81 FR 22596 - Enforcement Policy Statement on Deceptively Formatted Advertisements

FEDERAL TRADE COMMISSION

Federal Register Volume 81, Issue 74 (April 18, 2016)

Page Range		22596-22601
FR Document		2016-08813

The Federal Trade Commission has issued an Enforcement Policy Statement on Deceptively Formatted Advertisements. The Statement describes the underlying consumer protection principles that guide the Commission's enforcement actions, advisory opinions, and other guidance addressing various forms of deceptively formatted advertising, including advertising and promotional messages integrated into and presented as non-commercial content.

Federal Register, Volume 81 Issue 74 (Monday, April 18, 2016)

[Federal Register Volume 81, Number 74 (Monday, April 18, 2016)]
[Notices]
[Pages 22596-22601]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2016-08813]

[[Page 22596]]

=======================================================================
-----------------------------------------------------------------------

FEDERAL TRADE COMMISSION

Enforcement Policy Statement on Deceptively Formatted
Advertisements

AGENCY: Federal Trade Commission.

ACTION: Commission policy statement.

-----------------------------------------------------------------------

SUMMARY: The Federal Trade Commission has issued an Enforcement Policy
Statement on Deceptively Formatted Advertisements. The Statement
describes the underlying consumer protection principles that guide the
Commission's enforcement actions, advisory opinions, and other guidance
addressing various forms of deceptively formatted advertising,
including advertising and promotional messages integrated into and
presented as non-commercial content.

DATES: The Commission announced the issuance of the Statement on
December 22, 2015.

FOR FURTHER INFORMATION CONTACT: Laura Sullivan (202-326-3327) or
Michael Ostheimer (202-326-2699), Bureau of Consumer Protection, 600
Pennsylvania Avenue NW., Washington, DC 20580.

SUPPLEMENTARY INFORMATION:

Enforcement Policy Statement on Deceptively Formatted Advertisements

The Federal Trade Commission issues this enforcement policy
statement regarding advertising and promotional messages integrated
into and presented as non-commercial content.\1\ The statement
summarizes the principles underlying the Commission's enforcement
actions, advisory opinions, and other guidance over many decades
addressing various forms of deceptively formatted advertising.
---------------------------------------------------------------------------

\1\ The scope of this enforcement policy statement is restricted
to commercial speech the Commission has authority to regulate. The
Commission traditionally considers factors articulated in R.J.
Reynolds Tobacco Co., 111 F.T.C. 539, 544-46 (1988), in evaluating
whether speech is commercial. See, e.g., POM Wonderful LLC, 155
F.T.C. 1, 74-75 (2013), aff'd, 777 F.3d 478 (D.C. Cir. 2015).
---------------------------------------------------------------------------

Section 5 of the FTC Act prohibits ``unfair or deceptive acts or
practices in or affecting commerce.'' As the Commission set forth in
its 1983 Policy Statement on Deception, a representation, omission, or
practice is deceptive if it is likely to mislead consumers acting
reasonably under the circumstances and is material to consumers--that
is, it would likely affect the consumer's conduct or decisions with
regard to a product or service.\2\ In determining whether an
advertisement, including its format, misleads consumers, the Commission
considers the overall ``net impression'' it conveys.\3\ Any qualifying
information necessary to prevent deception must be disclosed
prominently and unambiguously to overcome any misleading impression
created.
---------------------------------------------------------------------------

\2\ FTC Statement on Deception, 103 F.T.C. 174, 175 (1984)
(appended to Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984))
(``Deception Policy Statement'').
\3\ Id. at 178.
---------------------------------------------------------------------------

The Commission has long held the view that advertising and
promotional messages that are not identifiable as advertising to
consumers are deceptive if they mislead consumers into believing they
are independent, impartial, or not from the sponsoring advertiser
itself. Knowing the source of an advertisement or promotional message
typically affects the weight or credibility consumers give it. Such
knowledge also may influence whether and to what extent consumers
choose to interact with content containing a promotional message. Over
the years, the Commission has challenged as deceptive a wide variety of
advertising and other commercial message formats, including
``advertorials'' that appeared as news stories or feature articles,
direct-mail ads disguised as book reviews, infomercials presented as
regular television or radio programming, in-person sales practices that
misled consumers as to their true nature and purpose, mortgage relief
ads designed to look like solicitations from a government agency,
emails with deceptive headers that appeared to originate from a
consumer's bank or mortgage company, and paid endorsements offered as
the independent opinions of impartial consumers or experts.
With the emergence of digital media and changes in the way
publishers monetize content, online advertising known as ``native
advertising'' or ``sponsored content,'' which is often
indistinguishable from news, feature articles, product reviews,
editorial, entertainment, and other regular content, has become more
prevalent. In digital media, a publisher, or an authorized third party,
can easily and inexpensively format an ad so it matches the style and
layout of the content into which it is integrated in ways not
previously available in traditional media. The effect is to mask the
signals consumers customarily have relied upon to recognize an
advertising or promotional message.
At the same time, the business models of many publishers also have
undergone significant change, as, increasingly, consumers are able to
skip or block digital ads while watching digitized programming or
browsing publisher content. Consequently, many publishers have begun to
offer advertisers formats and techniques that are closely integrated
with and less distinguishable from regular content so that they can
capture the attention and clicks of ad-avoiding consumers.
Regardless of the medium in which an advertising or promotional
message is disseminated, deception occurs when consumers acting
reasonably under the circumstances are misled about its nature or
source, and such misleading impression is likely to affect their
decisions or conduct regarding the advertised product or the
advertising. This statement sets forth generally applicable standards
on which the Commission relies in making such a determination.

