Native Advertising Basics

y Simon N. Pulman

The use of “native advertising” online has grown at a considerable pace over the past two years, with some studies projecting that it could account for five billion dollars in spending by 2017 – far outpacing the growth of traditional online display ads. Such is the economic (and some might say creative) potential of native advertising that some companies such as Time Inc. have created dedicated departments to create and sell native ads across platforms including web, mobile and social media. HBO star John Oliver even devoted eleven minutes to the trend during a recent episode of his show “Last Week Tonight.”

Currently, no single definition for “native advertising” exists, and what constitutes native advertising is still up for debate among advertising executives, regulators and attorneys. However, native advertising may be most easily understood as online paid content that is published adjacent to, and is often created by the same publisher as, traditional editorial content (see some examples here). Native advertising can take the form of long-form journalism, video, images, infographics, games, top-10 style “listicles” and other content. While some native advertising is fairly simplistic and not far removed from traditional product placement, more progressive forms may seek to play off popular culture, educate a user about an issue, promote a cause or demonstrate a brand’s themes and values without engaging in any kind of “hard sell.” As a result, the best native advertising may be equally creative, well executed and valuable for the reader as truly independent editorial content.

Although native advertising is a relatively nascent area, it is coming under significant regulatory and media scrutiny and brands and publishers must therefore take care to ensure they take steps to comply with applicable laws and regulations. The FTC is still determining whether additional guidance is required in order to provide greater foreseeability to its regulation and enforcement in the area, and a workshop held in December 4, 2013 reportedly “raised more questions than it answered.” Nonetheless, there are a few clear issues that brands, marketers and publishers must be aware of:

1. Intellectual Property Laws Remain in Force

When publishing native advertising and other branded content, publishers must pay heed to copyright and trademark laws and ensure that they conduct all necessary due diligence and legal clearance to vet text, images, video and music for infringing content prior to publication. Even though certain assets may be provided directly by a brand or marketing agency, publishers should not assume that those assets have been cleared and should seek assurance (contractual and otherwise) that the publisher has the right to use the assets in the manner intended.

Additionally, publishers must try to ensure that their staff do not adopt the practice of downloading images from the web (sometimes colloquially known as a “right click license”) to illustrate their content – just because you are publishing a branded or sponsored story about Coca-Cola does not mean that you can indiscriminately use images taken from a Google search for “Coke.” After all, the image that you select may have been created by someone who is unaffiliated with the advertiser and who could have her own copyrights in the image. Careless use of content from the internet could both place a publisher in breach of contract with its sponsor and render it liable to a third party for copyright infringement (although linking to or framing content has been found as generally permissible by the few courts to consider the issue, and publishers should note that some photo licensing agencies offer no-cost or royalty free licenses for photo use that can mitigate concerns on this front).

As a related issue, the question of who owns branded content (and the right to produce derivative works based upon it) is now a point of negotiation between brands and publishers. Some brands prefer to commission native advertising from publishers (or agencies) on a work-made-for-hire basis and to own all rights in and to the content. In other cases, the publishing platform itself may own the rights and license back certain usage rights to the brand. In either event, all parties should take care to ensure that the applicable agreements between publishers and brands or agencies permit all contemplated and/or necessary usages of the content and that employees comply with the scope of any applicable licenses and any usage restrictions.

2. Right of Publicity is a Concern

Brands and publishers must also be certain that they have all necessary rights required in order to depict the name and likeness of everyone who appears in their native advertising. Right of publicity law varies on a state-by-state basis, and its application to native advertising is an evolving area of law. For instance, the definition of “advertising purposes” under New York’s right of publicity law, N.Y. Civil Rights Law Sections 50-51, is often construed liberally by the courts. It is certainly possible that depicting an individual in a sponsored article or video could be deemed in violation of applicable law and, under certain circumstances, prohibited use could even extend to the use of photos of clients or patients on a professional website. Brands and agencies should also take care when filming events such as sponsored concerts, festivals and outdoor promos and ensure that they post a standard notice of filming that incorporates robust release language.

