A relatively new form of advertising that has drawn the attention of regulators is “native advertising” – paid media fashioned to mimic the look and feel of the news reports, feature stories, product and entertainment reviews, and other material on the online platform where it is placed.

If consumers knew the content was a form of advertising rather than neutral reporting, they might give the article different weight – but often native ads obscure their origins as sponsored content written by a product manufacturer.

In December 2015, the Federal Trade Commission, the primary US regulator of advertising, released its first published guidance on the standards it will apply in determining whether native advertising is deceptive and whether enforcement actions should be brought under Section 5 of the FTC Act.[1] The Enforcement Policy Statement on Deceptively Formatted Advertisements[2] not only applies to advertisers, but also to ad agencies and operators of affiliate advertising networks.

The Enforcement Policy highlights three forms of native ads the agency believes may mislead consumers: (1) ads appearing in a news format or that otherwise misrepresent their source or nature; (2) misleading door openers (ads or sales practices in which first contact with the consumer is deceptive as to the nature of the interaction, even if the truth is later made clear, such as emails with falsified sender information or salespeople who do not identify themselves as such); and (3) endorsements that do not disclose the sponsoring advertiser.

The Enforcement Policy focuses on whether the content is advertising and whether the consumer will understand it is advertising. From the FTC’s perspective, the key is transparency. An advertisement or promotional message should not suggest or imply to consumers that it is anything other than an ad. Some native ads are so clearly commercial in nature that they are unlikely to mislead consumers, even without a specific disclosure. In other instances, a disclosure may be necessary to ensure consumers understand the content is advertising.

The FTC further provides guidance in its Native Advertising: A Guide for Businesses, including 17 examples of when disclosures are needed and suggestions for disclosures.[3] In evaluating whether consumers are likely to understand the nature of a native ad, advertisers should consider the particular circumstances in which native ads are presented to consumers. These circumstances include consumers’ ordinary expectations based on their prior experience with the media in which the ads appear and how they consume content in those media. For example, the more similar a native ad is in format and topic to content on the publisher’s site, the more likely a disclosure will be necessary.

The FTC does not dictate the specific disclosures that must be made, but recommends using such terms as “Ad,” “Paid Advertisement,” “Sponsored Advertising Content,” or some variation thereof. It recommends against using such terms as “Promoted” or “Promoted Stories,” which it considers ambiguous. It also states that depending on the context, consumers reasonably may interpret other terms, such as “Brought to You by [X],” “Promoted by [X],” or “Sponsored by [X],” to mean that a sponsoring advertiser funded or “underwrote” but did not create or influence the content. Such terms may not be appropriate in all contexts.

Any disclosures should adhere to the FTC’s guidance for making effective disclosures in digital advertising.[4] Disclosures must be:

  • clear and prominent
  • in clear and unambiguous language
  • as close as possible to the native ads to which they relate
  • in a font and color that are easy to read and in a shade that stands out against the background and
  • careful to avoid technical or industry jargon or unfamiliar icons or abbreviations.

The FTC is taking this policy seriously. Recently, it brought an action against Lord & Taylor, alleging the luxury department store had deceived consumers by placing articles and photos in an online fashion magazine as well as paying 50 online fashion “influencers” to endorse a particular dress. The FTC contended Lord & Taylor’s failure to disclose these payments was a deceptive trade practice. In the settlement, Lord & Taylor is prohibited from misrepresenting that paid ads are from an independent source and is required to ensure its influencers clearly disclose when they are compensated in exchange for their endorsements.[5]In sum, native advertising appears to offer a fresh way to seize the attention of the Internet multitudes, but advertisers using these paid placements should proceed with care.