On Nov 10th, we looked at recent developments at the US Federal Trade Commission (FTC), especially the FTC’s increased enforcement of transparency requirements when compensating online influencers to promote goods or services on digital platforms. The appointment of Lina Khan as Chair, followed by the issuance of a resolution on July 1, and then the issuance of warning letters to over 700 companies signals that the FTC is focusing on policing these requirements and taking enforcement action when companies are not in compliance.
If you are not American, perhaps you think that these requirements do not pertain to you or your non-US based company. After all, it is a basic and time-honoured principle of law that each jurisdiction only has the authority to enforce against activity which occurs within that jurisdiction. If I exceed the speed limit in England, I would be quite surprised to receive a fine from the Irish police. I only expect to be cited by the Irish police for activities in Ireland, and the English authorities are tasked with determining if I have breached laws in England.
Although it seems simple, it’s actually a bit more complicated. Many countries have concerns about activities which take place outside their borders that affect their societies. The view is that their legitimate interest in protecting those within their borders should lead to a more liberal interpretation of jurisdiction, enabling them to take action to protect their societal interests, even from external actors.
A term which many lawyers will remember from our law school days is the “long arm statute”. This is exactly what it sounds like, an assertion of jurisdiction over individuals and businesses outside of the state or country which applies the statute. In the United States, long arm statutes are typically used for courts to assert personal jurisdiction over defendants who are not based in the jurisdiction and have not been served with a lawsuit whilst physically present there, but have a sufficient number of contacts with the jurisdiction that it would not be unfair for the court to require the defendant to answer in court there.
In plain language, this means that if I visit Florida twice a year, and I sell Italian wines on the Florida market whilst I’m there, and I advertise those Italian wines to Florida consumers whilst I’m not there, and I own a home in Florida, and I have a commercial property to store the Italian wines, it wouldn’t be unfair for me to be expected to defend a lawsuit in Florida. The Florida court would expect me to appear and make my case, and would likely not grant a motion to dismiss based on the fact that I am not resident in Florida and that I was not in Florida when I was served with the lawsuit. Of course the court would ask the claimant to show why Florida should have subject-matter jurisdiction over a specific issue, but if the dispute has anything to do with my sale of Italian wines in Florida, it’s likely that it would allow the lawsuit to proceed.
In truth, there are many more issues involved in determining which courts are competent to hear which cases, but it is a basic principle in US law that if you willingly transact business with a certain state, then that state can assert jurisdiction over you for matters pertaining to that business.
So, how does this pertain to Section 5 of the FTC Act and the FTC’s ability to take enforcement action against foreign-based companies and individuals who are not in compliance? Section 5 of the FTC Act has a provision which extends the FTC enforcement authority to matters involving foreign commerce. The exact quote from the FTC website with the legal citation reads as follows:
“(U)nfair or deceptive acts or practices” in Section 5(a) include such acts or practices involving foreign commerce that cause or are likely to cause reasonably foreseeable injury within the United States or involve material conduct occurring within the United States. 15 U.S.C. Sec. 45(a)(4)(A).
Notice that the judicial philosophy contained in this statute reflects the same principles as the example I used earlier of selling Italian wines in Florida. If you as a foreigner engage in conduct which causes or is likely to cause reasonably foreseeable injury within the USA, don’t expect to be held to a different standard than an American company which does the same. And, if your business operations involve “material conduct” within the USA, you can also expect to be held to the same standards as a US-based company. For these reasons, the US Congress granted the FTC enforcement authority to halt deceptive business practices that affect US consumers.
So even if your company is based outside the USA, and the online influencer who you compensate to promote your products or services is also based outside the USA, if they have a substantial following based inside the USA, it is likely that both you and the influencer are potential targets for the FTC if the influencer creates online content without sufficiently disclosing the relationship between you and the influencer. In the previous blog I attached a publication by the FTC regarding their transparency expectations: a link for ease.
So please take seriously the need to monitor posts by the influencers you compensate to promote your products or services, and particularly if the influencers have several followers in the USA. Please take some time to review the recommendations made in the previous blog and apply them so that your company can manage the risks associated with influencing the US market.
Although this article focuses on the ability of the US FTC to take enforcement action, we are seeing that many other countries are taking similar types of action to regulate content published by influencers. So, as you develop a compliance system, please take account of all laws which affect your business operations, particularly where other countries have adopted a similar long-arm approach as the USA has done.
Multi-jurisdictional compliance is not easy, but if you want to continue to reap the benefits of pitching to multiple markets through online influencers, you will need to adopt a compliance system which satisfies your legal obligations.