March 30, 2016
The use of native advertising–paid advertising that is integrated into the media in which it appears–is exploding. Native advertisements commonly appear online, but can be found in almost any form of communication, including radio, television, and print, among other media. Native advertising takes many forms, and examples include:
A distinguishing feature of native advertising is that the content in the advertisement is often related to the surrounding non-sponsored content. One benefit of native advertising for publishers is that it can provide viewers with a less disruptive user experience, encouraging greater user engagement with the advertisement.
Advertisers’ and publishers’ use of native advertising is growing rapidly. Media companies including The New York Times, The Atlantic, Buzzfeed, and The Wall Street Journal have integrated some form of native advertising into their content. A 2013 survey estimated that 73% of online publishers offer some form of native advertising. Annual spending on native advertising has risen from $4.7 billion in 2013 to an estimated $7.9 billion in 2015, and is forecasted to balloon to $21 billion by 2018.
One area of particularly notable growth is paid content created and posted by online "influencers." Influencers are individuals with large web or social media audiences whose opinions and behavior may affect their audiences’ purchasing decisions–e.g., a fashionista with millions, or even tens-of-millions, of Instagram followers who regularly posts pictures of her outfits. Such individuals may monetize their online or social media audience by accepting payments from advertisers to display or reference the advertisers’ goods or services on the individual’s website or social media postings. Such arrangements are attractive to advertisers in part because studies have shown that social recommendations influence customer purchases. A 2015 online survey estimated that 59% of marketers planned to boost their social media influencer marketing budgets over the coming year and described "influencer marketing" as the "fastest growing online customer acquisition channel."
Section 5 of the FTC Act prohibits "unfair or deceptive acts or practices in or affecting commerce," and grants the FTC the authority to prevent parties from using deceptive practices. Pursuant to this authority, the FTC has long held that advertising that consumers cannot identify as advertising is deceptive when it misleads consumers into believing it is independent, impartial, or not from the sponsoring advertiser itself. As far back as 1968, the FTC issued an advisory opinion finding it deceptive to publish an advertisement in the format of a news article without adequately disclosing it is an advertisement. Because native advertising can blur traditional barriers between content and advertising, the FTC has dedicated significant resources to establishing–and policing–guidelines relating to native advertising.
In December 2015, the agency issued an Enforcement Policy Statement Addressing "Native" Advertising and Deceptively Formatted Advertisements ("Native Advertising Guides") setting forth the "rules of the road" for native advertisers and publishers. The Native Advertising Guides incorporate the FTC Staff’s analysis of information collected at a workshop held in December 2013 titled "Blurred Lines: Advertisement or Editorial?" and builds upon past FTC guidance in related areas, including guides released in 2009 directing nontraditional advertisers (e.g., talk shows, comment forums, blogs, and social media) to disclose when endorsements were part of paid advertisements and 2013 guidance addressing the search engine industry on the need to adequately distinguish advertisements or sponsored search results and organically produced search results.
The FTC’s Native Advertising Guides came on the heels of several enforcement actions, and generally reflect the policies underlying those actions. In August 2010, the FTC settled charges with Reverb Communications, a public relations firm, regarding allegations that the firm’s employees posted game reviews on an online media store without disclosing that the firm was hired to promote the game and often received a portion of the sales. Soon after in March 2011, Legacy Learning Systems, a company that sells guitar lessons on DVD, agreed to pay $250,000 to settle FTC charges that its online affiliate advertising campaign deceived consumers. Allegedly, the company recruited bloggers and other content providers to endorse its DVDs and place hyperlinks to the Legacy website near those endorsements in exchange for a sales commission, but did not clearly disclose the affiliate compensation arrangement. In November 2014, the FTC announced a settlement with Deutsch LA, an advertising agency representing a gaming company, resolving allegations that the agency instructed its employees to generate awareness and excitement on Twitter for the launch of a new gaming system without instructing the employees to disclose their connection to the agency and its client. In February 2015, the FTC announced a settlement with AmeriFreight, an automobile shipment broker that allegedly touted its number of favorable reviews without disclosing that it offered cash discounts and other financial incentives to users who wrote reviews. And in September 2015, Machinima, Inc., a California-based online entertainment network, entered into a settlement with the FTC to resolve allegations that Machinima paid influencers to post YouTube videos endorsing Microsoft’s Xbox One system and several games without adequately disclosing that they were being paid for seemingly objective opinions.
