Just before 2015 came to an end, the Federal Trade Commission (“FTC”) released its much anticipated Enforcement Policy Statement on Deceptively Formatted Advertisements (“Policy Statement”) along with informal, practical guidance for businesses titled “Native Advertising: A Guide for Businesses” (“Business Guides”). The FTC first began considering native advertising in a December 2013 workshop. Native advertising is digital media content that blurs the line between advertising and editorial by inserting paid content into the regular stream of media.[i] Unsurprisingly, the FTC concluded at the workshop that misrepresenting the source of content or failing to disclose that it is commercial in nature likely amounts to a violation of Section 5 of the FTC Act, but the FTC did not further elaborate. The Policy Statement reiterates this general concept and goes on to clarify the FTC’s position on native advertising by tying it to long standing FTC principles across varying spheres (from door-to-door sales to telemarketing to CAN SPAM and from infomercials to advertorials in traditional print media). The Business Guides expand on the Policy Statement and provide detailed guidance (including 17 examples) on when and how to prevent consumer deception in the digital advertising space. Generally, the position taken by the FTC is not particularly shocking as it is consistent with the established truth-in-advertising standard that the commercial nature of content must be readily apparent or accompanied by a clear and conspicuous disclosure.[ii] The specificity of the requirements set forth in the Business Guides, however, may pose significant creative and technical hurdles for advertisers. Industry groups, like IAB, have already expressed concern. Thorough discussions of the Policy Statement and the Business Guides, as well as key takeaways, follow.

In the Policy Statement and Business Guides, the FTC explains that it will likely find a violation of Section 5 of the FTC Act if commercial content misleads consumers into believing that it is impartial, independent, or from a source other than the advertiser. Such a misrepresentation, the FTC explains, is material as it is likely to affect the credibility the consumer gives to the content and the consumer’s decision to interact with the content. To avoid misleading consumers in this way, advertisers must consider the following two questions:

  1. Is the content clearly an advertisement?
  2. If not, have sufficient disclosures been included?

Is the content clearly an advertisement?

The FTC explains that certain materials “may be so clearly commercial in nature that they are unlikely to mislead consumers even without a specific disclosure.” However, if the content promotes the advertiser’s product/service and implies that it is anything but an ad (i.e., if it implies that it is news, informational, or educational), the FTC is likely to find a violation of Section 5 of the FTC Act unless appropriate disclosures are included. As always, the FTC will look at the “net impression” of the ad to determine whether the commercial nature the content is clear to the “reasonable” consumer.

In making this evaluation, the FTC will consider the overall appearance of the ad itself (and verbal/audio content in the case of multimedia), as well as the similarity of ad’s style/formatting to the surrounding non-advertising content and whether the substantive content is distinguishable from the surrounding non-advertising content. Simply put, the more similar the ad is to the publisher site’s content, the more likely it is that a disclosure will be required.

The Policy Statement sets forth a handful of factors the FTC will consider in determining whether the consumer will recognize the content as an advertisement:

  • On what media is the content featured? The FTC acknowledges that consumers have different expectations depending on the media being consumed (e.g., social media versus a news website).
  • Who is the target audience? For example, if children are the target audience, they are unlikely to recognize something as an ad.
  • Does the substantive content of the ad differ from the surrounding content? For example, an ad inviting a consumer to take a car test drive in a news stream is likely recognizable as an advertisement.
  • Is the format of the ad similar in written, spoken or visual style (including text, images, audio, and video) to the non-advertising content? For example, does the content look like an editorial article on a news site? Conversely, is the content set apart using background shading, borders or other visual cues to indicate that it is an ad?

The Business Guides provide additional color to the FTC’s position via the examples. For instance:

  • If the context makes it clear that the content is advertising, prior disclosure may not be necessary (but since the content is shareable a disclosure within the content will likely be required). For example, in social media users most often know whom they follow so the commercial nature of an ad appearing in a user’s own feed will likely be clear to that user and prior disclosure may not be necessary, but that same content shared by the user to another feed or platform would likely require disclosure within the content.
  • Linked content must contain appropriate disclosures. For example, a non-paid search engine result that is an advertisement must clearly identify itself as an ad. The Business Guides use an example of a non-paid search engine result displaying a link to a video that describes how to build a deck in 5 minutes. The video is sponsored by an advertiser that sells deck stain and the advertiser’s deck stain is used in the video. The FTC recommends that the search engine result itself (not just the page a user lands on after clicking the link) make clear that the video is commercial in nature.
  • If editorial content is paid for by an advertiser and such content does not tout the benefit of the advertiser’s products/services it need not be labelled as advertising. On the other hand, paid content that appears editorial/informational, but touts the benefits of or otherwise promotes the advertiser’s products/services in any way must be labelled as an ad.
  • Content that is clearly advertising (e.g., a billboard on a street in a video game, product placement) need not be labelled as advertising. However, if that same content is clickable and the consumer is taken out of the publisher site (i.e., the video game) to an advertiser’s property (e.g., web site or app) or an advertisement, a disclosure would be necessary before the consumer clicks through to the content.

