United States: Native Advertising: The Old Is New Again

Last Updated: July 7 2015
Article by Terri J. Seligman

"Native advertising" is generally defined as advertiser-sponsored content that is designed for compatibility with the editorial content in which it is placed. There is a diverse array of native advertising formats and techniques, including: (1) custom content (which may be written by the publisher or written by the brand in partnership with the publisher); (2) content that appears in-feed (such as a promoted tweet on Twitter or content in a publisher's "top news" feed); and (3) content that appears in a recommendation "widget" placed on a publisher's site. Numerous other forms of native advertising also exist, and additional forms are certain to be developed in the coming years.

Although there has been a growing focus on native advertising by regulatory and self-regulatory bodies, native advertising is anything but new. Moreover, during the past decades, regulators and self-regulators have brought enforcement actions challenging ads that, in the regulators' and self-regulators' view, were deceptively posing as editorial content (including "advertorials" in magazines and infomercials on television). However, the legal and ethical issues around native advertising have become more complex in recent years because of the many (and varied) ways that advertising can be integrated seamlessly into traditionally editorial spaces in an online and mobile environment—and in light of the wide adoption of native advertising by online publishers.

The implications for determining that any content sponsored by an advertiser may constitute "advertising" are profound. Not only may regulators mandate the format and content of disclosures to ensure that the relationship between sponsored content and an advertiser is transparent, but deeming such content "advertising," even if it does not promote the advertiser's products, services or brand, could require a sponsor to clear all claims and third-party rights in the content.

This article explores the precedent for the current regulatory and self-regulatory focus on native advertising and the most recent actions taken by regulators and self-regulators. It reflects developments in the native advertising arena through April 1, 2015.

WHAT IS ADVERTISING?

Historically, commercial speech has been accorded less protection under the First Amendment than non-commercial speech, and some regulation of commercial speech—including the prohibition of commercial speech that is false or misleading—has been tolerated.1

The implications for determining that any content sponsored by an advertiser may constitute "advertising" are profound.

Drawing the line between commercial and non-commercial speech is not always easy, especially when the speech in question serves multiple purposes, some of them commercial, and others non-commercial. At its core, commercial speech is "speech proposing a commercial transaction."2 Beyond this core, however, "the precise bounds of the category of ... commercial speech" are "subject to doubt, perhaps."3

The California Supreme Court's decision in Nike v. Kasky4 gives insight into how the line may be drawn today between commercial and non-commercial speech. A divided court held that Nike's statements—press releases, letters to newspaper editors, and letters to university officers defending its labor practices—constituted commercial speech, explaining that "categorizing a particular statement as commercial or non-commercial speech requires consideration of three elements: the speaker, the intended audience, and the content of the message." Even if the speaker has a "secondary purpose to influence lenders, investors, or lawmakers," the speech is nevertheless commercial so long as it is "primarily intended to reach consumers and to influence them to buy the speaker's products."

A continuing issue that courts are going to have to face, then, is whether particular content that is generated by, or that is sponsored in some manner by, an advertiser is actually commercial speech, subject to all of the special rules that govern advertising.5

Self-regulatory organizations have weighed in as well. Some recent cases brought by the National Advertising Division of the Better Business Bureau (NAD) have examined this very question. In April 2012, NAD reviewed Chipotle's "Back to the Start" commercial, which appeared on YouTube, online at Chipotle.com, on Chipotle's Facebook page, in movie theaters in advance of feature films, and on television. NAD found that the film, with its closing shots displaying the Chipotle logo and Web site address, clearly constituted "national advertising" as defined by NAD Rule 1.1(A). The film used stop-motion animation to depict a farmer's journey to sustainable farming. NAD requested that the advertiser address concerns that the film communicated the message that all the animals that provide the meat (pork, chicken, and beef) for Chipotle products are raised naturally and humanely. NAD ultimately found that Chipotle could support such claims, but noted that, at the time the commercial aired in August 2011, while 100 percent of the pork served in Chipotle restaurants was "naturally-raised," only about 80 percent of Chipotle restaurants served "naturally-raised" chicken and 86 percent served "naturally-raised" beef. NAD recommended that Chipotle obtain substantiation for all express and implied claims before disseminating its advertising messages in the future.6

NAD found that video clips placed by advertisers on video-sharing Web sites such as YouTube, when controlled or disseminated by the advertiser, may be considered national advertising.

