Commentary Addressing Risks and Opportunities Through the Lifecycle of Data, Technology, Advertising and Innovation

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<em>Editor’s Note: This blog post was originally published on September 8, 2014, courtesy of</em><i> </i><em><a href="http://blogs.imediaconnection.com/blog/2013/09/11/legal-concepts-every-social-media-marketer-should-know-part-iii-use-of-third-party-images-graphics-and-content/">iMedia Connection’s Blog</a>.</em><i> </i><em>It is repurposed with permission.</em>

<i>In this five part series, originally published in the Summer 2014 edition of the Media Law Resource Center Bulletin,<b>[1]</b> we take an in-depth look at the native advertising phenomenon and the legal issues surrounding the practice.  After canvassing the many faces of native advertising and the applicable law, the series ultimately examines the pervasive assumption that all native advertising is, and should be regulated as, “commercial speech.”  This assumption presumes that all native advertising is equal under the eyes of the law, and we come to the conclusion that it probably isn’t. Native advertising that is closer to pure content than pure commercial speech may deserve greater or even full First Amendment protection, which would carry significant implications for government regulation<b>[2]</b>. </i>

<a href="#Part1">Part 1: Introduction to Native Advertising</a>

<i><span style="text-decoration: underline">Part 2</span></i><i> below examines the genesis of native advertising and how existing FTC regulations may be applicable to the practice today. </i>
<p style="text-align: center"><strong>— PART II —</strong></p>

<h2>The Early Days of Native: Advertorials, Infomercials and Hybrid Ads</h2>
With all the hype surrounding native, you would think it is a new development. However, native advertising has actually been around in one form or another for over a century.[3] Some have cited so-called “reading notices” in the late 19<sup>th</sup> century as the genesis of sponsored content.[4] In this pre-FTC era, these reading notices were essentially paid news stories mentioning a brand or company.  These practices were then followed by what some would say was the first golden age of native if you will, the early days of radio. Programs like the Texaco Star Theater,[5] sponsored by the Texaco Oil Company (now Chevron), presented sponsored content as long-form radio dramas. A generation later, with more and more newspapers and magazines relying on ads to generate revenue, the FTC questioned whether restaurant ads in the format of news articles that failed to identify themselves as ads to consumers required disclosure.[6] A generation after that brought the TV infomercials and advertorials that plagued the late night TV landscape of the 80’s and 90’s. Many view native today as simply the next evolution of print and television ad practices often dubbed as “hybrid advertising” by regulators.

The comingling of editorial and advertising content in these hybrid television advertisements (e.g. long-form infomercials) has long been subject to FTC regulation. The first and most famous of these old hybrid TV ads was the infamous FTC BluBlocker infomercial case from the 1980’s.[7] BluBlocker sunglasses produced a 30 minute TV ad called the “Consumer Challenge.”[8] The show featured a fake news team, “spontaneous” man-on-the-street trials of BluBlocker sunglasses, and an “independent” expert review of the product.[9] The FTC brought suit because the company misrepresented the BluBlocker TV spot as solely editorial content and hid the fact that the manufacturers of BluBlockers had produced the copy.[10] BluBlocker has since recovered and turned to slightly more credible endorsements and product placements:

[caption id="attachment_3428" align="aligncenter" width="300"]<a href="http://dataprivacymonitor.bakerhostetlerblogs.com/wp-content/uploads/sites/5/2014/09/Hangover.jpg"><img class="size-medium wp-image-3428" alt="Click on Image for Larger View" src="https://www.dataprivacymonitor.com/wp-content/uploads/sites/5/2014/09/Hangover-300x225.jpg" width="300" height="225" /></a> Click on Image for Larger View[/caption]

