©2015. Published in Landslide, Vol. 8, No. 2, November/December 2015, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.
Native advertising, content marketing, paid media, earned media, sponsored posts, promoted content, advertorials—today advertising and marketing lawyers need to be able to understand myriad forms of messaging in order to advise clients proficiently, whether those clients are advertisers, agencies, publishers, or influencers. The manner in which a client desires to convey a commercial message affects how we apply the law, so we need to understand the formats they are using in order to help them avoid breaking the law. As the lines between editorial content and advertising content get blurrier, lawyers have an even bigger role to play in advising clients on the legal issues involved in content marketing, whose formats, methods of delivery, and messages are constantly evolving.
Forms of Native Advertising and Sponsored Content
The words advertising and marketing are often used interchangeably. However, advertising is just one component of marketing. Advertising of a specific product or service through media over a certain time frame is one component of a company’s overall plan to market the brand and the goods and services. Advertising, public relations, and sales can all be part of a marketing plan.
Historically, the online advertising model was display advertising—squares, rectangles, and banners on websites that looked very similar to squares, rectangles, and banners in magazines or newspapers or on billboards. But after years of ubiquitous display ads, consumers now ignore them. And the increased consumption of content via smaller, mobile devices such as phones and tablets has created a premium on digital space. In order to overcome these obstacles, advertisers are forced to make the advertising content exist seamlessly with the editorial content. Moreover, advertisers recognize the value of consumer engagement with a brand that native advertising and sponsored content provide. These shifts have led to innovations in conveying commercial messages through content consumers want to read and watch.
While native advertising is the commonly used catchall term for advertising content that looks like editorial content, it is actually only one type of advertising utilizing branded, or sponsored, content. Sponsored content may be produced by the publisher, the advertiser, or the two working together. A popular form of sponsored content is a blog post in which a blogger writes about the product or service of an advertiser. That blogger will likely also share that post through his or her social media channels. Video sponsored content is also very popular with advertisers and consumers. An advertiser may engage a YouTube or Vine personality to create video content around a product or service. These types of sponsored content are not native to any one platform or site; they can go anywhere.
The Word of Mouth Marketing Association (WOMMA) has recently defined native advertising as “marketer-sponsored content that is designed for compatibility with the editorial content in which it is placed.”1 Advertising is native to a site or platform if it only can exist on that site or platform. Two common types of native ads are in-feed ads such as Facebook’s “sponsored post” or Twitter’s “promoted tweet” (which appear in your “feed” on those platforms), and recommendation widgets that appear at the bottom or on the side of a web page, providing image-plus-text links to sponsored content with words such as “you may also like” or “recommended for you.” Other examples include paid search units such as the top or most prominent results from a Google or Bing search, and promoted listings for products searched on shopping sites such as Amazon or Etsy. Native advertising is not only found online; print advertising, such as an “advertorial” in a magazine, can be native as well. Another familiar form of native advertising is the late-night infomercial. Marketing creatives are constantly coming up with new ways to make content native online and off.
Concerns about consumer protection arise from native advertising and sponsored content. If the reader assumes that certain content is editorial, he or she may view that content as unbiased, not understanding that the content has a commercial message. Because a successful native ad unit blends in with the editorial content on the page or within the publication, consumers may be deceived by viewing an advertisement where they would expect to see editorial content. With regard to sponsored content, the fact that the publisher has received something of value in exchange for producing that content could affect the weight that a consumer gives to that endorsement.
Government Regulation: The Federal Trade Commission
The Federal Trade Commission (FTC) is charged with protecting consumers from “unfair or deceptive acts or practices in or affecting commerce,” which are proscribed by the Federal Trade Commission Act (FTC Act).2 The FTC Act empowers the FTC to investigate and to take action administratively or judicially to enforce consumer protection laws. An advertising act or practice that misleads a “significant minority” of “reasonable consumers” and which act is “material” to consumers’ purchasing decisions is a violation of the Act.3 If the act or practice affects a consumer’s purchasing decision, then it is material. The consumer is likely harmed by the act or practice because he or she would not have made that decision but for the deception.
