Native Advertising Legal Analysis and Practice Tips

Advertising that feels and looks like editorial platform content has existed for decades. In the age of social media, however, “native advertising,” as it is now often called, has become more confusing. Brands have become more sophisticated at disguising their advertising messages within the editorial content, making it more difficult to differentiate commercial speech. The transition from editorial to sponsored content may be so seamless that consumers may not realize that they are perusing advertising. On the heels of John Oliver’s diatribe against this practice, the  Federal Trade Commission (FTC) remains consistently concerned about native advertising’s potential to deceive consumers.

Here is a comprehensive article published in the New York State Bar Association’s publication INSIDE for the Spring/Summer 2016 edition. In this article, Kyle-Beth Hilfer explores the implications of the FTC’s issued two new guidance documents: “Enforcement Policy Statement on Deceptively Formatted Advertisements” and “Native Advertising: A Guide for Businesses.” She also examines the FTC’s first enforcement action of these guides against Lord & Taylor. Ms. Hilfer concludes her article with practical tips for inside counsel and marketers when working on native advertising campaigns. These practice tips keep brands focused on the guiding principles of transparency and disclosure.

FTC representatives have indicated that they are in a phase of education and clarification for businesses. The agency welcomes questions from industry and may eventually issue a FAQ document, just as it did with its Endorsement & Testimonial Guides. In September 2016, the FTC will hold a workshop “Putting Disclosures to the Test” to evaluate the effectiveness of consumer disclosures, perhaps to help create additional guidelines. On the other hand, the Lord & Taylor case shows that native advertising may be part of enforcement activity right away, particularly if the fact pattern overlaps with other deceptive practices. Counsel should look to implement monitoring programs with teeth, modeled after the Lord & Taylor case, that demonstrate a strong commitment to transparency. Such programs may be the best safe harbor available against enforcement.

After the publication of Ms. Hilfer’s article, the NAD issued a decision in May 2016 centering on the placement of disclosures in native advertising. The NAD examined native advertising for Joyus, an e-commerce platform for lifestyle products. People magazine features many of the same products in its “Stuff We Love” style watch section. In that section, consumers can watch videos advertising the products that are jointly produced by Joyus and People. They then can click through to Joyus’ site to purchase the items. All the videos include the Joyus logo in the upper left corner, along with a discount offer. The logo and offer are visible before the video plays and during the video, and thus Joyus argued that consumers clearly knew that its videos were advertisements rather than editorial content. The NAD agreed with Joyus, but it was concerned that the links to “Stuff We Love” within the People website on the initial Style page did not disclose that Joyus was a commercial sponsor of the feature and would promote its products for sale within the “Stuff We Love” section. Therefore, the NAD felt consumers could believe the “Stuff We Love” had all been selected by editors rather than through paid ads. The NAD recommended that Joyus and People clarify the link to the “Stuff We Love” section to ensure that consumers know the list would be items for sale by Joyus.

Key Takeaways:

• The FTC starts with the presumption that the commercial nature of speech is of material concern to consumers since it is more likely to be biased.

• When working with brand marketers on native advertising concepts, in-house attorneys should keep them focused on the guiding principles of transparency and disclosure. Click here for practice tips.

• The Joyus case shows that regulators are looking to ensure consumers recognize advertising from the first moment they come into contact with native advertising, even if it is just a link to native content, not just at the most obvious points of sale.