Trademark experts offer insight into the advertising regimes in their respective jurisdictions and, crucially, how brands can avoid falling foul of the law.
The advertising decision-making process is an area of company activity where the intersection of trademark rights and marketing considerations becomes readily apparent. Ignore the legal complexities and the results can be both costly and commercially damaging. Yet advertising restrictions in different jurisdictions pose real difficulties for marketers seeking to create a consistent brand message, as well as for trademark counsel trying to ensure that advertising campaigns do not fall foul of the relevant rules and regulations.
The challenge is made even harder by the fact that market practices are constantly shifting, with influencers and endorsers complementing traditional channels. In this exclusive roundtable a panel of experts from across the whole of the Americas – Paula Fernandez Pfizenmaier of Randle Legal in Argentina, Jennifer McKenzie and Amanda Branch of Bereskin & Parr in Canada, Eugenio J Torres-Oyola of Ferraiuoli in Puerto Rico and Roger Colaizzi of Venable in the United States – take a strategic look at the factors at play and offer practical advice on how to navigate this complex landscape.
Which bodies are authorised to regulate advertising in your jurisdiction?
Roger Colaizzi (RC): In the United States the Federal Trade Commission (FTC) is empowered to prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce, and to seek monetary redress and other relief through the FTC Act for conduct harming consumers. It also issues and enforces rules identifying acts or practices that are unfair or deceptive, and conducts investigations and initiates legal actions relating to the organisation, business, practices and management of entities engaged in commerce. The mandate of the FTC’s Bureau of Consumer Protection “is to protect consumers against unfair, deceptive or fraudulent practices”. Meanwhile, state attorneys general are the chief legal officers of their states and have the authority to bring actions on behalf of consumers or the public in almost any area of law. Attorneys general pay particular attention to advertising claims, but they also investigate and bring actions under their states’ unfair, deceptive and abusive practices (UDAP) laws. Also known as mini-FTC acts, UDAP laws tend to broadly prohibit deceptive or unconscionable acts against consumers. In addition, local district attorneys in many counties utilise consumer protection units to investigate and initiate public prosecution against individuals and entities engaged in unfair, deceptive and unlawful business practices.
Jennifer McKenzie (JM): There are several federal and provincial/territorial regulators that are responsible for regulating marketing and advertising in Canada, as well as industry self-regulatory bodies. Advertising and marketing are principally regulated by the federal Competition Act. This is enforced by the Competition Bureau, which is in turn led by the commissioner of competition. The commissioner investigates both criminal and civil reviewable matters under the act. Advertising is also regulated by Ad Standards, an industry self-regulatory body that enforces the Canadian Code of Advertising Standards. This consists of 14 clauses, some of which mirror the provisions in the Competition Act. There are two ways in which violations of the code can be reported. First, the Consumer Complaints Procedure allows consumers to complain to Ad Standards about contraventions of the code. Ad Standards employees will then evaluate the complaint to make a preliminary determination that there may be an infraction. Second, complaints can be raised through the Advertiser Dispute Procedure – a confidential procedure designed to resolve disputes between advertisers.
Paula Fernandez Pfizenmaier (PFP): Argentina does not have a specific law on advertising. However, there are many areas of legislation and regulation that affect advertising in our country, such as the Fair Trading Act, the Consumer Protection Act and the Trademark Law. Several industries are also subject to specific laws that govern their advertising and/or have specific provisions that apply in the advertising codes, such as alcohol, tobacco or food. Finally, self-regulation plays a primary role in the Argentine system. The main regulator is the Advertising Self-Regulation Council (CONARP) and its self-regulation code applies to all kinds of advertising. As a consequence, different bodies are authorised to regulate advertising from both the public and private sector. Moreover, early in 2019 the Argentine executive branch issued Emergency Decree 274/2019 establishing a new regime for fair trading-related matters and introducing material changes on aspects concerning unfair competition, advertising, comparative advertising, the administrative procedure for sanctions and court actions.