I. Deceptive Advertising Formats

The principle that advertising and promotional messages should be
identifiable as advertising is found in Commission and staff policy
guidance,\4\ specific cases challenging deceptive advertising in a wide
range of media,\5\ and Congressional policy with regard to
telemarketing calls and commercial email.\6\ As set forth below, over
the years, the Commission and staff have addressed the potential for
consumers to be deceived by various categories of advertising formats,
such as ads appearing in a news or feature story format, deceptive
endorsements, undisclosed sponsorship of advertising and promotional
messages, and ads in search results.
---------------------------------------------------------------------------

\4\ See, e.g., Advisory Opinion No. 191, Advertisements which
appear in news format, 73 F.T.C. 1307 (1968) (hereinafter ``Advisory
Opinion on Ads in News Formats'').
\5\ See, e.g., Georgetown Publ'g House Ltd. P'ship, 122 F.T.C.
392 (1996) (consent); JS&A Grp., Inc., 111 F.T.C. 522 (1989)
(consent).
\6\ See Controlling the Assault of Non-Solicited Pornography and
Marketing Act of 2003, 15 U.S.C. 7701-7713 (hereinafter the ``CAN-
SPAM Act''); Telemarketing and Consumer Fraud and Abuse Prevention
Act, 15 U.S.C. 6101-6108 (hereinafter the ``Telemarketing Fraud
Act'').
---------------------------------------------------------------------------

A. Advertisements Appearing in a News Format or That Otherwise
Misrepresent Their Source or Nature

The Commission first addressed the issue of print advertisements
appearing in a news format in a 1967 press release and subsequent 1968
advisory opinion.\7\ A newspaper column, advertising the cuisine of
local restaurants, was written in narrative form, with each write-up
discussing such details as how a meal was prepared, the name of the
chef and/or head waiter, cocktail service offered,

[[Page 22597]]

whether dancing was permitted, hours, and the price range of the
meal.\8\ The Commission found that the column ``use[d] the format and
ha[d] the general appearance of a news feature and/or article for
public information which purport[ed] to give an independent, impartial
and unbiased view of the cuisine facilities of a particular
restaurant.'' The Commission also explained that the inclusion of the
exact price of the meal advertised or listing a range of prices for
other meals would not alter this impression. The Commission concluded
that a clear and conspicuous disclosure that the column was an
advertisement was necessary to prevent consumers from being deceived.
Specifically, the Commission suggested placing ``ADVERTISEMENT,'' in
clear type, sufficiently large to be readily noticed, in close
proximity to the ad. The Commission, however, noted that in some
instances, ``the format of [an] advertisement may so exactly duplicate
a news or feature article as to render the caption `ADVERTISEMENT'
meaningless and incapable of curing the deception.'' \9\
---------------------------------------------------------------------------

\7\ Statement in Regard to Advertisements That Appear in Feature
Article Format, FTC Release, (Nov. 28, 1967) (hereinafter
``Statement on Ads in Feature Article Format''); Advisory Opinion on
Ads in News Formats.
\8\ Advisory Opinion on Ads in News Formats, 73 F.T.C. at 1307.
\9\ Statement on Ads in Feature Article Format.
---------------------------------------------------------------------------

Two decades later, in a case against a bookseller, the Commission
applied this same analysis and concluded there was reason to believe
that the bookseller violated the FTC Act through a deceptive direct-
mail ad formatted to appear as if it were a book review torn out of a
magazine, with a personalized note attached.\10\ The Commission alleged
that the ad's format communicated a misleading claim that it was ``a
book review written by an independent journalist or reviewer,
containing the independent opinions of the journalist or reviewer, and
was disseminated in a magazine or other independent publication.'' The
Commission observed that the ad was printed on glossy stock and had a
ripped, left edge, and included other elements, such as the header
``REVIEW,'' a byline, a publication date, and page numbers, and part of
an unrelated article on the reverse side, which, taken together, made
it look like a published review of the book advertised. In evaluating
what the ad communicated to consumers, the Commission also considered
that affixed to each ad was a small, stick-on note containing what
appeared to be a personalized, handwritten message, with the
recipient's first name and saying, ``Try this. It works! J.''
---------------------------------------------------------------------------

\10\ Georgetown Publ'g House Ltd. P'ship, 122 F.T.C. at 393-96.
---------------------------------------------------------------------------

During the 1980s, after the Federal Communications Commission
removed its ban on program-length commercials, such advertisements,
known as infomercials, began to air on television and radio.\11\
Concerned about the increasingly blurred line between advertising and
non-promotional content, the Commission brought cases alleging that
deception occurs when infomercials are presented as regular television
or radio programming, such as a news report or talk show. In the
Commission's first such case in 1989, the Commission challenged a
television infomercial that opened with the statement, ``Welcome to
`Consumer Challenge,' hosted by Jonathan Goldsmith,'' and went on to
describe the program as one that ``examines popular new products for
you,'' with the help of investigative reporters.\12\ It then announced
that the day's program would investigate a particular brand of
sunglasses, posing the question to viewers: ``[N]ew Product innovation
or consumer rip-off?'' In evaluating the sunglass infomercial, the
Commission asserted that its format was likely to mislead consumers
into believing that it was ``an independent consumer program . . . that
conducts independent and objective investigations of consumer
products,'' including for the company's sunglasses. Since bringing that
case, the FTC has charged that numerous other television and radio
infomercials were deceptively formatted. In nearly every such case, the
Commission has issued an order requiring a clear and prominent
disclosure, at the beginning of an infomercial and again each time
ordering instructions are given, informing consumers that the program
is a ``PAID ADVERTISEMENT'' for the particular product or service
advertised.\13\
---------------------------------------------------------------------------

