Regulatory 2016 Highlights

Native Advertising Enforcement Begins

2016 saw significant activity in the area of native advertising following the FTC’s December 2015 enforcement policy statement and companion guide for businesses. As the companion guide for business explains, the watchword for the guidance is “transparency” — consumers should recognize paid advertising for what it is. Some native ads may be so clearly commercial in nature that they are unlikely to mislead consumers, even without a specific disclosure; others will require disclosure to ensure that consumers understand that the content is advertising. In assessing whether an ad is recognizable to consumers as such, advertisers are advised to “consider the ad as a whole,” weighing factors such as “the ad’s overall appearance; the similarity of its written, spoken, or visual style or subject matter” to the surrounding content, and “the degree to which it is distinguishable from other content on the publisher site.”

Guidance specific to digital media:

  • Click-on ads: Disclosures may be necessary on both the originating page (including news feed) and the clicked page.
  • Even if content was produced independently, clear disclosures are necessary if content/article is reproduced or “recommended” on other sites in a manner that would appear that recommended content is not a paid ad.
  • Sponsored videos: Disclosures will generally be necessary if a product is recommended or featured in a way that advertises the product.
  • Shares and news feeds: Need for disclosures depends on reasonable expectations (e.g., whether the post comes from the company directly or through a different site or user).
  • Paid content coming up in nonpaid search results: Disclosures for any link or other visual elements (e.g., webpage snippets, images or graphics) intended to appear in nonpaid search results must effectively disclose their commercial nature.
  • In all situations, disclosures must be stated in clear and unambiguous language; placed as close as possible to the native ad; and use a font, color and shade that are easy to read and conspicuous. Video ads must include disclosures that are visible on the screen long enough to be noticed, read and understood, and audio disclosures should be read in clear language and at a cadence that’s easy to understand.

Lord & Taylor, LLC, No. 152-3181 (F.T.C. Mar. 15, 2016)

National retailer Lord & Taylor settled FTC charges that it deceived consumers by failing to disclose that the social media posts of “fashion influencers” and an article placed in the online publication Nylon were paid promotions for the company’s 2015 Design Lab clothing collection. The FTC complaint charged that as part of the Design Lab rollout in 2015, Lord & Taylor paid 50 fashion bloggers to post Instagram pictures of themselves wearing the same paisley dress from the new collection, but failed to disclose that Lord & Taylor had given each influencer the dress, as well as thousands of dollars, in exchange for the endorsement. In settling the charges, Lord & Taylor entered into a 20-year cease-and-desist order prohibiting it from misrepresenting that paid ads are from an independent source, and the retailer is required to ensure that its influencers clearly disclose when they have been compensated in exchange for their endorsements. The FTC’s enforcement action against Lord & Taylor was the first such action brought by the Commission after the release of its December 2015 Enforcement Policy Statement on “Native” Advertising and Deceptively Formatted Advertisements. View the consent order.

In the Matter of Warner Bros. Home Entm’t, Inc., No. 152 3034 (Order Entered July 11, 2016)

In marketing its “Middle Earth: Shadow of Mordor” video game, Warner Bros. used paid online “influencers” to post positive gameplay videos on social media sites. According to the FTC complaint, the entertainment company did not adequately disclose that the videos were sponsored content and that it had paid influencers thousands of dollars for their online posts. The settlement prohibits Warner Bros. from misrepresenting that any gameplay videos are independent opinions by impartial gamers and requires the company to clearly and conspicuously disclose its relationship with influencers. The order also specifies measures that Warner Bros. and any entities it hires to conduct an influencer campaign must take to ensure that future campaigns comply with the order, including “educating influencers regarding sponsorship disclosures, monitoring sponsored influencer videos for compliance, and, under certain circumstances, terminating or withholding payment from influencers or ad agencies for non-compliance.” This settlement is the second major enforcement action the FTC has brought in connection with native advertising and sponsored content. View the press release.

FTC v. LeadClick Media, LLC, --- F.3d ---, No. 15-1009-cv, 2016 WL 5338081 (2d Cir. Sept. 23, 2016)

