Native Advertising: A Guide for Businesses

Marketers and publishers are using innovative methods to create, format, and deliver digital advertising.  One form is “native advertising,” content that bears a similarity to the news, feature articles, product reviews, entertainment, and other material that surrounds it online.  But as native advertising evolves, are consumers able to differentiate advertising from other content?


The Federal Trade Commission Act prohibits deceptive or unfair practices.  It’s the FTC’s job to ensure that long-standing consumer protection principles apply in the digital marketplace, including to native advertising.  The FTC has issued an Enforcement Policy Statement on Deceptively Formatted Advertisements that explains how the agency applies established truth-in-advertising standards in this context.  This Guide for Businesses supplements the Enforcement Policy Statement by offering informal guidance from FTC staff to help companies apply the Policy Statement in day-to-day contexts in digital media.


The first part of this Guide summarizes the consumer protection principles that serve as the foundation for the Enforcement Policy Statement.  The second part includes examples to explain how effective disclosure can help prevent deception.  The third part features staff guidance on how to make clear and conspicuous disclosures within the format of native advertising.  Of course, this Guide can’t cover every issue associated with native advertising.  Nor does it provide a safe harbor from potential liability under Section 5 of the FTC Act.  These examples are only general guidance for advertisers. 


I.  ESTABLISHED PRINCIPLES THAT SUPPORT THE FTC’S APPROACH TO NATIVE ADVERTISING

Under the FTC Act, an act or practice is deceptive if there is a material misrepresentation or omission of information that is likely to mislead the consumer acting reasonably in the circumstances.  A misrepresentation is material if it is likely to affect consumers’ choices or conduct regarding an advertised product or the advertising for the product.


In evaluating whether an ad is deceptive, the FTC considers the net impression the ad conveys to consumers.  Because ads can communicate information through a variety of means – text, images, sounds, etc. – the FTC will look to the overall context of the interaction, not just to elements of the ad in isolation.  Put another way, both what the ad says and the format it uses to convey that information will be relevant.  Any clarifying information necessary to prevent deception must be disclosed clearly and prominently to overcome any misleading impression.


A basic truth-in-advertising principle is that it’s deceptive to mislead consumers about the commercial nature of content.  Advertisements or promotional messages are deceptive if they convey to consumers expressly or by implication that they’re independent, impartial, or from a source other than the sponsoring advertiser – in other words, that they’re something other than ads.  Why would it be material to consumers to know the source of the information?  Because knowing that something is an ad likely will affect whether consumers choose to interact with it and the weight or credibility consumers give the information it conveys. 


Over the years, the FTC has brought many cases challenging the format of ads as deceptive.  For example, the Commission has taken action against ads that deceptively mimicked the format of news programming or otherwise misrepresented their source.  Other cases focused on misleading “door openers” – promotions with a format that deceived consumers about the nature of the transaction – for example, telemarketers who misleadingly suggested they were calling on behalf of a consumer’s credit card company or bank.   (The Commission has held that when the first contact between a seller and a buyer occurs through a deceptive practice, the law may be violated even if the consumer later finds out the truth.)  Or, as the FTC Endorsement Guides establish, advertisers’ use of third-party endorsements may be deceptive if there is an undisclosed material connection between the advertiser and the endorser – one that might materially affect the weight or credibility of the endorsement.  The FTC considers misleadingly formatted ads to be deceptive regardless of whether the underlying product claims that are conveyed to consumers are truthful.

    

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