A Cautionary Fairy-Tale – If Only Cinderella’s Father Had An Estate Plan

Ah, the tale of Cinderella, a classic childhood favorite. We all know it as the story of an orphan who is mistreated by her Evil Stepmother and, with the help of her Fairy Godmother, wins over the heart of Prince Charming.

Often overlooked, however, is how the story began. Cinderella’s Mother died when Cinderella was a child. Cinderella’s Father remarried and shortly after, he also died. Cinderella’s Evil Stepmother then stole Cinderella’s inheritance and enslaved Cinderella in her own home. Surely, Cinderella’s parents never planned on this future for their lovely daughter. But, you see, it was the parents’ failure to plan for the future that put Cinderella in this terrible predicament. With a little planning—estate planning, that is—Cinderella never would have endured such suffering.

Avoid the Stepmother Trap 

There are several ways a skilled estate planning attorney could have helped poor Cinderella, as we analyze author Charles Perrault’s beloved fairytale under modern-day Arizona law.

With no estate planning documents in place, Cinderella’s modern-day predicament would look like this: half of Cinderella’s Father’s estate would be distributed to Evil Stepmother, and half of the estate would be distributed to Cinderella, as a child of the father who was not also a child of Evil Stepmother. Being a minor, Cinderella’s half of the estate would be placed in one of two places.

The first place would be a Uniform Transfers to Minors Act (“UTMA”) account. An UTMA account requires a court-appointed custodian – presumably, Evil Stepmother – who should use those funds for Cinderella’s health, education, maintenance, and support. Unfortunately, with little oversight, we doubt Evil Stepmother would have complied with UTMA. Instead, Evil Stepmother likely would have used Cinderella’s share of the estate to benefit herself and her two biological daughters.

The second place the money might have been placed would be in a trust for the benefit of Cinderella. While the second option is the best option, someone (another family member, on Cinderella’s behalf) would have to petition the court to order that outcome, and it is unlikely that Evil Stepmother would do that for Cinderella.

Why Oh Why Didn’t Cinderella’s Father Create a Trust for His Precious Little Girl? 

What Cinderella’s Father should have done was create a Revocable Living Trust Agreement (the “Trust”). He should have created the Trust after marrying Evil Stepmother to ensure there was no pesky “omitted spouse” claim. The Trust should state that (1) certain assets, as set forth on an attached Schedule A, are the separate property of Cinderella’s Father, (2) certain assets, if any, as set forth on an attached Schedule B, are the separate property of Evil Stepmother, and finally (3) that certain assets, as set forth on an attached Schedule C, are the community property of Cinderella’s Father and Evil Stepmother.

To assist with the trust administration after his death, Cinderella’s Father also should have named a neutral successor trustee, such as a friend, fiduciary, corporate trustee, or perhaps the best choice of all, Fairy Godmother. The Trust should state that, at the death of Cinderella’s Father, the Trust will be divided into two subtrusts, commonly referred to as an A/B split trust.

Trust A (the Survivor’s Trust) would be allocated all of Evil Stepmother’s separate property as well as one-half of the value of the community property assets. Trust B (the Decedent’s Trust) would be allocated all of Cinderella’s Father’s separate property as well as one-half of the value of the community property assets. The Trust could provide that Evil Stepmother would be able to use the Survivor’s Trust assets as she pleases and can only access the Decedent’s Trust assets (other than perhaps receiving income, if so stated in the estate documents) if the assets allocated to the Survivor’s Trust were depleted or illiquid. Having a neutral successor trustee to either work with Evil Stepmother or to oversee only the Decedent’s Trust would ensure that Cinderella’s share was not being improperly raided and depleted. Then, at the death of Evil Stepmother, the assets in the Decedent’s Trust would be distributed to Cinderella.

Creative Considerations for Dear “Cinderelly”

Other provisions can be added to such trusts that ensure Cinderella’s interests are protected. For example, a provision could be added that gives Cinderella the ability to request funds from the Decedent’s Trust, as needed, for health, education, maintenance or support (payable on her behalf, as a minor, and to her, once she is of age). Another provision could allow Cinderella to receive a portion of the Decedent’s Trust at a certain age or upon her marriage to Prince Charming, prior to Evil Stepmother’s death. Finally, another provision could allow the successor trustee to create and fund a 529 college savings account using funds from the Decedent’s Trust.

