Managing risk when dealing with Influencers – a contractual overview
The role of influencers in the marketing landscape has grown significantly – so much so that as an industry, it is estimated to be worth more than 13 Billion US Dollars globally. Issues around contractual relationships, legal obligations and the risks for corporates using influencers therefore need to be considered carefully.
In South Africa, a useful starting point to understanding how to categorise the activities of influencers is the Advertising Regulatory Board’s (ARB) Code of Conduct. In terms of the ARB:
“social media marketing takes advantage of social networking to help a company or brand to increase brand exposure, broaden customer reach or drive specific user actions. This can be done in two ways: organically through the creation of content and nurturing on communities, or through paid social media advertising on the social media platforms. On the other hand, social media advertising allows companies and brands to spend money (i.e., paid advertising) to increase the reach of their content or messaging within the applicable social media platform.”
Influencers do exactly this. A brand leverages off of the influencer’s public profile and reputation to strengthen awareness of its products, or its brand more generally.
Despite the growing prevalence of influencers in the marketing landscape, the law regulating associated transactions lags behind. While the marketing activities of influencers fall within the broader concepts of advertising and marketing, there is room for interpretation on the specific legislation that may govern these activities.
Given their impact on consumers, a question that arises then is to what extent does the Consumer Protection Act, 68 of 2008 (CPA) regulate the activities of influencers?
The CPA
The CPA provides a very broad definition of ‘advertisement’, one that appears to include advertising by way of social media.
When influencers post on any social media platform in relation to an advertiser’s products or services, those posts could potentially fall under the definition of advertisement because they are intended to draw public attention to the existence or identity of a supplier as well as to promote, market, advertise, or publicise the relevant goods or services.
Section 29 of the CPA sets out the general standards for marketing. It requires that goods or services be marketed in a fair and responsible manner and prohibits marketing of any goods or services in a manner: (i) that is likely to imply a false or misleading representation; or (ii) that is misleading, fraudulent, or deceptive in any way.
The nature of the relationship between the entity marketing its products or services and an influencer is an interesting one. The influencer, who is often an individual acting in their own capacity, will usually be contracting as a service provider to what is often a large and sophisticated organisation. Generally speaking, this tends to result in an imbalance in negotiating power.
This relationship poses a number of risks for the contracting parties which require careful thought when such agreements are drafted and negotiated.
One of the most important considerations in an influencer agreement is the ownership of intellectual property. The following issues should be clarified at the very outset: What IP is being created? Who owns the IP in the content – is it the brand or the influencer? How long is the licence to use the IP, if any? What can the IP be used for, and by whom? For example, do these IP rights extend to the subsidiaries or affiliates of the company? Is there a limitation on the use of the IP for the brand and or the influencer?
An equally important consideration relates to reputational risk for a brand. For example, what would happen if an influencer is involved in a scandal or makes a public statement, which has the potential to, or does in fact, bring the contracting brand into disrepute? Do the termination rights in the contract enable the brand to easily cut ties with the influencer? What about service levels or KPIS? When thinking of an influencer agreement, these may not automatically spring to mind, but in the interests of confronting such unpredictability, it is important that an influencer is performing in accordance with the stipulated contractual obligations. We see that too often, the specifics around what is required from an influencer are left vague and may lead to uncertainty – and therefore expose a company to potential risks. The company engaging the influencer should be clear on what they do not want their brand associated with. For this reason, it may be worth including a clause in the contract which gives a brand the option to pre-approve the influencer’s content in respect of the brand in question.
When it comes to mitigating risk, indemnities and warranties must be thoroughly considered. While a contract can be carefully drafted to ensure that both parties provide certain indemnities and warranties and undertake to be otherwise liable, this must be done with a level of pragmatism. Although companies may have sound insurance policies which could potentially honour these contractual obligations, an influencer may not have the same or similar financial backing. So while in theory, these clauses are sound in law, practically, a company or brand may not be able to recover any monetary losses suffered.
For this reason, it is important that a company is adequately insured, or that it requires an influencer, where possible, to provide proof of sufficient insurance prior to signing on the dotted line, to deal with financial risks attached to an influencer agreement “gone wrong”. Having said that, monetary damages may not always be an adequate remedy for reputational damage caused to a brand. It may be worthwhile including provisions in the agreement which, for example, oblige the influencer to immediately disassociate themselves from the brand and issue a public apology.
So, while the use of influencers is fast gaining ground, it is worth reviewing these agreements carefully and giving some thought to how best to mitigate other potential risks that may arise for your brand.
The information and views contained in this article does not constitute legal advice. If you do require legal advice, please contact us on hello@lighthouse.law.