Eugenio J Torres-Oyola (ET): The Department of Consumer Affairs and the FTC are specifically mandated to regulate advertising in Puerto Rico.
What constitutes misleading and/or deceptive advertising in your jurisdiction?
PFP: Any advertising campaign that may lead consumers to mistakes or confuses or deceives them about the nature, properties, quality, quantity, use, price, conditions of commercialisation or any other characteristic of the product or service offered or promoted constitutes misleading advertising in Argentina. Moreover, Resolution 248/2019, issued by the Secretariat of Domestic Trade, specifies that an ad will be considered misleading when the information provided is incomprehensible by reason of the speed of its spoken language, the size of its lettering or any other problematic aspect.
ET: In Puerto Rico, the Regulations Against Misleading Practices and Advertisement (8599-2015) specifically define the term ‘false advertisement’ as: “Any ad that constitutes or tends to constitute fraud, hoax, or that communicates or tends to communicate a false, confusing, or incorrect idea about an advertised good or service… Any ad that omits relevant facts about the product, good, or service, thus limiting or depriving the consumer from making informed and conscious decisions.” The regulations also define the term ‘misleading practices’ as: “Any act, practice, conduct, persuasion mechanism, offering, information, or pledge made, or apparently made or suggested, that is misleading, confusing, false, deceitful, or that in any way tends towards falsehood, or tends to distort or may allow the misinterpretation of true facts.”
JM: The Competition Act includes civil and criminal provisions, both of which prohibit false or misleading representations and deceptive marketing practices in promoting the supply or use of a product or any business interest. Under the civil provisions, it is reviewable conduct to make or permit the making of a representation to the public, in any form whatever, that is false or misleading in a material respect. The criminal provision includes a mens rea component by prohibiting knowingly or recklessly making or permitting the making of a representation to the public, in any form whatsoever, that is false or misleading in a material respect. The general impression conveyed by a representation, as well as its literal meaning, must be taken into account when determining whether the representation is false or misleading in a material respect. In general, the bureau will pursue the civil track unless there is clear and compelling evidence suggesting that an accused knowingly or recklessly made a false or misleading representation to the public and a criminal prosecution would be in the public interest. If the Competition Tribunal or court determines that a person has engaged in conduct that is contrary to the act’s civil deceptive marketing provisions, it may order the person not to engage in such conduct, to publish a corrective notice, to pay an administrative monetary penalty and/or to pay restitution to purchasers. The tribunal or court also has the power to order interim injunctions to freeze assets in certain cases.
RC: The Lanham Act (15 USC §1125) not only serves as the basis for protecting trademarks and trade dress against infringement but also covers claims of false advertising, brand protection and anti-cyber piracy. It permits private litigants to bring an action against “[a]ny person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which… in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities.” Those initiating a lawsuit under the Lanham Act are entitled to damages and preliminary and permanent injunctive relief prohibiting the unlawful conduct, on proving a violation of the act.
Section 5 of the FTC Act broadly covers and declares unlawful any “[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce”. Both the act and state UDAP statutes permit law enforcement to obtain preliminary and permanent injunctive relief against fraudulent and deceptive business practices, as well as to freeze the assets of companies and individuals, and appoint receivers to oversee businesses and protect assets. A significant difference between the Lanham Act and the FTC Act/UDAP statutes is the burden of proof on litigants. Under the Lanham Act, the plaintiff in a lawsuit must prove that the challenged advertiser’s marketing claims are false, whereas under the FTC Act/UDAP statutes, the burden is on the advertiser to prove that the challenged marketing claims are true.
From a legal perspective, what are the most common mistakes made in advertising campaigns in your jurisdictions?
ET: The most common mistakes that we see surround a lack of information and proper disclosures. This promotes confusion and misleads potential and/or real consumers. The Department of Consumer Affairs may fine companies that publish misleading or false campaigns up to $10,000.
