With Start-Up Nation continuing to play a leadership role within the global ad-tech ecosystem, both on the technology and strategy fronts, it is critical that its players understand the changing dynamics occurring within the world’s largest consumer market – i.e., the U.S., especially on the regulatory front.

The most recent and notable directive on advertising that should be on every Israeli ad-tech company’s radar is the guidance issued by the Federal Trade Commission (FTC) on Native Advertising.  By way of background, “Native Advertising” refers to the method of advertising in which ads are intentionally designed to look and feel similar to a platform’s regular editorial content in a relatively seamless and unsuspecting manner rather than obviously standing out as a separate “advertisement.”

As expected, the FTC has taken steps to clarify how it is likely to view advertising when the distinction between editorial content and advertising becomes blurred in a way that may become deceptive to consumers. Recently, the FTC published two documents that address the Commission’s position on the use of native advertising – an Enforcement and Policy Statement on Deceptively Formatted Advertisements (Policy Statement) and a Business Guide entitled Native Advertising: A Guide for Business (Business Guide).

Under the Policy Statement, advertising that misleads consumers in a material respect, including with regard to its commercial nature, is deceptive under Section 5 of the FTC Act. In short, advertisers cannot use “deceptive door openers” to induce consumers to view advertising content. Rather, advertisers must implement measures to ensure consumers are well aware they are reading an ad by identifying the content as such in a clear and prominent manner.  Where possible, in fact, advertisers must even do this before consumers arrive at the main advertising page. In addition, no matter how consumers arrive at advertising content, neither the content itself nor any other dynamics deployed by the advertiser may mislead consumers about its commercial nature.

In its Business Guide, the FTC lays out more than 15 instances of guidance / examples that seek to identify and address the most commonly deployed and, from the FTC’s perspective, problematic forms of native advertising, including:

1. The Nature of Native Advertising — Consider whether the “text” in question is commercial in nature and serves the purpose of advertising or promoting a product or service.

2. Will a Consumer Distinguish the ‘Text” as an [Native] Ad? In assessing whether a native ad is distinguishable as advertising to consumers, consider the ad as a whole. Factors to consider include an ad’s overall appearance; the similarity of its written, spoken, or visual style or subject matter to non-advertising content on the publisher site on which it appears; and the degree to which it is distinguishable from other content on the publisher site.

3. Has the Advertiser Engaged in Deceptive Practices? The native ad is deceptive if it conveys, expressly or by implication, that the content is independent, impartial, or from a source other than the sponsoring advertiser.  Said differently, if the content is made to look like something other than an ad and, in the process, affects consumer decisions, then the absence of a clear and prominent disclosure is likely to render the ad deceptive.

4. Has There Been Adequate Exposure on the Part of the Advertiser? As noted above, the FTC employs its typical standard, namely, that disclosures must be clear and prominent. The location and frequency of the disclosure depends on the context of the native ad. As a general rule, disclosures must appear wherever it is necessary to inform consumers of the commercial nature of an ad.

a) Because consumers can navigate to the advertising without first going to the publisher site, a disclosure just on the publisher’s site may not be sufficient. In this instance, disclosures are needed on both the publisher’s site and the click-into site on which the complete ad appears.

b) In other instances, however, disclosures may only be required on the click-into site. For example, if an advertiser’s photo is featured in an editorial article and is not deemed commercial in nature, but the featured photo links to the advertising that is commercial in nature, then a clear and prominent disclosure of the photo’s paid nature on the click-into site is likely necessary.

5. Where do Alternative Forms of Advertising fit into this Story? The same principles of transparency and disclosure apply to alternative forms of advertising, by way of example:

a) A paid-for billboard ad promoting real-life products featured in a virtual video game is a native ad. Although no disclosure may be necessary because consumers are likely to attribute the ads to the sponsoring advertisers, the sponsoring advertisers would still be liable for any deceptive product claims on the billboards.

b) If a mobile app game features a clickable item in the course of the game that takes the consumer out of the game and into an advertiser’s branded game app, a clear and prominent disclosure informing consumers of the icon’s commercial nature is necessary before they click on it.

Despite the fact that many Israeli ad-tech companies think differently, they are not beyond the reach of the FTC for advertising disseminated in the United States, even though they may be sitting in Tel Aviv or Hertzilya.  In fact, Israeli companies which fail to heed the warning of the FTC and review its guidance, whether in regard to native advertising or otherwise, can face direct enforcement actions to the extent they are engaging consumers directly in the US and, at a minimum, may find themselves in breach of those agreements with American-based clients which require them to comply with applicable laws and regulations.   Should you have questions around Native Advertising, please don’t hesitate to contact us.