Influencer marketing: Legal challenges and key considerations for businesses

Influencer marketing has become a well-established form of digital advertising for companies. Products and services are promoted on online platforms such as Instagram and YouTube by influential individuals. The idea is that the more followers an influencer has, the higher the sales will be. However, despite its widespread adoption, influencer marketing still poses legal challenges for both influencers and advertising companies.

Influencer marketing and covert advertising: The challenges of promotional posts and their impact on consumer behaviour

All decisions by the Federal Court of Justice (BGH) originated from the Instagram channels of high-reach influencers, whether the posts featured raspberry jam, earrings, or e-books. In each case, the defendants presented products or services in images, which were often accompanied by brief captions and "tap tags". These tags display the companies or brands of the product manufacturers or providers on the images. When users click on a 'tap tag', they are redirected directly to the Instagram profiles of the respective companies. In various proceedings, authorised associations have accused the defendants of covert advertising and asserted claims for injunctions and reimbursement of costs.

The power of influencers: how promotional posts influence purchasing decisions and the risk of covert advertising

With their extensive reach, influencers can significantly impact the purchasing behaviour and personal buying decisions of entire user groups. This is particularly true of young people and minors who actively use social media and follow influencers' activities daily. Promotional posts can misleadingly appear as personal recommendations based on the influencer's own opinion of the product. This can mislead followers and influence their purchasing decisions, constituting impermissible covert advertising.

Transparency and legal requirements: The importance of the UWG, MStV and TMG in influencer marketing

The legal framework is provided by the Act Against Unfair Competition (UWG), the Interstate Media Treaty (MStV) and the Telemedia Act (TMG). In order to ensure greater transparency for consumers, the legislator has introduced a new offence of unfairness. The starting point is the revised Section 5a(4) UWG, which came into force in May 2022 and regulates misleading by omission. According to this section, anyone who fails to disclose the commercial purpose of a business act — unless this is immediately apparent — and whose non-disclosure is likely to cause consumers to make transactional decisions they would not otherwise make, is acting unfairly. The aim of this regulation is primarily to prohibit the combination of editorial and advertising content (the separation principle). The same legal principle underlies other legal provisions. For instance, Section 8(3) of the Media Services Ordinance (MStV) stipulates that advertising must be clearly identifiable as such and distinguishable from editorial content. Similarly, § 6(1) No. 1 TMG states that commercial communication must be clearly identifiable.

When must influencer marketing be labelled as advertising? Clarity and transparency regarding commercial intent

Upon first reading the regulations, it becomes clear that if no commercial purposes are being pursued in a post—whether for one's own company or another's—the labelling obligation does not apply. However, it is not always entirely clear in the field of influencer marketing when commercial purposes are pursued and when they are not. Recalling that the focus of culpability in Section 5a (4) UWG is an omission — the failure to disclose the promotional nature — it becomes evident how influencers and companies can effectively avoid the offence of covert advertising: by labelling their product placements as advertising.

Labelling obligations in influencer marketing: When is an exception permitted, and when is the commercial purpose considered to be obvious?

Nevertheless, there are cases in which such a labelling obligation does not exist, as confirmed by recent case law from the Federal Court of Justice. Section 5a (4) UWG makes it clear that there is no labelling obligation if the commercial purpose is already apparent from the circumstances. What does this mean? In one of the aforementioned Supreme Court decisions from 2021, the BGH considered social media posts by the blogger Leonie Hanne (BGH judgement of 9 September 2021 – I ZR 125/20 – Influencer II). Her Instagram account was verified and marked with a blue tick. She used 'tap tags' in her posts, which the judges considered to be commercial acts. However, the BGH considered the commercial purpose of the 'tap tags' to be evident from the circumstances. The judges based their judgement on factors such as the account's predominantly commercial use and the number of followers. With 1.7 million followers, the BGH assumed that a commercial context was recognisable to everyone. However, the federal judges did not provide any generally applicable information on the size above which a channel is generally considered to be advertising. Therefore, it always depends on the circumstances of the individual case.