RC: We see a range. One relates to advertising claim substantiation: objective advertising claims require prior substantiation. Claims can be express or implied and generally relate to the tangible characteristics of a product or service. If an ad contains claims about a product or service that can be measured or otherwise proved true or false, the marketers must ensure there is a reasonable basis for those claims. Another is around advertising disclaimers. Disclaimers that purport to provide more detail about advertising must be clear and conspicuous, and must appear near the advertising claim affected, in the same form (oral or written) as the original claim. The disclosure should not contradict or significantly limit the advertising claim.
In terms of affiliate marketing, many companies utilise:
- unchecked affiliate marketers that use email messages that violate the Controlling the Assault of Non-solicited Pornography and Marketing (CAN-SPAM) Act;
- websites that make false claims about the marketer’s product; and
- blogs, advertorials and product review sites that use deception to gain consumer interest.
Then there is marketing to children. When marketing to those under the age of 13, there are heightened requirements that go beyond standard truth-in-advertising and fair advertising practices. Both the FTC and the Children’s Advertising Review Unit of the Council of Better Business Bureaus monitor and review advertising targeting children for unfair and deceptive practices.
Amanda Branch (AB): Among the most common mistakes that we see are inadequate or improper substantiation for a product or performance claim. The Competition Bureau previously stated that most performance claims that raise an issue under the Competition Act fall into two broad categories: those that are inappropriate in the context of the actual tests that were conducted and those that are based on poorly designed test methodologies.
There are cases in which advertisers have failed to substantiate comparative claims because the testing was found to be inappropriate for the claim made. For example, in R v Bristol-Myers of Canada Limited, the court concluded that the claim “Fleecy in the rinse softens right through the wash for three times more softness than any dryer product” was not supported by an adequate and proper test. Bristol-Myers relied on panels of consumers who were asked to compare the softness of fabrics washed with varying amounts of fabric softener. Consumers reported that fabrics washed with the recommended amount of the FLEECY fabric softener were softer than fabrics treated with three times the recommended amount of competing fabric softeners. The court acknowledged that although qualitative consumer testing was the only means of measuring softness, it could not be used to support a quantitative claim. A more appropriate claim would have been that fabric treated with FLEECY fabric softener “feels softer” than the other brands.
PFP: From the report of cases published by CONARP (the advertising self-regulatory body), it is clear that most ad pieces are challenged on the grounds of unfair competition or lack of truthfulness. That said, the most common mistakes relate to the use of misleading claims and/or superiority claims when they are not duly substantiated. Unsubstantiated claims are a common mistake. Generally speaking, advertising claims are governed by the Fair Trading Act, which provides for a general prohibition of inaccurate, deceitful or misleading advertising of any kind.
Turning to comparative advertising, to what degree is this permissible in your jurisdiction – and when is the use of a third-party trademark in advertising considered to be infringement?
PFP: Argentina’s Civil and Commercial Code refers to advertising, including comparative advertising. Section 1101 establishes that advertising will be bannedif it:
- contains false indications or indications that deceive or might deceive consumers where they refer to essential elements of a product or service;
- makes comparisons between goods or services that might deceive consumers; or
- is abusive or discriminatory, or promotes harmful or dangerous behaviour, which poses a threat to consumer health or safety.
In addition, Section 1101(b) refers to comparative advertising, which is prohibited from a consumer law perspective if it is false and deceives consumers as a result. As mentioned previously, Argentina’s Fair Trading Act has been amended recently. The new rules incorporate several provisions on unfair competition that have affected local trademark and advertising practices. They define ‘comparative advertising’ as advertising that explicitly or implicitly refers to a competitor or its brands, products and/or services. This is permitted provided that it:
- is not misleading, deceiving or derogatory;
- is objective;
- is to inform the consumer of the goods’ advantages in order to promote them; and
- does not aim to gain an undue advantage from the competitor’s reputation.
As a consequence, the use of third-party trademarks in advertising is considered an infringement when it does not meet these conditions.
