Key Notes:

  • New FTC policy guidelines identify when disclosures may be necessary to identify advertising content.
  • Care must be taken to preserve the integrity of disclosures when content is linked, republished or shared.
  • Potential liability extends not only to advertisers, but also to advertising agencies and publishers.

In recent years, consumers have obtained tools to circumvent some forms of advertising. Use of DVR technology allows consumers to skip television commercials, and computer software can block “pop-up” advertisements on web pages. Advertisers, in turn, have developed new methods of advertising, in some cases blurring traditional lines between advertising and other forms of content. So-called “native” advertising (advertising material formatted to look like news articles or other similar text) and “sponsored content” (material paid for by a sponsoring advertiser) frequently appear on news and information aggregation sites, news feeds, or in social media streams. They are sometimes indistinguishable from news items or other content, potentially confusing consumers about the true nature of the content presented.

To address this growing trend, the Federal Trade Commission recently released an extensive “Enforcement Policy Statement on Deceptively Formatted Advertisements,” (Policy) along with an accompanying example-based explanatory document titled “Native Advertising: A Guide for Businesses” (Guide). These documents identify the circumstances under which the FTC believes that disclosures that certain content is advertising should be made, as well as the method of presenting the disclosure.[1] While the Policy is not binding legal precedent, it presents the FTC’s position on what the law requires.

What’s New Is Old

The Policy goes to considerable effort to establish that the FTC’s approach to native advertisements and sponsored content is consistent with well-established law and precedent, simply applied to new technology. The Policy states that “[t]he Commission has long held the view that advertising and promotional messages that are not identifiable as advertising to consumers are deceptive if they mislead consumers into believing they are independent, impartial, or not from the sponsoring advertiser itself.” The Policy cites numerous historical examples of the FTC acting to rein in infomercials, improper inferences of advertisements coming from independent scientific organizations or government agencies, the undisclosed ordering of search results as the result of payments, and other similar circumstances.

Building on these historical examples, the Policy is directed toward identifying the circumstances under which a native advertisement or sponsored content would be misleading to a reasonable consumer, and how the misleading nature of such an advertisement can be remedied.

Misleading Door Openers & Undisclosed Sponsors

Native advertising and sponsored content frequently appears in news feeds or on web sites as a thumbnail image and a headline, in a format virtually indistinguishable from surrounding news items. The linked item cannot be discerned as an advertisement until a user clicks on it. The Policy explains that the FTC has long prohibited this form of misdirection, including the prohibition of misleading email headers in the CAN-SPAM Act. Similarly, the FTC frequently has taken action against concealment of a sponsoring advertiser’s identity, notably through the implementation of the Endorsement Guidelines, which require disclosure of a material connection between a sponsor and a product endorser.

When Is Disclosure Required?

The FTC applies existing precedent to native advertising and sponsored content, concluding that[2]:

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.

Notably, the format of an advertisement can be deceptive, even if the content of the advertisement is completely truthful. The Policy states that the FTC will consider the “net impression” an advertisement conveys to reasonable consumers, including visual imagery and other elements along with written or spoken words, and that “the Commission will consider the particular circumstances in which the ads are disseminated, including customary expectations based on consumers’ prior experience with the media in which it appears and the impression communicated by the ad’s format.”

The Policy notes in some circumstances, native advertising or sponsored content does not require a disclosure, because the commercial nature of the advertisement is “inherently obvious.” For the most part, the closer a native advertisement follows the format and topic of the surrounding site material, the more likely it is a disclosure will be required.

The Guide includes a series of 17 examples to help identify circumstances where the FTC believes disclosure of advertising content must be included, ranging from a simple advertisement with a link to more information to complicated situations involving product placement and recommendations in third-party video content, and even the incorporation of advertisements and products into video games. Of note, the Guide states that a disclosure is required if an article primarily depicts or promotes a sponsoring advertiser’s products, or otherwise endorses or recommends an advertiser’s product as the result of a payment.

What Does a Disclosure Look Like?

The FTC requires that a disclosure, if made, must be in “simple, unequivocal” language, and that the disclosure must be “sufficiently prominent and unambiguous to change the apparent meaning of the claims and to leave an accurate impression.”

According to the Guide, advertisers are responsible for ensuring that native ads and sponsored content are “identifiable as advertising before consumers arrive at the main advertising page.” For example, a disclosure in the text after a link is clicked to reveal advertising content does not cure the misleading impression given by the image or headline that is first clicked. Similarly, a link to an advertising video must have a disclosure before the video is played. In either case, the disclosure should be made before the advertising communication is made.

The Guide contains considerable detail on the form and format of disclosures. The terms “advertisement,” “paid advertisement” and “sponsored advertising content” are all recommended as clear and unambiguous, while a mere “promoted” is unlikely to be sufficient and “sponsored” or “sponsored by” may be insufficient, depending on the context in which the material appears. Visual disclosures should be made near a headline, preferably in front of or above it when viewed on a website, on or near the focal point of a visual ad, and where a consumer will look first on content accessed from a button or link. Audible disclosures must be made in a “volume, cadence, and speed sufficient for ordinary consumers to hear and understand them.” The disclosures must be clear and prominent on all devices and platforms where the content may be viewed.

Additional Considerations

Because content can increasingly be forwarded or shared among a variety of types of media and between social media platforms, advertisers must ensure that any disclosures remain embedded with any republication of an advertisement. This may require disclosures to be made in both a headline and any linked content or videos. Similarly, advertisers must ensure that a listing of a native advertisement or a piece of sponsored content is not stripped of any necessary disclosure through appearance in a search engine result.

Liability for deceptive advertising may not be limited to the advertiser itself. The Guide makes clear that “in appropriate circumstances,” the FTC takes action against ad agencies and affiliate advertising networks, and that “[e]veryone who participates directly or indirectly in creating or presenting native ads should make sure that ads don’t mislead consumers about their commercial nature.”

Now What?

As stated in the Guide, “the watchword is transparency.” While the Policy and Guide conclude that the FTC’s position is a natural application of existing legal precedent to new media and circumstances, in reality, the documents raise the bar for identifying advertising material in a variety of circumstances and will result in a need to include disclosures in an increased variety of advertising content.

Advertisers – and agencies, publishers and others involved in the production and dissemination of advertising in all forms, especially digital formats – should pay close attention to the appearance of advertising materials, particularly how content may appear if it is shared, republished, aggregated or listed in a search result. While it remains to be seen under what circumstances the FTC may take action against advertisers or publishers, or what the penalties may be, prompt review of advertising practices may well prevent future liability.