FTC Clarifies Native and Online Ad Obligations

by BakerHostetler
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The FTC, in recent staff statements, has sought to clarify advertisers’ and publishers’ obligations regarding native advertising and social media promotions, particularly regarding when and how to clarify to readers that a message is promotional and that the speaker has a material connection to the brand mentioned in the content. Further, the FTC has announced that in a departure from its historical approach to publisher liability, it will be holding publishers who are involved in creating native advertising as equally liable as the advertiser since they are going beyond mere distribution by creating or co-creating the content. This new guidance was in the form of new FAQs published on the FTC’s website and in a recent speech by a senior FTC lawyer to an ad industry trade conference.

On June 1, 2015, the Federal Trade Commission (FTC) staff updated its Frequently Asked Questions (FAQs) guidance to the FTC’s 2009 revised Endorsement Guidelines (Guidelines). The FTC’s latest update provides helpful comment on how to apply the agency’s endorsement guideline standards to evolving forms of digital marketing and promotion.

Generally speaking, the Guidelines reflect the truth-in-advertising principle that endorsements must be honest and not misleading. Specifically, the Guidelines require that statements and claims made by a third-party speaker with a material connection to an advertiser/seller that effectively promote the advertiser/seller must (1) be true, accurate, and not deceptive or misleading; (2) clearly and conspicuously disclose any material connection between the speaker and the advertiser/seller that could affect consumers’ judgment as to the objectivity of the speaker; and (3) be typical of all consumers’ experiences or the actual typical consumer experience must be clearly and conspicuously disclosed proximate to the statement or claim. The purpose of this is to make sure consumers know when statements by other than an advertiser/seller should be effectively treated as advertisements, that they be held to the same standards of truth and accuracy as ads, and that advertisers/sellers be held responsible for the statements and claims of their employees, vendors, and others that they incentivize to promote them.

The Guidelines unequivocally apply to social media, affiliate marketing, and consumer review activities. Last week, FTC Associate Director of Advertising Practices Mary Engle weighed in with additional guidance on how companies should be thinking about these issues in native advertising. Here are some of the highlights:

Social Media

  • Employees and contractors must disclose their relationship to a company when making promotional statements in social media about the company or its products or services, and the statements must meet fair advertising standards.
  • Companies need social media policies that explain employee and contractor obligations, and companies need to reasonably train and monitor employees and contractors for compliance with those policies and take corrective action when they are violated. Specifically, the revised FAQs call for “a formal program to remind employees periodically of your policy, especially if the company encourages employees to share their opinions about your products.”
  • However, companies cannot prohibit or unduly burden employees’ ability to discuss their workplace or employment conditions and cannot require employees to make private social media accounts and posts available for review without violating labor laws.
  • Material connection statements need to be clear, conspicuous and proximate, but what is effective is contextual:
  • Tweets and posts need short-form disclosures at the beginning of a message. The FTC now says AD, #AD, “Sponsored,” “Promotion,” and “Paid Ad” are all “likely effective.”
  • Statements like “I work for…” and “I got a free product to try” and “I get paid on leads I generate” are likely effective.
  • “Like-gating” – incentivizing consumers to “like” or “share” you on social media, could be an endorsement triggering disclosure obligations. The revised FAQs have a new section on this practice, calling for disclosures of any “rewards” offered for liking a company or sharing its posts or pages (e.g., discounts, sweepstakes entries, etc.). The FTC warns that a “sponsored brand campaign probably requires a disclosure.” Also, soliciting likes and shares from people who do not actually use and like the product is said to be deceptive. Accordingly, brands should explain to consumers in the call to action that they should actually use and like the product to participate. Similarly, participants should either not be rewarded or be required to disclose the reward as part of liking the product or sharing the company’s page or post (e.g., #AcmeSweepstakes in the comments section when the action generates a chance to win). The staff acknowledged “that some platforms – like Facebook’s like buttons – don’t allow you to make a disclosure” and goes on to say “advertisers shouldn’t encourage endorsements using features that do not allow for clear and conspicuous disclosures,” although the staff does question “how much stock social media users put into ‘likes’ when deciding to patronize a business.”
  • Following up on its enforcement action against Cole Hahn for its Tumblr content posting contest, the revised FAQs provide additional advice to companies running social media contests and sweepstakes involving users posting on social media as a condition of a chance to win. The staff advises that companies should require entrants to include a disclosure as part of their post explaining that they are getting a chance to win by posting. Further, the FTC warns that #AcmeSweeps is probably not sufficient as readers may not know what that means but that spelling out #AcmeSweepstakes “should be enough.”
  • The revised FAQs opine that disclosures of affiliation on the speaker’s profile pages, or on a site home page, are insufficient and need to be proximate to each promotional message and merely adding the advertiser’s logo or a hashtag with the advertiser’s name is insufficient to explain the speaker is getting something of value from the company it is promoting. While the FTC does not explain what would, #AcmeBrandAmbassador or #AcmeEmployee may suffice. Also, putting explanations behind a link like “Disclosures” or “Legal Notices” is said to be insufficient.

