INTA Bulletin

INTA Bulletin

December 1, 2017 Vol. 72 No. 20 Back to Bulletin Main Page

Native Advertising: What You Need to Know

Stealthy design of advertising is nothing new.  The phrase “native advertising” describes advertising designed to blend in and appear to be part of the surrounding content, so consumers may not realize they are being presented with paid advertising rather than editorial material. It is called “native” advertising because the advertising appears to be part of the natural content of the publication, with the look of a regular article or editorial. Historically, consumers have been able to identify the typical signs of paid advertising, such as the use of brands and logos, segregated placement away from regular content, or the addition of page or region borders, all employed to increase consumer understanding that the content they are reading constitutes claims by the advertiser about its own branded product or service.

But native advertising does not carry those typical indicators, and so may not be recognized as paid content. As a result, consumers may be misled into believing that the advertising material comes from a neutral source. When misled, consumers cannot apply the usual skepticism or avoidance that they might apply to material that is branded and recognized as advertising. In fact, one of the key benefits advertisers see in native advertising is the ability to reach consumers when they are not expecting an advertisement, which may make the consumer less likely to block or skip the advertisement.

A Long History

Stealthy design of advertising by brand owners is nothing new. Before the Internet, native advertising took the form of advertising supplements, single-sponsor magazine issues, advertisements mimicking the style of a publication’s true editorial content, sponsored programming, program-length commercials, and product placement. With regard to product placement, companies could subtly influence consumers to consider or purchase their specific brand of products after seeing a brand of candy, cereal, or soda consumed in a movie or a television show. For example, consider the Reese’s Pieces candy used in the 1982 film E.T., or the futuristic Pepsi bottle design in the 1989 film Back to the Future II. Single-sponsor advertising has been, and continues to be, popular in print publications. As an example, Target Corporation purchased all of the advertising space available in the August 22, 2005, issue of The New Yorker (about 18 pages). Time, Life, Newsweek, and People magazines have also published single-sponsor issues for brands such as Kraft Foods, Ford Motor Company, and Apple Computers.

In the Internet age, brand owners engage in native advertising typically by placing paid content links within editorial content in online publications. Consumers read posts or articles quickly and are enticed to click embedded links with bold or provocative headlines or images. These embedded links are sometimes referred to as “click bait,” because consumers are enticed to click on the links to learn more about the topics or products. The Internet also provides opportunities for native advertising in search engine results (targeting material to a user’s online search subjects), sponsored content, promoted social media links such as hashtags or Twitter handles, online quizzes and contests, and infographics.

Addressing Deceptive Advertising in the United States

In the United States, advertising by brand owners is regulated is several ways. The federal government regulates advertising through the United States Federal Trade Commission (FTC). The FTC helps enforce the Federal Trade Commission Act, which requires that that all advertisements (regardless of the media used to disseminate the advertising) be truthful, non-deceptive and fair. Advertising must tell the truth, and must not mislead consumers or cause consumer injury. An advertising claim can be misleading if relevant information (such as the identity of the advertiser) is omitted from the advertisement or if there are express or implied claims that are untrue or misleading.

U.S. trademark law, known as the Lanham Act, also creates legal recourse for “any person who believes that he or she is likely to be damaged” against:

any person who … uses in commerce any word [or] term, … or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which—

(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or

(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities.15 U.S.C. § 1125(a)(1).

Individual states also have laws that are similar in scope and content to the Lanham Act. In addition, particular types of advertising, such as advertising for health care products or financial services, or advertising directed to children, are subject to additional requirements in the United States.

Use of Disclaimers and Disclosures

A key tool in avoiding misleading or false advertising claims can be the use by brand owners of disclaimers and disclosures that provide additional information to explain or limit advertising claims. Concerns about native advertising arise from the fact that material information—that the content is paid advertising—has not been revealed. Revealing the paid nature of the advertising through a disclaimer or disclosure that is not noticeable or that is itself misleading does not alleviate the underlying concerns associated with native advertising. Disclaimers and disclosures must be clear and conspicuous. A disclosure must be prominent and easy to understand so consumers will notice, read, or hear and understand the information. But a disclaimer or disclosure alone may not be sufficient to remedy a false or deceptive claim.

With respect to online disclosures, the FTC will consider prominence, presentation, placement, proximity, and repetition of the disclosure or disclaimer. There are additional considerations when using a hyperlink to link to disclosures and disclaimers. See the FTC’s 53-page pamphlet on the subject of disclosures and the use of hyperlinks called .com Disclosures: How to Make Effective Disclosures in Digital Advertising, which was published in March 2013.