3. Disclosure is Critical

As we previously discussed on our firm blog, the FTC requires that all disclosures posted on online and mobile advertisements that are designed to prevent such advertisements being deemed deceptive or unfair must be clear and conspicuous. The online media and advertising industries are currently trying to determine exactly what level of disclosure is required in a native advertising paradigm. For instance, advertising industry group the Interactive Advertising Bureau (IAB) has issued its own “playbook” to help brands understand disclosure requirements. As you will see from the IAB document, native advertisements – and forms of disclosure – come in all shapes and sizes, and there is little consistency across websites and platforms. Many publishers are resisting the implementation of a consistent standard on the grounds that each brand, and each piece of native advertising content, has different aesthetic and creative requirements.

In light of this uncertainty, brands, agencies and publishers should ensure that they review FTC guidelines and adhere to evolving industry practice. The FTC has asserted that transparency is critical and consumers must be able to distinguish native advertising from normal editorial content (although whether consumers care about whether content is sponsored is a point being debated within the industry). Accordingly, publishers must ensure that they take adequate steps to ensure that disclosures are displayed prominently and in a form that allows a reasonable reader to understand that the content is sponsored. Industry practice varies with respect to the exact words used to indicate native advertising. The safest and surest way to satisfy FTC guidelines is to specifically and conspicuously include the word “advertising” in the disclosure. However, other terms such as “sponsored by” or “presented by” are frequently used within the industry and it is possible that, with widespread industry support, the FTC will explicitly endorse these terms in coming years. Publishers may also wish to set-off native advertising by using a different color heading or border to indicate that a piece is sponsored – although industry insiders have remarked that this can be counterproductive when considering the goal of a specific campaign and the intention for the piece to be considered of equal quality to standard editorial content.

A Note on Social Media

It should also be noted that the applicability of the above issues extends beyond a publisher or brand’s wholly owned website and into its social media channels. For instance, the FTC has ruled that sponsored tweets must be disclosed(the hashtag abbreviations #spon and #ad are commonly used, and probably constitute sufficient disclosure if conspicuous within the tweet), and the emergence of Instagram and Snapchat as major marketing platforms means that brands, as well as popular users such as fashion bloggers (see, for instance, Chiara Ferragni, who has over 2.5m followers on Instagram and frequently features brands and fashion labels in her photos), should be wary of FTC scrutiny when posting sponsored images and videos without adequate disclosure (this practice could also place the user in breach of the social media platform’s terms of use policy). As many new media publishers’ businesses are built upon a model of strong social media engagement and widespread sharing of articles, publishers should also ensure that disclosures follow content across platforms, so that a user reading an article on Facebook, for example, sees similar disclosures to someone reading on the home page. Additionally, as mobile advertising dollars become more important and content is increasingly consumed on mobile devices, publishers should ensure that the smaller screen dimensions of cellphone and tablet screens still permit users to see all necessary disclaimers.

With respect to right of publicity, Duane Reade found itself in legal trouble earlier this year when actress Katherine Heigl brought Lanham Act and right of publicity claims after the retailer posted a picture of Heigl exiting one of its stores on its social media account, alleging that Duane Reade was using her name and likeness for commercial purposes (the case is still pending). Celebrity names and photos typically draw hits, and content creators working at a fast pace to delivery content and favorable metrics on behalf of brands may, in good faith and with the best of intentions, overlook legal issues or legal risk when trying to draw traffic to native advertising. Further, brands should not assume that they can reproduce images of “normal” members of the general public on their own platforms and sites, even if the user “tagged” the brand with a hashtag on social media (as this Wall Street Journal article states, this is increasingly common in the era of Instagram but may create both right of publicity and copyright issues). Publishers should note that Facebook settled the Fraley v. Facebook, Inc., class action to the tune of $20 million after it was alleged to have used user photos in its “sponsored stories” advertisements without user consent.

Native advertising has become serious business and will only grow over the next few years as advertising spends move to online at an increasing pace. However, it is also an area where business practices and regulatory standards are evolving and somewhat uncertain. Accordingly, brands, marketers and publishers can mitigate their risk most efficiently by getting out ahead of these issues, consulting with attorneys when necessary and establishing a set of consistent principles best practices to help guide employees as they create native advertising that proliferates across digital platforms.

Simon N. Pulman is an associate in CDAS’s New York office. He can be reached at spulman@cdas.com and followed on Twitter at @simonpulman