In 2011, Acushnet, Inc., the maker of Titleist golf balls, challenged competitor, Bridgestone Golf, Inc., on its print, Internet, Twitter, and television advertising. Acushnet alleged that Bridgestone's Twitter feed name, "#1BallFitter," constituted a claim that it was the leading golf ball fitter. Bridgestone argued that its name on a social media site did not constitute "advertising." NAD found that claims made by an advertiser in a Twitter feed are clearly "national advertising" as defined by NAD Procedure § 1.1(A) and noted that, because advertisers are responsible for all the reasonable messages conveyed by their claims, it was reasonable to assume that when Twitter users use the "#1BallFitter" to Tweet about or find Tweets about the advertiser's golf ball fittings, they understood the meaning of the "#" symbol to be a "Number 1" claim.7

In another case, based on a challenge by Nestle USA, Inc., marketer of Coffee-Mate creamer, the NAD recommended that LALA-USA, Inc. modify or discontinue certain ad claims for the company's La Crème Real Dairy Creamer made in broadcast, in YouTube videos, on Facebook and Twitter, and in other viral marketing media. Part of the challenge dealt with certain online "vignettes" claiming that non-dairy creamers contain ingredients that also are found in paint, glue, shampoo and shaving cream, and that some non-dairy creamers are flammable and contain trans fat. The vignettes also were linked to YouTube videos in which non-dairy creamers were shown as a replacement for glue or paint.8

In 2008, NAD reviewed a video clip disseminated by Cardo Systems, the manufacturer of wireless Bluetooth technology, as part of a viral marketing campaign on YouTube. The video depicted individuals using their cell phones to pop popcorn kernels in close proximity. NAD requested that the advertiser address concerns that the video clip communicated that cell phones emit heat and/or radiation at a level that allows popcorn kernels to pop. Cardo argued that the video was created to create a "buzz" and to depict something absurd. Cardo also questioned whether the popcorn video was "national advertising" as the term is defined and used in NAD's Policies and Procedures. NAD found that video clips placed by advertisers on video-sharing Web sites such as YouTube, when controlled or disseminated by the advertiser, may be considered national advertising, and that the absence of any mention of a company or product name does not remove a marketing or advertising message from NAD's jurisdiction or absolve an advertiser from the obligation to possess adequate substantiation for any objectively provable claims that are communicated to consumers.9

PRECEDENTS DEALING WITH POTENTIALLY DECEPTIVE FORMATS

Regulators have long decreed that when consumers do not realize they are viewing advertising content—in other words, when the format itself is deceptive—the advertiser has an obligation to clearly and conspicuously disclose to consumers that the content is, in fact, advertising.

Editorial Content

The Federal Trade Commission (FTC) has said that disclosure is required if consumers would be led to believe that an advertising feature in a newspaper is really part of a newspaper's editorial content.10

Infomercials

The FTC has taken action against marketers that have produced program-length infomercials that appear to be independent programming rather than commercial messages. As a result of these actions and consent decrees, most infomercial producers now include prominent disclosures such as "The program you are watching is a paid advertisement" at the beginning and end of each infomercial and before each "call to action."11

Search Engines

The FTC has said that it is potentially a deceptive practice when search engines fail to clearly and conspicuously disclose when search results are "paid placements" or "paid inclusions" rather than objective search results based on relevancy alone. In 2013, the FTC sent a letter to search engine companies, including Google, Bing, Yahoo!, and various shopping, travel and local business search engines, reiterating the importance of distinguishing advertising from natural search results in a clear and prominent manner, and providing new guidance on how search engines can best achieve such clarity.12 Earlier, in 2002, the FTC published a letter advising search engines about the potential for consumers to be deceived, in violation of Section 5 of the FTC Act, unless the search engines distinguished sponsored search results from non-paid results with clear and conspicuous disclosures.13

Product Placements

The FTC refused to issue a rule requiring a disclosure when a product placement appears in television programming. In a February 10, 2005 letter responding to a request from Commercial Alert, the FTC concluded that "it does not appear that failure to identify the placement as advertising violates" the FTC Act.14 The FTC warned, however, that "if, through product placement, false or misleading objective, material claims about a product's attributes are made, the Commission can take action against the advertiser through an enforcement action pursuant to Section 5 of the FTC Act." In addition, the FTC noted that the FTC's existing statutory and regulatory framework provides sufficient tools for challenging instances "in which the line between advertising and programming may be blurred, and consumers would be deceived absent a disclosure clarifying that a communication is an advertisement."