JM: Comparative advertising must be substantiated before advertising and any testing should be performed under real-life conditions. The comparison should also be between similar products (eg, you should compare apples to apples). Comparative advertising should not exaggerate the nature or importance of competitive differences. In Church & Dwight Ltd/Ltee v Sifto Canada Inc, the plaintiff – a manufacturer of baking soda with an 80% market share in Canada – brought an injunction to stop the defendant’s claims made in connection with the launch of its new baking soda – namely, that its baking soda was “the purest possible” with “no chemical additives, making it the only naturally occurring baking soda on the market”. The evidence demonstrated that although there were chemical differences between the baking sodas, they were so slight as to render the products almost indistinguishable. The court granted an injunction stating that the defendant’s advertising copy was “artfully drafted to create the impression that other baking sodas are not pure and that they contain ‘chemical additives’”.
Comparative advertising campaigns using a competitor’s name or product, a picture of the product, the product’s packaging or all of these may violate the Trademarks Act and Copyright Act. Section 7 of the former prohibits false or misleading statements that tend to discredit the business, wares or services of a competitor, while Section 22 prohibits “the use of a registered trademark of another person in a manner that is likely to have the effect of depreciating the value of the goodwill attaching thereto”. The case law around this provision is confusing as the courts continue to grapple with the scope of its application but it has been successfully invoked in comparative advertising cases.
RC: Comparative advertising, by far the most compelling and powerful type of advertising, is permissible in the United States. A false comparative or superiority claim occurs where an advertiser compares its product to a competitor’s and/or claims that its product is superior to the competitor’s. Where the ad is a simple comparison, the competitor must show that the ad is false. For a comparative establishment claim, the competitor can win by attacking the tests on which the advertiser has relied. The use of a third party’s trademark is permissible in a comparative ad to identify the third party’s product when comparing it with the advertiser’s product. The use of the third-party mark is considered infringement when it is likely to cause confusion or mistake, or to deceive as to the affiliation, connection or association of the third party with the advertiser, or as to the origin, sponsorship or approval of the third party’s goods, services or commercial activities.
ET: The applicable laws in our jurisdiction are the Lanham Act (15 USC §§1051 et seq) and the Puerto Rico Trademark Act (169-2009). Similar to the Lanham Act, the Puerto Rico Trademark Act provides that a person who, without licence or authorisation from the owner of a registered or previously used trademark, reproduces, falsifies, copies, imitates, uses or attempts to use that mark, be it in an identical or similar fashion, in commerce and in connection with the sale or promotion of identical or similar goods and services could be held to be an infringer.
There have been high-profile instances where brands have made light of – and in some cases mocked – their rivals in advertising campaigns. What factors should be considered when choosing whether to respond and engage, or to stay quiet?
AB: If a competitor’s ad is cleverly done and is gaining traction among consumers, attempting to engage with or respond to it can be a PR disaster. Before engaging, a brand should consider several factors. For example, in the age of social media, consumers are inundated with content and ads, which also means that the effective life of an ad can be relatively short. How quickly can the brand mobilise the resources to respond? If an organisation is going to respond to a competitor’s campaign, it should do so relatively quickly. If the general public has already forgotten the initial ad by the time the organisation responds, the brand may look out of touch or worse, may end up reviving the clever attack on its brand without meaningfully responding to the attacker. Further, does the brand have either a clever defence or retaliation? We have seen instances where a brand’s response has flopped and has served only to further highlight the cleverness of the initial ad.
RC: Attacking another company’s product, also known as ‘ash canning’, often elicits the most aggressive reactions and rightly so, as such advertising usually affects the reputation of the company and tarnishes its brand. This type of what is effectively comparative advertising is generally misinformed or poorly considered. However, there are rare instances when the attack on another’s product or service is based on defensible truth. In these cases, it may be best to hold back or to deflect the advertising in other ways.