Labelling obligation for paid advertising posts: A case study on recognisable commercial purposes

But be careful: In the case described, there was no consideration from the company in question. However, as soon as an influencer receives payment or other consideration for a post, they must label it as advertising. This was the case with Luisa-Maxima Huss (BGH judgement of 9 September 2021 – I ZR 90/20 – 'Influencer I'). The fitness influencer had advertised 'Raspberry Jam' using 'tap tags' and received a fee for doing so. According to the BGH and lower court assessments, it is irrelevant whether consumers recognise that the defendant is acting in favour of her own company by publishing posts on her Instagram profile. Rather, consumers must be able to recognise that the purpose of the post is to promote a third-party company. Failing to recognise the commercial purpose of such posts with 'tap tags' and links regularly causes consumers to make business decisions (such as clicking on links to manufacturers' Instagram profiles) that they would not otherwise make.

Legal adjustments in influencer marketing: clarification of the commercial purpose, and definition of remuneration and consideration, in accordance with the amendment to the UWG.

The growing importance of influencer marketing in the legal sphere has prompted the Bundestag and the Bundesrat to update the relevant legislation. The amendment to the UWG further clarifies what constitutes a commercial purpose when acting in favour of another company. According to the new Section 5a para. 4 sentence 2 UWG, this occurs when the influencer receives or is promised a fee or similar consideration for the action from the third-party entrepreneur. The explanatory memorandum to the law assumes remuneration or consideration in the following cases (see explanatory memorandum to the law, p. 35).

• Remuneration in the form of direct compensation (i.e. cash payments).
• Commissions
• Products sent by the third-party company that the agent can use or keep.
  Press trips.
• Provision of equipment (e.g. photography and video recording technology).
• Assumption of travel or equipment purchase costs.

Consideration in influencer marketing: clarification and differentiation of mere awareness-raising and incentivised consideration, in accordance with legal requirements.

Conversely, increasing the influencer's own awareness through such actions cannot be considered as such. The legislator also states that consideration can be temporary and does not have to occur in a direct temporal context. However, the mere hope of receiving consideration is not sufficient. Furthermore, the consideration must have been initiated by the entrepreneur in whose favour the act is carried out. If the consideration is provided by a third party, such as an agency, it must be attributed to the entrepreneur in accordance with general principles. Conversely, consideration provided by independent third parties that is not initiated by the entrepreneur is not recognised.

Recommendations without financial gain: Exceptions to the unfairness offence in influencer marketing according to the new legal regulation

Finally, it is also clear from the new provision and the corresponding explanatory memorandum that actions that exclusively lead to the promotion of third-party companies are not subject to the new unfairness offence. According to the legislator, the new regulation is intended in particular to provide a secure legal framework for the actions of influencers when they recommend the goods and services of other companies without directly benefiting financially from them. According to the legislator's assessment, it seems inappropriate to require such actions to be labelled as ‘commercial’.

Exemption from the labelling obligation: credible evidence of a lack of consideration in influencer marketing, as set out in Section 5(4), sentence 3 of the UWG.

But what if there is actually no consideration? While this may not always be the case, the law assumes that the influencer has received or been promised consideration for an advertising post (see Section 5, paragraph 4, sentence 3 of the UWG). In the event of a dispute (e.g. if the influencer receives a warning letter), the influencer must therefore provide credible evidence that they have not received or been promised anything in return for the advertising post. Such prima facie evidence could be provided by a receipt for the product in question or confirmation from the entrepreneur that no consideration was received for the post. An affidavit can also be considered as a means of establishing credibility. Therefore, anyone who can prove that no consideration was paid for a post or contribution to a third-party company is exempt from the labelling obligation as advertising.

BGH ruling on influencer marketing: labelling obligation for free goods received?

