*Updated 7/21/2016 with recent guidance from the FTC.
False advertising arises when a business competitor makes false or misleading statements about its competitor’s goods, products, or commercial activities, causing marketplace harm to the target company. You might think this is so simple that there’s no need for an Internet law twist. But amid the exploding content of the Internet era, it turns out we need a special rule for that most basic question: What is advertising or promotion?
The Business Law Basics
Commercial advertising is strictly regulated. The days when advertisements frequently promoted snake oil products and quack remedies are long gone. You’ll still see hype and flimflam in ads, but it is legally allowed only in the context of “puffing,” those inexact and exaggerated claims of superiority that most people can recognize as mere bluster.
Yet advertising claims that are reasonably understood as verifiable factual claims must indeed be accurate. (At least in the commercial world – somewhat counterintuitively, political ads are subject to no such accuracy requirement.)
More precisely, the Federal Trade Act prohibits all “unfair trade practices.” In furtherance of that broad and vague standard, the Federal Trade Commission (FTC) issues scores of rulings, guidelines, and decisions on advertising in many media and fields of endeavor. Similarly, section 43(a) of the Lanham Act forbids making false descriptions of fact in interstate commerce regarding your own or another’s goods, services, or commercial activities. Businesses enforce section 43(a) directly, through civil lawsuits against competitors who they believe are violating the law and thereby harming them. Finally, the National Advertising Division of the Council of Better Business Bureaus decides many false advertising disputes as the advertising industry’s self-regulatory adjudicatory arm.
The Internet Law Twists
On the Internet, advertising doesn’t always look like advertising. Social media posts look like impartial consumer comments, but in some cases product manufacturers pay or provide incentives for those comments, making them like paid advertising. And then there is native advertising — ads, essentially, that are meant not to look like ads.
The Federal Trade Commission and other advertising regulators have developed special rules for these unique forms of Internet pseudo-ads.
Social Media Endorsements
Because of the trust consumers place in endorsements, the FTC has long expressed concern about the use of celebrity and consumer endorsements and testimonials in advertising. Since 1980, the agency has issued guidelines for endorsements in advertisements. In the Internet age, however, the FTC confronted a new problem. So much was being said about commercial products and services throughout the Internet, and, in particular, on privately authored blogs, that it became difficult to separate out commercial advertising from non-commercial comments and opinions.
As a result, in 2009, the FTC expanded its endorsement guidelines to cover new media and several other situations, creating the first Internet twist in advertising law – special requirements with respect to evaluating whether social media content, which may look like pure personal commentary, must be considered an advertisement.
The guidelines specifically address the use of blogs and other new media in word-of-mouth advertising campaigns, and whether such activities will be viewed as advertising endorsements. The guidelines differentiate between situations where the blogger acts on his or her own, and those in which he or she acts on behalf an advertiser. Statements made independently (as when a blogger purchases a product with his own money and reviews it) aren’t considered endorsements. Statements made “on behalf of” an advertiser (as when a blogger is paid to speak by the advertiser) would be. But “on behalf of” doesn’t necessarily require that the advertiser control the blogger; advertisers can sometimes be liable for entanglement with a blogger even when they have no control over what the blogger ultimately writes about their product.
These “middle ground” situations where the advertiser and the blogger have fuzzy ties present the greatest difficulty. The FTC acknowledged that circumstances can vary tremendously, and cases will have to be decided individually. In one illustration, the FTC drew distinctions from the example of a blogger reviewing a pet product. In the first example, the blogger paid for the product. In the second, she got the product for free through a coupon program. In the third, she received a complimentary sample from a program meant to encourage reviews. The first two situations aren’t considered advertising endorsements, but the last one is.
If there was any doubt about the premise of the FTC’s concern — that advertisers often prefer to advertise through placements that look like ordinary content — the flowering of native advertising has confirmed that belief. The organization (or lack thereof) of the Internet facilitates native advertising, and the advertising community has responded with many native ad placements.
Native advertisements (ads that essentially look like news articles) have always been around, but when content primarily reached readers in print publications, most editors firmly controlled and segregated advertiser-created content. It was usually referred to in the industry as “advertorial” content and it was physically distinguished from editorial content with headers or footers identifying it as “advertising.”
But because no one controls Internet headers and footers, native ads integrate far more readily on the Internet than in print with editorial content, leaving few natural cues to help the reader distinguish between editor-created and advertiser-created content. Recognizing this, the FTC stepped in again, this time with a new policy statement (on “Deceptively Formatted Advertisements”) and a new guide, “Native Advertising: A Guide for Businesses.”
As with social media endorsements, the FTC’s primary concern is that content can deceive consumers if they believe it represents the independent judgment of someone (a citizen poster or a journalist), when in fact it was been paid for by an advertiser. Hence, the FTC policy and guide are tailored to require disclosures for native advertising.
Again, the key issue is, what is an advertisement? The guide includes 17 hypothetical examples of real or possible native ads, and goes on to describe advertising content can be most appropriately disclosed. Often, disclosure is handled simply by labeling the article as an “Ad,” “Advertisement,” “Paid Advertisement, or “Sponsored Advertising Content.” In some cases, particularly involving headlines and links, the disclosures may be required in more than one place. Video native ads present special cases, and the FTC requires disclosures within the video itself, shortly before the advertising claim.
Both the FTC and the NAD have enforced both the endorsement and native ad rules. In one notable case, the FTC brought and settled claims against Lord & Taylor with respect to a major ad campaign, using 50 fashion influencers who made social media postings and write articles. The FTC claimed the campaign was deceptive because L&T never required the influencers to disclose that L&T had paid them and received goods for free, and that their posts were part of an L&T ad campaign.
In sum, the bottom line business law rule is that advertisements continue to be closely regulated for falsity and unfair or misleading impressions. The Internet twists are that these rules will be applied in many new Internet contexts, where advertising often doesn’t look like advertising. Today, the first step in advertising law is to figure out of particular content is an advertisement, regardless of what it looks like.
Mark Sableman is a partner in Thompson Coburn’s Intellectual Property group. He is the editorial director of Internet Law Twists & Turns. You can find Mark on Google+ and Twitter, and reach him at (314) 552-6103 or firstname.lastname@example.org.