The FCC’s Sponsorship Identification Rule is a close, perhaps neglected cousin of the FTC’s Enforcement Policy Statement on Deceptively Formatted Advertisements, i.e., its Native Advertising Guide. Nevertheless, the FCC’s latest enforcement action demonstrates how failure to follow the rule can result in penalties far larger than any imposed to date by the FTC. It also hints at the possibility that a single ad can result in dual liability for advertisers and broadcasters.
The Sponsorship ID Rule is fairly straightforward: if a broadcast station charges or accepts (or is promised) any money, service, or other valuable consideration in exchange for airing a piece of programming, then the broadcaster must disclose – at the time of the broadcast: (1) that the programming is “sponsored,” “paid,” or “furnished,” and (2) the identity of the sponsor. The Rule contains additional disclosure requirements for political ads, as well as “beneficial owner”-type provisions that require disclosure of the true sponsor in interest, rather than the name of any agent or middleman used to furnish the payment. A corollary to the Sponsorship ID Rule imposes a similar burden on sponsors to disclose to broadcasters when they have provided money, services or other consideration in exchange for the broadcast. 47 U.S.C. § 508.
Ordinary television commercials for goods and services – especially short form ads (e.g., 10- and 30-second spots) – generally satisfy the Rule without need for a specific disclosure if the ad mentions the sponsor’s corporate or trade name, or the name of its product, and “it is clear that the mention of the name of the product constitutes a sponsorship identification.” 47 C.F.R. § 73.1212(f). In other words, the commercial nature of ordinary product ads is usually obvious, and the identities of their sponsors are usually equally obvious. (Of course, the obviousness of an advertisement depends on the audience, which is why child-targeted ads and infomercials have developed additional guidelines and disclosure requirements.)
By contrast, native advertising is intentionally designed to blend in with its surroundings, resembling news, feature articles, product reviews, or other entertainment. The non-apparent commercial nature of native advertising is precisely what motivated the FTC to release its Enforcement Policy Statement, which states that messages “that are not identifiable as advertising to consumers are deceptive if they mislead consumers into believing they are independent, impartial, or not from the sponsoring advertiser itself.” The Enforcement Policy Statement details numerous FTC enforcement actions against advertisers who presented “infomercials [] presented as regular television or radio programming, such as a news report or talk show,” and “ads disguised to look like news reports” using “devices such as news-related names and headlines suggestive of a local television station.”
When native ads fail to clearly identify their commercial nature, the FTC prosecutes advertisers under Section 5 of the FTC Act, prohibiting “unfair or deceptive acts or practices.” But, the FCC is also free to pursue actions against the broadcasters for violating the Sponsorship ID Rule when the ad appears on a medium within its jurisdiction. That includes television, radio, and video streaming. Indeed, on December 21, 2017, the FCC announced a $13.3 million fine against an operator of U.S. television stations on the ground that it failed to disclose the sponsored nature of ads styled as news stories that aired over 1,700 times. Other recent fines imposed by the FCC for violating the Rule pale in comparison, with $540,000 imposed in 2016 for failure to disclose that radio ads broadcasted over a 5-month period from a single radio station in New Hampshire, supporting a hydro-electric energy project, were paid for by the company that stood to benefit from approval of the project; $115,000 imposed in 2014 for failure to disclose that local car dealerships paid for news-style reports on their liquidation sales that aired on a Las Vegas television station; and $185,000 imposed in 2014 for failure to disclose that guests on a daily talk show paid the radio station to appear on the show and promote their products and services.
The FCC’s most recent Sponsorship ID penalty makes it clear that improperly disclosed native ads carry risks on multiple fronts. Advertisers face potential liability from the FTC, and may also run afoul of Section 507 of the Communications Act of 1934, requiring sponsors to disclose to broadcasters when they have paid for programming. Likewise, the FCC can penalize broadcasters for the same native ad if they violate their own obligations under the Sponsorship ID Rule.
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