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Today’s column is written by Matthew Savare, a partner at Lowenstein Sandler LLP.
Nearly three months after the FTC issued its long-awaited native advertising guidelines, the commission on Tuesday settled a complaint against Lord & Taylor regarding the retailer’s alleged failure to disclose payment for a magazine article and social influencer posts on Instagram.
This is the first FTC action relating to native advertising since the December issuance of its Enforcement Policy Statement on Deceptively Formatted Advertisements [PDF]. This indicates the FTC’s desire to rein in what it perceives to be unfair and deceptive business practices.
The Lord & Taylor case stems from a March 2015 social media campaign. The retailer paid and gifted merchandise to 50 fashion influencers, who were contracted to post and tag Instagram photos of themselves wearing the clothing while using Lord & Taylor-designated hashtags. The contracts did not require the influencers to disclose compensation, and the influencers did not reveal the payments in their postings.
The retailer also paid for, reviewed and pre-approved strategic placement of Lord & Taylor-edited Instagram posts and an article in an online fashion magazine. Neither the article nor the posts disclosed that they had been sponsored by Lord & Taylor, which, according to the FTC, amounted to a deceptive business practice.
The FTC has acted before with respect to advertisers’ failure to disclose paid endorsements and testimonials. But with the new guidelines less than three months old, this week’s move by the FTC should have advertisers and publishers taking notice.
Anyone who’s read online news in recent years has seen the proliferation of native advertising, the practice of weaving advertisements into a publisher’s editorial content in organic ways. The guidelines, which are only advisory in nature, outlined the principles to determine whether a native advertisement would be deemed deceptive.
Many of them reiterate what the FTC has said previously on other fronts: Required disclosures must be clear and conspicuous. In determining whether an advertisement is recognizable to consumers as such, advertisers must consider the ad and its context as a whole. As a general rule, advertisements must be truthful, transparent and clearly identified.
The FTC issued three key principles in the December guidelines specific to native advertising. First, whether consumers are likely to understand that a native ad is advertising depends upon the circumstances in which native ads are presented, including consumers’ ordinary expectations based on their prior experience with the media in which the ads appear, as well as how they consume content in that media.
Second, disclosures should be placed prominently on the main page of a publisher’s site where consumers will notice them and easily identify the content to which the disclosure applies. They should stand out so consumers can easily read or hear them, and they should be understandable. For example, there should be no industry jargon or unfamiliar icons or abbreviations.
Finally, depending on the content and context, the FTC discourages the following forms of disclosure due to the possibility that consumers may ascribe multiple interpretations to them: “Presented by [X],” “Brought to You by [X],” “Promoted by [X],” and “Sponsored by [X].”
The FTC typically holds advertisers ultimately responsible for advertisements masquerading as editorial content. However, the new native advertising guidelines make it clear that publishers also bear some responsibility for compliance, so it’s important for them to understand their role in evaluating native advertising and providing for any required disclosures.
Perhaps most concerning given this week’s news, it does not appear that many publishers or advertisers have made any meaningful changes to their disclosure practices since the issuance of the guidelines. Simply search any online news site or magazine and you will see the typical “Sponsored by brand X” tagline, which the FTC generally regards as an insufficient disclosure.
In light of the Lord & Taylor settlement, it is time for all parties involved in the online publishing ecosystem to re-examine their disclosure policies with respect to native advertising, endorsements and testimonials.
John Wintermute, an associate at Lowenstein Sandler LLP, contributed to this column.