Introduction: False Advertising Law and the Rise of Paid Influencers

To say that the business of advertising has dramatically changed in the past two decades would be a bit of an understatement. While once exclusively the domain of physical spaces, the advent of the internet and social media has seen advertising dollars increasingly move to the digital world.

One of the driving forces behind this trend is the rise of influencer marketing. Apparently, brands covet the endorsement of influencers to such a degree that it can cost a company more to sponsor a single Instagram post than to rent a Times Square billboard for a year.¹ And the role of influencers in the advertising sphere only continues to grow.

The rise of influencer and other similar forms of marketing — such as product reviews — is not just causing ripples in the advertising industry, but has been raising issues in the legal field as well. In particular it has raised novel questions as to how influencers, product reviews, and their paid promotions should be analyzed under various areas of the law, and specifically that their speech may not be protected under the First Amendment.

In this regard, one area of particular note is the law of false advertising. After all, false advertising law only extends to those forms of speech that are categorized as “commercial speech,” commercial speech receiving less First Amendment protection than other types of speech.² And it remains an open subject whether paid influencer created content can constitute commercial speech.³

In one recent case, Ariix LLC v. NutriSearch Corp.,⁴ the Ninth Circuit helps to shed some light on the question of how free speech and false advertising law should categorize paid promotions that do not take the form of a traditional advertisement.

Ariix, while not directly pertaining to influencers, is about a similar type of paid promotion — one that occurs in a guide rather than on social media. Given the similarities between the product promotion in Ariix and influencer promotion, the Ariix decision is important because it is exemplary of some of the new forms of advertising as the advertising industry evolves which may not be necessarily entitled to First Amendment protections.

Counsel for paid reviewers and influencers should consider undertaking a fresh look as to whether the First Amendment insulates their clients from liability for false advertising and whether this might lead to increased actions against them. Ultimately, the courts will decide whether these forms of speech, commercial or otherwise, are mere  product reviews or paid product promotions. Until then, Ariix serves as a useful guidepost to those attorneys attempting to navigate this rapidly changing field.

Background: NutriSearch and its Usana Connection

The controversy in Ariix revolved not around a tweet nor an Instagram post, but a publisher of a guide which reviews and compares nutritional supplements and two nutritional supplement companies: NutriSearch, Ariix, and Usana.

In the case, Ariix alleged that NutriSearch had — despite its assertions of being a neutral third party which presents to the public only objective information — a secret and financially beneficial relationship with Usana, one of Ariix’s main competithirdtors. As Ariix tells it, NutriSearch was first conceived by a MacWilliam, formerly a Usana employee, to boost sales of Usana’s products. MacWilliam started NutriSearch and left Usana and its board after another competitor exposed the affiliation between the two. After that, Usana began paying NutriSearch and MacWilliam hundreds of thousands of dollars in speaking and promotion fees in exchange for Usana being listed as the top supplement company in NutriSearch’s guide. At one point Usana withdrew its support from NutriSearch after the guide began to grant other companies medal certification. Usana only recommenced its financial support after NutriSearch created a new “Editor’s Choice” award and bestowed it upon Usana.

In addition to accusations that NutriSearch had rigged its ratings to benefit Usana it was also alleged that the guide had improperly stymied Ariix’s attempts to receive the guide’s top rating. The complaint asserted that NutriSearch repeatedly and inappropriately denied Ariix a medal certification, including at one point assuring Ariix that it would receive the NutriSearch GOLD Medal of Achievement in the next edition of the guide, but failed to deliver on this promise. Ariix had additionally sought to book MacWilliam as a speaker, but MacWilliam admitted that were he to do so, Usana “will cut me off the second I do this [speak for Ariix].”

In short, what Ariix accused NutriSearch of being was nothing more than a form of paid product promotion, rather than a source of legitimate product reviews. What separates the two is that while the latter is generally seen as an independent third party that will provide honest and trustworthy advice to consumers seeking the best product, the former is motivated primarily by money. Thus, a recommendation in a paid product promotion will not necessarily be made because the reviewer believes in the superiority of the product, but because they are being paid for their seal of approval.

In response to the appearance that NutriSearch was little more than paid promotion for Usana, Ariix filed a complaint in the Southern District of California against both NutriSearch and MacWilliam. The complaint alleged that the defendants had violated Section 43(a) of the Lanham Act. The defendants then filed a 12(b)(6) motion for failure to state a claim, which was granted by the district court.  The court reasoned that the Lanham Act does not apply to consumer product reviews — even if biased — and that the guide constituted commercial speech. It additionally found that the guide contained unactionable statements of opinion, and not actionable statements of fact.