If it is not clearly an advertisement, have sufficient disclosures been included?

If something is not clearly an advertisement and disclosures are required to avoid deception, the disclosures must follow the FTC’s established principles with respect to disclosures. In other words, the disclosures must be clear, unambiguous, prominent, and in close proximity to the ad. Further, audio disclosures must be read slowly and use words that are easy to understand and video disclosures must be on screen long enough to be noticed, read, and understood.

In addition to those general principles, the Business Guides contain specific guidance on how to make sufficient disclosures. For instance:

  • The disclosure must be near the ad’s focal point so that a consumer will see it and easily identify the content to which the disclosure applies, e.g., the disclosure must be on the video or thumbnail itself rather than in the text description, the disclosure must be to the immediate left of a headline, the disclosure should not come after the user views the commercial content, the disclosure should not be made too early, etc.
  • The disclosures must travel with the ad content if it is shared/linked, e.g., in the title tag for a non-paid search result, in the beginning of the URL for a shared URL, and in the content itself rather than text that accompanied the content on the publisher site.
  • The disclosure must be readable and understandable on any device or media through which the content is accessible, e.g., multimedia may require audio disclosure for a consumer to be able to read/comprehend the disclosure.
  • The disclosure must use terminology that is consistent with the language on the particular platform/media.
  • The disclosure must use plain language, rather than legalese or marketing “jargon”.

KEY TAKEAWAYS

  • If the source of the advertisement is unclear (i.e., if the content expressly or impliedly misleads the consumer into believing that it is not an advertisement), the FTC will consider an ad deceptive even if the underlying claims are truthful and non-misleading.
  • If something is so clearly an advertisement that no reasonable consumer would think otherwise, then a disclosure may not be necessary. If the content in question does not fit precisely within one of the FTC’s enumerated examples, however, it is likely best to err on the side of disclosure.
  • Acceptable disclosures include things like “Ad”, “Advertisement” “Paid Advertisement” and “Sponsored Advertising Content”. Anything that is slightly more vague such as “Promoted”, “You might like”, or mere inclusion of the advertiser’s name/logo is likely insufficient, per the FTC. Further, “sponsored by [x]” or “promoted by [x]” is also unacceptable as a disclosure for a native ad because consumers may not understand that the advertiser influenced/created the content, according to the FTC.[iii]
  • Since ads may be accessed in various ways (e.g. via web search, linking, or sharing in addition to direct access from the publisher site), it will often be insufficient to include disclosures only on the publisher site. In other words, content that can be republished must contain clear and conspicuous disclosures that travel with the content.
  • Similarly, the ad content that a consumer accesses after clicking through may often require a disclosure in addition to the disclosure on the publisher site.
  • The target audience must be considered. For example, is the content targeted to children or to adult social media users that know whom they follow and how ads appear in their feed? The required disclosures may vary depending on the target audience, but the FTC did not elaborate on the different disclosures that would be required for different audiences. Specifically, the FTC wrote: “To the extent that an advertisement is targeted to a specific audience, the Commission will consider the effect of the ad’s format on reasonable or ordinary members of that targeted group.”
  • The Policy Statement and Business Guides apply across all media, including, without limitation, news/content aggregator sites, social media platforms, messaging apps, product review sites, email, user generated and professionally produced videos, video games, and animations.
  • All parties who help to make or publish content (e.g., ad agencies, affiliate advertising networks) are on the hook—not just the advertiser itself.

Enforcement actions from the FTC are likely forthcoming and this is something we will continue to watch.

[i] For additional background on native advertising see here and here on our blog.

[ii] For additional discussion of the FTC’s disclosure standards see here and here on our blog.

[iii] If an advertiser sponsors purely editorial content that does not promote the advertiser’s products/services in any way and has not been created or influenced by the advertiser, then it is likely acceptable (but not required) to include “sponsored by”, “promoted by” or similar.