The Law and Business of Social Media
January 05, 2016 - FTC, Marketing, Compliance

An FTC Warning on Native Advertising

An FTC Warning on Native Advertising

“Native advertising”—ads that may blur the distinction between advertising and editorial, video or other content—has been a hot topic in recent years for both marketers and regulators. It is popular with marketers because it is apparently an effective advertising model. The Federal Trade Commission (FTC), on the other hand, contends that it may be deceptive when the advertising content is not readily identifiable to consumers as such, and it has just issued guidance on how advertisers can stay on the right side of the law. On December 22, 2015, the FTC released an Enforcement Policy Statement on Deceptively Formatted Advertisements that focuses in particular on “native” advertising, along with guidance for businesses on native advertising that further fleshes out the FTC’s expectations.

The Enforcement Policy Statement defines “natively formatted advertising” as communications “that match the design, style, and behavior of the digital media in which it is disseminated.” For example, an advertisement may be integrated into a newspaper website, with a “headline” and then a few lines of text, so that it appears similar to substantive, publisher-generated news articles posted on the website. Native advertisements may also appear on social media platforms and may be delivered as videos or through other media.

Regardless of format, the rule is the same. As the Statement puts it:

Deception occurs when an advertisement misleads reasonable consumers as to its true nature or source, including that a party other than the sponsoring advertiser is the source of an advertising or promotional message, and such misleading representation is material.

In light of this principle, the FTC may deem an advertisement that looks like an ordinary news article to be deceptive if consumers are not provided with sufficient information to differentiate the advertisement from publisher-generated, non-advertising content. This information may be inherent in the nature of the advertisement, or it may require a separate disclosure indicating that the advertisement is a marketing communication. For example, in FTC v. Coulomb Media, Inc., as well as other cases, the FTC alleged that defendants deceptively used fake news websites to market açai berry products. Similarly, and more recently, in FTC v. NourishLife, LLC, the FTC alleged that the defendants misrepresented that a so-called research website was an independent source for information about the speech disorder apraxia, when in fact the website advertised the health benefits of the company’s products.

A disclosure may be important because, even if the substance of the natively formatted advertisement is not deceptive, the nature of the advertisement itself can be deceptive. In this regard, the FTC has recently brought enforcement actions and warned about advertising that appears to be user-generated commentary about a product or service but is in fact marketing content created by or on behalf of an advertiser. You can read more about these enforcement actions here and here.

To put it another way, the Enforcement Policy Statement holds that “an ad is deceptive if it promotes the benefits and attributes of goods and services, but is not readily identifiable to consumers as an ad.” But what, exactly, does that mean? The Policy Statement and the guide for businesses offer some considerations of what may make an advertisement “readily identifiable.” The guidance lists 17 mini case studies that provide examples of what does and does not require a disclosure. (The fact that 17 examples are necessary suggests the potential complexity in determining what does or does not constitute an advertisement that requires a disclosure.) The recurring theme of the examples is whether the consumer can reasonably ascertain that the advertisement is paid marketing material and not content organically generated by the publisher (or by a user in the case of social media or video-hosting websites).

For cases in which native advertising requires a disclosure, the new guidance recaps the FTC’s .com Disclosures guidance for businesses, which lays out basic requirements for making “clear and prominent” disclosures. The guidance also adds some new considerations, such as the need to disclose that the native content is advertising near the focal point of the ad, or in front of or above the “headline” of the native advertisement. (This disclosure needs to convey to the consumer that the material is advertising before the consumer clicks through the ad to the main advertising page.) In addition, the guidance suggests that, for multimedia ads (such as videos), the disclosure should be made in the video itself before the consumer receives the advertising message. That is, if the advertisement is only a small part of the overall video, the disclosure must be “delivered as close as possible to the advertising messag[e]” itself. Finally, the guidance affirms that the disclosures should include terms likely to be understood, such as “Ad,” “Advertisement,” or “Paid Advertisement,” and not terms such as “Promoted” or “Sponsored,” which are ambiguous in this context and could imply, for example, that a sponsoring advertiser funded the content but did not create or influence it.

As the FTC continues to scrutinize various mechanisms for delivering advertising online, companies should make sure that consumers are aware when they are being marketed to, even as the participants in the digital advertising ecosystem come up with new and innovative ways to deliver those marketing messages. All participants, including the companies whose products are being marketed, are potentially at risk of an FTC enforcement action if their advertisements are found to be deceptive, and thus every participant should pay heed to the FTC’s recent statements and guidance. In light of the FTC’s aggressive approach in this area, making sure that innovative forms of advertising meet the FTC’s timeless disclosure standards should be on every company’s radar.