Section 43(a) and False Advertising

Though initially viewed as a minor section, purposed to ease the strict requirements of common law false advertising cases, Section 43(a) of the Lanham Act gradually became the main source of federal law for false advertising actions.⁵ Under Section 43(a) all persons are prohibited from misrepresenting their or another’s goods or services in “commercial advertising or promotion.”⁶ While neither “advertising” nor “promotion” are defined by the Act the Ninth Circuit has adopted a four-pronged standard. Speech will be defined as advertising or promotion if it is “(1) commercial speech, (2) by a defendant who is in commercial competition with plaintiff, (3) for the purpose of influencing consumers to buy defendant’s goods or services, and (4) that is sufficiently disseminated to the relevant purchasing public.”⁷

Much Ado About Commercial Speech

The outcome of the controversy in Ariix largely depended upon a single question: Did NutriSearch’s guide constitute commercial speech? The answer to this question was critical to the outcome of the case since if the guide was protected speech then it is subject to full First Amendment protections, and therefore beyond the reach of Ariix’s Lanham Act claim. It has, after all, been long established that commercial speech receives less protection than other categories of speech.⁸ And while commercial speech is not completely devoid of the protections provided by the Free Speech Clause, in order to be shielded commercial speech must not be misleading. Thus, given the allegation in the complaint that the speech contained in the guide was misleading, NutriSearch could not hide behind the First Amendment if its speech was deemed commercial.⁹ Conversely, if the speech in question did not fall under the category of commercial speech then the First Amendment would shield it from Ariix’s claim.

Defining precisely what constitutes commercial speech is a task that has long eluded the courts.¹⁰ As a general matter, commercial speech is “usually defined as speech that does no more than propose a commercial transaction.”¹¹ But this is only a starting point. As a result of the difficulties of establishing bright line rules courts have tried to distinguish commercial from protected speech through a fact-driven analysis. One way of doing this is to examine if the speech at question proposes a commercial transaction. Yet this is not dispositive, as “speech that does not propose a commercial transaction on its face can still be commercial speech.”¹² Instead, in an attempt to answer the commercial speech question, the Ariix court considered the three factors laid out by the Supreme Court in Bolger v. Youngs Drug Products Corp.¹³ Under the Bolger analysis, there is strong support to characterize speech as commercial speech when it is found that “(1) the speech is an advertisement, (2) the speech refers to a particular product, and (3) the speaker has an economic motivation.”¹⁴

Addressing the first prong, the Ninth Circuit noted that the fact that NutriSearch’s guide is not in the form of a traditional advertisement is not particularly informative. In so saying the court cited to the rise of what it referred to as “so-called influencers” who promote products by posting on social media. And, as the Ariix bench saw it, “[w]hile such social media posts may not have the indicia of a traditional advertisement, there can be little doubt that these paid posts are in fact advertisements.”¹⁵ Ultimately, however, the court said that both this and the second factor, whether the speech refers to a particular product, shed little light on the question.

Instead, the court focused most of its attention on the third Bolger factor, economic motivation — “whether the speaker acted primarily out of economic motivation, not simply whether the speaker had any economic motivation.”¹⁶ In this way the question over whether NutriSearch’s guide constituted commercial speech is, itself, a proxy for another question — and one with greater significance outside this case. Is this speech paid product promotion and, if so, does paid promotion constitute commercial speech? The court answered this question with a simple yes.

In reaching this conclusion the court examined whether the speaker, NutriSearch, “had an adequate economic motivation so that the economic benefit was the primary purpose for speaking.”¹⁷ The court reasoned that Ariix’s complaint plausibly alleged as such, particularly in that the complaint stated that NutriSearch and MacWilliam’s primary motivation for publishing their guide was to receive monetary compensation from its relationship with Usana. In the court’s view, this monetary relationship was enough to make it plausible that the guide was more akin to paid product promotion than to legitimate product review, at least according to the complaint. Thus, the court held that NutriSearch’s guide constituted commercial speech and reversed the lower court’s dismissal of the complaint.