BUZZ MARKETING

Although there is not one commonly understood definition, buzz marketing—sometimes referred to as "guerilla" or "stealth" marketing, when consumers do not realize they are being marketed to—is essentially a marketing practice by which brands try to influence consumers through generating favorable buzz about a product through non-traditional forms of advertising, such as word-of-mouth, media publicity, and viral marketing. In October 2005, Commercial Alert sent a letter requesting that the FTC investigate companies that conduct buzz marketing.15 In December 2006, the FTC said that it did not believe it was necessary to issue guidelines on buzz marketing, but would continue to determine on a case-by-case basis whether law enforcement is appropriate. The FTC did state, however, that "it would appear that the failure to disclose the relationship between the marketer and the consumer would be deceptive unless the relationship were otherwise clear from the context."16

Fake News Sites

The FTC settled with operators of Web sites in a case alleging that the operators deceptively used fake news sites to market acai berry supplements and other weight-loss products that claimed to feature "objective investigative reports," but were, in fact, "fictional." The settlement required the defendants to make it clear when their commercial messages were advertisements rather than objective journalism.17

Fake Review Sites

As part of Operation Clean Turf, New York Attorney General Eric T. Schneiderman conducted a year-long undercover investigation into the reputation management industry, the manipulation of consumer-review Web sites, and the practice of astroturfing, and found that companies had flooded the Internet with fake consumer reviews on Web sites such as Yelp, Google Local, and CitySearch. In the course of the investigation, the Attorney General's office found that many of these companies used techniques to hide their identities, such as creating fake online profiles on consumer review Web sites and paying freelance writers $1 to $10 per review. By producing fake reviews, these companies violated multiple state laws against false advertising and engaged in illegal and deceptive business practices. At the conclusion of the action, Attorney General Schneiderman announced that 19 companies had agreed to cease their practice of writing fake online reviews for businesses and to pay more than $350,000 in penalties.

Broadcasters and the FCC

The Communications Act of 1934 and Federal Communications Commission (FCC) rules generally require that when payment or other consideration has been received or promised to a broadcast licensee or cable operator for the airing of material, including product placements, the licensee or cable operator must inform the audience, at the time the program material is aired, both (a) that such matter is sponsored, paid for, or furnished, either in whole or in part, and (b) by whom or on whose behalf such consideration was supplied.18

Video News Releases

On April 13, 2005, the FCC issued a Public Notice to broadcast licensees and cable operators reminding them of the sponsorship identification requirements applicable to video news releases, and seeking comment on the use of the video news releases in the industry. In its letter, the FCC stated that "whenever broadcast stations and cable operators air VNRs [video news release], licensees and operators generally must clearly disclose to members of their audiences the nature, source and sponsorship of the material that they are viewing."19 In August 2006, the FCC said that it had asked 42 television stations to explain if they had included proper disclosures when airing video news releases.20

One key feature of the FTC Endorsement Guides is the requirement that any connection between an endorser and an advertiser that might materially affect the weight or credibility of the endorsement should be disclosed.

In September 2007, the FCC issued a Notice of Apparent Liability to Comcast Corporation, alleging that Comcast violated the FCC's sponsorship identification rules by airing portions of a video news release for "Nelson's Rescue Sleep," a sleep aid product, during one of its programs, even though Comcast did not receive any consideration for airing the material.21

FTC ENDORSEMENT GUIDES

A backdrop to the FTC's and NAD's inquiries into potentially deceptive formats is the FTC Guides Concerning the Use of Endorsements and Testimonials in Advertising (the FTC Endorsement Guides). One key feature of the FTC Endorsement Guides is the requirement that any connection between an endorser and an advertiser that might materially affect the weight or credibility of the endorsement (in other words, a relationship not reasonably expected by the audience), should be disclosed.22

There are several important cases dealing with material connections disclosures, which are likely to be relevant to the native advertising analysis. These cases are discussed below.