Native advertising has also been around for some time in the online advertising space.  Some of the most commonly encountered examples of native advertising are the sponsored search results displayed by search engines.  The practice of placing paid search results alongside organic search results has been in place since the 1990’s and is commonly considered native advertising (IAB refers to this as “Paid Search Units”[11]).
<h2>The Current FTC Regulatory Landscape</h2>
As a result of the recent rise of native advertising, there has been a very vocal discussion about the potential need for additional regulation.  As mentioned above, the FTC held a day long Native Workshop last December with panel discussions including regulators, publishers, advertisers, academics and consumer advocates.[12] The FTC Workshop covered a wide array of native issues, such as best practices, adequate disclosures, and sharing of native across social media.[13] At various points, the FTC panel participants raised the question of whether additional guidelines or regulations specific to native would be necessary.[14] The FTC is not the only one raising this question; some self-regulatory organizations have organized committees to craft industry native guidelines.[15] And as discussed above, the IAB has released its own “Playbook” on native advertising.[16]

But as the FTC panelists were quick to point out at the Native Workshop, and as these authors have written before,[17] the existing regulatory framework governs many if not most aspects of native advertising.  The core of advertising law basically requires marketers to tell the truth and not to be sneaky—this principle applies equally to digital marketers just as it does with off-line marketers.

All advertising law begins and ends with these fourteen words of Section 5 of the FTC Act—“unfair or deceptive acts or practices in or affecting commerce are hereby declared unlawful.”[18] From this broad language, at least four core principles flow that form the foundation of advertising law:
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	<li>Advertising must be truthful and not misleading;</li>
	<li>Advertising must substantiate any express or implied claims;</li>
	<li>Advertising cannot be unfair or deceptive; and</li>
	<li>Any disclosures necessary to make an ad accurate must be clear and conspicuous.</li>
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The FTC has released specific guidance and reports clarifying how these four basic tenets apply in the online world and—as the FTC panelists made plain at the workshop—to native advertising:
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	<li>The FTC’s <span style="text-decoration: underline">Dot Com Disclosures: Information about Online Advertising</span>, revised in March of 2013, provide guidance on digital advertising campaigns.[19] The Dot Com Disclosures establish the principle that online advertising needs to be disclosed as such to the consumer.  The guidelines, among other things, encourage advertisers to place disclosures as close as possible to the relevant claim and that disclosures need to fit into the context in which the advertising appears, e.g., in Tweets or on mobile screens. [20]</li>
	<li>The FTC’s <span style="text-decoration: underline">Guidance on Online Endorsements</span> provides relevant guideposts on certain forms of native advertising.[21] The online endorsement guidelines make clear that the relationship between advertisers and content creators, like bloggers, should be clearly and conspicuously disclosed.[22] Any “material connection”, e.g., free products or money provided to the author, must be disclosed. This is particularly relevant in the context of paid endorsements on social media.</li>
	<li>The FTC’s <span style="text-decoration: underline">Guidance on Sponsored Search Engine Results</span> offers guidance for native advertising as well, particularly relevant to Paid Search Units.[23]In the search engine guidelines, the FTC recommends that any sponsored search results should be clearly set apart from naturally appearing search results. The FTC recommends such methods as shading and borders around the sponsored results to set them apart.</li>
</ul>
Finally, it is worth mentioning that industry self-regulatory organizations have also begun to address native advertising. As referenced above, the IAB recently promulgated its own “Native Advertising Playbook.” In addition, in September 2013 the American Society of Magazine Editors (ASME) amended its Guidelines for Editors and Publishers to address native advertising.[24] The amendments reflected the principle that native advertising “should include a prominent, unambiguous statement that the content has been created by a marketer and that the marketer has paid for its publication.”[25] Many publishers have their own internal publishing codes of conduct and a few have implemented their own native advertising rules. For instance, The Atlantic recently enacted native-specific guidelines providing a two-stage review process, conspicuous “sponsored content” labels, and monitoring of user comments.[26]

On the self-enforcement side, in October 2013 the NAD issued its first decision addressing native advertising practices, finding that Qualcomm was not obligated to continually identify itself as the author of several sponsored content articles after expiration of an advertising agreement because Qualcomm did not author the content.[27] In another recent decision, the NAD concluded that SHAPE Magazine’s plug of its “SHAPE Water Booster” products in a news article about the benefits of hydration failed to notify consumers the advertising nature of what appeared to be editorial content.[28]
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[1] The MLRC has graciously allowed republication of this article. For more information on the MLRC check out www.mlrc.org.