In January 2022, the Federal Court of Justice expanded upon its case law on influencer marketing, specifically addressing the issue of consideration received. What exactly was it about? In 2019, fashion and lifestyle influencer Diana zur Löwen posted pictures of earrings and clothing, among other items, on her Instagram channel. The earrings had been gifted to her by the manufacturer, whereas she had purchased the clothing herself and had not received any payment. She also used tap tags, but did not label the post as advertising. She had previously been warned about such posts in 2018 and had issued a corresponding cease-and-desist declaration. This time, the authorised association not only sued for an injunction, but also for payment of a contractual penalty of around 10,000 euros. Therefore, the question before the First Civil Senate was whether an advertising post must be labelled even if the goods are provided free of charge.

BGH decision confirmed: Free product transfer requires labelling obligation

According to the BGH, such posts must be labelled (BGH, judgement of 13.1.2022 - I ZR 35/21 - Influencer III). The influencer should have labelled the post as advertising, at least with regard to the earrings. Specifically, the judges stated in their decision that remuneration or similar consideration pursuant to Section 2 para. 2 no. 7 MStV is to be understood as any monetary consideration in addition to cash or non-cash benefits - and such a consideration is also deemed to exist if no monetary payment is made but the advertised product was provided or given as a gift by the company. The presentation of clothing purchased by the company itself, on the other hand, does not constitute commercial communication within the meaning of the TMG or advertising within the meaning of the Interstate Broadcasting Treaty. According to the BGH, the corresponding special statutory provisions also determine the classification of whether behaviour is ‘unfair’ within the meaning of Section 5a (6) UWG.

This case law was recently taken up by the Higher Regional Court of Frankfurt am Main (judgement of 19 May 2022, case no. 6 U 56/21). This decision on influencer marketing concerned advertising posts for e-books provided free of charge. Here too, the judges came to the conclusion that it was a case of consideration and a violation of Section 5a para. 6 (old version) UWG.

BGH and OLG Frankfurt: Exuberantly promotional posts require labelling.

Apart from the case already discussed in detail here, where the influencer receives consideration in return, a business act in favour of a third-party company can also be deemed to exist if the overall impression of the post is excessively promotional. The Federal Court of Justice assumes advertising excess if a post 'without any critical distance solely emphasises the advantages of a product of this company in such a way that the presentation leaves the framework of factual information'. The Higher Regional Court of Frankfurt also deemed the aforementioned case of the influencer presenting e-books on Instagram to be a ‘prototypical case of advertising excess’. Although she identified with the content of the e-books, she neither categorised them nor discussed or evaluated their content. Instead, the exceptionally high discount price of the e-books was emphasised. According to the OLG Frankfurt, promoting the sales of third-party companies in this way is unfair under Section 5a(6) of the old version of the UWG.

Self-promotion and labelling obligations: The connection between posts and the sale of products.

Although the courts have primarily focused on promoting another company, it should be noted that a labelling obligation may also apply if the intention is to solely promote one's own company.

This is because self-promotion is also subject to labelling if it is not otherwise recognisable. Therefore, the question of whether an act is in favour of one's own company does not depend solely on the receipt of remuneration. According to the explanatory memorandum on the UWG reform, a direct connection between the post and the sale of products and services must therefore be taken into account. The legislator assumes that influencers could be categorised as media companies that regularly receive advertising revenue and are particularly attractive to clients if they reach a large audience.

Understanding how to implement legally compliant labelling requirements for posts is crucial.

The question then arises as to how posts subject to labelling requirements can be designed to be legally compliant and withstand judicial review. The top priority is that the commercial purpose must be clearly and unambiguously recognisable at first glance. The courts have provided guidance on this in the course of their deliberations, which can be summarised as follows:

The type of label depends on the type of post. The most common type of post involves sharing photos and images. General labelling on the profile is not sufficient to avoid the obligation to label the post. It is advisable to use terms such as 'advertisement' or 'advert' at the beginning of the post, either with an asterisk or by highlighting the rest of the text. The reference should not be in a foreign language or embedded within other text, as this hinders recognition. The courts have so far deemed the hashtags ‘#ad’ and ‘#sponsoredby’ insufficient, even though English is an integral part of social media. Labelling within the image is theoretically possible. However, the labelling would need to stand out in terms of colour and size, and be positioned in the image so that it is easily recognisable. Using branded content tools is no substitute for independent checking or labelling. The focus here must also be on linguistic comprehensibility. These tools can help, but they do not replace an independent check. The 'Advertising labelling for online media' guidelines from the state media authorities, which take into account the most recent decisions of the Federal Court of Justice, may also be helpful.

