Last week, fashion retailer Lord & Taylor reached a settlement with the FTC over its allegedly deceptive advertising campaign, the first such action since the FTC released its Enforcement Policy Statement on Deceptively Formatted Advertisements and its companion guidance, Native Advertising: A Guide for Businesses, in December 2015. Native Advertising is clearly on the FTC’s 2016 enforcement agenda.
For nearly 50 years (since the late 1960s), the FTC has policed deceptive advertising practices pursuant to Section 5 of the FTC Act and has leveraged an increasingly demanding requirement that companies be clear and transparent. As advertisers and publishers embrace the rise of “native advertising,” the FTC is now re-doubling its efforts to ensure that consumers are not misled when promotional content is seamlessly incorporated into news articles, feature stories, or other editorial work.
According to the FTC, an advertisement is deceptive if it misleads a reasonable consumer and the misleading representation is material, i.e., it would likely influence the consumer’s choices or behavior with regard to the advertisement. The FTC has long held the view that advertising messages that consumers cannot reasonably identify as advertising or commercial content can be deceptive because the source or paid-nature of advertising typically affects the weight or credibility that consumers give it. The Policy Statement emphasizes that native advertising can violate Section 5 “even if the product claims communicated are truthful and non-misleading.” 
The following are examples of native advertising pieces that are potentially deceptive:
In 2015, Lord & Taylor launched its Design Lab clothing line with a 21st century-style advertising campaign relying heavily on social media and native advertising content to feature a particular paisley dress. As part of this campaign, the retailer paid Nylon, an online fashion magazine, to run an editorial article featuring the Design Lab line and the paisley dress, and to post a photo of the dress to Nylon’s Instagram page. Lord & Taylor reviewed and approved the Nylon article and social media post, but did not require a disclosure about the paid nature of the content. Lord & Taylor also sent the paisley dress to 50 “fashion influencers” (fashionable girls with large social media followings) and paid them between $1,000-$4,000 to post a photo of themselves wearing the dress on social media. Though Lord & Taylor required the fashion influencers to tag their Instagram photos with the hashtag #DesignLab and @lordandtaylor, the FTC argued that Lord & Taylor did not require the influencers to disclose that they received compensation for the social media posts.
The FTC complaint charged that Lord & Taylor (1) falsely represented that the 50 Instagram images tagged to @lordandtaylor represented independent statements of impartial fashion influencers, (2) failed to require the influencers to disclose that they were paid endorsers; and (3) failed to disclose that the Nylon article and social media post were part of a paid ad campaign, instead allowing consumers to believe that the content was from an independent or objective source. The consent decree requires Lord & Taylor to make explicit the paid nature of its future advertisements. Moreover, the consent decree places the disclosure onus on Lord & Taylor—requiring the retailer to provide its endorsers with a statement alerting them that they must disclose their connection to Lord & Taylor and sign an acknowledgment stating that they will do so. Lord & Taylor must monitor compliance with the disclosure requirement and terminate the relationship with any endorser who fails to disclose the paid nature of the advertisement, after receiving one warning.
Advertisers, publishers and third party advertising networks should consider the following key questions in evaluating their advertisements:
Advertisements that blend seamlessly with other content on a webpage or other media format can be highly effective, but advertisers must carefully consider consumer transparency requirements. The FTC has now offered numerous Guides (for example, Guides on Native Advertising, Endorsement Guides, Dot Com Disclosures) and Policy Statements and has a long history of consent decrees related to deceptive advertising and deceptively formatted advertising, many of which are relevant to native advertising campaigns. Advertisers must be cognizant of all of the FTC guidance in this area, or risk being caught in a Fashion [advertising] Faux Pas
 Fed. Trade Comm’n, Enforcement Policy Statement on Deceptively Formatted Advertisements 10 (2015).