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[2] Disclaimer – the MLRC Journal is a legal journal. With that in mind, we give the caveat up front that our writing style here is going to be a little less loose and little more dense that our typical blog.

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[3]<i> See, e.g. </i><i>FTC v. Muenzen Speciality Co.,</i> 1 F.T.C. 30 (1917); <i>see also</i> FTC Workshop at 11.

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[4] Jack Shafer, <i>What’s Worse than Sponsored Content? The FTC Regulating It</i>, Dec. 6, 2013, Reuters, available at <a href="http://blogs.reuters.com/jackshafer/2013/12/06/whats-worse-than-sponsored-content-the-ftc-regulating-it/">http://blogs.reuters.com/jackshafer/2013/12/06/whats-worse-than-sponsored-content-the-ftc-regulating-it/</a>.

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[5] For a description of the Texaco Star Theater, <i>see </i><a href="http://en.wikipedia.org/wiki/Texaco_Star_Theater"><i>http://en.wikipedia.org/wiki/Texaco_Star_Theater</i></a><i>. </i>

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[6] FTC Workshop at 13-14.

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[7]<i> See</i> Charles Storch, <i>FTC Files 1<sup>st</sup> Complaint Over Extended TV Ads</i>, Nov. 2, 1988, available at <a href="http://articles.chicagotribune.com/1988-11-02/business/8802120522_1_ftc-complaint-federal-trade-commission-consent-agBluBreement">http://articles.chicagotribune.com/1988-11-02/business/8802120522_1_ftc-complaint-federal-trade-commission-consent-agBluBreement</a&gt;; <i>In the Matter of JS&amp;A Group, Inc</i>, 111 F.T.C. 522 (1989).

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[8]<i> n the Matter of JS&amp;A Group, Inc</i>, 111 F.T.C. 522 (1989).

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[9]<i> Id.</i>

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[10]<i> Id. </i>

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[11] IAB Playbook, <i>supra</i> note 4.

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[12] Blurred Lines: Advertising or Content? An FTC Workshop on Native Advertising, Federal Trade Commission, Dec. 4, 2013, <a href="http://www.ftc.gov/news-events/events-calendar/2013/12/blurred-lines-advertising-or-content-ftc-workshop-native">http://www.ftc.gov/news-events/events-calendar/2013/12/blurred-lines-advertising-or-content-ftc-workshop-native</a>.

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[13] Sophia Code, <i>FTC Explores Native Advertising, </i>Newspaper Association of America, Dec. 17, 2013, available at <a href="http://www.naa.org/News-and-Media/Blog/FTC-Explores-Native-Advertising.aspx">http://www.naa.org/News-and-Media/Blog/FTC-Explores-Native-Advertising.aspx</a>.

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[14]<i> See, e.g.</i>, FTC Workshop at 263, 300.

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[15] IAB, for example, formed a “Native Advertising Taskforce”, <i>see </i><a href="http://www.iab.net/nativeadvertising">http://www.iab.net/nativeadvertising</a>.<i> </i>

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[16] IAB Playbook, <i>supra</i> note 4.

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[17] Bohorquez &amp; Pate, <i>A Guide to Native Advertising’s Legal Issues</i>, iMediaConnection, Dec. 2, 2013, <a href="http://www.imediaconnection.com/content/35490.asp#singleview">http://www.imediaconnection.com/content/35490.asp#singleview</a>.