\11\ See Deregulation of Radio, 84 F.C.C. 2d 968, 1007 (1981)
(rescinding the FCC's policy banning program-length radio
commercials); Revision of Programming and Commercialization,
Policies, Ascertainment Requirements, and Program Log Requirements
for Commercial Television Stations, 98 F.C.C. 2d 1075 (1984)
(rescinding the FCC's policy banning program-length television
commercials).
\12\ JS&A Grp., Inc., 111 F.T.C. at 523-24.
\13\ See, e.g., Vital Basics, Inc., 137 F.T.C. 254, 274, 340-41
(2004) (consent); Nutrivida, Inc., 126 F.T.C. 339, 342-43, 351-52
(1998) (consent); Bogdana Corp., 126 F.T.C. 37, 47, 100-01 (1998)
(consent); Mega Sys. Int'l, Inc., 125 F.T.C. 973, 986, 1218-19
(1998) (consent); Olsen Labs., Inc., 119 F.T.C. 161, 167, 214 (1995)
(consent); Wyatt Mktg. Corp., 118 F.T.C. 86, 94, 113-14 (1994)
(consent); Del Dotto Enters., Inc., 117 F.T.C. 446, 452-53, 466
(1994) (consent); Synchronal Corp., 116 F.T.C. 989, 1002-03, 1045
(1993) (consent); Michael S. Levey, 116 F.T.C. 885, 900-01, 950-51
(1993) (consent); Nat'l Media Corp., 116 F.T.C. 549, 559, 582 (1993)
(consent); CC Pollen Co., 116 F.T.C. 206, 209, 239-40 (1993)
(consent); Nu-Day Enters., Inc., 115 F.T.C. 479, 483, 488-89 (1992)
(consent); Twin Star Prods., Inc., 113 F.T.C. 847, 852-53, 862
(1990) (consent); TV Inc., 113 F.T.C. 677, 679, 693 (1990)
(consent); see also FTC v. Direct Mktg. Concepts, Inc., 648 F. Supp.
2d 202, 209, 211 (D. Mass. 2009) (noting parties' stipulation to an
injunctive provision addressing deceptive formats), aff'd, 624 F.3d
1 (1st Cir. 2010).
---------------------------------------------------------------------------

More recently, the Commission has brought a series of cases
concerning ads disguised to look like news reports on weight-loss pills
and other products, where a purported journalist tested the advertised
product and authored the story.\14\ The ads used devices such as news-
related names and headlines suggestive of a local television station,
trademarks of established news companies, reporter by-lines, and reader
comment sections to create that false impression. In one case, the
Commission alleged the format was deceptive despite the presence of a
small-print disclaimer ``Advertorial'' in the top border of some Web
sites.\15\ Consumers reached all these fake news Web sites by clicking
on ads presented as attention-getting news headlines, which frequently
appeared on legitimate news Web sites.
---------------------------------------------------------------------------

\14\ See, e.g., Complaint at 4-5, 8-9, FTC v. Circa Direct LLC,
No. 11-cv-2172 (D.N.J. Apr. 18, 2011) (stipulated order); Complaint
at 3-4, 6-7, FTC v. DLXM LLC, No. CV 11-1889 (E.D.N.Y. Apr. 18,
2011) (stipulated order); Complaint at 3-4, 6-7, FTC v. Coulomb
Media, Inc., No. 211-cv-11618 (E.D. Mich. Apr. 15, 2011) (stipulated
order).
\15\ See Complaint at 6, FTC v. Circa Direct LLC; see also
Memorandum in Support of Plaintiff's Motion for a TRO at 14, FTC v.
Circa Direct LLC (Apr. 18, 2011). Similarly, in a Securities and
Exchange Commission case concerning paid promotions of stocks that
appeared in a news format, a court held that, ``[t]he `advertorial'
label . . . simply does not convey to the reader that the articles,
which appear in a news-item format, were indeed purchased by the
subject companies; this label does not provide investors with the
material information regarding the publishers' bias.'' SEC v. Corp.
Relations Grp., Inc., No. 6:99-cv-1222, 2003 U.S. Dist. LEXIS 24925,
at *26-27 (M.D. Fla. Mar. 28, 2003).
---------------------------------------------------------------------------

In another recent case, the Commission challenged as deceptive a
Web site purported to originate from an independent scientific
organization. The Commission alleged that dietary supplement marketers
misrepresented that their Web site promoting the health benefits of
their children's supplements was an independent, objective resource for
scientific and other information on treating a specific health
condition, and that they failed to disclose their relationship to the
Web site.\16\
---------------------------------------------------------------------------

\16\ Complaint at 3-4, 28-29, FTC v. NourishLife, LLC, No. 15-
cv-00093 (N.D. Ill. Jan. 7, 2015) (stipulated order).
---------------------------------------------------------------------------

The Commission also has challenged advertisements misrepresenting
that a government agency endorsed or was

[[Page 22598]]

affiliated with a product or service. For example, one such case
against a seller of mortgage relief services concerned radio ads
formatted to appear as public service announcements from the United
States government, which began, ``Please stay tuned for this important
public announcement for those in danger of losing their home'' and
prominently featured the word ``federal.'' \17\ A federal district
court found these radio ads deceived consumers, observing that the
defendants ``intended to cause consumers to associate [those
responsible for the ads] with the federal government so that consumers
would be more likely to believe that [they] were credible and
stable.''\18\ The Commission similarly has alleged that direct mail
mortgage loan modification ads sent in official-looking brown envelopes
with a window and a Washington, DC return address identifying the
sender as the ``NHMC Department of Financial Records'' or ``Nations
Housing Modification Center'' were deceptive.\19\
---------------------------------------------------------------------------

\17\ Complaint at 6, 12, Fed. Loan Modification Law Ctr., LLP,
No. SACV-09-401 (C.D. Cal. Apr. 3, 2009) (summary and default
judgments). The Commission similarly has challenged sweepstakes
prize promotion mailings misrepresenting a government affiliation.
See, e.g., Complaint at 11-12, 15, FTC v. Nat'l Awards Serv.
Advisory, LLC, No. CV-10-5418 (N.D. Cal. Nov. 30, 2010) (stipulated
judgment) (some of the challenged mailings claimed a government
affiliation using words such as ``State of Illinois Commissioners of
Regulation'' or the ``OFFICE OF THE PRESIDENT OFFICIAL
NOTIFICATION,'' and included language, symbols, and artwork evoking
a government connection, such as ``In God We Trust'' or a bald
eagle).
\18\ Order Granting Plaintiff's Motion for Summary Judgment
Against Boaz Minitzer at 7, Fed. Loan Modification Law Ctr., LLP,
No. SACV-09-401 (C.D. Cal. Nov. 17, 2010).
\19\ Complaint at 5, 13, Fed. Hous. Modification Dep't, Inc.,
No. 09-CV-01753 (D.D.C. Sept. 15, 2009) (stipulated orders).
---------------------------------------------------------------------------

