The FTC’s Newest Focus: ‘Preventing Digital Deception’

The explosive growth of internet advertisements has been accompanied by increased risks to consumers, including from the content of online disclosures regarding their purchases, the products and services that are provided and businesses’ collection and use of their private data.

For example, advertisers now deploy a variety of digital advertising tools that help them identify and deliver content to “targeted” audiences that are more likely to act on the advertised products or services. These technologies permit the advertisers to collect and analyze users’ “digital footprints” to determine the types of advertisements that are delivered to individual users. Many have expressed significant consumer privacy concerns about the practice because targeted ads often rely on behind-the-scenes collection and analysis of user data, which may or may not be disclosed by the business that is benefiting from that data.

And, as always, consumer frauds continue to rise with the growth of internet marketing and sales. There is a significant concern as to whether online businesses’ disclosures concerning their products, operations and data collection practices are adequate, accurate and accessible to consumers. The patchwork of state legislation applicable to consumer truth-in-advertising does not uniformly address the unique issues presented by online advertisements, including questions as to which law would apply to advertisements that are without territorial limitation. Moreover, the U.S. Congress has thus far been unable or unwilling to enact national privacy legislation that could address some of these online issues.

The Federal Trade Commission (FTC), with its stated mission to protect “consumers and competition by preventing anticompetitive, deceptive, and unfair business practices,” https://www.ftc.gov/about-ftc, has for many years attempted to fill the need to provide national guidance to businesses when dealing with consumers online. The FTC’s recent activities on a variety of privacy issues demonstrate that the FTC is aware of and intends to address privacy online. For example, as this column observed in April, the FTC has indicated a renewed interest in its Health Breach Notification Rule. See “FTC Appears Ready To Begin Enforcing Its Health Breach Notification Rule.”

Most recently, on June 3, the FTC said that it is contemplating whether to update and reissue its guidance document on digital advertising for the first time in nearly a decade. According to the FTC, consumers are regularly exposed to harms, such as financial fraud and intrusive surveillance, by companies that mislead consumers through digital tactics that are employed. The FTC is seeking input as to how it may modernize its guidance to address those risks.

The balance of this column discusses the FTC’s existing online advertising guidance, the information that the FTC is seeking in connection with its review of the existing guidance, and the opportunity for companies to help mold the FTC’s views.

The Existing Guidance

In May 2000, the FTC issued a business guidance document titled, “Dot Com Disclosures: Information about Online Advertising,” available at https://www.ftc.gov/sites/default/files/attachments/press-releases/ftc-staff-issues-guidelines-internet-advertising/0005dotcomstaffreport.pdf. That guidance document examined how the FTC’s consumer protection statutes, rules and guides apply to online advertising and sales and discussed the FTC’s requirements that disclosures be presented “clearly and conspicuously” in the context of online advertising. The guidance document’s primary focus was to counsel marketers on how to provide clear and conspicuous disclosures of information for consumers to use so they could make “informed decisions about goods and services offered on the internet.”

In May 2011, the FTC began seeking input to modify and update the guidance document to reflect what the FTC characterized as the “dramatic changes” in the online world in the preceding 11 years, including the ubiquity of smartphones and the use of social media as a marketing tool. After three public comment periods and a public workshop, this revised guidance document was issued in March 2013.

The revised guidance document, “.com Disclosures – How to Make Effective Disclosures in Digital Advertising” (hereinafter, .com Disclosures), available at https://www.ftc.gov/sites/default/files/attachments/press-releases/ftc-staff-revises-online-advertising-disclosure-guidelines/130312dotcomdisclosures.pdf, provides guidance to businesses on digital advertising and marketing. In particular, it provides guidance concerning the making of clear and conspicuous online disclosures that the FTC believes are necessary under the law.

The FTC has acknowledged that the FTC’s .com Disclosures guidance does not purport to cover every issue associated with online advertising disclosures, and that it was not intended to provide a safe harbor from potential liability. Rather, the FTC made clear, it was intended only to provide guidance concerning practices that may increase the likelihood that an online disclosure made by a company is clear and conspicuous.

The Requirements

The .com Disclosures guidance describes the information that businesses should consider as they develop ads for online media in order to comply with the law. Among other things, the guidance provides that:

• The same consumer protection laws that apply to commercial activities in other media apply online, including activities in the mobile marketplace;
• When practical, advertisers should incorporate relevant limitations and qualifying information into an underlying claim, rather than having a separate disclosure qualifying the claim;
• Required disclosures must be clear and conspicuous, and in evaluating whether a disclosure is likely to be clear and conspicuous, advertisers should consider its placement in the ad and its proximity to the relevant claim; and
• To make a disclosure clear and conspicuous, advertisers should place the disclosure as close as possible to the triggering claim; take account of the various devices and platforms consumers may use to view the advertising and any corresponding disclosure; and incorporate disclosures into the ad whenever possible.

