, it is considered sponsored content, which does not fall under the CAP’s scope.Nevertheless, if the influencer has been paid to promote the product or service, the Consumer Protection legislation enforced by the CMA still applies, and the content needs to be labelled so that consumers are aware of the commercial relationship between the brand and influencer. The content can be labelled as “partnered with”, “powered by” or simply “sponsored by”. On the other hand, if the brand has limited editorial control over the content, it is considered a marketing communication. The CMA then suggest labels such as “ad” or “advertisement feature.”In addition to the identification imposed under Section 2 of the CAP Code, Section 3 states that the marketing communication must not mislead the consumer by hiding material information or presenting it in an unclear, unintelligible, ambiguous or untimely manner. Material information is any information that the consumer needs to be aware of to make informed decisions, including the label, the main characteristics of the product or the price of the product. Section 3.3 adds that whether the omission or presentation of material information is likely to mislead the consumer depends on the context, the medium and, if the medium of the marketing communication is constrained by time or space, the measures that the marketer takes to make that information available to the consumer by other means. As mentioned above, in the United Kingdom, ensuring that content is adequately labelled and that the commercial relationship between the parties involved is clear to consumers is a shared responsibility. Both the influencer and the brand that is advertised by the influencer can be held accountable for breaching these requirements. There are different stages to deal with violations of the CAP Code. Most of the time, the ASA first investigates the complaint and communicates with the parties involved. In the case of minor wrongdoing, the ASA will attempt to resolve the issue by providing advice and guidance to the influencer or the brand concerned and eventually require that the content at stake is changed or removed. If the content seriously breaches the requirements, the Committee can require the amendment or withdrawal of the content. If the influencer or brand do not comply or persistently violate the Code requirements, the ASA can take more serious sanctions, such as requiring that internet search websites remove a marketer’s paid-for search advertisements when those advertisements link to a page that contains material that breaks the rules or has their name and details featured on a dedicated section of the ASA website to signal advertising violations.In case of violation of the Consumer Protection from Unfair Trading Regulations, the CMA will investigate then it will ask that the advertiser and influencer provide undertakings to ensure that such content is clearly labelled in the future. This is usually sufficient to ensure no further action is taken. Nonetheless, misleading advertisements and unfair commercial practices, including misleading omissions and failing to make paid-for content clearly identifiable, can be criminalised under the CPR. Influencer and brands may thus face fines or imprisonment for serious breaches in respect of marketing communications.
 Munich Regional Court, Judgment of 04/29/2019, 4 HK O 14312/18 – Cathy Hummels
 Karlsruhe Regional Court, Judgment of 03/21/2019, 13 O 38/18 KfH – Pamela Reif
 Berlin Appellate Court, Judgment of 01/08/2019, 5 U 83/18 – Vreni Frost
 Celle Higher Regional Court, Judgment of 06/08/2017, 13 U 53/17 – advertising for the drugstore chain Rossmann with “#ad”
 Celle Higher Regional Court, Judgment of 06/08/2017, 13 U 53/17 – advertising for the drugstore chain Rossmann with “#ad”