From time to time, the FTC issues guidance on how advertisers should act to avoid deceptive and unfair practices in certain advertising contexts. For example, the FTC has published guidance documents with respect to search engine results, disclosures, and endorsements and testimonials. In December 2013, the FTC held a workshop entitled “Blurred Lines: Advertising or Content? An FTC Workshop on Native Advertising” for the purpose of exploring the legal issues involved in native advertising and sponsored content.4 However, the FTC has not yet promulgated any comprehensive guidelines for requirements relating specifically to native advertising. Several industry groups have published self-regulatory guides for proper disclosures such as the Interactive Advertising Bureau (IAB), WOMMA, and the American Society of Magazine Editors (ASME).
While the term native advertising may be relatively new, this type of marketing has existed for many years. The FTC’s first case addressing what we now call native advertising took place in 1917 when the FTC claimed that the manufacturer of the first electric vacuum engaged in unfair and deceptive advertising by promoting its product through content designed to look like editorial.5 In 1968, the FTC held that a restaurant review paid for by advertisers, but which appeared in the same column of the newspaper where unbiased reviews typically appeared, was deceptive.6 In that case, the FTC issued an advisory opinion in which it held that where the content looks like a news article that purports to give an independent, impartial, and unbiased view, but which in fact contains commercial messages paid for by advertisers, it is necessary to “clearly and conspicuously disclose it is an advertisement.”7
The FTC updated its 2000 guidelines on disclosures in digital advertising in its March 2013 “.com Disclosures: How to Make Effective Disclosures in Digital Advertising” (Disclosure Guide).8 In the sponsored content and native advertising context, disclosures are necessary so that the consumer can easily tell the difference between apparently neutral editorial content and biased, paid advertising content. In broad terms, such disclosure must be “clear and conspicuous.” There are no hard and fast rules about how a disclosure must look or where it must appear in order for it to be considered clear and conspicuous by the FTC. As the Disclosure Guide states, “The ultimate test is not the size of the font or the location of the disclosure . . . ; the ultimate test is whether the information intended to be disclosed is actually conveyed to consumers.” However, the Disclosure Guide does make recommendations for how to implement the clear and conspicuous requirement.
The disclosure must be in close proximity to the content to ensure that the consumer sees it and realizes it relates to that content. That means that the consumer should not have to scroll to see the disclosure. Advertisers therefore need to contemplate the various devices on which the content may be seen by consumers and ensure that nearby disclosure on a desktop remains so on a smartphone. One method applicable to native advertising recommended by the Disclosure Guide is to place a disclosure in a frame that remains visible even as a consumer moves about a website. A major complication with proximity is keeping the disclosure attached to the content as it is shared on various platforms.
In addition, the advertiser must draw attention to the disclosure. The disclosure text must be at least as large as the content text, and the disclosure may not be buried within other text. The Disclosure Guide also recommends making the disclosure in a color that contrasts with the background. These disclosure requirements apply equally to written, audio, and video content.
Some sponsored content contains an endorsement made by someone other than the sponsoring advertiser, such as in a sponsored blog post or product review. An endorsement means “any advertising message . . . that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser.”9 Where there exists a connection between an endorser and the advertiser that might affect the purchasing decision of the consumer (a “material” connection), that relationship must be disclosed in order to allow the consumer to decide for himself or herself what weight to give to an endorsement of a product or service.10 The endorsement must be honest, and the endorser must have actually used the product or service that he or she is endorsing. If an endorser has received something of value—cash, free product, free service, entrance into a sweepstakes—for making that endorsement, he or she must disclose that fact to the public.
The FTC has provided guidance on disclosure requirements in connection with endorsements and testimonials. While the “Guides Concerning the Use of Endorsements and Testimonials in Advertising” (Endorsement Guide) published in 2009 provided a number of hypothetical examples of how the law should be applied,11 those examples only reflected scenarios as they were likely to exist in early mainstream sponsored content. In May 2015, the FTC published an updated “What People Are Asking” FAQ-type page (Best Practices Update) that complements the Endorsement Guide and provides a number of 2015-relevant scenarios under which disclosures should be made, and what they should look like.12
There is no special wording required by the FTC to effectively make an endorsement disclosure, but it must be clear and conspicuous. “This post is sponsored by Company MNOP” or “Company RST gave me this product to try” will suffice. However, a blanket disclosure on a website, such as “Sometimes I write about products I receive from brands” in an “About” page or under “FAQs” is not sufficient. If the endorser writes about the product or service more than once, he or she should make the disclosure each time, because the reader of a blog post about Product Q in June might not have read April’s post about Product Q that contained the disclosure.