In 2002, when online search was a relatively new medium, FTC staff
issued guidance concerning the potential for consumers to be deceived
by paid ads formatted to appear as the regular search results that
search engines return in response to consumers' queries.\20\ The
Commission concurs with the staff's conclusion, as articulated in the
2002 guidance and updated guidance issued in 2013,\21\ that consumers
ordinarily would expect a search engine to return results based on
relevance to a search query, as determined by impartial criteria, not
based on payment from a third party. Knowing when search results are
included or ranked higher based on payment and not on impartial
criteria likely would influence consumers' decisions with regard to a
search engine and the results it delivers. Thus, failing to clearly and
prominently disclose the paid nature of such advertising results is
deceptive.
---------------------------------------------------------------------------

\20\ Letter from Heather Hippsley, Acting Associate Director,
Division of Advertising Practices, Federal Trade Commission to Gary
Ruskin, Executive Director, Commercial Alert (June 27, 2002)
(``Search Engine Guidance''), available at www.ftc.gov/sites/default/files/documents/closing_letters/commercial-alert-response-letter/commercialalertletter.pdf.
\21\ Press Release, Federal Trade Commission, FTC Consumer
Protection Staff Updates Agency's Guidance to Search Engine Industry
on the Need to Distinguish Between Advertisements and Search Results
(June 25, 2013), available at www.ftc.gov/news-events/press-releases/2013/06/ftc-consumer-protection-staff-updates-agencys-guidance-search; see also Exemplar letter from Mary K. Engle,
Associate Director, Division of Advertising Practices, Federal Trade
Commission to General Purpose Search Engines (June 24, 2013),
available at www.ftc.gov/sites/default/files/attachments/press-releases/ftc-consumer-protection-staff-updates-agencys-guidance-search-engine-industryon-need-distinguish/130625searchenginegeneralletter.pdf (``Updated Search Engine
Letter'').
---------------------------------------------------------------------------

B. Misleading Door Openers

Other formats that mislead consumers about a commercial message's
nature or purpose also have been alleged or found to be deceptive, such
as misleading sales visits and calls and emails with falsified sender
information. An early example of such a challenge was a 1976 case
against an encyclopedia seller.\22\ A salesperson would ``disguise his
role as a salesman and appear as a surveyor engaged in advertising
research'' or salespeople would ``approach prospects' homes in the
guise of delivering . . . gifts or prizes without identifying
themselves as salesmen, or that the purpose of their visit is to sell
encyclopedia.'' \23\ The Commission order required the respondents'
sales representatives to present a card that clearly disclosed the
purpose of the visit before entering a prospect's home.\24\
Subsequently, the Commission's Deception Policy Statement categorized
this practice as a ``misleading door opener,'' citing it for the
general proposition that, ``when the first contact between the seller
and a buyer occurs through a deceptive practice, the law may be
violated, even if the truth is subsequently made known to the
purchaser.'' \25\
---------------------------------------------------------------------------

\22\ Encyc. Britannica, Inc., 87 F.T.C. 421, 495-97, 531 (1976),
aff'd, 605 F.2d 964 (7th Cir. 1979), as modified, 100 F.T.C. 500
(1982); see also Grolier, Inc., 99 F.T.C. 379, 383 (1982), aff'd,
699 F.2d 983 (9th Cir. 1983), as modified, 104 F.T.C. 639 (1984).
\23\ Encyc. Britannica, Inc., 87 F.T.C. at 496.
\24\ Id. at 524-26, 533-34.
\25\ Deception Policy Statement, 103 F.T.C. at 180 & n.37. A
number of courts have stated or held, both before and after issuance
of the Deception Policy Statement, that the FTC Act is violated if a
consumer's first contact is induced through deception, even if the
truth is clarified prior to purchase. FTC v. E.M.A. Nationwide,
Inc., 767 F.3d 611, 632 (6th Cir. 2014); Resort Car Rental Sys.,
Inc. v. FTC, 518 F.2d 962, 964 (9th Cir. 1975); Exposition Press,
Inc. v. FTC, 295 F.2d 869, 873 (2d Cir. 1961); Carter Prods., Inc.
v. FTC, 186 F.2d 821, 824 (7th Cir. 1951); FTC v. LeanSpa, LLC, No.
3:11-cv-1715, 2015 U.S. Dist. LEXIS 26906, at *33-34 (D. Conn. Mar.
5, 2015); FTC v. Ivy Capital, Inc., No. 2:11-cv-00283, 2013 U.S.
Dist. LEXIS 42369, at *23 (D. Nev. Mar. 26, 2013); FTC v. Commerce
Planet, Inc., 878 F. Supp. 2d 1048, 1066 (C.D. Cal. 2012); FTC v.
City West Advantage, Inc., No. 2:08-CV-00609, 2008 U.S. Dist. LEXIS
71608, at *7-9 (D. Nev. July 22, 2008); FTC v. Med. Billers Network,
Inc., 543 F. Supp. 2d 283, 304 (S.D.N.Y. 2008); FTC v. Connelly,
2006 U.S. Dist. LEXIS 98263, at *49 (C.D. Cal. Dec. 20, 2006).
---------------------------------------------------------------------------

In 1994, concerned about deception and abuse occurring in the
telemarketing of goods and services, Congress enacted the Telemarketing
Fraud Act,\26\ which prohibited the use of deceptive door-openers in
telemarketing. That Act, among other things, outlawed as an abusive
practice a telemarketer's failure to ``promptly and clearly disclose .
. . that the purpose of the call is to sell goods or services'' when
that is the case.\27\ The Commission implemented Congress's intent to
prohibit this practice when it promulgated the Telemarketing Sales
Rule.\28\ In enforcing that Rule, the Commission has brought cases
against telemarketers who misrepresented that calls were from, or made
on behalf of, companies with which consumers had done business, such as
banks and credit card companies.\29\
---------------------------------------------------------------------------

\26\ 15 U.S.C. 6101-6108.
\27\ Id. at section 6102(a)(3)(C).
\28\ 16 CFR 310.4(d)(2).
\29\ See Complaint at 26, 28, FTC v. FTN Promotions, Inc., No.
807-cv-1279 (M.D. Fla. July 23, 2007) (stipulated orders);
Complaint, Millennium Indus., Inc., No. 01-1932 (D. Ariz. Oct. 18,
2001) (stipulated order); Complaint, Creditmart Fin. Strategies
Inc., No. C99-1461WD (W.D. Wash. Sept. 14, 1999) (stipulated order);
Complaint, Liberty Direct, Inc., No. 299-cv-01637 (D. Ariz. Sept.
14, 1999) (stipulated order).
---------------------------------------------------------------------------

