FTC Puts Teeth into Native Ads Guidance: Lord & Taylor Settles Deceptive Ad Claim

Last week, fashion retailer Lord & Taylor reached a settlement with the FTC over its allegedly deceptive advertising campaign, the first such action since the FTC released its Enforcement Policy Statement on Deceptively Formatted Advertisements and its companion guidance, Native Advertising: A Guide for Businesses, in December 2015.  Native Advertising is clearly on the FTC’s 2016 enforcement agenda.

The FTC’s Native Advertising Guidance

For nearly 50 years (since the late 1960s), the FTC has policed deceptive advertising practices pursuant to Section 5 of the FTC Act and has leveraged an increasingly demanding requirement that companies be clear and transparent.  As advertisers and publishers embrace the rise of “native advertising,” the FTC is now re-doubling its efforts to ensure that consumers are not misled when promotional content is seamlessly incorporated into news articles, feature stories, or other editorial work.

According to the FTC, an advertisement is deceptive if it misleads a reasonable consumer and the misleading representation is material, i.e., it would likely influence the consumer’s choices or behavior with regard to the advertisement.  The FTC has long held the view that advertising messages that consumers cannot reasonably identify as advertising or commercial content can be deceptive because the source or paid-nature of advertising typically affects the weight or credibility that consumers give it.  The Policy Statement emphasizes that native advertising can violate Section 5 “even if the product claims communicated are truthful and non-misleading.” ^[1]  

The following are examples of native advertising pieces that are potentially deceptive:

• Ads designed to look like a news or feature article and not clearly labeled as advertisements;
• Ad content presented as an investigative or scientific report or research study, or designed to appear that the content is from the government;
• Ads appearing in online search results that were prioritized on a paid basis, and not as the result of impartial search criteria, unless clearly marked as advertisements;
• Ad messages disseminated by paid endorsers where the commercial nature of the relationship is not disclosed, or when the consumer would not ordinarily expect an endorser to be speaking on behalf of a sponsoring advertiser, such as endorsements made on social media, personal blogs, online comment forums, or television talk show interviews ^[2]; and
• Ads appearing to promote a product or service based on an individual’s unbiased opinion or belief when the advertisements’ sponsor has in fact directed the substance of the ad, such as when the ad content is disguised as an independent or expert opinion.

Lord & Taylor Consent Decree

In 2015, Lord & Taylor launched its Design Lab clothing line with a 21^st century-style advertising campaign relying heavily on social media and native advertising content to feature a particular paisley dress.  As part of this campaign, the retailer paid Nylon, an online fashion magazine, to run an editorial article featuring the Design Lab line and the paisley dress, and to post a photo of the dress to Nylon’s Instagram page.  Lord & Taylor reviewed and approved the Nylon article and social media post, but did not require a disclosure about the paid nature of the content.  Lord & Taylor also sent the paisley dress to 50 “fashion influencers” (fashionable girls with large social media followings) and paid them between $1,000-$4,000 to post a photo of themselves wearing the dress on social media.  Though Lord & Taylor required the fashion influencers to tag their Instagram photos with the hashtag #DesignLab and @lordandtaylor, the FTC argued that Lord & Taylor did not require the influencers to disclose that they received compensation for the social media posts.

The FTC complaint charged that Lord & Taylor (1) falsely represented that the 50 Instagram images tagged to @lordandtaylor represented independent statements of impartial fashion influencers, (2) failed to require the influencers to disclose that they were paid endorsers; and (3) failed to disclose that the Nylon article and social media post were part of a paid ad campaign, instead allowing consumers to believe that the content was from an independent or objective source.  The consent decree requires Lord & Taylor to make explicit the paid nature of its future advertisements.  Moreover, the consent decree places the disclosure onus on Lord & Taylor—requiring the retailer to provide its endorsers with a statement alerting them that they must disclose their connection to Lord & Taylor and sign an acknowledgment stating that they will do so.  Lord & Taylor must monitor compliance with the disclosure requirement and terminate the relationship with any endorser who fails to disclose the paid nature of the advertisement, after receiving one warning.

Avoiding Deception in Advertising

Advertisers, publishers and third party advertising networks should consider the following key questions in evaluating their advertisements:

• Does the advertisement or promotional message imply or create an impression that it is anything other than an ad?
• Reasonable Consumer Interpretation. How would reasonable customers interpret the advertisement?  Are there any other reasonable interpretations?
• Net Impression. What impression does the entire ad (including overall appearance, similarity of its style to non-advertising content, distinguishability from other content) leave the reader?
• Target Audience. What is the target audience for the advertisement? The FTC will look at the effect of the advertisement on reasonable or ordinary members of the target audience, not only a general audience.
• Obvious Advertising. Some advertisements, by the very nature of their message, are inherently obvious advertising, and may need no disclosure or disclaimer.
• If in doubt, can the advertiser increase transparency by making disclosures to inform the consumer of the ad’s commercial or paid nature, or distinguish the ad from the surrounding non-advertising content?  Qualifying information or disclosure should be: prominent/conspicuous, unambiguous, simple, in a font/color that is easy to read or on the screen long enough to be read and understood, and unequivocal such as “Paid Advertisement” or “Advertisement.”
• Is the disclosure contemporaneous?  Disclosures must generally be made at the same time as the advertisement.  Moreover, although subsequent disclosures that appear after clicking on and arriving at another page will not cure misleading impressions presented at the publisher site, sometimes they may be necessary, especially if the consumer can navigate to the advertisement before going to the publisher’s site.

Conclusion

Advertisements that blend seamlessly with other content on a webpage or other media format can be highly effective, but advertisers must carefully consider consumer transparency requirements.  The FTC has now offered numerous Guides (for example, Guides on Native Advertising, Endorsement Guides, Dot Com Disclosures) and Policy Statements and has a long history of consent decrees related to deceptive advertising and deceptively formatted advertising, many of which are relevant to native advertising campaigns.  Advertisers must be cognizant of all of the FTC guidance in this area, or risk being caught in a Fashion [advertising] Faux Pas

^[1] Fed. Trade Comm’n, Enforcement Policy Statement on Deceptively Formatted Advertisements 10 (2015).

^[2] See also Guides Concerning Use of Endorsements and Testimonials in Advertising, 16 C.F.R. § 255.5.