Art collector's court case signals potential legal and contractual issues with NFTs
Out-Law Analysis | 24 Jun 2021 | 12:57 pm | 5 min. read
Social media influencers have come to dominate the digital platforms through which many of us now live our lives, particularly in the wake of the coronavirus pandemic. But as a result they are now under regulatory scrutiny, with bodies such as the UK’s Advertising Standards Authority (ASA) cracking down on the type and presentation of the content they post.
Earlier in June the ASA announced it would name and shame individual social media influencers who had failed to disclose when their Instagram posts were in fact advertising. Influencers Chloe Ferry, Chloe Khan, Jodie Marsh and Lucy Mecklenburgh are currently listed on the webpage for breaking rules around non-disclosure and will remain there for three months. If they continue to break the rules the ASA states that it will implement further sanctions, including working with social media platforms to have their content removed.
The ASA’s move follows a report produced in March showing that only 35% of Instagram stories were clearly signposted as advertisements, despite rules requiring this.
There is also an ongoing inquiry by the House of Commons Digital, Culture, Media and Sport committee into the power of social media influencers and whether tighter regulation of their activities is needed.
These moves show that there is a continued need for influencer agreements with brands, and social media templates to help guide how content is produced and posted. Connected to this is the growing use of social media to promote counterfeit products, and the need to explore technology to combat the sale of counterfeits online.
Brands look to harness the trust and power which influencers have over their followers. A 2019 survey by marketing service company Rakuten Marketing found that four in five consumers had made a purchase recommended by an influencer by clicking on a link or image that was shared on social media.
Social media platforms are also seeing consistent rises in advertising revenue and platforms including Instagram have launched their own shopping facilities.
The draw of social media extends across the spectrum of goods. Last year TikTok announced a Fashion Month, teaming up with luxury designers including Saint Laurent, Prada and Louis Vuitton to feature runway shows.
Counterfeiters have similarly recognised the power of social buying platforms. A 2019 study identified 56,769 counterfeit accounts active on Instagram; a growth of over 171% compared to 2016. Luxury fashion brands are the biggest target with the five most-mentioned brands by counterfeiters being Gucci, Louis Vuitton, Chanel, Balenciaga and Dior. In fact, Louis Vuitton, Chanel and Gucci combined accounted for over half of the counterfeit fashion items available on Instagram.
Those counterfeit accounts published more than 64 million posts and around 1.6m stories per month. The stories feature is particularly popular as they disappear after 24 hours, making it difficult to find and tackle counterfeiters.
Counterfeiting results in lost revenue for brands, and is also detrimental to their reputation; research carried out for anti-counterfeiting organisation Incopro suggested that 52% of consumers think buying a fake will result in lost trust in the brand.
Influencers are often paid to promote counterfeit items and on occasion they will also use social media and their own websites to sell counterfeits direct to followers. Last November Amazon issued proceedings against 13 defendants, including two influencers, for allegedly promoting and facilitating the sale of counterfeit luxury goods on its website.
Other influencers will promote counterfeit goods without considering the consequences, for example when sent fake goods as a gift.
Where influencers sell in a non-compliant manner, this can cause reputational damage for all involved. Consumer protection law requires that when influencers are paid or rewarded to endorse a brand on their social media, they disclose that they have been paid or incentivised. Yet highlighting posts as ads can erode the natural style of influencer selling and that trusting relationship.
A 2019 Competition and Markets Authority (CMA) investigation into whether consumers were being misled by influencers failing to ensure ads are properly identified as such was followed by joint guidance with the ASA urging influencers, brands and businesses to be more transparent.
When partnering with an influencer, brands will want to ensure they choose a personality with a style and persona which aligns with the company's ethos.
Influencer agreements will be essential to regulating the relationship between brand and influencer, covering key areas to protect the brand such as: not making any claims as to the qualities of an endorsed product; performing duties in accordance with the relevant codes and CMA guidance; and ceasing any association with the brand upon termination of the relationship.
Social media guidelines will also be crucial to ensuring successful collaboration. These should include template posts and measures to make clear that posts are advertisements, accurately disclosing the relationship to followers. This is likely to vary according to the social media platform.
There are other challenges associated with cracking down on the sale of counterfeit goods online. It is easier to dupe a consumer who has only seen a picture of a particular item, and the younger audience influencers target are not necessarily convinced that counterfeiting is morally wrong. Arguably these attitudes are validated by influencers promoting and endorsing counterfeit products on their accounts.
Technology which tracks buying habits also takes advantage of the connectivity between social media and web browsing apps and sites, monitoring a consumer’s interactions with each. Some of these technologies may be manipulated to track an authentic purchase to the point of sale and then spam the user with discount counterfeits to tempt them to abandon their legitimate purchase.
This technology relies on window shopping habits (adding items to your basket and not checking out); and a wilful ignorance of what privacy settings are doing in the background.
The automated profiling settings integrated within social media accounts allow personal information to be used so that adverts can be targeted to an individual’s preferences. While this can prove useful, this technology's reach extends beyond a user’s movements on their favourite social media sites by using a piece of code which collects data on which websites a user has visited. This code links to an identifier to determine which adverts a user will be shown.
Business users can set up this code so that it "fires" when someone takes an action on their website, such as placing a product into a shopping basket. The code then allows users to reach these customers further through adverts served through social media.
Not all of these adverts are generated by accounts created and managed by humans; some are generated or managed by automated software, or bots. Whether counterfeiters use bots to take advantage of this data collecting code is unknown, but bots are certainly used by counterfeiters to increase visibility of their products. It has been estimated by researchers that there may be as many as 95 million bots across our favourite social media sites, posing as real accounts.
Social media providers are working hard to introduce fixes, but counterfeiters are often one step ahead. However, the speed at which brand monitoring software is progressing offers some hope.
The technology used by brand enforcement teams, tracking infringers on online marketplaces and fake websites and automating the sending of takedown notices, could well be used to track misuse by counterfeiters of online activity collecting code and other automated profiling technologies.
One solution might be for brands and social media platforms to team up to tackle these difficult issues. Their collective insight just may turn the tide in the ongoing fight against online counterfeiting.
Katy Bourne and Bella Phillips are intellectual property experts at Pinsent Masons, the law firm behind Out-Law. A version of this article originally appeared in Intellectual Property Magazine.
05 May 2021
01 Apr 2020
Art collector's court case signals potential legal and contractual issues with NFTs