Utilising the Lanham Act for false, ash-canning advertising is critical for the quickest relief. Remedies for Lanham Act violations include injunctions (which can issue from a court within days or weeks of the commencement of a lawsuit), monetary damages and recovery of attorneys’ fees. Injunctions can also include an order compelling the advertiser to issue corrective advertising. Lanham Act lawsuits between competitors often include claims and counterclaims. The most important event in this kind of litigation is usually a temporary restraining and/or preliminary injunction hearing – effectively a swift mini-trial in which the parties can present evidence and obtain an emergency order, either stopping or permitting the challenged advertising. The decision on the preliminary injunction motion frequently leads to the settlement of a case, although increasingly competitors are proceeding to an actual trial on the merits to recover monetary damages.
ET: One key factor to bear in mind when considering mock campaigns is the damage that the campaign has actually caused to the client’s company or trademark. Some mock campaigns result in little or no actual damages, which ultimately would not lead to cost-effective litigation.
PFP: First of all, it is uncommon in our country to have ads in which a brand explicitly mocks a competitor. As indicated previously, in order to be permissible the ad must conform to requirements stated by the Fair Trading Act. In addition, Section 10 of CONARP’s Advertising Self-Regulatory Code states that an advertisement must refrain from: “Making an unjustified and/or derogatory use of the name, institutional symbols or product brands or third-party services, and; Anything that may imply discredit or disregard of the competition. If the brand being mocked is not mentioned in the ad, choosing whether to respond or not would be more a commercial decision than a legal one.” Similarly, the risks of engaging would be more commercial than legal, considering the impact that the ad might have on reputation and consumer trust. Of course, doing nothing is not an option for many companies seeking to safeguard their brand equity. The priority then is to put a stop to infringing activities rapidly by sending a cease and desist letter. Filing a complaint before CONARP is also a possibility considering its cost-effectiveness.
When deciding whether to launch legal action against infringing advertising, what are the key considerations?
RC: First, develop both offensive and defensive strategies. As a defendant, sometimes it is important to think like a plaintiff and brainstorm ways to attack your competitors’ advertising claims – the best defence may be a good offence. Also, identify and evaluate implied advertising statements (Lanham Act cases rarely turn on what is expressly stated in advertising – use surveys to identify any implied statements and determine whether substantiation exists for the implied claims) and assemble a multidisciplinary team (Lanham Act cases typically require collaboration among marketing, science and regulatory/legal personnel). In addition, engage independent experts early in the areas of consumer perception, science/substantiation and damages.
It is important to prepare for fast-paced litigation. Temporary restraining and preliminary injunction hearings proceed on an emergency basis and often occur within a day or weeks of a case commencing, so early planning is vital. Moreover, plan for impact outside the litigation. Competitor lawsuits over advertising campaigns can have high visibility. Consider having a media relations strategy, prepare for regulatory or other parallel proceedings and ensure that you have contingency planning for ongoing promotional and advertising activities. For example, if a court orders a modification to an advertising statement, it is good to have Plan B ready to roll.
PFP: In Argentina, self-regulation has proven to be very effective. The Self-Regulation Commission (SRC) within CONARP deals with claims against advertising made by any of its associates. The 10-member SRC can act ex officio or at the request of any third party (company or individual) that files a complaint in respect of an ad that violates any provision of the code. The self-regulation proceeding is rapid and is usually completed within a month.
Administrative proceedings are also quite brief. However, in the case of a judicial proceeding, it can take between two and three years to get a final resolution. The potential remedies available are injunctive relief, corrective advertising and damages. For the administrative procedure, the principles in National Administrative Procedural Law are applicable, while the Fair Trading Agency is the controlling legislation on conduct related to matters of fair trading or unfair competitive acts. The procedure may begin ex officio or on request by a party. Appeals against decisions issued by the enforcement authority should be filed with the Federal Court of Appeals on Civil and Commercial Matters. Sanctions include:
- a warning;
- a fine ranging from between 1 million and 10 million adjustable units (a value measure, upgradeable annually according to the Consumer Price Index);
- suspension from the National Register of State Providers for up to five years;
- loss of concessions, special tax or credit regimes, where applicable; and
- the closure of facilities.