There are other possibilities if Cinderella’s Father did not want to create a trust as described above because he was so utterly and completely in love with Evil Stepmother and wanted everything to be considered community property. In this case, he could have planned in some untraditional ways to still ensure Cinderella was cared for. For example, Cinderella’s Father could take out a million dollar term life insurance policy after his second marriage, naming Cinderella as the sole beneficiary and directing funds to be distributed to an UTMA account with a neutral custodian or to a support trust with a neutral trustee.

Cinderella Ultimately Inherited Litigation 

In our modern-day analysis, the only inheritance Cinderella’s Father left her was likely litigation. Although not ideal, in circumstances like these, litigation affords the child of a parent with no estate plan, or with a poor estate plan, the opportunity to recover all or some of the property the child is rightfully entitled to receive. Assuming Cinderella’s Father died intestate (without a will), half of his estate should have passed to Evil Stepmother and the other half to Cinderella. Assuming Evil Stepmother either adopted Cinderella or was her court-appointed guardian, conservator or custodian, Evil Stepmother would owe Cinderella a fiduciary duty to protect her share of the inheritance and should have prepared an accounting of the assets that existed at the time of Cinderella’s Father’s death.

Of course, in the original story, Evil Stepmother never protected Cinderella’s interests and instead pillaged all of the assets. Cinderella, therefore, would have had a cause of action against Evil Stepmother for breach of fiduciary duty and conversion, among others. Fortunately, children like Cinderella are not without a remedy. An experienced estate litigation attorney can assess each case and determine what causes of action exist, the expected cost, and the likelihood of recovery.

Your Fairy Godmother Equivalent

Luckily, Cinderella had allies in the form of her Fairy Godmother and her many animal friends. If you have questions about estate planning, trust administration, and estate litigation issues, there are many resources available to you. This includes the most powerful resource of all: calling upon an estate planning attorney to help you – and others – learn from the cautionary fairy-tale that is the Cinderella story.

Copyright © 2019 Ryley Carlock & Applewhite. A Professional Association. All Rights Reserved.

Privacy Legislation Proposed in New York

The prevailing wisdom after last year’s enactment of the California Consumer Privacy Act (CCPA) was that it would result in other states enacting consumer privacy legislation. The perceived inevitability of a “50-state solution to privacy” motivated businesses previously opposed to federal privacy legislation to push for its enactment. With state legislatures now convening, we have identified what could be the first such proposed legislation in New York Senate Bill 224.

The proposed legislation is not nearly as extensive as the CCPA and is perhaps more analogous to California’s Shine the Light Law. The proposed legislation would require a “business that retains a customer’s personal information [to] make available to the customer free of charge access to, or copies of, all of the customer’s personal information retained by the business.” It also would require businesses that disclose customer personal information to third parties to disclose certain information to customers about the third parties and the personal information that is shared. Businesses would have to provide this information within 30 days of a customer request and for a twelve-month lookback period. The rights also would have to be disclosed in online privacy notices. Notably, the bill would create a private right of action for violations of its provisions.

We will continue to monitor this legislation and any other proposed legislation.

Copyright © by Ballard Spahr LLP.

This post was written by David M. Stauss of Ballard Spahr LLP.

Coming up in one Week! The 26th Annual Marketing Partner Forum in January 2019

In January 2019, Marketing Partner Forum descends upon The Ritz-Carlton, Laguna Niguel in Dana Point, California for a three-day summit on law firm marketing and business development designed for the industry’s top business professionals and rainmakers. Conveniently situated near John Wayne Airport, Orange County (SNA), Laguna Niguel is the ideal backdrop to launch a new era of industry-leading content focused on profitability and client development in a dynamic and competitive legal services market.