Earlier this month, the agency announced its first enforcement action since promulgating the Native Advertising Guides. The action, against retailer Lord & Taylor, included allegations that Lord & Taylor deceived consumers by not adequately disclosing that its native advertisements were paid promotions. The FTC alleged that the company paid for, reviewed, and pre-approved a "seemingly objective" article in an online publication without disclosing or otherwise making clear the commercial arrangement. In addition, the FTC alleged that Lord & Taylor paid over 50 fashion influencers to post Instagram pictures featuring a Lord & Taylor dress without ensuring that the influencers adequately disclosed that the endorsement was paid for. The posts included the "@lordandtaylor" Instagram designation and the "#DesignLab" campaign hashtag, but failed to include any disclosure "that the influencer had received the dress for free, that she had been compensated for the post, or that the post was a part of a Lord & Taylor advertising campaign." Pursuant to the terms of the settlement, Lord & Taylor is, among other requirements, (i) prohibited from misrepresenting that paid advertisements are from an independent source, (ii) required to ensure that its influencers clearly disclose when they have been compensated in exchange for their endorsements, and (iii) obligated to establish a monitoring and review program. Although the Lord & Taylor action is in keeping with the FTC’s guidance and precedents in the Native Advertising space, it is notable because it targets a large, established retailer’s use of influencer marketing.
To date, the FTC has required a monetary remedy in only the Legacy Learning Systems settlement. In that matter, there was a direct link between the offending advertising and particular sales because the advertising included a link through which consumers could make purchases. However, the FTC may (as it has done in other areas of its jurisdiction) seek to expand its use of monetary remedies to a broader range of fact patterns, including situations where the link between the offending conduct and particular sales is less direct, as its policies become more established through additional enforcement actions.
The Native Advertising Guides and the FTC’s enforcement actions focus on several basic principles:
Native advertising is a clear focus of the FTC. Publishers and advertisers who use native advertising should be mindful of the FTC’s guidance in how they present native advertisements. While the FTC’s enforcement actions to date have focused on advertisers and their agents, we anticipate that the FTC would not hesitate to pursue publishers as well in situations where the publisher knew (or should have known) of noncompliant advertising and was well positioned to address the issue.
 See Fed. Trade Comm’n, Native Advertising: A Guide for Business (Dec. 21, 2015), available at https://www.ftc.gov/tips-advice/business-center/guidance/native-advertising-guide-businesses.
 Joe Lazauskas, Study: Article or Ad? When it Comes to Native, No One Knows, Contently (Sep. 8, 2015), available at https://contently.com/strategist/2015/09/08/article-or-ad-when-it-comes-to-native-no-one-knows/.
 Fed. Trade Comm’n, Blurred Lines: Advertising or Content? An FTC Workshop on Native Advertising at 7:12-15 (Dec. 4, 2013), available at https:www.ftc.gov/system/files/documents/public_events/171321/final_transcript_1.pdf.
 BI Intelligence, Spending on Native Advertising is Soaring as Marketers and Digital Media Publishers Realize the Benefits, Business Insider (May 20, 2015), available at www.businessinsider.com/spending-on-native-ads-will-soar-as-publishers-and-advertisers-take-notice-2014-11.
 Jacques Bughin, Getting a Sharper Picture of Social Media’s Influence, McKinsey & Company (July 2015), available at http://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/getting-a-sharper-picture-of-social-medias-influence.
 Influencer Marketing Study, Tomoson Blog (Mar. 2015), available at http://blog.tomoson.com/influencer-marketing-study/.
 15 U.S.C. § 45(a)(1); 15 U.S.C. § 45(a)(2).
 Fed. Trade Comm’n, Enforcement Policy Statement on Deceptively Formatted Advertisements at 1(Dec. 21, 2015), available at https://www.ftc.gov/system/files/documents/public_statements/896923/151222deceptiveenforcement.pdf.
 Id. at 3.
 Press Release, Fed. Trade Comm’n, FTC Issues Enforcement Policy Statement Addressing "Native" Advertising and Deceptively Formatted Advertisements (Dec. 22, 2015), available at https://www.ftc.gov/news-events/press-releases/2015/12/ftc-issues-enforcement-policy-statement-addressing-native.
 Press Release, Fed. Trade Comm’n, Public Relations Firm to Settle FTC Charges that It Advertised Clients’ Gaming Apps Through Misleading Online Endorsement (Aug. 26, 2010), available at https://www.ftc.gov/news-events/press-releases/2010/08/public-relations-firm-settle-ftc-charges-it-advertised-clients.
 Press Release, Fed. Trade Comm’n, Firm to Pay FTC $250,000 to Settle Charges That It Used Misleading Online "Consumer" and "Independent" Reviews (Mar. 15, 2011), available at https://www.ftc.gov/news-events/press-releases/2011/03/firm-pay-ftc-250000-settle-charges-it-used-misleading-online.
 Press Release, Fed. Trade Comm’n, Sony Computer Entertainment America To Provide Consumer Refunds To Settle FTC Charges Over Misleading Ads For PlayStation Vita Gaming Console (Nov. 25, 2014), available at https://www.ftc.gov/news-events/press-releases/2014/11/sony-computer-entertainment-america-provide-consumer-refunds.
 Press Release, Fed. Trade Comm’n, FTC Stops Automobile Shipment Broker from Misrepresenting Online Reviews (Feb. 27, 2015), available at https://www.ftc.gov/news-events/press-releases/2015/02/ftc-stops-automobile-shipment-broker-misrepresenting-online.