ET: When debating whether to launch legal actions against infringing advertisers, key considerations include:
- costs of litigation;
- complexity of litigation;
- bad faith or recurring conduct; and
- potential and/or real damages caused.
Depending on these issues, we would assess all factors and provide a recommendation based on the potential outcome of launching such an action.
AB: As a preliminary matter, consider whether the advertising actually gives rise to a cause of action or is the business bothered because the competitor’s advertising is clever and has an impact on sales? If actionable, then the second consideration is the appropriate forum to adequately deal with the issue. Ads often run for only a brief period of time, so organisations should consider whether legal action will affect the competitor’s campaign before its scheduled end. Similarly, legal action can be costly. Organisations should evaluate whether the time and expense of an action will yield meaningful results. An alternative to legal action is the Ad Standards Advertising Dispute Procedure, which is intended to provide a quick and cost-efficient method for competitors to resolve disputes. Under the revised procedure, which came into effect on 11 February 2019, the entire process will typically take between 32 and 37 business days. Finally, another important factor to consider is whether there are any PR issues that might negatively impact your brand by challenging a competitor. One way to potentially mitigate this risk is through the use of the Ad Standards Advertising Dispute Procedure, which is confidential.
Considering advertising in the online environment, what specific trademark issues are raised under national law and what remedies are available?
ET: The Puerto Rico Trademark Act provides a useful tool in this regard. It allows for owners of registered trademarks to file requests for preliminary injunctions in local courts to prevent the unauthorised use of such marks.
PFP: Online advertising is subject to the same regulations and laws as advertising in traditional media in Argentina. However, the online environment has introduced new trademark issues such as using others’ marks as keywords in internet advertising, online brand misuse and territoriality, and identifying online infringers. The difficulties associated with successfully pursuing online IP infringers using a conventional legal approach are further compounded by a lack of specific legal landscape for the online world. When the infringer is a competitor, the following remedies are easy to apply:
- a cease and desist letter;
- a complaint with CONARP;
- an administrative procedure before the Fair Trading Agency; or
- an injunction before a court.
When the advertiser is an individual or an unknown party, the remedies are more complicated to apply.
JM: One of the interesting issues in the past few years has been whether the purchase of another’s trademark for metadata keyword advertising is actionable as passing off, infringement or depreciation of goodwill under the Trademarks Act. Current case law suggests that it can give rise to an actionable claim, provided that there is some other factor contributing to confusion, such as a website where the owner is indistinguishable from the owner of the trademark.
In Vancouver Community College v Vancouver Career College (Burnaby) Inc (2017) the court held that the use of a competitor’s trademark as a keyword constituted passing off, as the defendant’s search engine link had no content that would distinguish its business from that of the plaintiff. The British Columbia Court of Appeal held that the consumer’s first impression should be assessed at the earlier stage of the search engine results page, rather than waiting until the consumer reaches the defendant’s website. However, it did not go so far as to find that purchasing a competitor’s trademark as a keyword alone constitutes passing off. Meanwhile, in Red Label Vacations Inc v 411 Travel Buys Ltd (2015), the Federal Court of Canada upheld the lower court decision stating the use of a competitor’s trademark or trade name in a metatag does not, by itself, create a likelihood of confusion. In this particular case, the Federal Court concluded that there was no likelihood of confusion as none of the plaintiff’s trademarks (or marks that would be confusing with the plaintiff’s trademarks) were visible anywhere on the defendant’s website. In addition, the website was clearly identified as belonging to the defendant. The Federal Court of Appeal acknowledged that in some circumstances, using a registered trademark in a metatag may give rise to infringement; however, the facts of this case did not support such a finding.