Why You Should Attend:

 

  • Marketing Partner Forum is designed for client development partners, rainmakers, and the senior-most legal marketing and business development leaders across the profession.
  • Our content reflects the experience and sophistication of our international audience in terms of rigor, ambition and scope.
  • Attendees can engage venerable thought leaders both within and outside of the legal industry.
  • Our program offers ample networking opportunities and the stunning scenery, golf course, spa and hiking trails at one of California’s most idyllic resorts.
  • Participants can take advantage of our law firm partner conference track, consisting of several compelling sessions designed specifically for legal practitioners.
  • We have also created a brand new solo & small law firm track, with sessions designed for business development executives & partners alike.
  • Finally, attendees can interact directly with senior clients and network for new business;
  • Refresh & reflect at our Wednesday Welcome Luncheon and Friday Bloody Mary Brunch;
  • And depart the event with practical takeaways to share with peers and firm leadership.

 

Please Save the Date! Online registration now open.

Information about our conference venue and nearby airports is available here.

For questions about this event, please call 1-800-308-1700

Learn more and register here.

Scan Your Practices: Illinois Supreme Court to Resolve Biometric Privacy Standard

Fingerprinting, retina scans, and voiceprints – practices once reserved for FBI agents, criminals, and Jason Bourne – are now widely used by companies of all sizes. These “biometric identifiers” are collected, often by employers, to provide for workplace efficiencies such as clocking time and ensuring secure access to sensitive locations. Or they may be used by businesses looking to track and identify customers. Whatever the case may be, collection and use of biometric identifiers are landing companies in legal hot water.

There has been a frenzy of class action lawsuits filed under the Illinois Biometric Information Privacy Act (BIPA) in recent weeks, in anticipation of a pending decision from the Illinois Supreme Court regarding the statute’s scope. BIPA provides a roadmap for how to lawfully gather, store, and destroy biometric data. When companies flout these requirements, they expose themselves to legal liability.

Compliance with BIPA is not terribly difficult. A private entity must: 1) develop a written policy, available to the public, that establishes a retention schedule and guidelines for permanently destroying biometric data; 2) provide information to the subject in writing, and obtain a written release before collecting and using biometric information; 3) safely store and prevent disclosure or dissemination of the biometric data to unauthorized third parties; and 4) destroy the biometric data when there is no longer a reason for keeping it, or within three years of the individual’s last interaction with the entity, whichever comes first.

The statute provides that “any person aggrieved by a violation” of these rules can bring suit. The tricky question, which the Illinois Supreme Court will soon answer, is who is a person aggrieved? Is someone aggrieved if a private entity technically violates the statute, but does not otherwise cause harm to the individual through unauthorized dissemination or disclosure of his or her biometric data? If a company forgets to obtain written authorization, but otherwise posts appropriate notices and protects the security of the data, are its employees or customers aggrieved persons?

The answer once appeared favorable to companies. In Rosenbach v. Six Flags Entertainment Corporation, the Second District Appellate Court held that “a plaintiff who alleges only a technical violation of the statute without alleging some injury or adverse effect is not an aggrieved person” under BIPA. In other words, technical violations of the statute, without any accompanying harm, did not pave the way for litigation.

At the end of 2018, however, the First District Appellate Court, in Sekura v. Krishna Schaumburg Tan, Inc., signaled a more relaxed, plaintiff-friendly standard by agreeing that an injury to a privacy right may be enough to maintain a lawsuit. Though that case also involved allegations of actual harm (unauthorized disclosure of the data to third parties), it created a fissure and undermined whatever comfort came from knowing that technical violations alone would not produce viable lawsuits. And, while the federal courts sitting in Illinois continue to dismiss these cases for lack of constitutional standing, the majority of BIPA cases are filed and remain in state court, where state precedent controls. Companies will seldom find themselves in the more favorable federal venue.

Meanwhile, the plaintiffs in Rosenbach appealed to the Illinois Supreme Court, which heard oral arguments on this issue at the end of November 2018. The central question the court will soon answer is what type of harm must be alleged in order for a plaintiff to maintain suit under BIPA: Are allegations of mere technical violations enough, or must a plaintiff allege a more particular harm? BIPA aficionados across the state are waiting with bated breath to learn the answer.