FTC Policy on Native Advertising on the Internet

In December 2015, the FTC issued an enforcement policy statement on deceptively formulated advertisements for brand owners on how to recognize and avoid creating deceptive advertising on the Internet. The policy statement explains that determining whether native advertising is deceptive focuses on a reasonable consumer’s perception of an advertisement, based on the consumer’s prior experience with the specific advertising medium (e.g., a news website or blog) and the overall impression created. If disguising the advertisement as editorial content is material to the consumer’s choice or conduct—possibly resulting in a purchase or click because the consumer believes he or she is interacting with independent or impartial content, the advertisement is considered a deceptively formulated advertisement. The FTC will look at the overall appearance of the advertisement, its formatting compared to surrounding content, the style of the advertisement, and whether specific consumer groups are targeted. The policy statement further states that deceptive advertising may occur either through affirmative but inaccurate claims, or through misleading omissions.

The policy statement also guides brand owners to “redeem” native advertising in a news website or blog through qualifying disclosures, if the disclosures provide clear labels or cues to point out that the content is advertising. Disclosures should be sufficiently prominent and unambiguous to permit the consumer to come to the conclusion that the content is indeed an advertisement. Disclosures must be delivered with the advertisement itself, and should not be in the form of a click-through or pop-up screen. Strong disclosures include, but are not limited to, the following words or phrases: “advertisement,” “paid advertising,” “sponsored content,” and “promoted content,” displayed in a clear and conspicuous font and in a conspicuous location within the news website or blog.

FTC Actions—Lord & Taylor Retail Clothing Store Chain

In 2016, the FTC filed a complaint against the retail store chain Lord & Taylor for native advertising that appeared as a magazine article reviewing a clothing line, but was actually a paid advertisement written by the retail store chain. In re Lord & Taylor, LLC, No. C-4576, 2016 WL 1130013, at **1‒4 (F.T.C., May 20, 2016). The complaint charged the retailer with deceptively formatted advertising (i.e., native advertising) based upon an article about its Design Lab clothing collection published in NYLON, a pop culture and fashion magazine and online publication. The article was paid advertising but could appear to consumers as editorial content created by the magazine. Id. In addition, Lord & Taylor paid “fashion influencers” up to $4,000 each to wear dresses from the collection and post photos of themselves in the dresses on Instagram. Id. The FTC concluded that the retailer’s advertising campaign involved both deceptively formatted advertising (i.e., native advertising) and undisclosed paid endorsements. Id. The undisclosed, paid endorsements contravened the FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising. 16 C.F.R. Part 255.

The FTC complaint was settled, and the settlement was confirmed by the FTC in a consent order. In re Lord & Taylor, LLC, No. C-4576, 2016 WL 2997854 (F.T.C., May 20, 2016). The consent order forbids Lord & Taylor from misrepresenting paid advertisements as coming from an independent source, saying that the disclosure related to the advertisement (explaining that it is paid content) must be unavoidable, not contradicted, and in close proximity in time and space to the advertisement at issue. Id. at *5. The consent order also requires that the retailer’s audiovisual advertisements must have audiovisual disclosures. Id. Further, the consent order requires that Lord & Taylor take steps to ensure that endorsers or fashion influencers disclose in their posts any compensation or other benefit that might materially affect the weight or credibility of the endorsement. Id. The consent order will remain in effect for 20 years, and any failure to comply with the consent order may result in a civil penalty of up to $16,000 per violation. Id. at **7‒8.)

The FTC did not issue a complaint against NYLON, the magazine publisher and media platform where the advertisement was published. The FTC also did not issue a complaint against the endorsers or fashion influencers for failing to follow Lord & Taylor’s instructions to include “#DesignLab” and “@lordandtaylor” in their posts. The FTC noted these additions would not have been enough to disclose that the posts were sponsored advertising. In re Lord & Taylor, No. C-4576, 2016 WL 1130013.

Lumos Labs Brain Games Site

The FTC brought another enforcement action in 2016 against Lumos Labs, Inc., the company that markets and advertises the Lumosity brain games website and other materials, for improper use of native advertising to promote the alleged benefits of its brain games website and programming. FTC v. Lumos Labs, Inc., No. 16-CV-00001-SK (N.D. Cal. Jan. 8, 2016), Doc. 1. Lumosity marketed its website and games extensively, through emails, blog posts, and social media, and it purchased hundreds of keywords related to memory, cognition, dementia, and Alzheimer’s disease through Google Adwords. Id., ¶ 17.

