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Two years after holding a workshop on “native advertising,” the Federal Trade Commission (FTC or Commission) has issued an enforcement policy statement and guidance for businesses on how to utilize native or sponsored content without crossing the line into deceptive advertising.

With these new materials, the FTC maintains that not all native advertising is necessarily deceptive, but that this type of content should not be “indistinguishable from news, feature articles, product reviews, editorial, entertainment and other regular content.”  Put another way, the Commission is seeking to ensure that practices do not mask the signals consumers customarily have relied upon to recognize an advertising or promotional message.

What exactly did the FTC release?

There are two distinct document released by the Commission.  First, the Enforcement Policy Statement on Deceptively Formatted Advertisements is essentially a summary of the underlying principles the Commission has used in enforcement actions, advisory opinions and other guidance over several decades addressing various forms of deceptively formatted advertising.  This document establishes very clearly the Commission’s policy on deceptive advertising, and it chronicles the long history of cases over the years where they have determined advertising was provided in deceptive formats, misrepresented source or nature, and provided misleading door openers or deceptive endorsements.  The message from Commission in this document is as follows:

Regardless of an ad’s format or medium of dissemination, certain principles undergird the Commission’s deceptive format policy.  Deception occurs when an advertisement misleads reasonable consumers as to its true nature or source, including that a party other than the sponsoring advertiser is the source of an advertising or promotional message, and such misleading representation is material.  In this regard, a misleading representation is material if it is likely to affect consumers’ choices or conduct regarding the advertised product or the advertisement, such as by leading consumers to give greater credence to advertising claims or to interact with advertising with which they otherwise would not have interacted.  Such misleadingly formatted advertisements are deceptive even if the product claims communicated are truthful and non-misleading.

Of course, determining what is or is not deceptive is the tricky part, as we’ve been discussing for the past couple years.   The second and more important document for publishers is, Native Advertising: A Guide for Businesses. This set of practical guidance seeks to identify which practices are acceptable, or “clear and prominent,” and to differentiate from those that are not.  The guidance contains many examples regarding when businesses should disclose that content is “native advertising,” and how to go about making clear and prominent disclosures.  Boiling down this standard, the Commission provides detailed recommendations about the “proximity and placement” of disclosures so that consumers will notice them and easily identify the content to which the disclosure applies.  For instance, the FTC has suggested that placement of disclosures “in front of or above the headline,” or in the case of an image or a graphic, that “disclosure might need to appear directly on the focal point itself.”

The Commission also clearly states that a single disclosure may not be sufficient where there are: multiple ads in a grouping (depending on the formatting if the advertisements are mixed with non-sponsored content); that disclosures should remain when native ads are republished by others and remain after consumers arrive or click on the ad; and that multimedia ads should be accompanied by a disclosure before consumers receive the advertising message to which it relates.

Perhaps most significantly, the guidance also addresses the language which should be used in disclosures, stating that these should be in “plain language that is straightforward as possible,” and “the same language as the predominant language in which the ad is presented.”  It identifies specific terms that are likely to be understood, such as:  “ad,” “advertisement,” “paid advertisement,” “sponsored advertising content,” or some variation thereof.  It also identifies that the following terms should not be used:  “promoted” or “promoted stories,” which are ambiguous and potentially misleading.  Also, terms such as “presented by [x}, “brought to you by [x],” “promoted by [x],” or “sponsored by [x]” may reasonably be interpreted by consumers that a sponsoring advertiser funded or “underwrote” but did not create or influence the content.  This is important in cases where editorial staff may work directly with advertisers or sponsors.  In those cases, it’s not unlikely that the FTC could find these labels misleading.

With respect to the application of these guidelines, the Commission made it a point to specifically state that they don’t just apply to advertisers.  If you’re a publisher, ad agency or operator of affiliate advertising networks, or “everyone who participates directly or indirectly in creating or presenting native ads should make sure that ads don’t mislead consumers about their commercial nature,” you have a responsibility to honor these guidelines.

What does this change, and what does it mean for businesses?

These documents have been out for less than 24 hours, so they’re worth a thorough review and discussion among publishers, advertisers and affected parties.   As we highlighted in our summary of the December 2011 workshop, the FTC has been enforcing deceptive advertising for decades, they were  sure to follow with specific guidance on “native” at some point, and they don’t need any new authority to crack-down on new and innovative forms of native advertising—rather  they have all of the authority they need under Section 5 of the FTC Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce.”

What the Commission did yesterday was to (1) signal very clearly they have the authority and a long history of enforcement in this area, and (2) to establish some fairly precise guidance around adequate disclosures.  There are definitely some gray areas, as is usually the case with respected to complex practices, such as those where there is close collaboration between editorial staff and sponsors in the production of content, depending on how this may be placed.

After a workshop, two years of deliberation, and this set of documents, publishers and other businesses are officially on notice that the FTC is likely to ramp-up enforcement in this area.  So, a review of your current practices with respect to native advertising and sponsored content would be an excellent New Year’s resolution!