In the meantime, companies would be wise to review their biometric data notification, collection, storage, and destruction practices. In many ways, regardless of Rosenbach’s outcome, companies need to be extremely vigilant in deciding whether to collect biometric data in the first place and, if so, in developing and implementing careful practices to ensure full compliance with BIPA. Even if the Illinois Supreme Court ultimately concludes that technical violations alone are not actionable, shrewd plaintiffs and their attorneys will not hesitate to articulate allegations of harm beyond mere technicalities. Now is the time to scan your practices.

 

© 2019 Much Shelist, P.C.
This post was written by Laura A. Elkayam and James L. Wideikis of Much Shelist, P.C.
Read more on emerging employment law issues at the National Law Review’s Employment Law Resources Page.

Under Developing IRS Guidance (Not Final), an Employer Would Be Able to Fully Satisfy ACA’s Employer Mandate Without Maintaining Group Health Plan

Takeaway Message: A recent IRS notice provides a future path for employers to avoid ACA employer mandate penalties by reimbursing employees for a portion of the cost of individual insurance coverage through an employer-sponsored health reimbursement arrangement (HRA). While the notice is not binding and at this stage is essentially a discussion of relevant issues, it does represent a significant departure from the IRS’s current position that an employer can only avoid ACA employer mandate penalties by offering a major medical plan.

Background: As described in more detail in a previous update, the ACA currently prohibits (except in limited circumstances) an employer from maintaining an HRA that reimburses the cost of premiums for individual health insurance policies purchased by employees in the individual market. Proposed regulations issued by the IRS and other governmental agencies would eliminate this prohibition, allowing an HRA to reimburse the cost of premiums for individual health insurance policies (Individual Coverage HRA) provided that the employer satisfies certain conditions.

The preamble of the proposed regulations noted that the IRS would issue future guidance describing special rules that would permit employers who sponsor Individual Coverage HRAs to be in full compliance with the ACA’s employer mandate (described below). As follow up, the IRS recently issued Notice 2018-88 (the Notice), which is intended to begin the process of developing guidance on this issue.

On a high level, the ACA’s employer mandate imposes two requirements in order to avoid potential tax penalties: (1) offer health coverage to at least 95 percent of full-time employees (and dependents); and (2) offer “affordable” health coverage that provides “minimum value” to each full-time employee (the terms are defined by the ACA and are discussed further in these previous updates).

Offering Health Coverage to at Least 95 Percent of Full-Time Employees: Both the proposed regulations and Notice provide that an Individual Coverage HRA plan constitutes an employer-sponsored health plan for employer mandate purposes. As a result, the proposed regulations and Notice provide that an employer can satisfy the 95 percent offer-of-coverage test by making its full-time employees (and dependents) eligible for the Individual Coverage HRA plan.

Affordability: The Notice indicates that an employer can satisfy the affordability requirement if the employer contributes a sufficient amount of funds into each full-time employee’s Individual Coverage HRA account. Generally, the employer would have to contribute an amount into each Individual Coverage HRA account such that any remaining premium costs (for self-only coverage) that would have to be paid by the employee (after exhausting HRA funds) would not exceed 9.86 percent (for 2019, as adjusted) of the employee’s household income. Because employers are not likely to know the household income of their employees, the notice describes that employers would be able to apply the already-available affordability safe harbors (described in more detail here) to determine affordability as it relates to Individual Coverage HRAs. The Notice also describes new safe harbors for employers that are specific to Individual Coverage HRAs, intending to further reduce administrative burdens.

Minimum Value Requirement: The Notice explains that an Individual Coverage HRA that is affordable will be treated as providing minimum value for employer mandate purposes.

Next Steps: Nothing is finalized yet. Employers are not permitted to rely on the proposed regulations or the Notice at this time. The proposed regulations are aimed to take effect on January 1, 2020, if finalized in a timely matter. The final regulations will likely incorporate the special rules contemplated by the Notice (perhaps with even more detail). Stay tuned.

 

© 2019 Foley & Lardner LLP
This post was written by Jessica M. Simons and Nick J. Welle of Foley & Lardner LLP.

