Navigating the Legal Risks for Brands in Social Media Marketing – Part 1 (Archive)

While influencer marketing has become popular in the creator space, it doesn’t come without risks. From IP infringement to FTC compliance, Scott Hervey and Jessica Marlow discuss the key issues surrounding brand endorsement deals in this archive two-part episode of The Briefing.

Watch this episode on the Weintraub YouTube channel.

Show Notes:

Scott:
Influencer social media marketing is big business, whether it’s a brand integration on Instagram by an influencer or a long-term brand endorsement deal by an A-list movie star. Each deal is different, but there are similar issues that are apparent in all brand deals. I’m Scott Hervey with Weintraub Tobin, and I’m joined today by my partner, Jessica Marlow. Today is part one of our profile on understanding and navigating risks in brand marketing deals on today’s installment of “The Briefing” by Weintraub Tobin.

Jessica, welcome back to “The Briefing.”

Jessica:
Thank you. Happy to be back.

Scott:
This is something we both deal with frequently from both the brand and the talent side. There are certain risks that celebrities and brands have to navigate in these types of deals. Making these risks more prevalent is the fact that we’re talking about digital marketing, where things tend to move quicker. And for whatever reason, people, even marketing professionals, may sometimes believe that the laws applicable to terrestrial or regular advertising don’t apply to the Internet. Let’s talk about our top general risks from a talent perspective and how to deal with them. Now, we have a bunch of lawyers that listen to our podcast, and you might have a different list, and we would love to hear from you if you think we should have covered something that we didn’t. But this is what we think are the top legal issues in a talent brand deal.

Jessica:
One of the major risks is IP infringement. Now, this is multifaceted, and the risk of infringement comes from a few different places. First, there is infringement risks that the celebrity or influencer imposes on themselves, which can happen in a few ways. The first way is by using content where the copyright is owned by a third party, for example, where a celebrity or influencer posts an image that they don’t own. You’ve covered a few cases on “The Briefing” about this.

Scott:
That’s right. One of the more well-known case is what is O’Neill versus Ratajkowski. While that case didn’t necessarily involve brand marketing, it’s a perfect example of this type of risk. In 2009, O’Neill, who was a professional paparazzi, took a photo of Ratajkowski outside of a flower shop in downtown Manhattan. Now, the photo showed Ratajkowski with her face covered by this bouquet of flowers. O’Neill subsequently registered his photograph with the Copyright Office. Now, shortly after O’Neill posted the photo online, Ratajkowski posted the photo on her own Instagram account. The photo she posted was the same, except that she added the words “Mood Forever” to the bottom of the Instagram post. Now, O’Neill, of course, sued Ratajkowski and her loan-out company for copyright infringement.

Jessica:
Right. And Ratajkowski tried to get out of the case on a fair use defense on a motion to dismiss, but she was unsuccessful. And this case was before the Supreme Court ruling in Warhol versus Goldsmith. Under the new fair use analysis, it’s almost certain that Ratajkowski would not have had a fair use defense.

Scott:
Yeah, that’s true. And this type of liability isn’t just limited to cases where the photo that is used makes up the entire post. This type of potential liability can exist where the third-party photo only makes up a portion of the poster video.

Jessica:
Right. It’s just not limited to photos. This could be a video or other similarly copyrighted, protected material like music or logos.

Scott:
Yeah, and music can be a bit tricky. You would think that almost everyone would understand that you can’t just use your favorite band sound recording in a YouTube video or Instagram story. Unless, of course, it’s offered as music library content from the platform. But you still see that happening.

Jessica:
True. But where there tend to be more problems with music is not in the use of the sound recording, but in the use of the composition. As you know, there are two copyrights in music. One copyright covers the actual sound recording, and those rights are generally owned by the record company. The other copyright is in the composition, meaning the actual music and the lyrics. The copyright in the composition is generally owned by either a music publisher if the song have a publishing deal, or by the songwriters themselves. When you normally see issues of publishing is where the celebrity or influencer performs as in sings the song.

Scott:
Now, normally, if you are a celebrity or influencer and you want to record the performance of a song, you have to get what is called a synchronization license from whoever holds the publishing rights in the music, whether that be the publisher or the songwriters. Without obtaining a sync license, your recording and subsequent broadcast of the performance of the song is copyright infringement.

Jessica:
So not only is this a potential issue for the endorser with the owner of the copyright, but this also could result in a big issue for the brand. First, it’s likely to constitute a breach of the agreement with the brand and result in the endorser not getting paid. Also, if there’s any action by the copyright holder, then the endorser will likely have to indemnify the brand.