 Press Release, Fed. Trade Comm’n, FTC Approves Final Order Prohibiting Machinima, Inc. from Misrepresenting that Paid Endorsers in Influencer Campaigns are Independent Reviewers (Mar. 17, 2016), available at https://www.ftc.gov/news-events/press-releases/2016/03/ftc-approves-final-order-prohibiting-machinima-inc?utm_source=govdelivery.
 See Press Release, Fed. Trade Comm’n, Lord & Taylor Settles FTC Charges It Deceived Consumers Through Paid Article in an Online Fashion Magazine and Paid Instagram Posts by 50 "Fashion Influencers" (Mar. 15, 2016), available at https://www.ftc.gov/news-events/press-releases/2016/03/lord-taylor-settles-ftc-charges-it-deceived-consumers-through.
 Id.; see also Ex. C, Complaint, In the Matter of Lord & Taylor, LLC, FTC Docket No. 152 3181 (Mar. 15, 2016), available at https://www.ftc.gov/system/files/documents/cases/160315lordandtaylexhibit-c.pdf.
 Complaint at ¶ 7, In the Matter of Lord & Taylor, LLC, FTC Docket No. 152 3181 (Mar. 15, 2016), available at https://www.ftc.gov/system/files/documents/cases/160315lordandtaylcmpt.pdf; see also Ex. A, Complaint, In the Matter of Lord & Taylor, LLC, FTC Docket No. 152 3181 (Mar. 15, 2016), available at https://www.ftc.gov/system/files/documents/cases/160315lordandtaylexhibit-a.pdf.
 Press Release, Fed. Trade Comm’n, Lord & Taylor Settles FTC Charges It Deceived Consumers Through Paid Article in an Online Fashion Magazine and Paid Instagram Posts by 50 "Fashion Influencers" (Mar. 15, 2016), available athttps://www.ftc.gov/news-events/press-releases/2016/03/lord-taylor-settles-ftc-charges-it-deceived-consumers-through.
The following Gibson Dunn lawyers prepared this client alert:
Alexander H. Southwell – Co-Chair, Privacy, Cybersecurity and Consumer Protection Group, New York (+1 212-351-3981, email@example.com)
Richard H. Cunningham – former Senior Trial Counsel, Federal Trade Commission, Denver (+1 303-298-5752, firstname.lastname@example.org)
Timothy M. Zimmerman – Denver (+1 303.298.5721, email@example.com)
Joshua Rosario – Denver (+1 303.298.5719, firstname.lastname@example.org)
Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues and have substantial experience counseling companies on all aspects of advertising law, FTC investigations, and litigating against private plaintiffs and government enforcers. For further information about these issues or any global privacy or cybersecurity issue, please contact the authors of this alert, the Gibson Dunn lawyer with whom you usually work, or any of the following members of the firm’s Privacy, Cybersecurity and Consumer Protection Group:
M. Sean Royall – Co-Chair, Dallas (+1 214-698-3256, email@example.com)
Alexander H. Southwell – Co-Chair, New York (+1 212-351-3981, firstname.lastname@example.org)
Debra Wong Yang – Co-Chair, Los Angeles (+1 213-229-7472, email@example.com)
Howard S. Hogan – Washington, D.C. (+1 202-887-3640, firstname.lastname@example.org)
Shaalu Mehra – Palo Alto (+1 650-849-5282, email@example.com)
Karl G. Nelson – Dallas (+1 214-698-3203, firstname.lastname@example.org)
Joshua A. Jessen – Orange County/Palo Alto (+1 949-451-4114/+1 650-849-5375, email@example.com)
Michael Li-Ming Wong – San Francisco/Palo Alto (+1 415-393-8333/+1 650–849–5393, firstname.lastname@example.org)
Ryan T. Bergsieker – Denver (+1 303-298-5774, email@example.com)
Richard H. Cunningham – Denver (+1 303-298-5752, firstname.lastname@example.org)
Eric D. Vandevelde – Los Angeles (+1 213-229-7186, email@example.com)
James A. Cox – London (+44 (0)20 7071 4250, firstname.lastname@example.org)
Andrés Font Galarza – Brussels (+32 2 554 7230, email@example.com)
Bernard Grinspan – Paris (+33 1 56 43 13 00, firstname.lastname@example.org)
Penny Madden – London (+44 (0)20 7071 4226, email@example.com)
Jean-Philippe Robé – Paris (+33 1 56 43 13 00, firstname.lastname@example.org)
Michael Walther – Munich (+49 (0)89 189 33-180, email@example.com)
Nicolas Autet – Paris (+33 1 56 43 13 00, firstname.lastname@example.org)
Eryk L. Dziadykiewicz – Brussels (+32 2 554 72 03, email@example.com)
Kai Gesing – Munich (+49 (0)89 189 33-180, firstname.lastname@example.org)
Alejandro Guerrero Perez – Brussels (+32 2 554 7218, email@example.com)
Sarah Wazen – London (+44 (0)20 7071 4203, firstname.lastname@example.org)
© 2016 Gibson, Dunn & Crutcher LLP
Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.