Advertising is a paid insertion of content into content created by someone other than the advertiser. All advertising has to conform to the physical limits and requirements of the medium into which it is placed. Good advertising is compatible with the medium or content vehicle and engages and serves the relevant audience. "Native Advertising" connotes advertising that is maximally compatible in form and function with the "editorial" content of the medium. The goal of appropriate native advertising is to achieve this compatibility and provide the best possible user experience and acceptance of the message, while at the same time communicating information about the genesis of the content that is material to the readers, viewers and now, in digital media, "users" and "consumers".
The discussion of "Native Advertising" has been muddied by two distinct issues: (1) curation – the degree to which the apparent editor or author was influenced to select the content (commonly disclaimed as "sponsored content") and (2) integrity – the degree to which the content itself was influenced by anyone other than the apparent editor or author (commonly disclaimed as "sponsor content"). The law requires adequately communicating the information necessary to the consumer's understanding of any material connection between the author of the content and someone seeking to influence consumers' purchasing decisions. This essential communication is often being lost in the attempt to meet the less important (and perhaps impossible) task of also communicating influences over curation.
The only thing that is clear about native advertising is that myriad ways in which advertisers influence the selection and integrity of content in digital media is far too complicated to effectively be communicated by disclaimers. Publishers and advertisers will have to change the ways they accommodate these concerns and legal requirements as the media and technology evolve and consumers'/users' comprehension of the sources and influences over publishers' offerings develop over time.
CURATION AND SPONSORSHIP OF CONTENT
Trusted media offer tremendous value as curators of the flood of available content, and they want to preserve a distinction between what they choose on the merits and what they publish for other reasons, e.g., "sponsored". Many readers would like to know whether the editor of a publication or website was influenced by something other than pure editorial judgment in selecting specific content, but the fact is that virtually all content is "sponsored" (or supported) in some manner by either 1) a patron, 2) advertisers, or 3) subscribers. Thus the editor's selection is subject to some degree of influence. Monetizing content while competing with venture backed content sites that have no need to monetize their content ("patron" supported content creators) has driven publishers who cannot survive on subscription revenue to further accommodate "native advertising." New digital media are developing and publishing content without promising independence from the influence of sponsors or patrons on their curation choices. The law does not require a warning to readers to protect their interest in not wasting their time on content that has not been curated by a trusted source, at least where there is no likelihood of influencing a purchasing decision.
Trustworthy curation significantly contributes to audience loyalty, size, time of engagement, and successful communication. Thus, the audience's trust in the publisher's integrity is extremely valuable. Each publication has to communicate its degree of sponsor or patron influence as part of its positioning in a competitive marketplace. The degree of sponsor influence may vary from a sponsor purchasing advertising to providing financial support without conditions. The user needs to know whether to trust in the information, but requiring specific communication about the degree of sponsor influence over the curation of the content may be asking too much.
It must be possible for brands to communicate valuable information and brand-building content that is not burdened with a signal or disclaimer that more or less communicates that the user should avoid or distrust the content. Given the rapidly expanding variety of native advertising vehicles, better and more "native" communication (as opposed to ineffective disclosures) will be required. As users become more sophisticated about the different connections between brands and content, it will become increasingly valuable to be able to identify an author or source of the content rather than simply labeling everything as "sponsored content." Recognizable sources of content that can be communicated by a byline or as an integral aspect of the content, as opposed to a generic disclaimer, will be a valuable means of providing the reader or user with the necessary context, including the degree of independence of the author or source. Given the opportunity to experiment with means of communicating the integrity of the source, the authenticity of the expertise, and the degree to which the source is independent or invested in its own reputation, advertisers should find ways to effectively communicate necessary information without relying on stock disclaimers.
Liability Concerns
There are two conflicting liabilities that advertisers and media face in handling "Native Advertising": (1) the liability for failure to disclose a material connection between the author and someone seeking to influence consumers' purchasing decisions, and (2) the liability that may be imposed when editorial content is labeled advertising so that it becomes "commercial speech" with less First Amendment protections, e.g., fair use in copyright, and protection against right of publicity claims. Overzealous labelling of content as commercial in an effort to communicate even immaterial influences on curation and content may trivialize the label and still create the additional exposure to liability that attaches to "commercial speech."