Because Twitter allows only 140 characters per tweet, disclosures are often omitted. But as the Best Practices Update points out, “Sponsored” or “Promotion” take only nine characters. Creative influencers should be able to convey both an advertiser’s message and the required disclosure in a tweet. “Promotion,” “Sponsored,” or “#ad” are recommended, and abbreviations like “#spon” are discouraged as not clear enough. In addition, the Best Practices Update states that advertisers “shouldn’t encourage endorsements using features that don’t allow for clear and conspicuous disclosures,” such as “liking” content on Facebook, and “pinning” content on Pinterest.13
Advertiser-sponsored video content is now common on platforms like YouTube and Vine, and the disclosure requirements apply to these audio/visual media as well. The FTC recommends that the endorser give a verbal disclosure such as “Some of the products I’m going to use in this video were sent to me by their manufacturers,” or “This video is sponsored by Company HIJK.” A disclosure appearing solely in the written description of the video is not sufficient. The disclosure should occur at the beginning of the video, and the Best Practices Update suggests repeating the disclosure throughout the video for the benefit of those consumers who do not watch the video from the beginning.
According to the Best Practices Update, sweepstakes and contests should not require participants to tweet, pin, or Instagram to enter the sweepstakes or contest without a clear and conspicuous disclosure that they are doing so in connection with a sweepstakes or contest. Consumers seeing the tweet or pin need to know that the tweeter or pinner is using the hashtag or other content for the purpose of getting something in return—entering and potentially winning the contest. The FTC recommends having the entire word “contest” or “sweepstakes” in the hashtag that the advertiser desires to use. “#IheartWXYvitamins” should become something like “#IheartWXYvitamins_contest.” “Sweeps” is not sufficient, because consumers might not understand it is an abbreviation of “sweepstakes.”
The FTC did advise on one form of native advertising—paid search—in a 2013 letter to search engine companies (2013 Search Engine Letter).14 In it, the FTC addressed what it saw as the paid search industry’s decline in following the FTC’s 2002 guidelines regarding distinguishing paid search results from natural search results. Because consumers usually assume the top results of a search are the most trustworthy, they need to be informed that those results did not appear there organically due to the popularity of the goods or service, but because they are an advertisement. Without proper disclosure, a consumer might not be aware that the first result from his or her Google search for a product or service is at the top of the list because the advertiser paid for it to appear first. These principles can apply to other forms of native advertising where consumers might not understand that content is actually sponsored by an advertiser. The FTC recommends that for this type of content the advertiser use prominent shading with a clear outline, a prominent border separating the paid results from the natural results, or both prominent shading and a border. Furthermore, the text labels “ads” or “sponsored results” should appear at the top left corner of the ad block.
Several industry groups, recognizing that the success of native advertising and sponsored content turns on consumers’ positive association with brands, and seeking to avoid negative consumer experiences with brands, have devised their own guidelines on disclosures in the absence of comprehensive rules from the FTC.
In December 2013, the IAB published “The Native Advertising Playbook” (IAB Playbook) to provide “Recommended Industry Guidance for Advertising Disclosure and Transparency for ad units most often described as ‘native.’”15 In it, in addition to identifying and defining six core forms of native advertising, it categorizes the common disclosure language and appearance for each type. Acknowledging that it is “not possible to recommend a single, one-size-fits-all disclosure mechanism for each native sub-group,” the IAB states simply that a reasonable consumer should be able to tell the difference between paid native advertising and publisher editorial content. The IAB therefore recommends that even if the ad unit does not contain traditional advertising messaging, it should be identified as an ad unit, and the disclosure must be prominent enough for a reasonable consumer to notice it regardless of the platform or device on which the ad is being viewed.
WOMMA published a “Guide to Best Practices for Transparency and Disclosure in Digital, Social, & Mobile Marketing” in November 2013 (WOMMA Guide). The WOMMA Guide emphasizes the importance of transparency between advertisers and consumers about the commercial nature of the message contained in the content. The WOMMA Guide delves further into endorsement disclosures and suggests language to use in various media. For example, a spokesperson employed by an advertiser could use a social media handle containing the name of the brand such as “@JohnFromBRAND.” An independent spokesperson who uses his or her own handle could disclose his or her connection to the brand simply by saying “I work for BRAND,” or “My partners at BRAND . . .” On a platform using hashtags, the message should contain “#Ad” or “#Sponsored,” as also suggested by the FTC.