While the Ninth Circuit found that Ariix plausibly alleged that the NutriSearch’s guide was commercial speech — and that it was sufficiently disseminated and contained actionable statements of facts — the court did not make a finding as to the third element of the Section 43(a) claim: whether the guide was for the purpose of influencing consumers to buy the defendant’s goods or services. Resultingly, the court remanded the issue to the district court to decide that issue in the first instance.

The Implications of Ariix

While the court characterized its decision in Ariix as “a narrow one that is tied specifically to the troubling allegations in this case” the decision appears to have the makings of a rather important precedent. After all, the court notes, albeit dicta, that social media posts by paid influencers are, in fact, advertisements. On top of this, the court declared outright that “paid promotion is commercial speech.”18 Given the rise of the multi-billion-dollar influencer industry — an industry that consists virtually entirely of paid promotion — such conclusions are notable. Further, while prior case law has already dealt with the issue of companies that publish guides making claims of comparing competitors, Ariix finds that a third party that has some, but not direct, connections to advertisers are now potentially liable for Lanham Act claims.

As noted earlier, for the Lanham Act’s prohibition against false advertising to be enforceable the speech in question must be fall under the label of commercial speech. Given the court’s holding in Ariixit is arguable that the Ninth Circuit has embraced a view that such posts by influencers are commercial speech, and thus fall under the scope of false advertising law.

¹ How much does Kylie Jenner earn on Instagram?, BBC (July 26, 2019), https://www.bbc.co.uk/newsround/49124484 (last visited June 16, 2021); Jim Edwards, Here's How Much It Actually Costs To Buy One Of Those Times Square Billboards, Business Insider (Dec. 31, 2012), https://www.businessinsider.com/what-it-costs-to-advertise-in-times-square-2012-12 (last visited June 16, 2021).

² Central Hudson Gas & Elec. Corp. v. Public Serv. Comm’n, 447 U.S. 557, 562-563 (1980).

³ See Eis, Inc. v. WOW Tech Int'l GmbH, No. 19-1227-LPS, 2020 U.S. Dist. LEXIS 223791, at *10 (D. Del. Nov. 30, 2020); Burgin v. NFL, 2014 U.S. Dist. LEXIS 61935, at *9 (S.D.N.Y. Apr. 30, 2014); and New Balance Ath., Inc. v. USA New Bunren Int'l Co. Ltd. LLC, 424 F. Supp. 3d 334, 345 (D. Del. 2019).

⁴ 985 F.3d 1107 (9th Cir. 2021)

⁵ J. Thomas McCarthy, 5 McCarthy on Trademarks and Unfair Competition § 27:7 (5th ed. 2021)

⁶ 15 U.S.C. § 1125(a)(1)(B)

⁷ Ariix, 985 F.3d at 1115 (quoting Costal Abstract Serv., Inc. v. First Am. Title Ins. Co., 173 F.3d 725, 735 (9th Cir. 1999)).

⁸ Central Hudson, 447 U.S. at 562-563.

⁹ Ariix, 985 F.3d at 1121.

¹⁰ See Victor Brudney, The First Amendment and Commercial Speech, 53 B.C. L. Rev. 1153, 1154 (2012) (“The uncertain content of the commercial speech that is subject to government regulation… has generated considerable discussion of the unavoidable ambiguity of the concept of commercial speech and some incoherence in the Court’s efforts at delineation of it.”). See also J. Wesley Earnhardt, Nike, Inc. v. Kasky: A Golden Opportunity to Define Commercial Speech – Why Wouldn’t the Supreme Court Finally Just Do It, 82 N.C. L. Rev. 797, 797 (2004); Jenniver M. Keighley, Can You Handle the Truth? Compelled Commercial Speech and the First Amendment, 15 U. Pa. J. Const. L. 539, 543 (2012).

11 Ariix, 985 F.3d at 1115 (quoting United States v. United Foods, Inc., 533 U.S. 405, 409 (2001)).

¹² Ariix, 985 F.3d at 1115.

¹³ 463 U.S. 60 (1983)

¹⁴ Ariix, 985 F.3d at 1116 (citing Bolger v. Youngs Drug Prods. Corp., 463 U.S. 60, 66-68 (1983).

¹⁵ Id.

¹⁶ Id.

¹⁷ Id., at 1117.

¹⁸ Id., at 1119.

Reprinted with permission from the “July 27,2021” edition of the “New York Law Journal”© 2021 ALM Media Properties, LLC. All rights reserved.

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