The definition of commercial speech begins with a speech whose sole purpose is to propose a commercial transaction1, but it may extend to include any speech by a company that sells products or services and seeks to influence how consumers view the company "for the purpose of promoting sales of its product."2 The "commercialization" of content affects the application of First Amendment defences3 and can provide the basis for a right of publicity claim4. It may impact the fair use defense against copyright infringement claims5 and trademark infringement or "dilution"6 claims. Merely allowing the commercial content to reference the editorial content in a publication that includes both can give rise to right of publicity claim by anyone whose name, biographical information or even "persona" is included in the content7. Both the media catering to advertisers who seek to influence the content of otherwise "editorial" speech and the advertisers who seek to influence the consuming public may incur significant liability from crossing over from editorial to commercial speech.
The problem of the competing liabilities is illustrated by the long standing practice of media selling placement of advertising adjacent to editorial content especially compatible with the brand's message. For example, Rolling Stone magazine was sued by rock musicians who argued that the editorial content in which they were mentioned should be considered "advertising" because Rolling Stone sold the adjacent advertising space based on the nature of the content8. In that case, the advertiser purchased a "butterfly" gatefold, where the editorial content can be viewed only by opening up the surrounding advertising pages to reveal the four page fold-out of the content spread inside. The court held that the content was not advertising and the magazine was not subject to a right of publicity claim by the musicians so long as the editorial content was in no way influenced by someone "engaged in the sale or hire of products or services." The court made note of the magazine's editor's description of the wall between the editorial and advertising staff, the purity of its editorial writing and functions, and the court's own conclusion that the advertising was entirely different in look and feel. The facts that the court relied upon in dismissing the claim that the content was advertising in disguise are rather dramatic and, if viewed as essential, would set a high bar for avoiding these types of right of publicity claims in the future:
- Although informed of the subject of the feature, the advertiser was not told of the specific content;
- There was no evidence that anyone at Rolling Stone (or the advertiser) had any concerns that the advertisement and the Feature would be perceived as an integrated whole;
- The advertiser had no input into the content, design or look of the Feature;
- The advertiser did not review or approve the Feature; and
- The editorial staff that created the Feature at the time of creating it was unaware of the advertiser who would appear on the surrounding pages.
In short, the court embraced the "industry practice" of a "wall" between editorial and advertising staff to insure "that there is no advertiser influence or pressure on editorial independence." This is not to say that all of these standards must be met to avoid liability for a similar commercial appropriation claim, but plaintiffs will likely argue this very high standard.
Thus, using the term "Native Advertising" in presupposing that brand influence equals "advertising" is a recipe for disaster for both media and brands. The "wall" between editorial and advertising is crumbling. Advertisers have knowledge of the editorial material in which their content is placed. Virtually all media are now creating and accepting "native advertising." Digital media are monetizing content with links and revenue share arrangements. New technologies increase the risk of claims based on the commercialization of editorial content. When "advertising" was created exclusively by advertising agencies, the advertisers and the media were indemnified by advertising agencies with E&O insurance covering this liability. "Native Advertising" is often created by the media in which it appears or by the advertiser on its own. Advertisers must consider that they are now publishers of content, and they may be solely responsible for the clearance of rights. Media, accustomed to the First Amendment protections afforded to editorial content, face similar potential liability in connection with creating advertising.
Brand Website Content and Messaging
The content of brand websites is entitled to the same First Amendment protection as any other editorial content9. Even a website that includes opportunities to purchase products may contain "editorial" content fully protected by First Amendment principles alongside commercial content that sells products.10 It may be possible to enrich a brand's website with content that does not have to be labeled "advertising" even where it is supported by an entity that seeks to influence how consumers view the brand, if any connection between the author and the brand is not material to consumers' purchasing decisions, and the editorial content is separate from the commercial content so that a person whose name or picture is in the editorial content cannot successfully claim that he or she has been used for a commercial purpose11. The independence, integrity, and trustworthiness of the author or organization responsible for the content are what provide the value of the content, and presumably the ability to retain First Amendment defenses. However, public relations professionals accustomed to supplying content to First Amendment protected media may be surprised by a claim that website content is deemed to give rise to publicity rights claims.12
One major problem facing brand websites is the presentation of consumer endorsements. The Federal Trade Commission's recent revision to its Guides Concerning the use of Endorsements and Testimonials in Advertising13, require advertisers to insure disclosure of their influence over any otherwise seemingly independent media or blogger who writes about their products. Media may also be held accountable for failure to disclose a material relationship, not otherwise apparent, between the brand and a review or endorsement contained in an article or other content14. This obligation is not met merely by labeling the content as "sponsor content" or even as "advertising".
