Native Advertising - Top 3 Mistakes That Can Get You Sued By The FTC

FTC Native Advertising Guidelines
Credit: Magictorch/Getty Images

 Guest Post by Chip Cooper, CEO of FTCGuardian, Inc.

On December 22, 2015, the Federal Trade Commission (FTC) issued its Enforcement Policy regarding native ads. If you use native ads, or plan to use them, understand that you’re now being targeted by the FTC for deceptive advertising claims. To avoid catastrophic FTC claims with native ads, you need to avoid these top 3 mistakes.

What Are Native Ads?

Display ads, once the staple of online advertising, are now trending down in favor of more creative and effective native ads with digital formats.

Why? Consumers have become more adept at skipping or blocking display ads when browsing content on the Internet, particularly in social media.

So, what is native advertising? According to the FTC, “Native advertising is advertising content that resembles the design, style and functionality of the media in which it is integrated. In other words, the ads look and feel like natural content, and are often indistinguishable from the surrounding news, feature articles, editorials, and other regular content.”

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Wikipedia.org refers to research by the Interactive Advertising Bureau (IAB) for its listing of the various categories that native ads can take. According to the IAB, there are 6 different categories of native ads.

  1. In-Feed Ad Units: units that are located within a website’s normal content feed, meaning they may appear to be content rather than ads. This category is represented by sites such as upworthy.com and buzzfeed.com.
  1. Search Ads: ads that appear in a list of organic search results such as with Google, that look like organic search results, and are typically are given optimal placement on the search results page.
  2. Recommendation Widgets: ads delivered by widgets that don’t appear similar to content, but are preceded by text in the nature of recommendations, such as “Inspired by your browsing history”, “Customers who bought this item also bought”, and “You also might like”.
  1. Promoted Listings: similar to search ads, these ads are typically found on websites that are not content based and are presented with the same look and feel of products and services offered on the website.
  2. In-Ad: an ad that fits in a standard IAB container found outside the feed.
  3. Custom/Can’t Be Contained: the “wild card” category consisting of ads that blend with surrounding content, but don’t conform to any of the categories listed above.

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Why Is The FTC Concerned?

The FTC recognizes that native ads have the potential of deceiving or misleading consumers as to their commercial nature. The FTC stated its concern with native ads clearly: “Advertising and promotional messages that are not identifiable as advertising to consumers are deceptive if they mislead consumers into believing they are independent, impartial, or not from the sponsoring advertiser itself.”

A 2015 study published by the University of California titled “Native Advertising and Endorsement: Source-Based Misleadingness, and Omission of Material Facts” supports the FTC’s concern. The study found that native advertising, even when labeled, actually deceived about a quarter of survey research subjects.

Specifically, 27% of respondents thought that journalists or editors wrote an advertorial for diet pills, despite the presence of the "Sponsored Content" label. 

So, why is the University of California study significant for advertisers? It’s because the FTC has authority to bring claims against advertisers that deceive a “substantial minority” of consumers, and 27% is arguably a “substantial minority”. This is why it’s critical that you avoid the following three mistakes with native ads.

Native Ad Mistake #1: You Fail To Disclose The Commercial Nature Of The Ad

The FTC’s settlement of its case against Lord & Taylor in March, 2016 is a classic example of mistake #1. 

National retailer Lord & Taylor agreed to settle FTC charges that it deceived consumers in connection with its launch of its Design Lab clothing collection.

Lord & Taylor paid for native ads, including what appeared to be an objective article in the online magazine Nylon and a promotional Instagram post. 

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The big mistake? Lord & Taylor failed to disclose that the promotional article in Nylon and the Instagram post were paid ads and therefore commercial in nature. The FTC claimed that Lord & Taylor’s failure resulted in a false representation that the Nylon article and the Instagram post were independent opinion, when they were really paid ads.

The FTC’s Jessica Rich stated: “Lord & Taylor needs to be straight with consumers in its online marketing campaigns. Consumers have the right to know when they’re looking at paid advertising.”

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Native Ad Mistake #2: You Fail To Make Sure Your Disclosure Is Clear And Prominent

The FTC’s Enforcement Policy provides 17 examples of how the FTC would evaluate them in terms of the required disclosures. The big takeaway: transparency, meaning it should be clear to consumers that what they’re looking for is an ad.

The following is a summary of disclosure principles (it’s not exhaustive).

  • It’s not sufficient to disclose “Promoted” or “Presented By”. Nor is it sufficient to use company names or logos alone to disclose commercial intent. Avoid technical jargon.
  • Use “Ad”, “Advertisement”, or “Sponsored Advertising Content” to clearly indicate commercial intent.
  • The disclosure should be near the ad’s focal point, typically immediately in front or above the ad’s headline.
  • The disclosure should be large and in contrasting colors in order to be clearly visible to consumers.
  • Ensure that disclosures are maintained throughout the advertising network (i.e. when the ad is re-published or shared by others.

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Native Ad Mistake #3: You Fail To Enforce Your Disclosure Throughout Your Advertising Network

The FTC warned advertisers in its Enforcement Policy that everyone who participates directly or indirectly in creating or presenting native ads should ensure they don’t mislead consumers about their commercial nature.

The FTC’s message is clear: any party who assists in creating ad content that may be deceptive is fair game for FTC claims, including ad agencies and operators of affiliate advertising networks.

Conclusion on Native Ads and FTC Enforcement

Clever use of native ads by advertisers may limit consumers’ efforts to skip or block digital ads on the Internet. However, the FTC has made it clear in its 2015 Enforcement Policy regarding native ads that advertisers should not mislead consumers regarding their commercial nature.

In addition, advertisers should take care to make the required disclosures and to enforce their native ad policy throughout their advertising network, or face catastrophic FTC claims for deceptive advertising.

Disclosure: This article is presented for informational purposes only. It’s not intended to be, and you should not construe it, as legal advice.

About the Author: Chip Cooper is co-founder and CEO of FTCGuardian, Inc. and FTCGuardian.com, #1 in FTC Compliance Training. Chip is also a full-time Internet and E-Commerce attorney representing digital agencies and online platform developers regarding FTC compliance. Follow Chip on LinkedIn.

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