When Congress passed the CAN-SPAM Act,\30\ among the practices the
law was intended to address were emails that ``mislead recipients as to
the source or content of such mail.'' \31\ Specifically, Congress
concluded that ``[m]any senders of unsolicited commercial electronic
mail purposefully disguise the source of such mail'' and ``include
misleading information in the messages' subject lines in order to
induce the recipients to view the messages,'' and that the recipients
of such mail ``incur costs for the . . . time spent accessing,
reviewing, and discarding such mail . . .'' \32\ The CAN-SPAM Act
therefore effectively prohibited deceptive door-openers in commercial
email. The Act outlawed the sending of emails containing falsified
header information,

[[Page 22599]]

including sender or subject information, and made doing so a violation
of the FTC Act.\33\ Even prior to the law's passage, in a case against
an email marketer, the Commission alleged it was deceptive to forge an
email's header information so as to make recipients believe a well-
known bank or mortgage company sent it.\34\
---------------------------------------------------------------------------

\30\ 15 U.S.C. 7701-7713.
\31\ Id. at section 7701(b)(2).
\32\ Id. at section 7701(a)(3), (7), and (8).
\33\ Id. at section 7704(a)(1) and (2). In certain
circumstances, materially falsifying header information also can be
a crime punishable by a fine, imprisonment, or both, and enforceable
by the United States Department of Justice. See 18 U.S.C. 1037.
\34\ Complaint, GM Funding, Inc., No. SACV 02-1026 (C.D. Cal.
May 5, 2003) (stipulated order). The Commission has since brought a
number of other cases challenging spam emails with deceptive sender
and subject line information. See, e.g., Complaint at 21, FTC v.
Sale Slash, LLC, No. CV15-03107 (C.D. Cal. Apr. 27, 2015); Complaint
at 10-11, FTC v. Cleverlink Trading Ltd., No. 05C 2889 (N.D. Ill.
May 16, 2005) (stipulated order); Complaint, Phoenix Avatar, LLC,
No. 04C 2897 (N.D. Ill. Apr. 23, 2004).
---------------------------------------------------------------------------

C. Deceptive Endorsements That Do Not Disclose a Sponsoring Advertiser

Consumers may also be misled about an advertisement's nature or
source as a result of an advertiser's use of consumer and other
endorsements. As the Commission stated in the Endorsement Guides,
``When there exists a connection between the endorser and the seller of
the advertised product that might materially affect the weight or
credibility of the endorsement (i.e., the connection is not reasonably
expected by the audience), such connection must be fully disclosed. . .
. clearly and conspicuously . . .'' \35\ In revising the Guides in
2009, the Commission specifically addressed paid endorsements in non-
traditional forms of advertising, such as user-generated social media,
personal blogs, online comment forums, or television talk show
interviews.\36\ The Commission's advice was based on the principle that
when the content in which an endorsement is disseminated is not
identifiable by consumers as advertising, consumers would not
ordinarily expect an endorser to be speaking on behalf of a sponsoring
advertiser and such connection must be disclosed to avoid deceiving
consumers.
---------------------------------------------------------------------------

\35\ Guides Concerning Use of Endorsements and Testimonials in
Advertising (hereinafter ``Endorsement Guides''), 16 CFR 255.5
(Disclosure of material connections).
\36\ Id. Examples 3, 7, 8, 9.
---------------------------------------------------------------------------

Since revising the Endorsement Guides, the Commission has brought a
number of cases underscoring this principle.\37\ For example, in a case
against an app developer, employees of a public relations firm hired by
the developer posted reviews about its games in the iTunes app store,
without disclosing their relationship to the company.\38\ The
Commission asserted that the posted reviews were misrepresented as
independent reviews reflecting the opinions of ordinary consumers, and
that the failure to disclose the reviewers' material connection to the
app company was deceptive. Another case concerned a home security
firm's hiring of spokespersons who appeared on television and radio
programs as impartial expert reviewers but failed to make known their
connection to the company.\39\
---------------------------------------------------------------------------

\37\ See, e.g., Machinima, Inc., No. C-4569, 2016 FTC LEXIS 37,
at *8-10 (Mar. 16, 2016) (consent); AmeriFreight, Inc., 159 F.T.C.
1627, 1629 (2015) (consent); Deutsch LA, Inc., 159 F.T.C. 1164, 1169
(2015) (consent); Complaint at 5, ADT LLC, No. C-4460 (June 18,
2014) (consent); Complaint at 10, United States v. Spokeo, Inc., No.
CV12-05001 (C.D. Cal. June 19, 2012) (stipulated order for civil
penalties); Legacy Learning Sys., Inc., 151 F.T.C. 383, 386-87
(2011) (consent); Reverb Commc'ns, Inc., 150 F.T.C. 782, 784 (2010)
(consent).
\38\ Reverb Commc'ns, Inc., 150 F.T.C. 782, 783-84 (2010)
(consent).
\39\ Complaint at 1-5, ADT LLC.
---------------------------------------------------------------------------

II. Commission Policy on Deceptively Formatted Advertising

The recent proliferation of natively formatted advertising in
digital media has raised questions about whether these advertising
formats deceive consumers by blurring the distinction between
advertising and non-commercial content. Natively formatted advertising
encompasses a broad range of advertising and promotional messages that
match the design, style, and behavior of the digital media in which it
is disseminated. The ads can appear in a wide variety of forms,
including written narratives, videos, infographics, images, animations,
in-game modules, and playlists on streaming services. Often natively
formatted ads are inserted into the stream of regular content a
publisher offers,\40\ generally referred to in this statement as a
``publisher site,'' such as news and news aggregator sites and social
media platforms.\41\ In some instances, publishers place these ads on
their sites and, in other instances, advertising networks operating ad
content-recommendation engines do so. Advertising and promotional
messages also can be embedded into entertainment programming, including
professionally produced and user-generated videos on social media.
---------------------------------------------------------------------------