Media Created "Native Advertising"
The monetization of content necessary to publishers' survival in the digital space is relentlessly driving the media to take into account the needs of advertisers. Revenue sharing for digital media referring consumers to commerce sites is essential to being competitive. Some instruction or at least sharing of data between the staff responsible for creating "digital advertising" and the editorial staff who understand the audience and the tolerance of the entity for native advertising is inevitable. While it is a short hop from creating content that creates a hospitable environment for advertising of a particular product or category to creating actual advertising for that product, media companies' producers, authors and editors (unlike advertising professionals) have been accustomed to the warm embrace of First Amendment protection against claims by people who see themselves in the editorial material created for advertisers.15 Advertisers' bolder efforts to make advertising compatible with the look and feel of the editorial content, make it function in tandem with the editorial content, and tie it into web links and interactive content, all create additional causes for concern.16 Even the agreement by a magazine to feature a product in its editorial content in exchange for purchasing advertising space could create a right of publicity claim by someone featured in the editorial content.17 The Rolling Stone case even suggested that emails expressing caution about editorial content being perceived as part of the adjacent advertising might be grounds to question whether there was sufficient separation between content creation and the influence of advertisers.
Online media that integrate brand messaging and facilitate online purchasing need to effectively communicate whatever information is material to a consumer's understanding of the relationship between the content and the commerce. New and developing technology and interactivity create challenges to this effective communication. Brands must be sensitive to their potential liability when media are willing to experiment with new technology for integration of brand content, including the ability to digitally match the look and feel and even colors and fonts of online media. Publishers can communicate the overall context in which sponsored content is presented. This context may be the most effective means of communicating both the influences on curation and on the author of the content.
User Generated Content
Consumers' understanding of copyright principles and rights of celebrities are limited. Inviting or even allowing consumers to create or manipulate content may result in content that is the basis for claims against the brand, including that it constitutes advertising.18 Both advertisers and publishers need to be wary of the extensive use of interactive advertising and promotion. User generated content may itself be a form of "native advertising." In addition, once this content is deemed to be advertising, there is the additional risk that a person or entity who is referenced in the content may claim under the Lanham Act that there is a likelihood of confusion over whether they approved any association with the content19.
DISCLOSURE
The ability of brands to integrate their messages into online and social media prompted the FTC to revise its Endorsement Guidelines to emphasize that they apply to all digital media20. The cardinal principle of these guidelines is that any connection between the apparent speaker and a brand that is material to a consumer's purchasing decision must be clearly and conspicuously disclosed.21 However, the reliance on blanket disclaimers is inadequate to the task. Moreover, it disadvantages legacy media who are fighting to survive competition from free interactive websites that are financed by venture capital and thus do not have to immediately monetize their content. Imposing a legal requirement to disclose all influence over the selection of content merely to protect consumers from giving their attention to "native advertising" may unjustifiably interrupt the "user experience." Negative sounding labeling that implies that the content is unworthy of consideration (i.e., that it is tainted by advertiser involvement) may not be necessary where there is no claim or information that is likely to influence consumers' purchasing decisions. Brand influence is flowing over and around editorial content in an effort to create engaging and interesting online content that can support the costs of content creation. Whatever information is necessary to protect consumers is best communicated as an integral part of the content. Disclaimers should be relied upon only as truly necessary.22 They should not be required in every instance of brand influence over selection of subject matter. The independence of curation may best be left to the publishers' marketing strategy and contextual choice.
Disclosure of Material Connections
Any connection between an endorser and the endorsed brand or product, at least where it is likely to effect the weight or credibility of the content, must be disclosed. "Astroturfing" or phony grass roots advertising where employees or persons hired to do so pose as consumers and post positive reviews about a company is deceptive.23 Paying an independent author to publish content pertaining to a product or service may trigger a need to disclose the consideration. In a letter closing an investigation into gifts provided to bloggers, the FTC said that it was "concerned that bloggers...failed to disclose that they received gifts for posting blog content."24 The FTC also suggests that a blogger's future expectation of support or consideration, including the continuing supply of valuable samples or other free items or perks, may be sufficient influence over the blogger to constitute a "material connection" to a company supplying products for review by the blogger which should be disclosed.25
The FTC Endorsement Guides include various examples which give guidance on when a connection between an advertiser and an endorser need not be disclosed. A material connection between a brand and the content is one that might influence the consumers' purchasing decisions or the weight that they would give to any information or recommendation. No disclosure is necessary where the consumer understands the connection. For example, compensation to a celebrity for an endorsement, regardless of whether the payments are in the form of an up-front cash payment or royalties based on sales, ordinarily do not need to be disclosed, because such compensation likely is expected by viewers26. However, the celebrity should still disclose the connection when posting content related to the product if there are a significant number of readers who are not aware of the connection27. An athlete who appears on a television talk show wearing obviously branded clothing does not need to disclose the connection to the brand, since there is no claim about the brand. However, if he endorses a product, disclosure may be necessary if the connection to the brand is not well known--on Twitter, for example, disclosures such as "#paid ad," or "#ad" may be sufficient. Experts are generally understood to be compensated for appearing in advertising, and their interest in maintaining their own credibility and integrity is what informs consumers' reliance, so that disclosure is not necessary. However, if a royalty is payable to an expert endorser, unless it is otherwise obvious, it must be disclosed28.