SEC’s Office of Compliance Inspections and Examinations Releases 2019 Examination Priorities

On Dec. 20, 2018, the Office of Compliance Inspections and Examinations (OCIE) of the U.S. Securities and Exchange Commission (SEC) issued its annual Examination Priorities for 2019 (Exam Priorities), which is available for download here. The Exam Priorities focus around six thematic areas: (1) Retail Investors, including seniors and those saving for retirement; (2) Registrants responsible for critical market infrastructure; (3) FINRA and MSRB; (4) Digital Assets; (5) Cybersecurity; and (6) Anti-Money Laundering (AML) Programs.

As in the past, OCIE notes that their priorities are not exhaustive. The scope of any examination is determined through a risk-based approach that includes analysis of the registrant’s operations and products offered. For example, OCIE typically examines the disclo­sure of services, fees, expenses, conflicts of interest for investment advisers, and trading and execution quality issues for broker-dealers. OCIE is continually evaluating changes in market conditions, industry practices, and investor preferences to assess risks to both investors and the markets.

In connection with OCIE’s priority to protect retail investors, OCIE reviews retail fees and expenses paid by investors, conflicts of interest of industry personnel, treatment of senior investors and the advertising and suitability of retirement products, portfolio management and trading, operations of and the selection of mutual funds and ETFs, procedures of municipal advisors, procedures for broker-dealers entrusted with customer assets, and microcap securities.

OCIE also continues to prioritize critical market registrants impacting the safety and operation of our financial markets, including clearing agencies, entities subject to Regulation SCI, transfer agents, and national securities exchanges.

Finally, OCIE will prioritize examinations of the effectiveness of FINRA and MSRB, which are assigned the responsibility for certain aspects of investor protection. OCIE also will conduct inspections to gather information and evaluate practices affecting digital assets, cybersecurity, and AML programs (especially broker-dealers subject to express obligations and SAR filing obligations).

Overall, OCIE noted that although changes to its priorities may be continual, OCIE’s analytic efforts and examinations remain firmly grounded in its four pillars: promoting compliance, preventing fraud, identifying and monitoring risk, and informing policy.

 

©2019 Greenberg Traurig, LLP. All rights reserved.
This article was written by Arthur Don and Vincent Lewis of Greenberg Traurig, LLP.

Lapse in Government Funding Continues to Affect FDA, USDA

As previously covered on this blog, without either a fiscal year 2019 appropriation or a Continuing Resolution, a partial government shutdown, which began on December 22, 2018, has continued to impact both the U.S. Department of Agriculture and the U.S. Food and Drug Administration. As of the time of this blog’s publication, the government has been partially shut down for over 20 days.

Most recently, in a Twitter thread, FDA Commissioner Scott Gottlieb noted that the agency stopped a limited number of domestic food inspections because of the shutdown, but the agency is, “taking steps to expand the scope of food safety surveillance inspections we’re doing during the shutdown to make sure we continue inspecting high risk food facilities.” Several commodities are deemed “high risk” and include: seafood, soft cheeses, fresh fruits and vegetables, spices, shell eggs, infant formula and medical foods. Gottlieb noted that the mechanism to expand the domestic inspections will be in place beginning the week of January 14.

As for the USDA, Senator Debbie Stabenow submitted a letter to the Secretary of Agriculture on January 9 requesting information on the impact that the shutdown is having on the agency, including the delay in implementing the recently-passed Farm Bill. As of the time of this publication, the Secretary has yet to respond. USDA put out a press release at the end of 2018 regarding activities that would be affected by the shutdown, but the department has not updated it since that time.

 

© 2019 Keller and Heckman LLP.
This post was contributed by Food and Drug Law at Keller and Heckman.
For more legal news on the Food and Drug Administration check out the National Law Review’s Biotech Food and Drug Type of law page.

Partial Government Shutdown Causes Full-Blown Headache for Employers Using E-Verify

If you are an employer that is obligated to or has chosen to use E-Verify, then you have probably already received this message from the E-Verify website: “NOTICE: Due to the lapse in federal funding, this website will not be actively managed. This website was last updated on December 21, 2018, and will not be updated until after funding is enacted. As such, information on this website may not be up to date. Transactions submitted via this website might not be processed, and we will not be able to respond to inquiries until after appropriations are enacted.”