The ASME has been publishing the “ASME Guidelines for Editors and Publishers” (ASME Guidelines) since 1982. The ASME Guidelines were updated in April 2015 to address “the critical challenges encountered by print and digital journalists working in today’s advertising-supported media.”16 The ASME Guidelines focus on maintaining the separation between editorial and advertising, and like the WOMMA Guide, emphasize transparency as the way to achieve it. While ASME suggests magazine editors avoid advertisements that “mimic the ‘look and feel’” of the publication in which they appear, it makes recommendations for native advertising disclosures. Print advertisements that “resemble editorial content,” such as an advertorial ad unit, should be labeled advertisements with language such as “Advertisement,” “Advertising,” or “Special Advertising Section.” ASME endorses the industry standard disclosure for digital content, recommending that digital native advertising be labeled “Sponsored Content” or “Paid Post.” In order to avoid advertising message tainting editorial content, the ASME Guidelines unequivocally state “Do Not Submit Editorial Content to Advertisers for Approval.” Previous versions of the ASME Guidelines proscribed publishers’ participation in the creation of ads. That prohibition has been removed from this latest version.
Even though the IAB, WOMMA, and ASME serve constituencies with potentially contradictory interests, both the publishers and the advertisers agree that in order to maintain the integrity of the publication and the message, consumer deception as to the motivation behind the content production must be avoided.
Consumer protection laws can be enforced by the courts and the FTC, and matters arising from deceptive acts and practices in advertising can be heard by the National Advertising Division (NAD) of the Council of Better Business Bureaus. The NAD is a private, self-regulatory body within the advertising industry that arbitrates disputes between competitors arising from advertising, and also self-monitors for violations of consumer protection laws. Cases brought before the NAD may be referred to the FTC, and NAD decisions must be enforced by the FTC. While the FTC has not provided comprehensive guidelines for avoiding deceptive and unfair practices in native advertising, recent judicial cases and NAD investigations can inform advertisers and publishers on best practices.
Facebook Sponsored Stories
An example of consumer backlash against native advertising is the class action lawsuit against Facebook resulting from its “Sponsored Stories” ad units. Sponsored Stories were in-feed posts that showed an advertisement along with the name and/or picture of a “friend” who “liked” that product or service. In Fraley v. Facebook, Inc., the plaintiffs asserted that in using their likeness to endorse a product or service without their permission, Facebook violated the users’ right of publicity under California law.17 The case settled two years later, and almost a year after that, Facebook announced it would stop selling “Sponsored Stories.” Facebook continues to use similar “social context” ad units, but users can now use settings to control whether their information is shared and used in advertising contexts.
Shape Water Booster Advertorial
Shape magazine was the subject of an NAD investigation arising from the promotion of one of Shape’s own branded products in an advertorial in its magazine.18 Shape published an article titled “Water Works” about the importance of staying hydrated, and suggested Shape Water Boosters as a product to help achieve that goal. The article was labeled “News.” In the NAD investigation, Shape argued that its sophisticated readers would understand that the article was an advertisement for Shape’s Water Boosters. The NAD did not disagree, but focused on the potential deception caused by entitling the article “News.” The NAD believed this headline “blurred the line between advertising and editorial content in a way which would confuse consumers.” According to the NAD, consumers would reasonably believe the article was editorial and therefore free from the influence of a paying advertiser. The NAD advised that Shape should “clearly and conspicuously designate content as advertising.” Shape agreed to stop using the “News” headline on its advertorials.