AmeriFreight

In 2015, AmeriFreight, an automobile shipment broker that arranges the shipment of consumers' cars through third-party freight carriers, settled a case with the FTC over AmeriFreight's, and its owner, Marius Lehmann's, allegedly deceptive practice of promoting customer Web site reviews but not disclosing that the authors of such reviews were incentivized by the company. According to the FTC, AmeriFreight specifically: (1) provided consumers with a discount of $50 off the cost of the company's services if consumers agreed to review AmeriFreight online, and increased the cost of services by $50 if consumers did not agree to write a review; (2) provided consumers with "Conditions for receiving a discount on reviews," which said that if they left an online review, they would be automatically entered into a $100 per month "Best Monthly Review Award" contest for the most creative subject title and "informative content"; (3) contacted consumers after their cars had been shipped to remind them of their obligation to complete a review to receive the "online review discount," and qualify for the $100 award; (4) failed to disclose the material connection between the company and its consumer endorsers—namely, that AmeriFreight compensated consumers to post online reviews; and (5) deceptively represented that its favorable reviews were based on the unbiased reviews of customers. The company's Web site advertised that AmeriFreight had "more highly ranked ratings and reviews than any other company in the automotive transportation business" and encouraged consumers to "Google us 'bbb top rated car shipping.' You don't have to believe us, our consumers say it all," but had no information about the compensation structure.

Sony

In 2014, Sony Computer Entertainment America agreed to settle FTC charges that it deceived consumers with false advertising claims about the "game changing" technological features of its PlayStation Vita handheld gaming console during its US launch campaign in late 2011 and early 2012. As part of this investigation, the FTC also brought charges against Sony's advertising agency for not only misleading consumers through ads that it created touting the PS Vita's cross-platform gaming and 3G features, but also alleging that the ad agency misled consumers with deceptive product endorsements for the PS Vita. Specifically, the FTC claimed that the agency used the term "#gamechanger" in ads to direct consumers to online conversations about Sony's console on Twitter. About a month before the gaming console was launched, one of the ad agency's assistant account executives sent a company-wide email to staff asking them to help with the ad campaign by posting comments about the PS Vita on Twitter and using the same "#gamechanger" hashtag, according to the complaint. In response to the company-wide email, various ad agency employees posted positive tweets about the PS Vita to their personal Twitter accounts without disclosing their connection to the ad agency or to Sony, the FTC alleged. The FTC charged that the tweets were misleading, as they did not reflect the views of actual consumers who had used the PS Vita, and because they did not disclose that they were written by employees of the ad agency.

Yahoo

In 2014, the FTC conducted an investigation into whether Yahoo, Inc., violated Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45, in connection with Yahoo employees posting favorable reviews of Yahoo's mobile apps without clearly and conspicuously disclosing their relationships to the company. On at least two occasions, Yahoo employees posted positive reviews of Yahoo apps in the iTunes app store without disclosing their affiliation with Yahoo. Although, when these reviews were posted, Yahoo had a social media policy in place that called for employees to disclose their status when they reviewed Yahoo apps, FTC was concerned that employees were not adequately informed of the policy. In September 2014, the FTC decided to close the investigation without recommending an enforcement action because (1) only a very small number of Yahoo employees reviewed Yahoo apps without disclosing their affiliation; (2) it did not appear that Yahoo encouraged or otherwise incentivized any of these employee to write these app reviews; (3) the apps at issue were free and did not include in-app purchases; (4) Yahoo committed to improve its social media policy and to more actively inform its employees of the policy.23

ADT

In March 2014, the FTC settled a case against home security company, ADT LLC, for use of paid endorsers presented to look like impartial experts. In its complaint, the FTC alleged that ADT paid a total of $300,000 (and gave $4,000 worth of security products) to spokespeople hired by the company to review, demonstrate, and promote ADT's Pulse Home Monitoring System without disclosing that they were paid to do so. According to the FTC's complaint, the ADT "experts" were featured on numerous high-profile TV and radio shows, and across the Internet in articles and blog posts, at ADT's behest. Although ADT allegedly booked the experts' appearances through its public relations firms and booking agents—and even provided the media with B-roll footage and questions for the interviews— few segments mentioned the experts' connection with ADT, a financial relationship, or that these spokespeople were anything other than "impartial, expert review[ers] of the products."24