\40\ Commonly, when a natively formatted ad appears on a
publisher site, it consists of headline text, a short description,
and a thumbnail image, which, if clicked, lead to additional
content.
\41\ The term ``publisher site'' refers to any media platform on
which consumers consume content and media creators and curators
publish content. The content may be delivered by publishers through
various means, including the web and mobile applications, and may be
accessed by consumers on different devices, including computers,
smartphones, tablets, and televisions.
---------------------------------------------------------------------------

Regardless of an ad's format or medium of dissemination, certain
principles undergird the Commission's deceptive format policy.
Deception occurs when an advertisement misleads reasonable consumers as
to its true nature or source, including that a party other than the
sponsoring advertiser is the source of an advertising or promotional
message, and such misleading representation is material. In this
regard, a misleading representation is material if it is likely to
affect consumers' choices or conduct regarding the advertised product
or the advertisement, such as by leading consumers to give greater
credence to advertising claims or to interact with advertising with
which they otherwise would not have interacted.\42\ Such misleadingly
formatted advertisements are deceptive even if the product claims
communicated are truthful and non-misleading.\43\
---------------------------------------------------------------------------

\42\ By product or advertising claims, the Commission generally
means any representations about the benefits or attributes of a
product, type of product, or category of products, including
disparaging claims about a competitor's products.
\43\ The Commission has challenged advertising formats as
deceptive without challenging product claims made in advertisements.
See, e.g., Complaint, ADT LLC; Georgetown Publ'g House Ltd. P'ship,
121 F.T.C. 392; JS&A Grp., Inc., 111 F.T.C. 522.
---------------------------------------------------------------------------

Although the particular facts will determine whether an
advertisement formatted like the material in which it appears is
deceptive, this statement sets forth the factors the Commission will
consider in making that determination.

A. An Advertisement's Format Can Mislead Consumers as to Its Nature or
Source

In evaluating whether an ad's format is misleading, the Commission
considers the net impression the advertisement conveys to reasonable
consumers, not statements in isolation.\44\ Ads can convey claims by
means other than, or in addition to, written or spoken words, such as
visual or aural imagery and the interaction among all elements of the
ad.
---------------------------------------------------------------------------

\44\ FTC v. Am. Home Prods. Corp., 695 F.2d 681, 687 (3d Cir.
1982), citing Beneficial Corp. v. FTC, 542 F.2d 611, 617 (3d Cir.
1976).
---------------------------------------------------------------------------

Applying the net impression standard in its Advisory Opinion on Ads
in a News Format, the Commission commented that inclusion of exact
price information would not change the overall impression conveyed that
a series of newspaper ads were feature articles giving independent and

[[Page 22600]]

impartial restaurant reviews.\45\ In a case against a bookseller, the
Commission's complaint noted a number of elements, including the
challenged ad's printing on magazine-like paper, a ripped left edge,
page numbering, inclusion of a publication date and byline, and an
affixed personalized sticky note, in alleging that the overall
impression created was that the ad was an independent book review.\46\
Thus, in evaluating whether an ad's format is misleading, the
Commission will scrutinize the entire ad, examining such factors as its
overall appearance, the similarity of its written, spoken, or visual
style to non-advertising content offered on a publisher's site, and the
degree to which it is distinguishable from such other content.
---------------------------------------------------------------------------

\45\ Advisory Opinion on Ads in News Formats, 73 F.T.C. at 1307-
08.
\46\ Georgetown Publ'g House Ltd. P'ship, 122 F.T.C. at 393-96.
---------------------------------------------------------------------------

Any determination of whether an advertisement's format misleads as
to the ad's nature or source depends on how reasonable consumers would
interpret the ad in a particular situation. To be reasonable, an
interpretation or response of consumers to a particular ad need not be
the only one nor be shared by a majority of consumers.\47\
Interpretations that advertisers intend to convey about an
advertisement's nature or source are presumed reasonable.\48\
---------------------------------------------------------------------------

\47\ Deception Policy Statement, 103 F.T.C. at 177 n.20. ``A
material practice that misleads a significant minority of reasonable
consumers is deceptive.'' Id.
\48\ Id. at 178.
---------------------------------------------------------------------------

In digital media, consumers can encounter natively formatted ads in
a wide variety of situations, including in the news feed or main page
of a publisher site, or through other means, such as posts in social
media, in search results, and in email. In evaluating whether
reasonable consumers would recognize ads as such, the Commission will
consider the particular circumstances in which the ads are
disseminated, including customary expectations based on consumers'
prior experience with the media in which it appears and the impression
communicated by the ad's format.\49\ For instance, if a natively
formatted ad appearing as a news story is inserted into the content
stream of a publisher site that customarily offers news and feature
articles, reasonable consumers are unlikely to recognize it as an ad.
---------------------------------------------------------------------------

\49\ For example, consumers' customary use of and prior
experience with search engines are relevant to the need to
distinguish paid from regular search results. See Updated Search
Engine Letter, at note 2 and accompanying text.
---------------------------------------------------------------------------

The target audience of an ad also may affect whether it is likely
to mislead reasonable consumers about its nature or source.
Increasingly, in digital media, advertisers can target natively
formatted ads to individual consumers and even tailor the ads'
messaging to appeal to the known preferences of those consumers.\50\
The propensity of an ad to mislead as to its nature or source may be
different when considered from the perspective of its target audience.
To the extent that an advertisement is targeted to a specific audience,
the Commission will consider the effect of the ad's format on
reasonable or ordinary members of that targeted group.\51\
---------------------------------------------------------------------------