RC: The Lanham Act covers both trademark infringement and false advertising. On the trademark side, it authorises any person or company to sue “[a]ny person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person”. Remedies for Lanham Act violations include injunctions (which can issue within days or weeks of the commencement of a lawsuit), monetary damages and recovery of attorneys’ fees. Injunctions can also include an order compelling the advertiser to issue corrective advertising.
Are there particular nuances to be aware of in the application of advertising law when marketing on social media?
AB: Canadian advertising and competition laws, including laws related to misleading and deceptive advertisements, endorsements and disclosure of material connections, apply equally to representations made on social media. For example, influencers are required to disclose material connections in each post as this may affect the weight or credibility of the representation. A material connection could be that the influencer was paid, received some kind of benefit or is a shareholder or employee of the company. The disclosure must be “clear and prominent” and should be locatedinclose proximity to the content. The disclosure should be in clear, easily understandable language, such as ‘#ad’ or ‘#sponsored’ (ambiguous references such as ‘#ambassador’ or ‘#spon’ should be avoided). If the influencer is writing a review or opinion, it should be their genuinely held opinion and based on actual experience with the product or service. Any claims must be based on adequate and proper substantiation. In addition to the influencer, any party who permitted the influencer to make the representation could be held liable for non-compliance.
RC: In terms of social media generally, marketing can trigger issues with, among other things, deceptive advertising and substantiation of product claims, compliance with the FTC’s endorsement and testimonial rules, sweepstakes and contests compliance, CAN-SPAM, IP rights, advertising to children and compliance with the social media platforms’ own rules. The FTC, state attorneys general and many social media platforms have published guidance, established rules and pursued enforcement actions against marketers that failed to comply with the law in advertising via social media. Turning to influencers and endorsements, advertisers increasingly view social media as an opportunity to have influencers speak positively about their products and services. However, the FTC has made clear that the rules regarding disclaiming material connections also apply in this context. The use of social media to generate product endorsements generally falls into three categories:
- supplying free products to a social media influencer;
- paying a social media influencer to write about the marketer’s products or services; and
- encouraging the marketer’s employees to talk about its products or services on social media.
In each of these instances, disclosure of the connection between the marketer and the social media influencer is critical.
The FTC’s 2009 revisions to its Guides Concerning the Use of Endorsements and Testimonials in Advertising changed the rules for product promotion and placed significantly heavier burdens on advertisers and marketers to substantiate the claims made by endorsers of a product or service. Among the most important changes introduced were the requirements that marketers disclose material connections with endorsers and the removal of the longstanding safe harbour for endorsements.
ET: Most guidelines, regulations and statutes surrounding social media advertising have been established by the FTC and are applicable to Puerto Rico. There are currently no local guidelines, statutes or regulations surrounding this issue.
PFP: Social media and the activity of influencers are still unregulated in Argentina. It is common to see content in influencers’ personal accounts promoting or endorsing products without disclosing their relationships to brands. The recent change to the Unfair Trading Act was supposed to address this matter; however, legislators decided to leave it aside, at least for the time being. In the meantime, our legal framework reflects the basic truth-in-advertising principle andit seems obvious that this principle should also apply to social media. Posts should reflect the honest opinion of the influencer or clearly disclose if there is a connection between an influencer and a brand that followers would not expect and that would affect their purchasing decisions.
The use of influencers and endorsers has become increasingly prevalent. What, to you, are the contractual must-haves when formalising such relationships?
RC: The use of celebrity and non-celebrity talent to represent brands in marketing campaigns can build brand awareness and drive sales. Companies planning to use this to represent a brand in a marketing campaign should consider the following questions and best practices when negotiating a spokesperson agreement:
- Services – consider the scope (eg, what are the types of services the talent may be required to perform and what are the campaign materials that will be created from such services?), time commitment (how many service days are required) and social media activity (what is the required commitment in terms of number of tweets, Facebook posts, Instagram posts, or other use of the talent’s social media channels? Who determines the posting schedule and content?).
- Term and territory (eg, what are the service terms and usage terms? What territories are covered by the agreement?).
