The benefits of influencer marketing
Influencer marketing has certainly become a very important and increasingly popular marketing medium in recent years. Obvious benefits are that it enables companies
- to effectively address their promotional endeavours to the desired target audiences and
- to use the influencer’s effect as an idol for his/her targeted followers to create a situation in which these followers identify with the company’s products/services through their cherished influencer.
The pitfalls of influencer marketing and the turning point of the former common practice
However, influencer marketing also has its pitfalls, which have become self-evident in the developments of the last 20 months.
Inter alia German unfair competition law requires a clear separation of editorial and promotional content (so-called separation rule) primarily for the purpose of consumer protection. The German and the European legislators (the separation rule is based on a European Directive) were aware that consumers perceive promotional content in a much more sceptical way than editorial content, because they know that promotional content – in contrast to editorial content – serves a merchandising purpose and is, therefore, usually euphemistic, particularly lacking objective and/or critical analysis. As a result, content which is qualified as promotional content needs to be identified as such (except where this is directly apparent from the content’s context), so that the audience can recognize this directly and is able to draw accurate conclusions.
Otherwise, not only the influencer, but also the company standing behind the influencer can be held accountable under German unfair competition law. This applies not only to German companies, but also to foreign ones, as long as the promotional content is intended to be accessed and perceived by consumers living in Germany.
This identification requirement of promotional content contradicts – to some extent – the company’s desired promotional effects as well as the influencer’s personal interests: Influencers build their brand through their social authority, authenticity and trustworthiness. Companies want to use these values through influencer marketing in order to benefit from the influencer’s proximity to his/her followers as advertising space. The obligation to identify promotional content endangers this authenticity and trustworthiness. The followers of the influencer most certainly recognize that the influencer’s motive of presenting a product/service is not solely based on the influencer’s personal interests or taste, but instead superimposed by economic factors in the form of compensation (either payment or other contribution).
For these reasons, it is certainly not incomprehensible that the required identification of promotional content by influencers rarely took place in the past and resembled the common practice for quite a long time, until this practice started to become subject to complaints and sanctions. The turning point was apparently the judgment of the Court of Appeals of Celle in June 2017 (case no. 13 U 53/17). This judgment created sort of a paradigm shift in influencer marketing, particularly by bringing this grievance to the attention of a broader audience and triggering a wave of hundreds of warning letters from consumer protection watchdogs. These complaints were only challenged rarely before the German courts as the predominant part of these complaints was clearly justified and, therefore, left little room for a successful defence. Apart from that, it is likely that reputational aspects also played a role. Companies and influencers apparently had little interest in letting their legal disputes become public.
The situation of influencer marketing today
Since the judgement of the Court of Appeals of Celle, numerous German court decisions have confirmed that influencer marketing needs to be identified as promotional content, if the influencer has, in particular, received a compensation (payment or other contribution) for presenting a company’s products/services.
These German court decisions have further clarified with respect to various scenarios, what the influencer needs to do in order to comply with German unfair competition law. Basically, the influencer needs to provide promotional content with the clear and unambiguous reference “advertisement” (in German “Werbung” or “Anzeige”). References like “sponsored by” are explicitly deemed to be insufficient. Further, the reference needs to be placed prominently, so that the audience can recognise this at first sight. As a result, the reference needs to be placed in the promotional content (i.e. picture or video) itself or at the beginning of the accompanying text. It does not suffice to hide this reference in a hashtag cloud.
The considerable change in practice based on these legal developments becomes clear – without further ado – by looking at social media today: Influencers identify posts as promotional content at the beginning of the accompanying text and social media networks provide special functions, which emphasize the promotional background of a social media post (e.g. “paid partnership with [company]” and similar).
Taking appropriate action to rule out or mitigate risks
To rule out or at least mitigate potential risks, companies that engage influencers with promotional activities should take the following measures:
- Create awareness on the influencer’s side by providing respective information on the legal framework. Such information can also be provided through written guidelines.
- The service agreement with the influencer should specifically contain provisions on the influencer’s obligation to sufficiently identify promotional content and on the legal consequences in case of failure to comply (in particular, an indemnification to the benefit of the company).
- Social media activities of an engaged influencer in connection with the company should be frequently monitored.
Remaining legal grey areas for influencers and path to legal certainty
Despite the numerous German court decisions in the last 20 months, some scenarios still remain in a legal grey area. These scenarios mainly affect the influencers.
In particular, the German courts still need to clarify the situation, namely, how the influencer needs to act with respect to cases where his/her social media posts contain products/services of a company (including a reference to such company) which were not subject to any kind of consideration, because the influencer purchased the products/services himself/herself or received them as a gift from a third party (excluding the company or its partners etc.).
Such scenario is currently pending in main proceedings before the District Court of Munich I (case no. 4 HK O 4985/18), where the defending influencer and wife of a well-known athlete is fighting a cease-and-desist claim by a consumer protection watchdog. In particular, the District Court of Munich I will have to assess, if the influencer’s posts in question qualify as promotional content and, in this context, find a reasonable counter-balance between the separation rule on the one side and the freedom of media, freedom of speech and freedom of information on the other side.
The outcome of such counter-balance assessment is currently controversial. In particular, the District Court of Munich I mentioned within the previous interim proceedings of the same case in July 2018 (case no. 4 HK O 4985/18) that an identification as promotional content would not be required, if the influencer had not received a consideration. In contrast to this, the District Court of Berlin in May 2018 (case no. 52 O 101/18) decided – with respect to a similar case – in the direction of an identification requirement, but was partly overturned by the Court of Appeals of Berlin in January 2019 (case no. 5 U 83/18).
In sum, it is unlikely that the District Court of Munich I is going to be the last forum to clarity and legal certainty. Instead, it is already apparent now that legal certainty can only be reached by a fundamental judgment of the German Federal Court of Justice.