In this age of Social Media, NFT minters and businesses in general are enlisting the advertising services of influencers – people whose online popularity and relevance grant them influence over others within their social spheres. Many influencers will make product endorsements on behalf of advertisers through social media platforms (such as Facebook, YouTube, Instagram, and TikTok) in exchange for free products and/or compensation. Please note that the Federal Trade Commission (“FTC”) actively polices the product endorsement practices of influencers, issuing heavy fines against their partnered brands. If an NFT minter wants to avoid liability for an influencer’s marketing violation, he/she will need an NFT-Influencer contract.
Regulation of Product Endorsements
NFT minters and influencers who engage in advertising campaigns (such as sponsorships and endorsements) must comply with relevant marketing laws or risk regulatory scrutiny and penalties. The FTC prohibits endorsement activities that could be construed as dishonest or misleading, and the agency has made clear that such regulations extend to online endorsements posted by influencers.
In the past few years, the FTC has updated its Endorsement Guide and released a guideline on influencer disclosure practices. In these guides, the FTC requires influencers, in their endorsement messages, to prominently disclose that they have material connections with the brands that they promote. A material connection to a brand “includes a personal, family, or employment relationship or a financial relationship – such as the brand paying you or giving you free or discounted products or services.” Such disclosures operate to make followers aware of influencers’ potential bias and keep endorsements honest and truthful.
Additionally, social media platforms have their own internal policies that govern product endorsements and testimonials. Failure to abide by the terms of these policies could lead to the suspension or termination of an influencer’s social media account.
Include the Right to Review Product Endorsements in Your NFT-Influencer Contract
Under the FTC regulations, influencers must disclose their advertising relationships, can only discuss products they have used, and are required to give their honest opinions on such products. In addition, the FTC requires that social media endorsement disclosures be hard to miss and must use simple and clear language (e.g., “Thanks to [NFT company] for the free product,” “advertisement,” and “#ad”).
While several social media platforms provide tools that help people craft such disclosures, the FTC warns that such tools may not provide adequate disclosures. Please note that each product endorsement should contain disclosure language tailored to the applicable product, platform, and compensation structure in question.
To protect against such marketing law violations, minters, in their NFT-Influencer contracts, should include the right to review and revise influencers’ advertisements and disclosures before posting.
Protect Your Brand with NFT-Influencer Contracts
Most regulatory action concerning social media endorsements has targeted the brand, advertisers, and public relations firms. NFT companies should ensure that their marketing practices and the endorsement practices of their social media influencers comply with applicable laws and regulations. In light of such risks, social media influencers can expect NFT-Influencer contracts to hold influencers responsible for product endorsement disclosure mishaps.
In light of these regulatory and contractual risks, influencers and NFT minters alike should always consult with a knowledgeable attorney before engaging in endorsement activity.
Klein Moynihan Turco maintains an extensive practice in the fields of Internet and mobile marketing law, consumer data privacy law, sweepstakes and promotions law, fantasy sports and gaming law, intellectual property and general corporate law. If we can be of assistance, please visit https://kleinmoynihan.com or call us at (212) 246-0900.