Taboola Recommendation Widget
Recommendation widget providers like Taboola are able to customize the widget to make their image-plus-text units appear native to a site. Congoo, a competitor of Taboola, argued to the NAD that Taboola failed to properly disclose that the image-plus-text units were actually ads because phrases such as “Recommended Videos,” “More in The News,” and “You Might Also Like” were too vague to put readers on notice that the units would direct them to advertising. Congoo argued that Taboola’s deception was putting it at an unfair advantage in the click-through revenue model, because readers were more likely to click through a unit if they believed it was editorial rather than advertising. During the pendency of the case, Taboola sua sponte changed its disclosures to read “Sponsored Content” or “Promoted Content.” The NAD was reluctant to opine on the exact words required to make the proper disclosure, disagreeing with Congoo that Taboola’s image-plus-text units must be labeled “advertisement.” Applying the disclosure principles in the 2013 Search Engine Letter, the NAD concluded that “Sponsored Content” and “Promoted Content” were sufficient disclosures, so long as Taboola made the disclosures more prominent in size, font, and boldness. In addition, Taboola was advised that the content to which the units linked must be properly labeled as advertisements as well.19
Cole Haan Sponsored Pinterest Contest
In addition to policing native advertising in particular, the FTC has also recently dealt with consumer protection concerns arising out of other forms of sponsored content. In the spring of 2014, Cole Haan held its “Wandering Sole Pinterest Contest.” In order to enter the contest, participants had to create a “Wandering Sole” Pinterest board including pins from Cole Haan’s Wandering Sole Pinterest board and photos of participants’ “favorite places to wander,” and to tag each pin on that board with “#WanderingSole.” The prize for the most creative board was a $1,000 shopping spree. The FTC investigated whether this contest violated § 5 of the FTC Act, and ultimately issued a warning letter to Cole Haan.20 The FTC held that the act of pinning Cole Haan products to entrants’ “Wandering Sole” Pinterest boards constituted endorsement of Cole Haan products. Disclosure of such endorsement was required because the entrants had a material connection with Cole Haan by entering the contest incentivized by the possibility of winning the $1,000 shopping spree. The FTC concluded that the “#WanderingSole” tag on each pin was insufficient to disclose the material connection created by the entrance into the contest.
Even though the media, packaging, and nomenclature of consumer marketing and advertising keeps changing, the laws applicable to such marketing and advertising do not. In order to avoid deceptive advertising, it must be made obvious to a consumer whether content in a publication was paid for by an advertiser. Lawyers can advise clients on broad themes to consider when executing native advertising and sponsored content campaigns in order to avoid running afoul of consumer protection laws. Primarily, editorial content and advertising/marketing content should be kept separate—with respect to who produces the content, and the visual appearance of the content. Clients also should be advised of their monitoring obligations. Regardless of where the client exists in the chain between advertiser and consumer, that client can be liable for violations of consumer protection laws arising from the failure to consistently monitor whether the appropriate disclosures are actually being used. The FTC recommends that advertisers have a “reasonable training and monitoring program in place,” and if they use intermediaries, that they request reports on those entities’ training and monitoring programs. Finally, sales teams and creative teams should be encouraged to involve legal teams early on in campaigns. A lawyer’s analysis of the consumer protection law issues involved in a proposed use of content or format of content could shape how a campaign is sold and executed.
The law seeks to protect consumers from deceptive advertising, and advertisers don’t want to lose customers as a result of real or perceived deception in their advertising. Transparency as to the source of content is therefore paramount to successful native advertising and sponsored content marketing. Transparency breeds trust in the message and the messenger, thus supporting positive engagement between brands and consumers. By understanding current government and industry guidelines for best practices in native advertising and sponsored content, lawyers will be equipped to advise all types of marketing and advertising industry clients on executing that transparency.
2. “Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful.” 15 U.S.C. § 45(a)(1).
3. FTC Policy Statement on Deception, Appended to Cliffdale Associates, Inc., 103 F.T.C. 110, 174 (1984).
5. Id. (remarks of Lesley Fair, FTC staff attorney).
6. Advertisements which Appear in News Format, 73 F.T.C. 1307 (1968).
7. Id. at 1307–08.
9. 16 C.F.R. § 255.0(b).
10. Id. § 255.5.
11. Id. pt. 255.
12. The FTC’s Endorsement Guide: What People Are Asking, FTC (May 2015), https://www.ftc.gov/tips-advice/business-center/guidance/ftcs-endorsement-guides-what-people-are-asking.
14. Letter from Mary K. Engle, Assoc. Dir. for Adver. Practices, FTC, to Search Engines (June 24, 2013), available at https://www.ftc.gov/sites/default/files/attachments/press-releases/ftc-consumer-protection-staff-updates-agencys-guidance-search-engine-industryon-need-distinguish/130625searchenginegeneralletter.pdf.
17. No. CV 11-01726 (N.D. Cal. June 6, 2011).
18. Am. Media, Inc. (Shape Water Boosters), NAD Report No. 5665 (Dec. 18, 2013).
19. Taboola, Inc., NAD Report No. 5708 (May 5, 2014).
20. Letter from Mary K. Engle, Assoc. Dir. for Adver. Practices, FTC, to Christie Grymes Thompson, Kelley Drye & Warren LLP, Re: Cole Haan, FTC File No. 142-3041 (Mar. 20, 2014), available at https://www.ftc.gov/system/files/documents/closing_letters/cole-haan-inc./140320colehaanclosingletter.pdf.