Cole Haan

In 2014, the FTC conducted an investigation into whether clothing retailer, Cole Haan, violated Section 5 of the FTC Act in connection with its "Wandering Sole Pinterest Contest," which instructed entrants to create Pinterest boards with images of Cole Haan shoes and pictures of their "favorite places to wander" and asked entrants to include the hashtag "#WanderingSole" in their entries for a chance to win a $1,000 shopping spree. The FTC found that the "pins" of Cole Haan products constituted endorsements of the brand, and that the opportunity to win a significant prize was an incentive for entrants that would not reasonably be expected by consumers who saw the pins, thus requiring additional disclosure. The FTC did not believe that the hashtag "#WanderingSole" alone adequately communicated the financial incentive—that is, the material connection—between the contestants and Cole Haan and concluded that Cole Haan's failure to instruct contestants to label their pins and Pinterest boards to make clear they were pinning Cole Haan products in exchange for a contest entry could constitute a violation of Section 5 of the FTC Act. The FTC ultimately decided not to initiate an enforcement action against Cole Haan because (1) the FTC had not previously publically addressed whether entry into a promotion was a form of material connection or whether a pin on Pinterest could constitute an endorsement; (2) the contest ran for a short period of time and did not garner a large number of contestants; and (3) the brand instituted a social media policy in the interim to address the FTC's concerns.

HP Inkology

In 2012, the FTC conducted an investigation into whether Hewlett-Packard and its public relations firm, Porter Novelli, Inc., violated Section 5 of the FTC Act in connection with providing gifts to bloggers who they expected would post blog content related to an HP Inkology marketing campaign. The core gifts at issue consisted of two $50 gift certificates: one for the blogger to keep and the second to give away to blog readers. The FTC was concerned that most of the bloggers failed to disclose that they received the $50 gift cards to keep for posting blog content about HP Inkology. Because a relatively small number of bloggers posted content about HP Inkology after receiving the gifts, a few of those bloggers did adequately disclose their material connections, and both companies revised their written social media policies to adequately address the FTC's concerns, the FTC decided in late September 2012 to not pursue an enforcement action.25

Hyundai

In 2011, the FTC closed its investigation of Hyundai Motor America for alleged violation of Section 5 of the FTC Act in connection with a blogging campaign conducted to spark interest in Hyundai's Super Bowl XLV ads. The inquiry focused on whether bloggers were given gift certificates as an incentive to comment on or post links to the ads, and if they were explicitly told not to disclose this information in violation of the FTC Endorsement Guides. In its closing letter, the FTC stated that a gift to a blogger for posting specific content promoting an advertiser's products or services is likely to constitute such a material connection. The FTC cited several reasons for its decision to end the investigation, including that Hyundai did not appear to know in advance about the use of gift certificates as incentives, a relatively small number of bloggers received the certificates (some of whom disclosed this information), an individual working for the media firm hired to conduct the campaign was responsible for the gift certificates, and the media firm promptly took action to address the issue upon learning of the alleged misconduct.26

Ann Taylor

In April 2010, the FTC investigated Ann Taylor in connection with allegations that it provided gifts to bloggers who the company expected would post blog content about the company's LOFT division. The FTC's inquiry focused on gifts provided during previews of LOFT's Summer 2010 collection. In its letter closing the investigation, the FTC said that it was "concerned that bloggers who attended a preview on January 26, 2010 failed to disclose that they received gifts for posting blog content about this event."27

Reverb Communications

In the first enforcement action brought under the revised Endorsement Guides, Reverb Communications, a marketing and public relations agency hired by videogame developers, settled FTC charges that it engaged in deceptive advertising when its employees posed as ordinary consumers and posted game reviews at the online iTunes store. The FTC alleged that the employees did not disclose their affiliation with Reverb, that Reverb had been hired to promote the game, or that Reverb often received a percentage of product sales. The FTC further alleged that these facts were material to consumers who viewed the endorsements.28

RECENT DEVELOPMENTS ADDRESSING NATIVE ADVERTISING

FTC Native Advertising Workshop

In December 2013, the FTC hosted its much-anticipated workshop, "Blurred Lines: Advertising or Content?" in Washington, DC. The workshop facilitated a discussion among major industry stakeholders on the practice of "native advertising" in order to help the FTC determine whether additional guidance from the FTC is needed.