The website and marketing materials featured native advertising in the form of user testimonials describing improved school, work, and athletic performances, delays in cognitive decline, and protection against Alzheimer’s disease. Id., ¶¶ 13, 18‒21. However, Lumosity failed to disclose that the testimonials had been solicited as part of contests in which consumers were awarded significant prizes, with instructions such as “Show how Lumosity has helped take your athletic abilities to the next level for a chance to win.” Id., ¶¶ 19‒21. The FTC determined that Lumosity preyed on consumers’ fears, encouraged positive testimonials about its games, and did not require disclosure of “material connections” under the Endorsements and Testimonials Guides. Id. The Lumosity complaint was settled; the settlement included Lumos Labs’ payment of $2 million in redress, which the FTC issued as refunds to Lumosity subscribers, and an obligation to notify subscribers of the FTC action and allow them to cancel ongoing subscriptions. Lumos Labs, Inc., No. 16-CV-00001-SK, Doc. 10, pp. 9, 12‒13.

Non-Government Actions—The ASRC

A non-governmental self-regulating body of national advertisers, the Advertising Self-Regulatory Council (ASRC), may also address unlawful native advertising. Under the policies and procedures established by the ASRC, the National Advertising Division (NAD) of the Better Business Bureau (BBB) reviews national advertisements for potentially misleading advertising claims. The NAD investigates complaints filed with the BBB by consumers or businesses, under a strict timetable, issuing a written decision within 60 business days. Many well-known brand owners avail themselves of this forum to seek relief in the advertising space. See Advertising Self-Regulatory Council, Procedures for the National Advertising Division (NAD), the Children’s Advertising Review Unit (CARU), and the National Advertising Review Board (NARB). Participation in NAD investigations and compliance with the resultant recommendations are voluntary, but the NAD may refer a case to the appropriate regulatory agency—usually the FTC—if a challenged advertiser refuses to participate or fails to comply. Id.

A seminal NAD action concerning native advertising involved Taboola, a company that provides sponsored Internet stories for news and other websites. Taboola, Inc. (Online Advertising), Report #5708C, NAD/CARU Case Reports (Aug. 2014). Rather than advertisers going to websites directly to ask them to carry their advertisements, Taboola distributes advertising in the form of promoted stories on various websites, and shares the advertising revenue paid by the story sponsor (advertiser) with the hosting websites. See for more information.

The NAD investigated Taboola’s native advertising practices and then issued a report pointing out Taboola’s placement of millions of advertisements on publisher websites labeled as “Recommended Videos,” “More in the News,” or “You Might Like.” Taboola, Inc. (Online Advertising), Report #5708C. The websites included the statement “Promoted Content by Taboola” in smaller font and in lighter color. Only if clicked on by consumers, a pop-up disclosed that content was paid for by advertisers. Id. The NAD held these disclosures to be insufficient, and recommended several revisions to the size, color, and clarity of Taboola’s disclosures and links. Id.

Another NAD proceeding in 2014 involved American Express OPEN Forum, a website hosted and maintained by American Express. American Express Co. (OPEN Forum), Report #5760 NAD/CARU Case Reports (Sept. 2014). OPEN Forum originated as an informational and networking website for American Express’s business cardholders, and evolved into a business-focused social media platform that incorporated extensive native advertising.

American Express placed ad units (images with text, generally consisting of a small picture and title of a sponsored article) on various publishers’ websites, which included sponsored content provided by Taboola. American Express Co. (OPEN Forum), Report #5760. A small indication that the content was by OPEN Forum appeared in the form of a link to information about OPEN Forum. Id. The NAD concluded that the advertisements must identify American Express OPEN Forum as the source, to indicate the advertisements did not originate from the publisher and were not independent content. Id. American Express voluntarily complied. Id. American Express also created guidelines for its native advertising placements, emphasizing the importance of transparency and branding, without admitting its original disclosure was insufficient. Id.

For Brand Owners—Be Proud and Disclose

Native advertising in the United States can be lawful and lucrative, provided the brand owner does not confuse or mislead consumers into believing the content is editorial rather than advertising. Here are a few practice points to help keep companies within acceptable practices:
  • Be proud of your brand, and be proud of your advertising. Vet any native advertising content or placement with the same level of scrutiny that you utilize in vetting traditional advertising to protect the goodwill in your brand;
  • Disclosing your brand when placing an advertisement with a third party or advertising firm may protect your firm from fines and other civil penalties;
  • Disclosing your brand gives your content credibility;
  • Use and promote your brand in advertising;
  • Whether a disclosure is deceptive is determined in the context of the surrounding content, considering a reasonable consumer’s experience and expectations, so be aware of the nature of the content in proximity to your advertisement and overall context; and
  • In the event your advertisement content or marketing campaign are determined to be unlawful native advertising, voluntary correction is your best bet to maintain credibility with consumers and avoid steep fines.
Although every effort has been made to verify the accuracy of items in the INTA Bulletin, readers are urged to check independently on matters of specific concern or interest.

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