\50\ There may be a host of data collection and use activities
associated with natively formatted ads disseminated programmatically
in digital media, some of which may not be transparent to consumers.
This enforcement policy statement is not intended to address the
legal and policy implications of such practices. Existing Commission
and staff guidance address the privacy issues raised by digital
advertising and consistently recommend that companies provide
truthful and prominent information and choices to consumers about
their data collection, use, and sharing practices. See, e.g., FTC,
Protecting Consumer Privacy in an Era of Rapid Change:
Recommendations For Businesses and Policymakers (Mar. 2012),
available at https://www.ftc.gov/sites/default/files/documents/reports/federal-trade-commission-report-protecting-consumer-privacy-era-rapid-change-recommendations/120326privacyreport.pdf
(recommending a framework for addressing consumer privacy, including
transparency and simplified choice regarding the online collection
and use of consumer data for marketing purposes); FTC Staff Report:
Self-Regulatory Principles For Online Behavioral Advertising:
Tracking, Targeting, and Technology (Feb. 2009), available at
www.ftc.gov/sites/default/files/documents/reports/federal-trade-commission-staff-report-self-regulatory-principles-online-behavioral-advertising/p085400behavadreport.pdf (setting forth
proposed principles related to online behavioral advertising).
\51\ Deception Policy Statement, 103 F.T.C. at 177-78. For
example, special considerations may be relevant in determining
whether a natively formatted ad directed to children would be
misleading. Id. at 177; cf. Commission Enforcement Policy Statement
in Regard to Clear and Conspicuous Disclosure in Television
Advertising, CCH Trade Regulation Reporter, ] 7569.09 (Oct. 21,
1970) available at www.ftc.gov/system/files/documents/public_statements/288851/701021tvad-pr.pdf (disclosures in
television ads that are intended to qualify misleading claims
communicated to children ``must be written and presented in a manner
that would be understood by them and have the capacity to attract
their attention'').
---------------------------------------------------------------------------

Certain ads that are formatted like the non-advertising content
with which they are presented, however, may be unlikely to mislead
consumers acting reasonably. Some ads by the very nature of their
promotional message communicated may be inherently obvious as
advertising to consumers. For instance, if a natively formatted ad with
an image of a particular sports car and the headline ``Come and Drive
[X] today'' were inserted into the news stream of a publisher site,
that ad likely would be identifiable as an ad to consumers, even though
it was presented in the same visual manner as news stories in the
stream.
Finally, in determining the overall impression communicated by an
ad, the Commission also will consider any qualifying information
contained in the ad.\52\ Advertisements may include disclosures to
inform consumers of their commercial nature, including text labels,
audio disclosures, or visual cues distinguishing the ad from other
content into which it is integrated. Any disclosure used must be
``sufficiently prominent and unambiguous to change the apparent meaning
of the claims and to leave an accurate impression.'' \53\ A
disclosure's adequacy ultimately will be measured by whether reasonable
consumers perceive the ad as advertising.\54\
---------------------------------------------------------------------------

\52\ Deception Policy Statement, 103 F.T.C. at 181.
\53\ Removatron Int'l Corp. v. FTC, 884 F. 2d 1489, 1497 (1st
Cir. 1989).
\54\ See supra note 47 and accompanying text.
---------------------------------------------------------------------------

A disclosure must be made in ``simple, unequivocal'' language, so
that consumers comprehend what it means.\55\ For example, in
infomercial cases, the Commission has required the use of the words
``Paid Advertisement.'' \56\ In its Advisory Opinion on Ads in a News
Format, the Commission suggested use of the term ``Advertisement'' to
prevent consumers from being deceived by those particular advertising
formats.\57\ Disclosures also must be made in the same language as the
predominant language in which ads are communicated.\58\
---------------------------------------------------------------------------

\55\ Thompson Medical Co., 104 F.T.C. 648, 783 (1984), aff'd,
791 F.2d 189 (D.C. Cir. 1986).
\56\ See, e.g., FTC v. Direct Mktg. Concepts, Inc., 648 F. Supp.
2d at 209, 211; Vital Basics, Inc., 137 F.T.C. at 340-41; Nutrivida,
Inc., 126 F.T.C. at 351-52; Bogdana Corp., 126 F.T.C. at 100-01;
Mega Sys. Int'l, Inc., 125 F.T.C. at 1218-19.
\57\ Advisory Opinion on Ads in News Formats, 73 F.T.C. at 1307-
08; Statement on Ads in Feature Article Format.
\58\ See, e.g., Final Order and Judgment at 8, Direct Mktg.
Concepts, Inc., No. 04-11136-GAO (D. Mass. Aug. 13, 2009) (as to
Direct Marketing Concepts, Inc. and others); Free Annual Credit
Disclosures, 16 CFR 610.4(a)(3)(ii) (general requirements for
disclosures).
---------------------------------------------------------------------------

The conspicuousness of the disclosure will depend on the method of
delivery and placement within the ad. Depending on the circumstances, a
disclosure in the text may not remedy a misleading impression created
by the headline because reasonable consumers might glance only at the
headline.\59\ In Commission cases and Rules addressing audio ads, the
Commission has required audible disclosures to be delivered in a
volume, cadence, and speed sufficient

[[Page 22601]]

for ordinary consumers to hear and understand them.\60\
---------------------------------------------------------------------------

\59\ Deception Policy Statement, 103 F.T.C. at 180.
\60\ See, e.g., Final Order and Judgment at 8, Direct Mktg.
Concepts, Inc. (radio disclosures must be ``in a volume and cadence
sufficient for an ordinary consumer to hear''); Carrot
Neurotechnology, Inc., No. C-4567, 2016 FTC LEXIS 24, at *4 (Feb.
22, 2016) (consent) (necessary disclosures under the order must be
``in a volume, speed, and cadence sufficient for ordinary consumers
to easily hear and understand''); Free Annual Credit Disclosures, 16
CFR 610.4(a)(3)(iv) (``Audio disclosures shall be in a slow and
deliberate manner and in a reasonably understandable volume and
pitch.'').
---------------------------------------------------------------------------

To be effective, a disclosure also generally must be made
contemporaneously with the misleading claim it is intended to qualify.
For example, disclosures that subsequently inform consumers of a
natively formatted ad's commercial nature after they have clicked on
and arrived at another page will not cure any misleading impression
created when the ad is presented in the stream of a publisher site.
This approach also reflects and is consistent with long-standing public
policy, as codified in the CAN-SPAM Act \61\ and Telemarketing Fraud
Act \62\ and found in Commission cases,\63\ that material
misrepresentations as to the nature or source of a commercial
communication are deceptive, even if the truth is subsequently made
known to consumers.
---------------------------------------------------------------------------

