The FTC and Deceptive Advertising: Is there a Biennial Trend?

by Patrick Law Group, LLC
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At the end of December 2015, the Federal Trade Commission (the “FTC”) issued a policy statement to provide guidance and examples of how to avoid deceptive advertising in native ad placements (the “2015 Policy Statement”).  The FTC defines native advertising as digital advertising or promotional content “that bears a similarity to the news, feature articles, product reviews, and entertainment that surrounds it online.”  In other words, “native advertising” is that which is similar to and often indistinguishable from independent editorial material and other online content that is not advertising.  The 2015 Policy Statement also states that advertisements or promotional messages are deceptive and likely to violate Section 5 of the FTC Act, if they convey to consumers expressly or by implication that they’re independent, impartial, or from a source other than the sponsoring advertiser, suggesting, in other words, that the promotional content is something other than ads.

Fast forward to 2017 and we find that the concerns, issues and parameters have not really changed.  Yet to understand the extent of the issue, the FTC commissioned research into how consumers respond to native advertising and search engine ads. The report released by the FTC in December 2017, “Blurred Lines: An Exploration of Consumers’ Advertising Recognition in the Contexts of Search Engines and Native Advertising: A Federal Trade Commission Staff Report” (the “2017 FTC Staff Report”), summarizes the research findings and concludes with advice for online advertisers.

We know from the 2015 Policy Statement that the FTC relies upon three overarching principles to avoid deceptive advertising and misleading consumers, reaffirming that:

  1. Transparency is paramount, and an advertisement or promotional message should not suggest or imply to consumers that it is anything other than an ad.
  2. Some native ads may be so clearly commercial in nature that they are unlikely to mislead consumers even without a specific disclosure.  In other instances, a disclosure may be necessary to ensure that consumers understand that the content is advertising.
  3. If a disclosure is necessary to prevent deception, the disclosure must be clear and prominent.

For the 2017 FTC Staff Report, the FTC examined how search engines and native ads are perceived by consumers. One test group of consumers' reactions to ads on a series of webpages were compared to the reactions of a second test group that viewed the same ads but with "modified disclosures to improve their prominence, legibility, or clarity." While the second group's perception that they were looking at an ad was apparently greater, the report noted that "even with the improved disclosures, a significant percentage of participants still did not recognize some ads as ads."

Consequently, the 2017 FTC Staff Report asserts the following recommendations to ensure that consumers are not misled by native advertising:

  1. The first, and most important recommendation under the 2017 FTC Staff Report is to urge advertisers and publishers to follow the guidance laid out in the FTC’s 2015 Policy Statement.  
  2. Second, the FTC Staff Report also advises that visual cues, including changes to disclosure language, position, text size and color, and borders around or background shadings of ads or ad groupings, "can in combination substantially increase the likelihood that a consumer recognizes an ad as an ad."

With the growing prevalence of new digital formats, smaller screens, complex searches, and more native formats, the FTC's recommendations are worth reviewing.  Again, these principles are not new considerations, rather, they serve to remind advertisers and publishers of longstanding principles, as well as to provide existing parameters around newer forms of advertising. 

The 2015 Policy Statement reminds advertisers that as always, the FTC will look at the “net impression” of the ad to determine whether the commercial nature of the content is clear to the “reasonable” consumer.  In determining this, the FTC will consider the overall appearance of the ad itself, and the verbal/audio content of the ad in the case of multimedia, as well as the similarity of the ad’s style and formatting to the surrounding non-advertising content and whether the substantive content is distinguishable from the surrounding non-advertising content.  Thus, the more similar the ad is to the publisher’s site content, the more likely it is that a disclosure is necessary.

Like the 2013 FTC Dot. Com Disclosure statement, which takes into account the expanding use of smartphones with small screens and the rise of social media marketing and emphasizes that consumer protection laws apply equally to marketers across all mediums, whether delivered on a desktop computer, a mobile device, or more traditional media such as television, radio, or print, the 2015 Policy Statement reinforces those factors the FTC will consider in evaluating whether the consumer will recognize the content as an advertisement.  For example, the 2015 Policy Statement urges us to consider:

  1. On what media is the content featured?  The FTC acknowledges that consumers have different expectations depending on the media being consumed (e.g. social media versus a news website).
  2. Who is the target audience? If children are the target audience, they are unlikely to recognize something as an ad.
  3. Does the substantive content of the ad differ from the surrounding content?  An ad inviting a consumer to shop for dresses in a news stream is likely recognizable as an advertisement.
  4. Is the format of the ad similar in written, spoken or visual style to the non-advertising content? Does the content look like an editorial article on a news site?  Conversely, is the content set apart using background shading or other visual cues to indicate that it is an ad?

Looking at the FTC’s trend since 2013 with the issuance of the FTC Dot.Com Disclosure Statement, the 2015 Policy Statement and now the 2017 Staff Report, it appears that every two years the FTC will re-assert its long-standing principles with the hope that advertisers and publishers will adhere to them as advertisers continue to develop new modes of consumer marketing. It will be interesting to watch how advertisers and publishers adjust to the 2017 Staff Report, and the FTC’s future response to advertisers.

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.

© Patrick Law Group, LLC | Attorney Advertising

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