The consumers' comprehension of a brand's role generally determines whether any disclosure is necessary. Most significantly, product placements in films do not trigger an obligation to disclose the connection, at least where there is no claim about the product.29 Thus, not every instance of "native advertising" may require a disclosure. In a recent case decided by the National Advertising Division of the Council of Better Business Bureaus (the leading advertising self-regulatory agency "NAD"), Mashable.com disclosed that an article was "sponsored content" when an advertiser paid for the content to continue to be up on the site, but Mashable.com took down the disclosure when its editors chose to continue to post the content after the sponsorship ended.30 The NAD said this was proper as long as it was no longer sponsored. The fact that the editors were influenced to create the content which they were now including without being paid to present it did not require a disclosure.
While brand integration into content can be encouraged in many ways that do not require the content being denigrated as "advertising," there will be substantial regulation and liability risks when done without attention to how the content is presented. The positive review of a product selected by the writers, producers, and editors of content, even where there has been communication with the brand's representatives has long been viewed as permissible. However, brands insisting on dictating specific claims may incur significant risks and liabilities, and may need to consider effective disclosure of their involvement when the advertiser influence over the content is not clear from the context. But, if that disclosure is simply to label the content "advertising," it may solve one problem, but create liability and undermine various First Amendment protections for the content.
BEST PRACTICES
The current stock disclosures do not convey the many degrees of advertiser involvement that are possible. Over using these disclaimers, does not best serve the readers' interests. The first question is: What connection is significant enough to be considered material to the consumers' willingness to rely on the information in connection with making a purchasing decision? The more the necessary information is communicated without reliance on confusing or stock disclosure the better. Making disclosure "native" to the piece will make its communication that much better and more effective. A byline can include the author's title, employer and credentials. It may be necessary to disclose that content was commissioned by an advertiser, but this may be avoided where an author is regularly supplying content that readers know is sponsored.
Just using "sponsored content" as a disclaimer is probably not sufficient where it is used to cover everything from a placement of advertiser-created content about a product or service (an advertisement) to an advertiser merely subsidizing a regular feature in a publication that is wholly controlled by the publication's editors with the only stricture that the content be relevant to a particular subject. (The sponsor will want credit for providing a service to readers, but that should not become a label that communicates that the content is not worthy of consideration.)
The industry over time will develop better insight into consumers' expectations and understanding of "native advertising," and consequently the best means to communicate relevant information as to the differing degrees of brand involvement. Since there is hardly any media left where editorial content is completely walled off from the influence of the "publisher" and ad sales, a rule that any content influenced by the other departments must be labeled as "advertising" or "sponsored" could ultimately result in these labels being attached to all content and thus becoming meaningless. Regulation should not preclude advertiser support for media competing with "start-ups" that do not have to monetize their content as they burn through investor cash.
The consumer is king and the ecosystem will evolve in response to the different consumers' value propositions. Regulation that is inconsistent with this reality will ultimately be irrelevant. Rather than blanket labels, advertisers will need to let consumers decide what is material and therefore what information needs to be provided. In this ecosystem, brands will strive to provide consumers relevant, truthful, valuable information and content without negative disclaimers. The curators of content will strive to assemble this content in a context that provides consumers with any information that is material to their purchasing decisions, without sacrificing the curation role of the media and without the need for a "disclaimer" that undermines the value of the content. The consumer ("user") will decide whose curation and user experience has value. Disclaimers like "Sponsored content" and "Sponsor content" may be an adequate stopgap, but they are inadequate to the task of meaningful and relevant communication of the context and relevant information that will be appropriate to the rapidly evolving content and distribution platforms in the digital world.
