In December 2015, the US Federal Trade Commission (the FTC) released Native Advertising: A Guide for Businesses (Guide for Businesses) and its Enforcement Policy Statement on Deceptively Formatted Advertisements (Enforcement Policy). Collectively, these documents provide both guidance for businesses and insight as to how the FTC will enforce federal misleading advertising laws in connection with native advertising marketing campaigns.
Canadian businesses who engage in native advertising activities should consider these documents for two reasons (i) given the similarities between US and Canadian misleading advertising laws, they are likely suggestive of the enforcement approach the Canadian Competition Bureau will take in this area, and (ii) they will apply to Canadian companies making representations to US consumers.
Native advertising in an increasingly popular marketing technique and typically takes the form of either an article or video created by an advertiser to promote a product, that mimics the form and style of the platform on which it is run (for example, appearing to be a staff editorial or a news article). The concern from a competition law standpoint when it comes to native advertising is that consumers may be confused as to whether information is non-commercial versus paid promotional content.
Overview of the FTC Guidelines
Just as in Canada, businesses are prohibited in the United States from engaging in deceptive or unfair practices. A material misrepresentation can affect a consumer’s choice when purchasing a product or a service. When looking at whether an advertisement is misleading, the FTC evaluates the advertisement’s overall net impression – similar to Canada’s “general impression” test.
Native advertising can be misleading when it creates the impression that the promotional message is independent, impartial, or from a source other than the sponsoring advertiser. Where this is the case, deception occurs regardless of whether the claims are true.
The Enforcement Policy reiterates that the same truth-in-advertising principles employed in the past continue to apply equally to conventional, digital or future forms of media. In the case of native advertising, the FTC will evaluate the entire advertisement, with specific attention to its overall appearance, the similarity of its written, spoken, or visual style to non-promotional content, and the degree to which consumers can distinguish it from other content on the same platform.
Some of the key takeaways from the Guide and Enforcement Policy include:
1. Disclosures should be inserted where applicable. A disclosure may be necessary to inform consumers of the advertisement’s commercial nature, in the form of text labels, audio disclosures, or visual cues.
• Disclosures must be prominent and unambiguous, leaving consumers with an accurate impression. The effectiveness of a disclosure will be evaluated from the perspective of a reasonable consumer.
• Disclosures may be required both on the publisher site and the click-or-tap-into page. Disclosures should also remain when native advertisements are republished by others.
• Disclosure of the advertisement’s commercial nature should exist in close proximity or directly on the ad’s focal point (e.g., story headlines, placed on the thumbnail image).
• Disclosures should be made using large, simple, and visible text labels in an easily discernible font size and colour. Similarly, audio disclosures should be made at an appropriate volume, cadence, and speed, while visual disclosures should be viewable on screen long enough to be registered by ordinary consumers.
2. Liability can extend beyond advertisers. The Guide clearly states that the FTC’s position is that the Enforcement Policy, in suitable circumstances, may result in action against third party creators of deceptive advertising content, including advertising agencies and operators of affiliate advertising networks.
Enforcement of both the Canadian and US misleading advertising laws continues to be an enforcement priority. The Guide and Enforcement Policy emphasize this point and clearly indicate that regulators are ensuring that their enforcement approach evolves with both new technologies and new marketing strategies. Given the significant consequences under both US and Canadian laws for engaging in misleading advertising, which include enforcement action, significant fines, private damages claims, as well as significant reputational harm, companies who wish to engage in native advertising campaigns should ensure that they avoid the potential associated compliance risks.
While the Bureau has yet to publish a specific guidance on native advertising, we anticipate that it will take a similar approach to that outlined by the FTC given the similarity between Canadian and US misleading advertising laws.
The contribution of Robyn Blumberg, articling student, in the preparation of this article are gratefully acknowledged.