The Second Circuit affirmed summary judgment in favor of the FTC and the state of Connecticut on claims that defunct affiliate-marketing network LeadClick Media LLC violated the FTC Act and the Connecticut Unfair Trade Practices Act. LeadClick connected its merchant customers with third-party websites that advertised the merchants’ products in a variety of ways, including “email marketing, banner ads, search-engine placement, and creating advertising websites.” LeadClick received a commission from its merchants in exchange for the traffic it directed to their websites. LeanSpa, an internet retail business, which “sold purported weight-loss and colon-cleanse products under various brand names,” began working with LeadClick in 2010 and soon became its “top customer.” An FTC investigation revealed that, among other things, LeadClick marketed LeanSpa products on “fake news” sites, which “generally represented that a reporter had performed independent tests that demonstrated the efficacy of the weight loss products,” and often included a “consumer comment” section containing purely invented content. LeadClick employees knew of and affirmatively approved of the use of the fake news sites, participated in the deception (among other ways, by “advis[ing] affiliates on the content to include in their pages to increase consumer traffic”), and had the authority to control the practices of the affiliates on its network. On appeal, LeadClick argued that it was not a direct participant in LeanSpa’s actions, and that “applying a test that imposes liability based on direct participation in or authority to control deceptive practices conflates principal liability with aiding and abetting liability, which is foreclosed under the FTC Act.” The Second Circuit rejected this argument, noting that LeadClick had engaged in the challenged practices “through its own actions.” View the decision.

Nutrition Label Redesign

New FDA Guidance Articulates Alternative Criteria for “Healthy” Claims Based on Fat Content or Beneficial Nutrients:

On Sept. 27, 2016, the FDA released nonbinding guidance offering food manufacturers a set of alternative criteria for establishing a “healthy” claim based on the fat content or the presence of certain beneficial nutrients in packaged foods. Noting the evolving scientific understanding of the role of dietary fat, the FDA announced that it is “no longer recommending limiting overall fat intake,” and is instead “prioritizing increasing intakes of polyunsaturated and monounsaturated fats and decreasing intakes of saturated fat and trans fat.” The agency will now use its “enforcement discretion” to allow “healthy” labeling claims based on a food’s fat content if two criteria are met: “(1) The amounts of mono and polyunsaturated fats are declared on the label; and (2) the amounts declared constitute the majority of the fat content.” Similarly, the guidance explains, the agency will use its enforcement discretion to permit “healthy” claims based on the presence of two “Beneficial Nutrients” that were newly classified as “nutrients of public health concern”: potassium and vitamin D. Now, the guidance provides, “if a food is basing its eligibility for bearing a ‘healthy’ claim on potassium or vitamin D, whichever nutrient is being used as the basis for eligibility should be declared on the Nutrition Facts label.” In addition, the food must “contain at least [10] percent of the [daily value] per [reference amount customarily consumed] of potassium or vitamin D.” The Sept. 27 guidance took immediate effect and was not submitted to the public for notice and comment.

Sugar & Salt

FDA Declares Label “Evaporated Cane Juice” False and Misleading in New Guidance:

In its long-awaited final guidance issued May 25, 2016, the FDA advised against the use of the term “evaporated cane juice” on food labeling, recommending that the ingredient be listed as “sugar” instead. While the ingredient would commonly be understood to be sugar, the term “evaporated cane juice” is misleading as it is not “juice” within the meaning of the FDA’s regulations. Thus, “FDA would consider a juice product sweetened with an ingredient derived from sugar cane and labeled as 100% fruit juice to be misbranded” under the Federal Food, Drug, and Cosmetic Act, “because the ‘100% fruit juice’ claim is false and misleading in that the product contains a non-juice sweetener in addition to the juice.” The agency would not, however, object to “the addition of one or more truthful, non-misleading descriptors before the common or usual name ‘sugar,’” including the use of a “coined term” to distinguish the ingredient from “other sugars on the market.” View the guidance.

“Short-Term” and “Long-Term” FDA Guidance Issued on Salt Content: Following the release of its long-awaited final guidance on the use of the term “ evaporated cane juice” on food labeling in May 2016, the FDA issued draft guidance to the food industry on June 1, 2016, for voluntarily reducing sodium in processed and commercially prepared food. The draft guidance proposes 16 overarching categories with individual targets for about 150 subcategories of food, in recognition that a one-size approach does not fit all, and targets (“particularly encourage[s]”) the participation of the biggest industry players — “food manufacturers whose products make up a significant proportion of national sales in one or more categories and restaurant chains that are national or regional in scope.” The guidance proposes a “short-term” target of two years and a “long-term” target of 10 years. Based on estimates using National Health and Nutrition Examination Survey data, if the food industry adjusts sodium levels in food based on the FDA’s targets, the agency expects the short-term targets to reduce sodium consumption to about 3,000 mg per day and long-term targets to reduce sodium consumption to about 2,300 mg per day. The FDA had originally provided for a 90-day comment period for the short-term target and a 150-day comment period for the long-term target. But on Aug. 19, 2016, the FDA extended the comment periods in response to requests from industry trade associations. The comment period for the short-term target closed on Oct. 17, 2016, and the comment period for the long-term target closed on Dec. 2, 2016.