Scott:
Yeah, that’s right. Now, there is another type of infringement risk that an endorser potentially faces. And this one usually comes as a big surprise to endorsers and, frankly, their agents. That’s the endorser’s exposure to either a trademark or a copyright infringement claim based on something the brand does. Now, we previously talked about a trademark case where Molly Sims was sued for trademark infringement, all because of a of a sponsored post she did for a beauty product, which another cosmetic company claimed infringed its trademark.

Jessica:
I remember that case well. Sims’ involvement in the matter was no different than any other influence or marketing campaign. As part of a product launch, the defendant cosmetic company hired Sims to post a review of its product on her blog. Sims’ blog post acknowledged that the review was sponsored, as she’s required to for the FTC, and included a link to the defendant’s website. The plaintiff, a competing cosmetic company, sued the defendant cosmetic company and Sims for trademark infringement and other related claims.

Scott:
So, Sims tried to get out of the case early, but the court denied her motion to dismiss. In order to establish direct trademark infringement, the plaintiff must establish the use of its mark by the defendant in commerce and the likelihood of confusion. The judge found that the plaintiff had adequately pled that the blog post was likely to cause confusion as to the source of the product and that Sims’ post was essentially advertising, thereby satisfying the use and commerce requirement. Sims raised some arguments why her use should not constantly trademark infringement as a matter of law, including that the blog post was non-commercial editorial speech. The court said that because this was paid content, it crossed the line from editorial or consumer commentary to commercial use.

Jessica:
Most endorsers don’t appreciate that a one-off integration for a brand could land that endorser right in the middle of a trademark infringement case. This is why we always fight hard to get indemnity from the brand in every deal we do. But as mentioned in your coverage of the Sims case, indemnity is only as good as the solvency or the corporation of the indemnitor.

Scott:
Speaking of solvency of the indemnitor, this brings to mind the rash of promoter liability lawsuits against the celebrity endorsers from the fallout over FTX’s bankruptcy. If I told Tom Brady, Giselle Bündchen, Steph Curry, and Shaquille O’Neal that they could face potentially millions in civil liability all because they just appear in a TV ad for FTX, they and their agents probably would have laughed me out of the room. But that’s what’s happening now. Tom Brady, Giselle Bündchen, Steph Curry, Shaquille O’Neal, and others are all defendants in massive lawsuits seeking to hold these celebrities liable for the money’s lost by FTX customers. The customers claim that the celebrities were promoting unregistered securities which fall under the Regulatory Authority of the Securities and Exchange Commission. Under federal law and securities law, anyone who promotes a securities offering has a legal duty to ensure that the information they publish is complete, accurate, and not misleading.

Jessica:
And not only is there potential civil liability, but there’s also potential liability from the SEC. In March 2023, the SEC announced charges against multiple celebrities who were accused of participating in a fraudulent scheme to promote TRX and BitTorrent cryptocurrency securities. The SEC alleged that the celebrities violated federal law by illegally touting the TRX and the cryptocurrency without disclosing that they were compensated for doing so and the amount of compensation. And these penalties can be substantial. In October 2022, Kim Kardashian entered into a $1.26 million settlement with the SEC following its investigation of her online promotion of EMAX tokens. According to the SEC, Kardashian failed to disclose the payment that she received when promoting the crypto asset security on social media.

Scott:
And your example is a perfect lead in for the next potential legal landmine, and that’s an endorser’s failure to comply with the FTC disclosure guidelines.

Jessica:
Right. That is a big issue. We did an entire episode on that and the recent changes to the FTC guidelines, so our audience should certainly listen to that episode. Scott, I think we should cover on an additional episode sort of the risks related to product liability and when an endorser is promoting a product, particularly if we’re talking about food or skincare or makeup, ingestible, vitamins, those sorts of products, and where the liability could ultimately lead for our celebrities and our influencer clients.

Scott:
Yeah, absolutely. That’s a huge topic and certainly would need its own episode.

Jessica:
Absolutely. But next week, we’re going to cover the company side of the legal risk coin.

Scott:
Yes, we are. I’m looking forward to that. Jessica, thanks for joining me today.

Jessica:
Thank you for listening to this episode of “The Briefing.” We hope you enjoyed the episode. If you did, please remember to subscribe, leave us a review, and share the episode with your friends and colleagues. If you have any questions about the topics we covered today, please leave us a comment.