Native Advertising

  • The new FAQs discuss promotional videos such as “opening” and review videos that are incentivized by the brand. It warns that the material connection disclosure must be in the video itself, not merely in text near the video player, and should be at the beginning, and recurring for long videos.
  • The new FAQs touch on sponsored content common in native advertising: “[P]roduct placement (that is, merely showing products or brands in third party entertainment or news content – as distinguished from sponsored content or disguised commercials), doesn’t require a disclosure that the placement was paid-for by the advertiser.” Unfortunately, the staff fails to provide any guidance on where the line is drawn between a mere placement and a paid promotion.
  • However, in the context of an example of a talk show host getting anything of value, the staff suggests that it does not take much to convert a paid placement into a paid endorsement: “If the host endorses the product – even if she is just playing the game and saying something like ‘wow, this is awesome’ – it’s more than a product placement.”
  • While the FTC fails to explain what kind of disclosure would be sufficient as part of native advertising, in the content of social media they state that “AD,” “#AD,” “Sponsored,” “Promotion,” and “Paid Ad” are all “likely effective.” Accordingly a clear and conspicuous disclosure using these terms proximate to the beginning of sponsored content and other native advertising would seem to be similarly sufficient.
  • In the context of a YouTube Multi Channel Network (MCN) that distributes product reviews by users, the new FAQs explain that the disclosures on compensated reviews need to identify the sponsor in a “Sponsored by ___” notice made by the product manufacturer, not by the MCN.
  • The FTC advises that disclosures should not only be proximate, but in a font and color shade that stands out, and when in video they must last long enough to be read, or if spoken, they must be at an understandable cadence.
  • In her June 3, 2015, presentation to the Clean Ads I/O Conference, the FTC’s Mary Engle stated that a simple “Sponsored” label on native advertising such as has become common on BuzzFeed, Wired, and Gawker, would be an insufficient way of explaining the material connection between the publisher and the brand if the notice was not so prominently given that 85 to 90 percent of readers saw the disclaimer when reading the content, even if they only read the headline. She explained that the “FTC uses tests determining what consumers saw to measure how misleading an ad is.” She also announced that the FTC would go after both the brands and the publisher since in native advertising the “publisher is creating the content,” as opposed to merely distributing it.

Affiliate Marketing and Consumer Reviews

  • Free products for review and any compensation or reward must be disclosed.
  • Giving discounts in exchange for good reviews is said to be “not a good idea.” If discounts are offered for reviews, the FTC counsels that it be done in a way that ensures that they are honest (i.e., any true review should qualify, not just the good ones) and the discount should be conditioned on the reviewer disclosing that they got the discount for posting a review.
  • Where reviewers get paid on leads or sales they generate, this needs to be clearly and conspicuously explained proximate to the review and the link or call to action, and a “Buy Now” button alone is not sufficient to explain the compensation relationship. Instead, the FTC advises “say something like, ‘I get commissions for purchases made through links in this post.’”

The revised FAQs make clear that companies will be held responsible for the acts of their employees, ad agencies, PR firms, and influencers they or their agents engage, which they deem an advertiser’s “network.” The FTC states, “Advertisers need to have reasonable programs in place to train and monitor members of their network. The scope of the program depends on the risk deceptive practices by network participants [and] could cause consumer harm – either physical or financial loss.” BakerHostetler’s Advertising, Retail, and e-Commerce lawyers regularly advise clients on how to develop and execute policies and campaigns that comply with the Guidelines and other applicable law.

A copy of the new FAQs is here. A redline showing the changes to the prior FAQs is here. For a detailed analysis of the Guidelines, see “Growing Promotional Use of Social Media in the Government’s Crosshairs: The New FTC Guidelines“. For a detailed discussion of native advertising, see “Navigating The Legal Risks Of Native Advertising.” 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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