- Usage rights/no obligation to use (eg, what distribution channels may be utilised for campaign materials? How does the agreement provide for internal and trade use and is that use permitted after the term?).
- Creative approval – does the agreement address the talent’s participation in creative development and approval rights?
- Compensation – is it a flat fee, equity interest or royalty? If royalty, is there a minimum guarantee? If there is a term extension option (for the service term and/or usage term), does the agreement include a term extension fee? It is also important to include royalty definitions, if applicable, such as ‘gross revenue/sales’ and ‘net revenues/sales’, as well as address whether there is a royalty tail (ie, a royalty for a period of time after the term ends).
- Exclusivity – define the exclusive industry category as well asthe scope of exclusive services.
- Termination – include standard for-cause termination that covers breach, violation of morals clause, death or disability, and force majeure. Also, address termination for convenience (eg, due to change in campaign strategy). This typically requires a kill fee or early termination fee.
- Ownership – generally, the brand should own all campaign materials and anything produced in connection with the campaign, including all contributions made by the talent. One exception may be social media posts, which – except to the extent that they contain materials provided by the brand or the brand’s trademarks – might be owned by the talent.
ET: We understand that a key addition to any agreement to be executed in this area is a clause guaranteeing that the influencer or endorser complies with all guidelines established by the FTC applicable to ads on social media. This way the company retaining the influencer or endorser can limit and/or ensure compliance with applicable statutes, regulations and guidelines, and, by doing so, prevent claims of false or misleading advertising.
PFP: Given that advertising in social media and influencer activity is still unregulated, brand owners should be extra careful and avoid any loopholes in the applicable legal framework. In my opinion, the following are must-haves:
- a campaign timeline;
- information about deliverables (eg, when and how often posts must go up, as well as the consequences for posting late or missing posts);
- confidentiality and exclusivity clauses (if applicable);
- brand guidelines (ie, format, length and any other messaging requirements);
- clarity on what is not allowed;
- a process for content approval;
- disclosures to be included (these are not mandatory in Argentina);
- clarificationas to how and when the influencer will be paid; and
- a termination clause.
AB: #ComplianceIsKey! Social media influencers can help brands reach targeted audiences. However, before posting, organisations should ensure that they have contracts in place with the influencer. In addition to standard contractual terms, consider addressing the following:
- Content, including any specific hashtags that should be used or messages that the influencer should convey. If the organisation wants the right to pre-approve content, this should be explicitly stated.
- Distribution channels, such as where and when the content should be posted (eg, YouTube, Facebook, Instagram and blogs).
- Term and termination, including how long the engagement will last and when and why either party can terminate the agreement.
- Compliance obligations, including applicable law and any guidance issued by the regulators or other governing bodies. This provision should also include ongoing audit and monitoring rights for the organisation, as well as any remedies that exist if the influence is non-compliant.
- IP rights and ownership, including who is responsible for creating the content and who will own it.
Are there any other issues that you want to raise?
JM: Certain products will have an additional layer of regulations and guidelines concerning advertising. Highly regulated products, such as pharmaceuticals, alcohol or cannabis, have specific requirements relating to their promotion. For example, while recreational cannabis has been legal in Canada since October 2018, the promotion of cannabis or cannabis accessories is generally and broadly prohibited, except in certain limited circumstances. Similarly, representations for prescription drugs that are advertised to the general public may include name, price and quantity only. There can be no direct or indirect representation concerning the therapeutic indication for the named drug. Organisations selling regulated products should be sure to check any product-specific requirements.
PFP: In Argentina, we also have some categories of products and services that are highly regulated. Advertising, promoting or sponsoring any product manufactured with tobacco is prohibited. However, advertising and marketing tobacco products is permitted:
- at sale points (under certain conditions);
- in commercial publications aimed at companies involved in the manufacturing, distribution, import, export and sale of these products; and
- through direct communication to people over the age of 18 – although only with their consent.
Likewise, there are other products and services that are strictly regulated, such as alcohol, financial services and food.