Labelling obligation in videos and live streams: permanent and clear labelling

For videos and live streams on platforms such as YouTube, it is recommended that the notice remains visible throughout the video in the form of a watermark. A general reference in the profile is not sufficient here either. This is because a verbal mention in the video does not guarantee absolute recognition of the video as commercial activity if the end device is muted or set to autoplay without sound. This can be achieved using the respective provider's tools or video editing programmes. This is particularly recommended for live streams. This is because it is not possible to determine when a follower joins with certainty. In the case of live streams, care must also be taken to ensure that a broadcasting licence has been applied for and granted by the relevant state media authority. This is governed by the TMG and the RStV. For stories and similar media where videos disappear after a certain period of time, the labelling is the same as for the videos and live streams mentioned above. However, if several stories are distributed in succession as a 'chain', care should be taken to ensure that each individual element contains its own labelling.

Legal consequences and contract design in influencer marketing: Labelling requirements and liability risks

Missing or incorrect labelling of promotional posts can result in claims for injunctive relief and reimbursement of costs, as well as fines. In November 2022, the Landesanstalt für Kommunikation Baden-Württemberg (LFK) obtained a ruling in an administrative offence case that an influencer must pay a fine of €9,500 for breaching the advertising labelling obligation under the Interstate Media Treaty. Against this background, the issue must be treated with increased attention. Case law from the Federal Court of Justice and the amendment to the UWG are gradually providing clearer guidance on labelling obligations in influencer marketing. However, influencers and cooperating companies cannot be guaranteed complete legal certainty, as certain questions depend on criteria specific to the individual case.

Labelling obligation for influencers in the case of paid and unpaid cooperation

According to the current status, however, influencers can always be required to label content if they receive remuneration from a company they are collaborating with. Even if the products or services to be advertised are provided free of charge, clearly recognisable labelling is still required. If this is not the case (e.g. if the product was purchased by the advertiser), proof of this must be kept for evidence purposes. Labelling can only be waived if there is no advertising surplus and the commercial purpose is clear from the circumstances. However, influencers with large followings and a wide reach should not assume this in case of doubt.

Focus on liability risks in the event of breaches of the labelling obligation: influencers, companies and agencies

Influencers are often held responsible first in the event of breaches of the labelling obligation or other breaches of competition law. However, legal action against the collaborating companies or agencies supporting the influencer is also possible. Therefore, they also face a significant liability risk. This can arise from participant liability, for example. For this to apply, the company or agency would have to be the instigator or accomplice and have acted wilfully. Furthermore, even in the absence of knowledge or intent with regard to the influencer's actions, a claim under the principles of agent liability pursuant to Section 8(2) UWG may be considered.

Legally compliant contracts with influencers: Minimising conflicts and liability risks

In order to minimise the risk of potential conflicts and liability issues, contracts with influencers should be legally compliant and transparent. In particular, a specific agreement on the labelling obligation should form part of the performance obligations. Additionally, the influencer's liability in the event of a breach of the labelling obligation should be defined, along with a corresponding indemnification agreement.

To ensure your influencer marketing is legally compliant, arrange a consultation now!

In the fast-moving world of influencer marketing, having a clear strategy and achieving legal certainty is of great importance. This complex area encompasses the creation of legally compliant websites and the implementation of new advertising technologies, as well as the establishment of clear guidelines for engaging with influencers.

We can help with all legal matters, such as concluding contracts, labelling obligations and liability issues. Our advice is precisely tailored to your needs. In an age where a company's online presence determines its reputation, our goal is to ensure fair competition and protect your brand identity. Contact us today to discuss your requirements and find the best solutions together.