"Defining Native Advertising" was originally published in Communications Lawyer, Volume 30, Number 4, Fall 2014. © 2014 American Bar Association. Reproduced with permission. The article may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
1 Posadas v. Tourism Co., 478 U.S. 328 (1986).
2 Nike v. Kassky; 27 Cal. 4th 939, 946, 45 P.3d 243, 247 (2002) Calif Civil Code 3344, Subd (d).
3 Freihofer v. Hearst Corp., 65 NY2d 135, 140, N.Y.S. 2d 735 (1985).
4 Stephano v. News Group Publications, Inc., 485 N.Y.S. 2d 220 (1984).
5 17 U.S.C. §107 (First Factor); Sony v. Universal Studios, Inc., 464 U.S. 417 (1984).
6 Deere & Co., v. MTD Products, Inc., 41 F.3d 39 (2d Cir. 1994).
7 Downing v. Abercrombie & Fitch, 265 F.3d 994 (9th Cir. 2001).
8 See Stewart v. Rolling Stone, LLC, 181 Cal. App. 4th 664 (2010).
9 Stern v. Delphi Services Corp., 626 N.Y.S.2d 694 (N.Y. Sup Ct 1995) (advertising of website content entitled to the exception to right of publicity claims for truthful advertising of media content).
10 Goran v. Atkins Nutritionals, Inc., 464 F.Supp. 15 (S.D.N.Y. 2006), aff'd 279 (2d Cir 2008).
11 Downing v. Abercrombie & Fitch, 265 F.3d 994 (9th Cir 2001). The case may be limited to its facts in that the catalog not only offered for sale clothes like the clothes worn by the surfer in the picture, but also arguably lost its First Amendment protection because the statement about surfer being part of the early California surfing scene, which was what was relevant about the picture, was false. Thus, the surfer could claim both that the picture of him was commercialized and "false" yielding two strikes against First Amendment protection.
12 Yaeger v. Cingular Wireless. 88 USPQ 2d 1372 (E.D. Cal 2008).
13 16 C.F.R. Parts 255.
14 FAQ's: Endorsement Guides June 2010. (FTC.gov/documents/bus71-ftcs-endorsement-guideswhatpeopleareasking).
15 Robinson v. Snapple Beverage Corp., 55 USPQ 1501, 200 WL781079 (S.D.N.Y. 2000) (content promotion becomes a commercial).
16 Facenda v. NFL Films Inc., 542 F.3d 1007 (3d Cir. 2008) (sponsored documentary becomes commercial).
17 SeeStephano v. News Group Publications, Inc., 485 N.Y.S. 2d 220 (1984).
18 See Doctor's Associates v. QIP Holdings, Inc., 2010 WL 669810 (D. Conn. 2010). (UCG may become the advertiser's content).
19 See Burck v. Mars, 571 F.Supp. 2d 446 (S.D.N.Y. 2008).
20 16 C.F.R. Part 255 2009 Revisions (www.ftc.gov/opa/2009/10/endortest.shtm ).
21 The FTC has also indicated that it is only permissible to use an endorser's statement so long as the endorser holds the opinion and the endorser's experience is typical of what the average consumer can expect. If the endorser's experience is not typical of the average consumer, there must be disclosure. 16 C.F.R. Part 255.1 (c).
22 See, FTC Closing Letter (2/20/05) (ftc.gove/os/closings/staff/050210 productplacement.pdf).
23 E.g., New York v. Lifestyle Life (2009). See FTC Endorsement Guides §255.5.
24 Ann Taylor Closing Letter 4/20/10 (ftc.gov/os/closing100420anntaylorclosingletter.pdf).
25 FAQ's supra n.15; see FTC Endorsement Guides §255.5, example 7.
26 FTC Endorsement Guides §255.5, example 2.
27 FTC Endorsement Guides §255.2, example 2.
28 FTC Endorsement Guides §255.5, example 4. An advertiser may commission research on a product by an outside organization which then publishes its findings. (However, even if the project is controlled by the organization, if the weight that consumers place on the results could be materially affected by knowing that the advertiser had funded the project, the funding should be disclosed).
29 FTC Closing Letter. (2/20/015) (ftc.gov/os/closings/staff/050210 productplacement.pdf).
30 Qualcomm, Inc. NAD Case #5633 (9/20/13). See also ESalon. NAD Case 5645 (10/17/13).
Rick Kurnit, past Vice-Chair of the Private Advertising Litigation Committee of the Antitrust Section, has long been recognized by Adweek, Chambers, Legal 500, Best Lawyers, Super Lawyers, et al., as one of the top advertising lawyers in the United States.
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