\61\ 15 U.S.C. 7701-7713 at 7704(a)(2).
\62\ 15 U.S.C. 6101-6108 at 6102(a)(3)(C).
\63\ See, e.g., supra notes 22, 25, 34 and accompanying text.
---------------------------------------------------------------------------

B. Misleading Claims About the Nature or Source of Advertising Are
Likely Material

Deception occurs when an ad misleads consumers about a material
fact.\64\ Material facts are those that are important to consumers'
choices or conduct regarding a product.\65\ Misleading representations
or omissions about an advertisement's true nature or source, including
that a party other than the sponsoring advertiser is the source of the
advertising, are likely to affect consumers' behavior with regard to
the advertised product or the advertisement.\66\ Consumers with such a
misleading impression, for example, are likely to give added credence
to advertising messages communicated and to interact with advertising
content with which they otherwise would have decided not to
interact.\67\
---------------------------------------------------------------------------

\64\ Deception Policy Statement, 103 F.T.C. at 182.
\65\ Kraft, Inc. v. FTC, 970 F.2d 311, 322 (7th Cir. 1992) (``a
claim is considered material if it `involves information that is
important to consumers and, hence, likely to affect their choice of,
or conduct regarding a product''') (quoting Cliffdale Assocs., Inc.,
103 F.T.C. at 165). Material information may influence consumer
behavior apart from the purchase of a product. Deception Policy
Statement, 103 F.T.C. at 182 n.45. A material misrepresentation is
one ``the reasonable person would regard as important in deciding
how to act, or one which the maker knows that the recipient, because
of his or her own peculiarities, is likely to consider important.''
Id. (citing Restatement (Second) of Torts, section 538(2) (1965)).
\66\ There are some exceptions, where consumers might not act
differently if they were to identify certain forms of advertising as
such. For example, if a branded product is included in entertainment
programming in exchange for payment or other consideration from an
advertiser, unless this paid product placement communicates an
objective claim about a product, the fact that such advertising was
included because of payment is unlikely to affect consumers'
decision-making. When no objective claims are made for the product
advertised, there is no claim to which greater credence can be
given; thus, whether an advertiser had paid for the placement or the
product appeared because of the program writer's creative judgment
would not likely be material to consumers. See generally Letter from
Mary K. Engle, Associate Director, Division of Advertising
Practices, Federal Trade Commission to Gary Ruskin, Executive
Director, Commercial Alert (Feb. 10, 2005), available at
www.ftc.gov/system/files/documents/advisory_opinions/letter-commercial-alert-applying-commission-policy-determine-case-case-basis-whether-particular/050210productplacemen.pdf (response to a
petition from a consumer group to issue guidelines requiring the on-
screen disclosure ``ADVERTISEMENT,'' whenever paid product placement
occurred in television programming; FTC staff concluded that such a
disclosure would not generally be necessary to prevent deception and
that when particular instances of paid product placement or brand
integration were deceptive, they could be adequately addressed on a
case-by-case basis).
\67\ In evaluating materiality, the Commission takes consumer
preferences as given rather than considering whether they are
objectively justified. Deception Policy Statement, 103 F.T.C. at 182
n.46.
---------------------------------------------------------------------------

The Commission presumes that claims made expressly and claims the
advertiser intended to make are material.\68\ The Commission also
considers certain misleading formats to be presumptively material.
Depending on the facts, false claims that advertising and promotional
messages reflect the independent, impartial views, opinions, or
experiences of ordinary consumers or experts are presumed material.\69\
Similarly, the Commission views as material any misrepresentations that
advertising content is a news or feature article,\70\ independent
product review,\71\ investigative report,\72\ or scientific research or
other information from a scientific or other organization.\73\
Commercial communications that mislead consumers that they are from the
government,\74\ a legitimate business, such as a well-known bank,\75\
or a marketing surveyor \76\ also are presumed to be material.
---------------------------------------------------------------------------

\68\ Deception Policy Statement, 103 F.T.C. at 182.
\69\ See, e.g., supra notes 36, 37, 38, 39 and accompanying
text. Regarding the specific issue of advertisers using
spokespersons to promote products in programming without disclosing
the spokesperson's financial ties to the advertiser, a connection
between an advertiser and an endorser that is not reasonably
expected by the audience must be fully disclosed. See, e.g., ADT
LLC, No. C-4460, 2014 FTC LEXIS 142, at *3, 5-6 (June 18, 2014)
(consent); Endorsement Guides, 16 CFR 255.5.
\70\ See, e.g., supra notes 7, 8, 13, 14 and accompanying text.
\71\ See, e.g., supra note 10 and accompanying text.
\72\ See, e.g., supra notes 12, 13 and accompanying text.
\73\ See, e.g., supra note 16 and accompanying text.
\74\ See, e.g., supra notes 17, 18, 19 and accompanying text.
\75\ See, e.g., supra notes 29, 34 and accompanying text.
\76\ See, e.g., supra note 23 and accompanying text.
---------------------------------------------------------------------------

III. Conclusion

Although digital media has expanded and changed the way marketers
reach consumers, all advertisers, including digital advertisers, must
comply with the same legal principles regarding deceptive conduct the
Commission has long enforced. This statement sets forth principles of
general applicability on which the Commission will rely in determining
whether any particular advertising format is deceptive, in violation of
Section 5 of the FTC Act. The Commission will find an advertisement
deceptive if the ad misleads reasonable consumers as to its nature or
source, including that a party other than the sponsoring advertiser is
its source. Misleading representations of this kind are likely to
affect consumers' decisions or conduct regarding the advertised product
or the advertisement, including by causing consumers to give greater
credence to advertising claims or to interact with advertising content
with which they otherwise would not have interacted.

By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2016-08813 Filed 4-15-16; 8:45 am]
BILLING CODE 6750-01-P

Document Created: 2016-04-16 01:45:23
Document Modified: 2016-04-16 01:45:23

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
Action		Commission policy statement.
Dates		The Commission announced the issuance of the Statement on December 22, 2015.
Contact		Laura Sullivan (202-326-3327) or Michael Ostheimer (202-326-2699), Bureau of Consumer Protection, 600 Pennsylvania Avenue NW., Washington, DC 20580.
FR Citation		81 FR 22596