Digital media can provide companies with various opportunities to integrate advertisements seamlessly into a website's regular editorial content. These integrated advertisements are known as native advertisements and usually resemble the search results, news, articles, product reviews, or other surrounding content on the same page.

While native advertisements can be an extremely effective marketing tool, they can also expose advertisers to the increased risk of engaging in deceptive marketing (see Practice Note, Native Advertising: Rewards and Risks of Going Native). This is particularly true if advertisements are so integrated into editorial content that they mislead a reasonable consumer into believing they are independent, impartial, or from a source other than the sponsoring advertiser. Recently, the Federal Trade Commission (FTC) and self-regulatory groups such as the National Advertising Division (NAD) have increased their scrutiny of native advertisements.

This legal update discusses a recent NAD decision recommending changes to a company's deceptive native advertisements, the rules governing native advertisements, and best practice tips for complying with federal and self-regulatory rules.

The NAD recently recommended that Joyus, Inc. modify its native advertising content in the online edition of People Magazine to ensure that consumers do not confuse the advertisements with the magazine's normal editorial content. Joyus is an e-commerce platform that sells fashion, beauty, personal care, fitness, and home products.

Joyus partners with People Magazine to create advertising content in the online "Stuff We Love" feature of the magazine's "Style Watch" section. Specifically, the "Stuff We Love" page contains:

People Magazine's editors pick which Joyus products are featured on the "Stuff We Love" page and help create the descriptions and videos to promote the products for sale. The page blends editorial and advertising content, and is subject to advertising rules because the featured products are promoted for sale.

The NAD found that the videos contain visual and audio cues indicating to consumers that they are watching an advertising video and not People Magazine's editorial content. The videos are not deceptive because they include:

However, the pages and links leading to the videos are deceptive and reasonably convey that the linked material is editorial content because:

The NAD worried that consumers would see the products on the "Stuff We Love" page and mistakenly believe that the content reflects People Magazine's independent editorial selections rather than Joyus' advertising. This mistake could lead consumers to interact with advertising that they otherwise might have avoided. Therefore, the NAD recommended that:

Self-regulatory groups like the NAD routinely monitor their members' advertisements for compliance and can make recommendations to correct problematic advertising. The NAD can also refer businesses to the FTC for investigation and potential enforcement actions.

The NAD's decision comes shortly after the FTC settled an unrelated case with Lord & Taylor for using deceptive native advertisements in social media (see FTC: Lord & Taylor Settles FTC Charges It Deceived Consumers Through Paid Article in an Online Fashion Magazine and Paid Instagram Posts by 50 "Fashion Influencers"). These recent actions should demonstrate to businesses that this is an issue both the federal government and self-regulatory groups are scrutinizing.

Like traditional advertisements, native advertisements cannot be deceptive or misleading. The FTC and self-regulatory groups such as the NAD generally consider a native advertisement deceptive if it materially misleads reasonable consumers about its source or the commercial nature of its content. Therefore, based on its formatting, a native advertisement can be deceptive even if its underlying claims are truthful and not misleading.

Some government agencies and self-regulatory groups have discussed their native advertising policies through advisory opinions, best practice guidelines, or enforcement actions (see Practice Note, Native Advertising: Legal and Self-Regulatory Framework). For example, in December 2015 the FTC issued its Enforcement Policy Statement on Deceptively Formatted Advertisements (Policy Statement) to explain how established consumer protection principles apply to native advertisements. The agency also released a guidance document to help businesses understand and comply with the Policy Statement (see FTC: Native Advertising: A Guide for Businesses).

Under the Policy Statement, the FTC determines whether an advertisement's format is deceptive based on the net impression the advertisement conveys to reasonable consumers. When assessing an advertisement's net impression, the FTC considers:

For more information on federal and self-regulatory advertising rules, see Practice Notes, Advertising: Overview and Online Advertising and Marketing.

For more information on how the FTC investigates and punishes potential violations, see Practice Note, FTC Consumer Protection Investigations and Enforcement.

When using native advertisements, companies should adopt policies to ensure that the advertisements are not misleading consumers about the advertisements' true nature or source. For example, a business should:

For more details on creating policies to comply with the FTC's rules for native advertisements, see Practice Note, Native Advertising: Protecting the Company Against Advertising Liability: Best Practices.

By taking steps to be transparent in its advertisements, a business can ensure that its advertisements are not deceptive and protect itself from FTC or self-regulatory enforcement actions, which could result in fines, reputational harm, or consent orders requiring legal compliance and review for future advertisements.