The workshop provided a forum for robust discussion about native advertising practices, consumer demand for, and understanding of, native advertising, and the need for (and ways of) differentiating native advertising from surrounding editorial content.

Here are a few highlights:

  • What Is Native Advertising? As the Interactive Advertising Bureau noted in its Native Advertising Playbook (released the same week as the FTC workshop), native advertising is hard to define because it takes many different forms. The workshop participants explored the diverse array of native advertising formats and techniques, including custom content, content that appears in-feed and content that appears in a recommendation "widget" placed on a publisher's site. As the workshop made clear, numerous other forms of native advertising exist, and additional forms are certain to be developed in the coming years.
  • Distinguishing Advertising from Editorial Content. There was a wide consensus among participants that "transparency" is key—to protect the publisher's credibility with readers and to avoid potential deception in situations in which consumers may have difficulty discerning that the content in question is a paid advertisement. However, a number of panelists emphasized that certain types of media opportunities that are sometimes labeled as "native advertising" may not constitute advertising at all (and, therefore, may not require any disclosure under Section 5 of the FTC Act)—for example, a camera manufacturer that pays a publisher to create a custom "listicle" about 10 great vacation destinations, where the "listicle" does not make any claims about the manufacturer's products or contain any other content that is likely to influence a purchasing decision. One panelist noted that preliminary research also shows that consumers often don't care if the content they read is sponsored by a brand, raising the question of whether native advertising poses any harm to consumers in the first place.
  • Manner and Method of Disclosure. Participants largely agreed that, in situations where disclosure is called for, a one-size-fits-all approach is not only undesirable, but impossible. The panelists debated the efficacy of labels such as "sponsored by," "presented by," and "sponsored content" and the use of graphic or color differentiation (and other visual cues) to differentiate between sponsored and editorial content. The final panel used a series of hypothetical native ads that illustrated the challenges publishers and advertisers face as they try to figure out effective ways of telling consumers what they need to know.
  • Social Sharing. Most native advertising products allow for social sharing. The participants pondered a scenario where disclosure is made on the original site to which content is posted, but does not travel with the content as it is shared out by consumers or brands. The publishers noted that they have little control over how users interact with their content and should therefore not be held responsible for consumers' actions

As the FTC's Mary Engle noted, the workshop may have "raised more questions" for regulators "than it answered."

NAD Cases Addressing Native Advertising

As of April 2015, NAD has issued only four decisions, discussed below, specifically addressing "native advertising." Although, as noted above, NAD has issued many decisions addressing non-traditional formats for advertising. Other decisions are likely pending.

Qualcomm

As part of its routine monitoring program, NAD reviewed advertisements by Qualcomm, Inc. for the company's Snapdragon Processors, microprocessors specifically designed for use in cell phones and tablets. The advertisements ran with Qualcomm-sponsored articles on a range of technology subjects at Mashable.com. In response to NAD's inquiry, Qualcomm noted that it had entered into a sponsorship agreement with Mashable.com for a series entitled "What's Inside?" The series included 20 articles that explored the technology behind various products. None of the articles addressed mobile phones or devices that contained Snapdragon components. Qualcomm noted that it did not direct the creation or subject matter of the articles and that the articles did not address devices that contain Snapdragon or other Qualcomm products.

NAD, in its decision, noted that the sponsored content was independently created before the sponsorship began and was controlled by the publisher. Qualcomm's sponsorship, NAD noted, was more akin to an advertisement that ran alongside an article for a period of time, rather than content written to further an advertiser's commercial end. Thus, NAD determined that it was appropriate for the advertiser to disclose itself as the series sponsor when its advertisements ran in conjunction with the series, but determined it was not necessary for Qualcomm to continue to identify itself as the sponsor after the sponsorship period ended and its advertisements ceased.29

NAD determined that it was appropriate for the advertiser to disclose itself as the series sponsor when its advertisements ran in conjunction with the series, but determined it was not necessary for Qualcomm to continue to identify itself as the sponsor after the sponsorship period ended and its advertisements ceased.