But what does this notice actually mean for your business? As long as the shutdown remains in effect, you will not be able to:

  • enroll in the program

  • access your E-Verify account

  • create a case in E-Verify

  • take action on a case you previously submitted

  • add, delete, or edit accounts

  • terminate accounts

  • run reports

Also during this time, your employees will not be able to resolve any E-Verify Tentative Nonconfirmations (TNCs) they received prior to the shutdown. Indeed, the number of days E-Verify is not available will not count toward the days employees have to begin the process of resolving their TNCs.

So, what should you do with your new hires given that you cannot create a case in E-Verify within the three business days required?

  • Make sure you are still completing I-9s in a timely manner. The shutdown does not affect the three business days you have to obtain and verify documentation in Section 2 or any other I-9 obligations.

  • Do not take any adverse action against employees who have open cases in E-Verify.

  • Create a list of all employees hired during the time period E-Verify has been inoperable, and make a notation that the reason the employees were not run through E-Verify is due to the government shutdown.

  • Take the time now to establish a system for running these employees through E-Verify once the system becomes available. Absent other instructions from USCIS, you will most likely be choosing the “other” drop-down field when asked why the case was not created within three days and typing in “government shutdown.”

  • If you’re a federal contractor with a Federal Acquisition Regulation E-Verify clause, think about getting confirmation in writing from your contracting officer that the E-Verify deadlines are extended. Or, if the officer is not available, at least create documentation that you have inquired about this.

© 2019 Jones Walker LLP
This post was written by Laurie M. Riley and Mary Ellen Jordan of Jones Walker LLP.

FDA 2018 Year in Review

The US Food and Drug Administration’s (FDA’s) 2018 regulatory agenda spurred significant activity throughout the year, including implementation of several initiatives and mandates required by the 21st Century Cures Act (Cures Act). FDA continues to take measures to reduce regulatory barriers to market entry for innovative products, and it is leveraging traditional administrative processes, such as the citizen petition process, to advance its policy goals, including increasing generic competition. FDA initiated targeted enforcement actions in areas of traditional focus, such as good manufacturing practice (GMP) compliance, but it also signaled renewed focus on tobacco advertising, unapproved stem cell procedures, and compounding. FDA also issued important guidance documents throughout 2018.

This Special Report reviews notable actions that shaped FDA-regulated industries and products last year and offers insight into the agency’s 2019 priorities and expected actions.

  1. Drugs

  2. Digital Health

  3. Drug Quality Security Act Implementation

  4. Drug Supply Chain Security Act

  5. Medical Devices

  6. Laboratory-Developed Tests and Precision Medicine

  7. Food

  8. Tobacco

  9. Cannabis

  10. Advertising and Promotion

  11. Clinical Investigations

  12. Manufacturing and Good Manufacturing Practice

  13. Enforcement

The Year Ahead

FDA’s activities and initiatives in 2018 suggest that 2019 will bring greater focus on data strategy; patient perspectives; and innovative ways to leverage data to influence product development, risk management and regulatory decisions. The agency’s focus on data may lead to greater emphasis and renewed focus on data integrity and data quality issues throughout the product lifecycle, from clinical research to manufacturing. The continued focus on novel products and new expedited review processes for digital health, regenerative therapies and novel devices may mean fewer barriers to market entry for novel products, but it may also mean more significant post-market data collection and surveillance requirements. Policy and regulatory initiatives on cybersecurity and interoperability suggest the possibility of increased enforcement and scrutiny of these issues in standard quality and cGMP inspections. While warning letters and other FDA enforcement actions remain static, the agency appears to be leveraging procedural and administrative processes to influence broader policy objectives in areas such as drug pricing and generic competition. Life sciences companies may benefit from greater flexibility regarding the use of data from nontraditional sources to drive product development, advertising and promotion and quality. They may also benefit from the availability of a number of means to engage in pre-development and pre-submission discussions with the agency.

