FTC Invokes Its Native Roots in Defense of Guidance on "Native Advertising"

On December 22, 2015, the Federal Trade Commission (FTC) issued Native Advertising: A Guide for Businesses and a new Enforcement Policy Statement on Deceptively Formatted Advertising that summarizes how the FTC has applied, and will continue to apply, its traditional truth-in-advertising principles to native advertising.¹

The guidance and accompanying policy statement were issued in the wake of increasing marketing strategies involving the placement of sponsored content in mediums that consumers typically use to obtain independent, impartial content from a publisher (e.g., sponsored content in print and online magazines, news feeds, video game apps, and content recommendation widgets). Such sponsored content is considered “native advertising” when the sponsored content has a similar look and feel to the independent content created by the publisher. This Advisory summarizes the FTC’s guidance regarding how consumer product companies can effectively integrate sponsored content into their market strategies without running afoul of the FTC’s advertising standards.

The FTC has a long history of regulating forms of advertising that consumers may not recognize as advertising. Before the Internet, in a 1968 advisory opinion, the FTC recommended that advertisements in newspapers having the same format and appearance as regular news articles be clearly and conspicuously labeled as advertisements.² Beginning in the 1980s, the FTC brought numerous cases alleging that television and radio infomercials that appeared to be independent programming were deceptive because they failed to disclose to consumers that they were paid advertisements.³ With the emergence of the Internet, the FTC applied these same principles to promotional websites alleged to be presented as independent, resulting in multi-million dollar settlements.⁴

Recently, native advertising has become prominent in the form of digital advertising content closely integrated into the regular content stream on websites, social media, apps, and other online properties. In November 2013, the FTC held its “Blurred Lines” workshop to explore the consumer protection issues presented by native advertising.⁵ The December Native Advertising: A Guide for Business (Native Advertising Guide) and accompanying Enforcement Policy Statement on Deceptively Formatted Advertising (Enforcement Policy Statement) reflect the FTC’s most recent effort to regulate marketing strategies that include sponsored content that consumers may not recognize as advertising.

According to the FTC, it is deceptive to present advertising or promotional content without disclosing that the content is an advertisement if (1) without the disclosure consumers would reasonably understand the content to be impartial or independent from the advertiser and (2) knowing that the advertiser is the source of the message may affect how consumers view the content and their decisions regarding the product or service advertised.⁶ The Enforcement Policy Statement  and Native Advertising Guide provide practical guidance to help advertisers answer the two key questions in this area: When must a company disclose its sponsorship of content? And, assuming that disclosure that the content is a sponsored advertisement is necessary, how should it be made?

When Are Disclosures Necessary?

Under the Enforcement Policy Statement, an advertiser would need to disclose its sponsorship of content as an advertisement if, when considered as a whole, even a significant minority of reasonable consumers would not recognize it as advertising.⁷ Relevant factors include the sponsored content’s appearance, its similarity to non-advertising content appearing in the same media, and consumer’s expectations as to how content is presented in various media.⁸ If the advertisement is targeted to a specific audience, the FTC will consider the advertisement from the perspective of a reasonable member of the targeted group.⁹ This is an important consideration to keep in mind if digital ads are targeted to consumers based on their preferences, profession, or interests.¹⁰ 

The Enforcement Policy Statement also reminds advertisers that not all sponsored content requires disclosure that the content is advertising. According to the Enforcement Policy Statement, disclosure is only required for claims “about the benefits or attributes of a product, type of product, or category of products, including disparaging claims about a competitor’s products.”¹¹ In the absence of product claims, the advertisement, and the advertiser’s connection to it, would not need to be disclosed because it is not likely to affect a consumer’s decision to buy the product or to interact with the advertisement. Only omissions that would impact a purchasing decision – i.e., “material” omissions – are violations of the FTC Act because “materiality” is required to establish deception.¹²

The FTC’s Native Advertising Guide provides seventeen examples to help advertisers anticipate how the FTC intends to enforce the new guidelines. Three governing principles are:

• A company’s sponsorship of content does not need to be recognizable as an advertisement when the content does not discuss the company’s products or product categories.¹³
• A company must disclose sponsorship of content where the content discusses the company’s products or product categories and the content’s subject matter and format are similar to regular, independent content typically disseminated by the publisher.¹⁴
• When sponsored content warrants disclosure that the content is an advertisement, and can be accessed in more than one manner (e.g., from a website and from a search engine), the disclosure must be clear and conspicuous via each entry point to the advertisement.¹⁵

The examples contemplate content placement in various media including print and online magazines, websites, news feeds, content recommendation widgets, entertainment programming, video games, social media, email, and non-paid search engines, and provide helpful guidance for any marketing team integrating sponsored content into its marketing strategies.

How Should Disclosures Be Made?

In many ways, the Native Advertising Guide reiterates the guidance on disclosures provided by the FTC in its updated Dot Com Disclosures guidance issued in 2013.¹⁶ The Native Advertising Guide reminds advertisers that disclosures must be made in a clear and conspicuous manner,¹⁷ and that whether a disclosure is clear and conspicuous is dependent on its proximity, placement, prominence, and “clarity of meaning.” 

For example, the Native Advertising Guide and Enforcement Policy Statement caution that disclosures should be (1) easily readable or heard (audio messages may require an audio disclosure) and be in the same language as the advertisement; (2) in close proximity to the claim it is qualifying; (3) in a place where readers are most likely to look first (e.g., before the headline, where the reader is most likely to start looking on the click-through page, or in the picture, graphic, or video thumbnail that is the central element of a native advertisement); and (4) when used in multimedia advertising, in the advertisement itself, as close as possible to the advertising message.¹⁸

The Native Advertising Guide, however, goes further than the Dot Com Disclosures in expressing concerns about the “clarity” of disclosures. In the Native Advertising Guide, the Commission opines on disclosure statements that it does and does not consider to be easily understood by consumers.

The Commission also cautions against using jargon, unfamiliar icons or abbreviations, or company logos in disclosures.

The Native Advertising Guide should be added, along with the Dot Com Disclosures and the FTC’s Endorsement Guides,¹⁹ to every marketers’ handbook on how to effectively place advertising content while complying with FTC policy regarding required disclosures. In the wake of this new guidance, the FTC is likely to increase its enforcement activity with respect to native advertising.