Holiday Wrapping Papers: FTC Wraps Up 2015 with Native Advertising Guidance
Kelley Drye Client Advisory
December 23, 2015

Yesterday, the FTC released two new guidance documents: (1) Enforcement Policy Statement on Deceptively Formatted Advertisements, and (2) Native Advertising: A Guide for Businesses.[1] The Policy Statement seeks to address the broad area of “advertising and promotional messages integrated into and presented as non-commercial content.”[2]  The Business Guide more narrowly addresses native advertising, which the FTC defines as online content “that bears a similarity to the news, feature articles, product reviews, entertainment, and other material that surrounds it.”[3]

The two new guidance documents are important developments for advertisers as they provide a roadmap for how the FTC is likely to enforce in the area in the future.[4] The first two sections below, summarize key takeaways from the guidance documents. The third section below, however, provides a word of caution that the new guidance documents are not the only source of information that advertisers should consider in undertaking native advertising or other efforts involving non-traditional media.

The Main Principles

The FTC’s new Policy Statement outlines the following main principles.

  • According to the FTC, the nature of an ad (i.e., that it is an ad, rather than editorial content) is likely to be a fact that is material to consumers.[5] Similarly, the source of an ad (i.e., that it is from a sponsoring advertiser, rather than an independent source) is likely to be material in the FTC’s view.[6] Deception occurs when an advertisement misleads reasonable consumers as to material facts.[7]
     
  • In determining whether an advertisement is misleading as to its nature or source, the FTC will consider the overall net impression of the ad from the perspective of a reasonable member of the target audience.[8] Factors the FTC will consider include “the similarity of [the ad’s] written, spoken, or visual style to non-advertising content offered on the publisher’s site[] and the degree to which [the ad] is distinguishable from such other content.”[9] It will also consider “expectations based on consumers’ prior experience” with the particular medium and “any qualifying information contained in the ad.”[10]
     
  • If an ad is likely to deceive reasonable consumers as to its nature or source, the advertiser should include clear and conspicuous disclosures clarifying the nature or source of the ad.[11] Such disclosures might state, “Paid Advertisement” or “Advertisement.”[12]
     
  • According to the FTC, disclosures in native advertising often must be made at the outset, before a consumer clicks on a link leading to the ad.[13] The FTC believes that “disclosures that subsequently inform consumers of a natively formatted ad’s commercial nature after they have clicked on and arrived at another page will not cure any misleading impression created when the ad is presented in the stream of a publisher site.”[14]
     
  • Not every ad that appears in a format similar to surrounding non-advertising content is likely to deceive as to the nature or source. “Some ads by the very nature of their promotional message communicated may be inherently obvious as advertising to consumers.”[15] “For instance, if a natively formatted ad with an image of a particular sports car and the headline ‘Come and Drive [X] today’ were inserted into the news stream of a publisher site, that ad likely would be identifiable as an ad to consumers, even though it was presented in the same visual manner as news stories in the stream.”[16]
Applying the Principles

The Business Guide provides the FTC’s perspective on how the main principles from the Policy Statement apply specifically to native advertising. The following bullet points summarize some of the key takeaways.

  • If an advertiser pays a publisher who normally provides news, entertainment, or other editorial content to post online material recommending the advertiser’s product or service, the FTC will expect disclosure of the commercial nature of the content if the commercial nature will not be apparent to reasonable consumers.[17]
     
  • According to the FTC, “advertisers cannot use ‘deceptive door openers’ to induce consumers to view advertising content.”[18] Thus, where commercial content may appear to a reasonable consumer to be editorial content, the FTC is likely to expect disclosure of the commercial nature of the content within almost any click-through that leads to the content.[19] This includes click-throughs appearing in “non-paid search engine results.”[20]
     
  • An exception may exist where the advertiser posts the content to its own social media site.[21] The FTC believes that, in this instance, consumers are likely to understand, at least at the point of clicking, the sponsored nature of the content. In this instance, though, the FTC believes that disclosure of the sponsored nature will be necessary within the online content if the content appears to provide the unbiased views of an independent source.
     
  • Where a content recommendation widget on a news or editorial site points a consumer to additional articles or videos that appear similar to the surrounding news or editorial content but are actually advertising content, the FTC is unlikely to consider headings, such as “More Content for You” and “From Around the Web,” to be sufficient to disclose the commercial nature of the recommended content.[22]
     
  • If an advertiser pays for the placement of a picture of its product or service in a feature article, such as “the 20 Most Beautiful Places to Vacation,” the FTC will likely expect disclosure “of the photo’s paid nature on the click-into place.”[23]
     
  • When an advertiser uses a recommendation widget to disseminate an independent article that was favorable to its product or service, the FTC is likely to consider the dissemination to be advertising.[24] Thus, the FTC would consider the advertiser responsible for the truthfulness of statements in the article. The FTC would also expect the advertiser to disclose the paid nature of the dissemination if the paid nature is not apparent from the surrounding context.
A Word of Caution

As mentioned above, the FTC’s new guidance documents are important indicators of how the FTC intends to enforce in the area. We caution, however, that guidance of this nature should always be considered as the perspective of the FTC, which may or may not accord well with prevailing precedent.