 

© 2019 McDermott Will & Emery

How Manufacturers Can Work With Social Media Influencers

It’s a typical marketing story: Not too long ago, manufacturers marketed coconut oil as a heat-tolerant alternative to other cooking oils. They further promoted it by noting that it was more sustainably harvested than palm oil and could replace butter for people avoiding dairy.

But then coconut oil marketing took a turn. People—not the manufacturers but social media influencers—started to talk about coconut oil in a different way. Influencers claimed that coconut oil was a “miracle cure” for a variety of health and other problems.

Then the influencers’ claims were challenged. In August 2018, Harvard public health professor Karin Michels called coconut oil “pure poison.” Professor Michels blamed the oil for raising levels of LDL cholesterol and increasing the risk of heart disease.

This situation raises an important question: How can manufacturers work with social media influencers to enjoy the benefits of viral promotion while maintaining control of messaging and avoiding the consequences of influencers going rogue?

Going Viral Through Virtual Influencers

Social media influencers use their perceived authority to convince followers to buy the products they endorse. Some influencers partner with manufacturers, which pay them to market a product. In 2017, 12.9 million posts on Instagram were brand-sponsored.

Other influencers, however, make unsolicited claims about products, many of which the company doesn’t approve. Their followers may overlook this fact and buy the product because they trust the influencer as they would a friend. In fact, 92 percent of consumers use products recommended by people they know – or feel that they know through social media.

What can manufacturers do to leverage the social media explosion but still control product marketing? First, they can establish partnerships with influencers, who then promote the product as the manufacturer intends in exchange for a “#sponsored” hashtag. Data show that consumers see sponsored posts as more like typical user content than like marketing. That makes the posts more effective than traditional advertisements.

Some manufacturers have also chosen to use “brand ambassadors,” recruiting some of the first fans of a new product to grow both the brand’s and the promoter’s social presence organically – and on the manufacturer’s terms. Brand ambassador jobs have cropped up on job search engines, and sometimes the brand’s websites will include links encouraging people who already love the products to apply.

When Influencers Go Rogue

Where influencers “go rogue” and promote a manufacturer’s products on their own terms, their messaging may morph into “miracle cure” claims that do not reflect the manufacturer’s claims. The small blue check mark by influencers’ usernames denotes them as “verified” public figures, which means that an account is the authentic presence of the public figure, celebrity, or brand it purports to represent. Followers of verified accounts may treat this advice with as much weight as a medical doctor’s signature on a prescription. Manufacturers are left picking up the pieces of a problem they did not create.

But manufacturers can offset potential challenges of influencer-led advertising, even without working directly with influencers. First, manufacturers can proactively include disclaimers – in the form of warning labels or in advertisements – addressing known potential risks of use or misuse of a product. Social media influencers have recently hailed activated charcoal, for example, for its toxin-removing qualities if ingested. Partly because of the media attention, activated charcoal has moved from poison control wards into juice shops as a “detox” drink. But since activated charcoal’s absorptive qualities may counteract the effects of certain prescription medications, some manufacturers may consider warning people taking birth control pills or antidepressants to consult with a doctor before using it.

Second, manufacturers can partner with influencers who have already promoted their products to continue reaching the influencers’ audience while modulating the messaging. Recently, for example, influencers have promoted the use of adaptogens – non-toxic plants used for stress relief – in their morning drink elixirs. Manufacturers had previously been promoting the stress-relieving qualities of adaptogens, but it was not until recently that these messages started cropping up on social media pages – which made the product turn up in more stores and cafes. By partnering with influencers who have already promoted adaptogens, manufacturers can help shape their messaging and avoid the risk that influencers will tout products as something they are not.

Manufacturers can help dispel myths by engaging with their consumers – especially social media influencers – who talk about them. Manufacturers involved in messaging at the ground level have a much better chance of stopping unrealistic claims before they spread. By working with customers to share proper use and benefits of their products, manufacturers can manage expectations and keep their consumer base happy.

 

© 2019 Schiff Hardin LLP
This post was written by Derin Kiykioglu and Jill Berry of Schiff Hardin LLP.
Read more Products Liability legal news at the National Law Review’s Product Liability page.

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