Shape Magazine

As part of its routine monitoring program, NAD reviewed an article in Shape Magazine, which promoted the benefits of Shape Water Boosters, a Shape-branded product. The article, "Water Works," was preceded by the headline "News," and included information about the importance of hydration and recommended Shape Water Boosters—flavored supplements that are added to water—as a healthful way to stay hydrated. NAD's concern was not the disclosure of a financial connection between the magazine and the products. Rather, NAD noted in its decision, although readers of the magazine may have been aware that the product was related to the magazine, the same readers could reasonably attach different weight to recommendations made in an editorial context than recommendations made in an advertising context. Thus, NAD recommended that the advertiser clearly and conspicuously designate content as advertising when it promotes Shape-branded products.30

Taboola

NAD reviewed a competitive challenge by Congoo, LLC against Taboola, a content recommendation platform. NAD recommended that Taboola modify its native advertising "recommendation widget" to better assure that consumers understand that clicking on certain links provided by Taboola would link them to "sponsored content." Specifically, NAD asked Taboola to increase the visibility of the "Sponsored Content" or "Promoted Content" disclosure in terms of font size, font color, and boldness, as well as its placement on the page.31

American Express OPEN Forum

As part of its routine monitoring program, NAD reviewed links in the Taboola "recommendation widget" that directed readers to articles on the American Express OPEN Forum Web site. NAD was concerned that readers may not understand that the thumbnail image-plus-text ad units labeled "OPEN Forum" in the recommendation widget linked to articles on a site owned and operated by American Express. NAD noted that during the course of the challenge, American Express changed the labels in the widget to say either "American Express OPEN" or "American Express OPEN Forum," a change that NAD deemed appropriate.32

Footnotes

1. See Central Hudson Gas & Elec. Co. v. Public Serv. Comm'n, 447 U.S. 557, 566 (1980) (for commercial speech to come within First Amendment protection "it ... must ... not be misleading"); see also Bolger v. Youngs Drug Products Corp., 463 U.S. 60 (1983).

2. Central Hudson Gas & Elec., 477 U.S. at 562.

3. Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626, 637 (1985).

4. Nike v. Kasky, 27 Cal 4th 939 (2002), cert. granted, 537 U.S. 1099, and cert. dismissed, 539 U.S. 654, (2003).

5. See, e.g., Doctor's Assoc., Inc. v. QIP Holder LLC, 2010 WL 669870 (D. Conn. 2010) (holding that videos posted by consumers to the Quiznos contest Web site constituted commercial advertising); Facenda v. N.F.L. Films, Inc., 488 F. Supp. 2d. 491 (E.D. Pa. 2007), aff'd in part, 2008 WL 4138462 (3d Cir. 2008) (holding that "The Making of Madden NFL '06" documentary, about the making of the Madden NFL 06 video game, is commercial speech); Gorran v. Atkins Nutritionals, Inc., 464 F. Supp. 2d 315 (S.D.N.Y. 2006), aff'd, 2008 WL 2164656 (2d Cir. 2008) (holding that the atkins.com Web site, which includes information about the Atkins diet and an online store, contains both commercial and non-commercial speech); Croton Watch Co. v. National Jeweler Magazine, Inc., 2006 WL 2254818 (S.D.N.Y. 2006), rearg. denied, 2006 WL 2996449 (S.D.N.Y. 2006) (article published in National Jeweler Magazine, based on information supplied by the advertiser, was not commercial speech); Downing v. Abercrombie & Fitch, 265 F.3d 994 (9th Cir. 2001) (unauthorized use of photograph of surfer in a "magalog" actionable); Jordan v. Jewel Food Stores, Inc., [cite], 7th Circuit (2014) (unauthorized use of Michael Jordan's name and jersey number in congratulatory ad, even without product claims, actionable as commercial speech).

6. Chipotle Mexican Grill, NAD Case Report No. 5450 (04/18/12).

7. Bridgestone Golf, Inc., NAD Case Report No. 5357 (08/02/11).

8. LALA-USA, Inc., NAD Case Report No. 5359 (8/11).

9. Cardo Systems, NAD Case Report No. 4934 (11/14/08).

10. See Statement in Regard to Advertisements that Appear in Feature Article Format, 3 Trade Reg. Rep. (CCH) ¶ 7559 (1967); see also Georgetown Publishing House Limited Partnership, 122 F.T. C. 293 (1996).