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[18]<i> See </i>15 U.S.C. § 45.  It is important to note that this language gives the FTC’s authority over two broad categories of acts or practices—(1) unfair acts or practices and (2) deceptive acts or practices. “Unfair acts or practices” are defined as those that "cause[] or [are] likely to cause substantial injury to consumers which [are] not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition." 15 U.S.C. § 45(n).  Advertising is a “deceptive” act or practice if, (1) there is a representation or omission of information that is likely to mislead the consumer acting reasonably under the circumstances; and (2) the representation or omission is ‘material’ – defined as “likely to affect the consumer’s choice or conduct regarding a product.” FTC Deception Policy Statement, available at <a href="http://www.ftc.gov/ftc-policy-statement-on-deception">http://www.ftc.gov/ftc-policy-statement-on-deception</a>.

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[19] Dot Com Disclosures, FTC, Mar. 12, 2013, available at <a href="http://www.ftc.gov/opa/2013/03/dotcom.shtm">http://www.ftc.gov/opa/2013/03/dotcom.shtm</a>.

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[20] See Fernando Bohorquez Jr., <i>New FTC Dot-Com Rules Offer Digital Ad Guidelines for the Facebook/Twitter Age</i>, Broadcasting &amp; Cable, May 1, 2013, available at <a href="http://www.broadcastingcable.com/news/news-articles/new-ftc-dot-com-rules-offer-digital-ad-guidelines-facebooktwitter-age/114423">http://www.broadcastingcable.com/news/news-articles/new-ftc-dot-com-rules-offer-digital-ad-guidelines-facebooktwitter-age/114423</a>.

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[21] Guides Concerning Use of Endorsements and Testimonials in Advertising, 16 C.F.R. 255, available at <a href="http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&amp;SID=4bd1a26eeca72bcf42950c000e22cf5b&amp;rgn=div5&amp;view=text&amp;node=16:1.0.1.2.22&amp;idno=16">http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&amp;SID=4bd1a26eeca72bcf42950c000e22cf5b&amp;rgn=div5&amp;view=text&amp;node=16:1.0.1.2.22&amp;idno=16</a>.

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[22]<i> Id.</i>

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[23] FTC Staff to Search Engines: Differentiate Ads from Natural Results, FTC, June 25, 2013, available at <a href="http://business.ftc.gov/blog/2013/06/ftc-staff-search-engines-differentiate-ads-natural-results">http://business.ftc.gov/blog/2013/06/ftc-staff-search-engines-differentiate-ads-natural-results</a>.

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[24] ASME Statement on Native Advertising, American Society of Magazine Editors, Sep. 2013, available at <a href="http://www.magazine.org/asme/editorial-guidelines/asme-statement-native-advertising">http://www.magazine.org/asme/editorial-guidelines/asme-statement-native-advertising</a>.

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[25]<i> Id.</i>

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[26] The Atlantic Advertising Guidelines, available
<a href="http://cdn.theatlantic.com/static/front/docs/ads/TheAtlanticAdvertisingGuidelines.pdf">http://cdn.theatlantic.com/static/front/docs/ads/TheAtlanticAdvertisingGuidelines.pdf</a>.

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[27]<i> See</i> Allison Grande, <i>Qualcomm Cleared in Self-Regulator’s 1st Native Ad Probe</i>, Oct. 3, 2013, available at<i> </i><a href="http://www.law360.com/articles/477916/qualcomm-cleared-in-self-regulator-s-1st-native-ad-probe">http://www.law360.com/articles/477916/qualcomm-cleared-in-self-regulator-s-1st-native-ad-probe</a>.

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[28]<i> In re American Media, Inc. (Shape Water Booster)</i>, Case No. 5665, Dec. 18, 2013, National Advertising Division. According to the NAD, the article about hydration, “<i>Water Works</i>”, was titled and formatted to appear as plain editorial content. And even though consumers might be on alert of the obvious connection between SHAPE Magazine and SHAPE-branded products, “consumers may reasonably believe that editorial recommendations in SHAPE magazine are independent of the influence of a sponsoring advertiser.” <i>Id. </i>at 4. Accordingly, the NAD recommended that SHAPE clearly and conspicuously designate content as advertising when it advertises SHAPE products going forward. <i>Id.</i>

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All Native Advertising is Not Equal: Why that Matters Under the First Amendment and Why it Should Matter to the FTC – Part II