As an example, much of the FTC’s discussion of what constitutes a “clear and conspicuous” disclosure is best viewed as aspirational on the part of the FTC. Among other pronouncements, the Policy Statement advises that disclosures should be “as close as possible to native ads to which they relate” and “must be made in the same language as the predominant language in which ads are communicated.”[25] It is unclear what the “same language” might mean in this context, but regardless, such sweeping statements are not well-grounded in precedent. Under prevailing precedent, a disclosure must simply be sufficiently noticeable and understandable to reasonable consumers to clarify the main claims.[26] Thus, the exact manner in which a disclosure “must be made” will vary depending on the surrounding facts. 

Similarly, the Policy Statement states unequivocally that “claims that the advertiser intends to make” are presumed material and that messages that an advertiser “intend[s] to convey about an advertisement’s nature or source” are presumed reasonable take-away messages.[27] With such presumptions based on intent, the FTC could take a leap a forward in proving deception.[28] However, whether such presumptions based on intent actually exists is up for debate. The FTC’s own Administrative Law Judge (“ALJ”) flatly rejected such presumptions in FTC v. POM Wonderful.[29] The ALJ stated that “[i]t would be incongruous, at best, if intent could be used as a sword but not a shield.”[30]

It should be considered, as well, that much lurks behind a footnote in the FTC’s Policy Statement stating that the new guidance “is restricted to commercial speech the Commission has authority to regulate.”[31] As we have discussed before, the FTC has failed to integrate into its enforcement efforts in this area relevant Supreme Court precedent defining commercial speech versus fully protected speech.[32] In launching new social media or press-related initiatives, companies will want to be aware of this over-looked precedent. Some speech, even if it has promotional aspects, will be the type of fully protected speech that the FTC has no authority to regulate.

There is a fair amount of complexity in the FTC’s positions, and advertisers balancing risk should pay careful attention to both the policy statement and existing precedent.

For more information on this advisory, please contact:

Dana B. Rosenfeld
(202) 342-8588
drosenfeld@kelleydrye.com

Katie Bond
(202) 342-8537
kbond@kelleydrye.com


[1]               FTC, Enforcement Policy Statement on Deceptively Formatted Advertising (Dec. 22, 2015), available at https://www.ftc.gov/public-statements/2015/12/commission-enforcement-policy-statement-deceptively-formatted; FTC, Native Advertising: A Guide for Businesses (Dec. 2015), available at https://www.ftc.gov/tips-advice/business-center/guidance/native-advertising-guide-businesses.

[2]               Policy Statement, at 1.

[3]               Business Guide, at 1.

[4]               Importantly, the guidance reflects the agency’s position on how it will apply Section 5 of the Federal Trade Commission Act’s prohibition on unfair or deceptive practices, and does not have the same weight as a regulation or litigated decision. 

[5]               Policy Statement, at 14.

[6]               Id.

[7]               Id. at 10, 14. The FTC “considers certain misleading formats to be presumptively material.” Id. at 14. For instance, the FTC presumes materiality for “misrepresentations that advertising content is news or [a] feature article.” Id.(internal citations omitted). “Commercial communications that mislead consumers that they are from the government, a legitimate business, such as a well-known bank, or a marketing surveyor, are also presumed to be material.” Id. at 15 (internal citations omitted).

[8]               Id. at 11.

[9]               Id.

[10]             Id. at 11, 13.

[11]             Id. at 13.

[12]             Id.

[13]             Id. at 14.

[14]             Id.

[15]             Id. at 12-13.

[16]             Id. at 13.

[17]             See Business Guide, at Ex. 12-13, 16.

[18]             See id. at 3.

[19]             See id. at Ex. 4, 6, 15.

[20]             See id. at Ex. 17.

[21]             See id. at Ex. 14.

[22]             See id. at Ex. 7.

[23]             See id. at Ex. 5.

[24]             See id. at Ex. 8.

[25]             Business Guide, at 8; Policy Statement, at 13.

[26]             See, e.g., FTC v. Direct Mktg. Concepts, Inc., 624 F.3d 1, 12 (1st Cir. 2010) (Disclosures must be “sufficiently prominent and unambiguous to change the apparent meaning of the claims and to leave an accurate impression.”); FTC v. Removatron Int’l Corp., 884 F.2d 1489, 1497 (1st Cir. 1989).

[27]             Id. at 15, 11.

[28]             To prove deception, the FTC must show a material statement or omission that misleads reasonable consumers.

[29]             Initial Decision, at 215-216 (May 17, 2012), aff’d in part and rev’d in part, 777 F.3d 478 (D.C. Cir. 2015). The D.C. Circuit did not consider this point on appeal. 

[30]             Id. at 216. 

[31]             Policy Statement, at 1, n.1.

[32]             Ad Law Access, FTC Pressures Press Interactions, Defies Commercial Speech Doctrine (Nov. 18, 2015), available at http://www.adlawaccess.com/2015/11/articles/the-ftc-pressures-press-interactions-defies-commercial-speech-doctrine/.