11. See, e.g., National Media Corp., 116 F.T.C. 549 (1993) (consent order) (infomercials produced to market a diet product, a baldness product, an impotence treatment, and a kitchen mixer that falsely suggested that they were independent television programs); JS&A Group, Inc., 111 F.T.C. 522 (1989) (consent order) (infomercial that falsely suggested that it was an independent investigative program similar to 60 Minutes and that its favorable evaluation of advertiser's products was based on objective product testing).

12. See Letter from Mary K. Engle, Associate Director for Advertising Practices, FTC Division of Advertising Practices, to various search engine companies (June 24, 2013), available at http://www.ftc.gov/opa/2013/06/searchengine.shtm. This letter is not the first time the FTC has examined this issue.

13. See Letter from Heather Hippsley, Acting Assoc. Dir., FTC Division of Advertising Practices, to Gary Ruskin, Executive Director, Commercial Alert (June 27, 2002).

14. See Letter from Mary K. Engle, Assoc. Dir. for Advertising Practices, FTC, to Gary Ruskin, Executive Director, Commercial Alert (Feb. 10, 2005); http://www.commercialalert.org/FTCletter2.10.05.pdf.

15. See Letter from Gary Ruskin, Executive Director, Commercial Alert, to Donald Clark, Secretary, FTC (Oct. 18, 2005).

16. FTC v. Beony Int'l LLC, Mario Milanovic and Cody Adams, Nos. 112 3089 and X110024 (February 2013) (settlement).

17. Id.

18. See 47 U.S.C. §§ 508, 317; 47 C.F.R. §§ 73.1212, 76.1615; 40 Fed. Reg. 41936 (Sept. 9, 1975).

19. See Requirements Applicable to Video News Releases, Public Notice, dated April 13, 2005, at 2.

20. See "FCC Investigates Video News Releases," Advertising Age, August 14, 2006.

21. See In the Matter of Comcast Corporation (Sept. 21, 2007).

22. See 16 C.F.R. § 255.5; see also, e.g., New York v. Lifestyle Lift (2009) (settling allegations that Lifestyle Lift employees posed as consumers and posted positive reviews about the company online) (consent order); Connecticut v. Sony Pictures Entertainment Inc. (2002) (settling allegations that Sony used Sony employees in its advertising to praise its movies, without disclosing that they were employees); see also, e.g., Ecommerce Solutions, Inc., ERSP Case No. 222 (08/17/09) (recommending that product review Web site controlled by the advertiser disclose the connection between the Web site and the advertiser's product); Urban Nutrition, ERSP Case No. 219 (08/11/09) (same); Herbal Groups, Inc., NAD Case No. 5005R (07/20/09) (noting that advertiser's blog, which was linked to its Web site, was not clearly labeled as marketing).

23. Yahoo, Inc., Yahoo App Reviews, FTC File No. 142-3092, Letter from Mary K. Engle, Associate Director, Division of Advertising Practices, Sept. 3, 2014.

24. In the Matter of ADT, LLC, FTC Matter/File Number 122 3121, March 6, 2014.

25. HP Inkology, FTC. File No. 122-3087, Letter from Mary K. Engle, Associate Director, Division of Advertising Practices, Sept. 27, 2012.

26. See In re Hyundai Motor America, FTC File No. 112- 3110 (Nov. 16, 2011) (closing letter); see also "Using social media in your marketing? Staff closing letter is worth a read," FTC, Dec. 11, 2011; http://business.ftc.gov/blog/2011/12/using-social-media-your-marketing-staff-closing-letter-worth-read.

27. See Letter from Mary K. Engle, Associate Director, Division of Advertising Practices, dated April 20, 2010.

28. In the Matter of Reverb Communications (2010) (consent order).

29. NAD/CARU Case Reports, Case #5633 (September 2013).

30. NAD/CARU Case Reports, Case #5665 (December 2013).

31. NAD/CARU Case Reports, Case #5708 (May 2014).

32. NAD/CARU Case Reports, Case #5760 (September 2014).


Originally published in The Computer & Internet Lawyer, July 2015, Volume 32, Number 7, pages 1–9, by Wolters Kluwer, New York, NY,


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