The FTC’s Announcement

In its June 3 announcement, the FTC explained why it might be modernizing its .com Disclosures guidance. According to the FTC, the problem is “digital deception” and its growing use and sophistication.

Specifically, the FTC explained that “some companies are wrongly citing” the .com Disclosures guidance to justify practices “that mislead consumers online.” As an example, the FTC cited firms that have claimed that they can avoid liability under the FTC Act “by burying disclosures behind hyperlinks,” which the FTC says is a practice “that can expose consumers to financial fraud, intrusive surveillance, and other harms.” In a statement, Samuel Levine, the director of the FTC’s Bureau of Consumer Protection, further noted that “some companies are wrongly citing” the guidance “to justify dark patterns and other forms of digital deception.” The FTC, he added, is considering updating the guidance “to make clear that online tricks and traps will not be tolerated.”

In connection with its review of the .com Disclosures guidance, the FTC has asked for comments from individuals and businesses “to ensure the guides are helping honest businesses treat consumers fairly, rather than being used as a shield by firms looking to deceive.” The FTC added that, in seeking public comment on possible revisions, it is interested in the technical and legal issues that commenters believe should be addressed.

The FTC cited more than a dozen issues on which it is seeking comment, including:

• What issues raised by current or emerging online technologies, activities, or features, such as sponsored and promoted advertising on social media platforms or otherwise, the use of advertising content embedded in games, or the use of dark pattern techniques in digital advertising, should be addressed in a revised guidance document? Why and how should they be addressed?
• What issues raised by new laws or regulations should be addressed in a revised guidance document? Why and how should they be addressed?
• What research or other information regarding the online marketplace, online advertising techniques, consumer online behavior, or consumer mobile behavior should the FTC consider in revising the guidance?
• What research or other information regarding the effectiveness of disclosures – and, in particular, online disclosures – should the FTC consider?
• What specific types of online disclosures, if any, raise unique issues that should be addressed in a revised guidance document separately from a discussion of general disclosure requirements?
• What guidance in the .com Disclosures document is outdated or unnecessary?
• What guidance should be clarified, expanded, strengthened, or limited?
• How can the guidance on the use of hyperlinks be clarified to provide better guidance on the appropriate use of hyperlinks and how should hyperlinks be labeled?
• Does the existing .com Disclosures guidance adequately address how to make disclosures when consumers must navigate multiple webpages in order to complete a purchase? If not, how should the guidance be modified?
• Should the portion of the guidance that says that when designing space-constrained ads, “disclosures may sometimes be communicated effectively to consumers if they are made clearly and conspicuously on the website to which the ad links,” be modified? If so, how?
• Does the guidance adequately address advertising on mobile devices? If not, how should the guidance be changed?
• Should the guidance address issues unique to specific audiences or demographics in seeing, hearing, or comprehending disclosures? If so, how should the guidance be modified? Should any such guidance address microtargeted advertisements and, if so, how should it do so?
• Should the guidance address issues that have arisen from multi-party selling arrangements in internet commerce such as (1) established online sellers providing a platform for other firms to market and sell their products online; (2) website operators being compensated for referring consumers to other internet sites that offer products and services; and (3) other affiliate marketing arrangements? If so, how should the guidance be modified?
• Should the guidance address issues that have arisen with respect to advertising that appears in virtual reality or the metaverse and, if so, how should those issues be addressed?
• What additional issues or principles relating to online advertising should be addressed in the guidance document?

Companies that are interested in providing comments to these or related issues should consider consulting with counsel to formalize their responses. Comments, which must be submitted by August 2, may be submitted online, as the announcement provides.

Conclusion

The FTC is undertaking a number of other initiatives related to its impending action on the .com Disclosures guidance. For example, the FTC recently issued a policy statement stating that companies can face legal action if their sign-up process fails to provide clear, up-front information, obtain consumers’ informed consent, and make cancellation easy. See https://www.ftc.gov/news-events/news/press-releases/2021/10/ftc-ramp-enforcement-against-illegal-dark-patterns-trick-or-trap-consumers-subscriptions. And, on May 19, the FTC proposed to tighten its guidelines for advertisers against posting fake positive reviews or manipulating reviews by suppressing bad ones – and it warned social media platforms about inadequate disclosure tools. See https://www.ftc.gov/news-events/news/press-releases/2022/05/ftc-proposes-strengthen-advertising-guidelines-against-fake-manipulated-reviews.

Any business with an online presence should take notice of the FTC’s areas of concern and carefully follow the enactment of any up-to-date guidance that the FTC may issue. Although the cost of doing business on the internet may go up as a result, the cost of non-compliance, in the form of fines, penalties, consumer suits and, perhaps, most importantly, customer dissatisfaction and defection, may be even more problematic.

Reprinted with permission from the June 17, 2022, issue of the New York Law Journal^©, ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.