Public Comment on the FTC’s Digital Ad Rules Provides Insight into the Metaverse

The Federal Trade Commission (“FTC”) announced this summer that it is seeking comments on its plans to revise its digital advertising guide, potentially by way of revamped guidance that takes the metaverse/virtual reality into consideration. First released in 2000 and updated in 2013, the regulator’s “.com Disclosures Guide” aims to enable mobile and other online advertisers “to make disclosures clear and conspicuous to avoid deception.” The FTC revealed in June that it is seeking public comment on ways to modernize the guidance to align it with new advances in technology – including virtual reality (“VR”), augmented reality (“AR”), gaming, the metaverse, etc. – and how advertisers now interact with consumers.

In its initial call for comments, the FTC highlighted its desire to crack down on advertisers’ attempts to “avoid liability under the FTC Act by burying disclosures behind hyperlinks,” along with the rising use of “dark patterns” and “other forms of digital deception” – and many of the nearly 30 comments submitted focus on these issues. However, among the questions posed by the regulator in its June call for comment are two that specifically point to “emerging online technologies, activities, or features, such as … the use of advertising content embedded in games” and “issues that have arisen with respect to advertising that appears in VR or the metaverse.”

Since then, a number of the comments submitted – 8 out of 28, to be exact – make mention of the metaverse, and from those comments, a few key themes emerge as common points of consideration and concern of stakeholders, including lawyers in this space, ad watchdogs, academics, and industry organizations.

The Metaverse is Still Very Novel

The primary point of commonality among the comments submitted centers on the enduring novelty of the metaverse, and an overarching lack of clarity when it comes to this space and what it will evolve into. As a number of academics affiliated with Princeton University’s Center for Information Technology Policy (“Princeton”), for example, assert in their comments to the FTC, “The development of mixed reality (MR), VR, and/or ‘metaverse’ modes of interacting with services is still in their infancy.” Bryan Cave attorney Jim Dudukovich echoed this notion in a submission of his own, stating that “we are still in in the early stages of those worlds and may not fully understand how they will evolve in the future.” In light of the “emerging” nature of the metaverse, Baker Hostetler’s Linda Goldstein, writing on behalf of the Performance Driven Marketing Association (“PDMA”), notes that there is “a great deal of ambiguity [at play] about when and how the new platforms will develop.”

The Computer & Communications Industry Association (“CCIA”) similarly says that the FTC should be aware that “the development of [the metaverse] has not yet been fully realized.”

 

Existing FTC Rules Apply

Against the background of the rise – and ensuing development – of the metaverse, comments from a number of parties drive home the point that the FTC’s existing digital advertising rules apply to (and can be applied in) this new medium and thus, need not be entirely reworked. “There is no need to establish metaverse-specific guidance,” the Center for Data Innovation says in its submission, asserting that the FTC should, instead, “explicitly state in the revised Dotcom Disclosures that online advertising disclosure requirements apply to metaverse advertising.” This is also the view of the PDMA, which claims that the FTC’s current Guide, “with their emphasis on clear and conspicuous disclosures, appropriate context and considering the ad as a whole, is more than sufficient to allow metaverse and VR entities to make reasoned assessments about how to use disclosures appropriately to prevent advertising from being deceptive.”

In the same vein, the Association of National Advertisers contends that “new forms of technology, platforms, and channels such as the metaverse, gaming consoles, and IoT devices have come into existence [since the FTC’s last Guidelines were issued],” the FTC’s existing guidance “address[ed] general principles for compliance,” and thus, “the principles can be followed in any form of technology.”

 

Beyond that, the BBB National Programs contends that in lieu of entirely new guidance, the FTC “should make clear that its guidance applies in VR spaces and the metaverse.” Clear and conspicuous disclosure of advertising efforts “remain paramount regardless of the platform or medium in which the advertising appears,” according to the advertising agency, which claims that “if the FTC provides strong guidance with clear examples, it might encourage brands and platforms to develop clear standards for disclosures in VR and the metaverse.”

Will Existing Disclosure Practices be Sufficient?

While it is generally agreed upon by the commenting parties that the FTC’s existing rules – including the FTC Act’s prohibition against “unfair or deceptive acts and [advertising/marketing] practices” – apply broadly across mediums, a concern cited in more than one submission is that existing disclosures practices may be challenging in the metaverse/virtual world and/or the use of disclosures may be different in this new space. (In its existing guides, the FTC requires that ads and/or endorsements be “clearly and conspicuously” disclosed to consumers in order to “prevent an advertisement from being deceptive, unfair, or otherwise violative of a Commission rule.” This has largely taken the form of content being labeled as sponsored, influencers using disclosure language such as #Ad when they have a material connection to the company whose products/services they are promoting, etc.)

“Because MR or VR involves consumers interacting with services in an unfamiliar medium, consumers will need additional information about what distinguishes an ad from VR,” Princeton states in its comment to the FTC. The PDMA seems to agree, maintaining that “the challenges of providing clear and conspicuous disclosures will be exacerbated when advertising appears embedded in VR spaces and in the metaverse.”

Still yet, the Center for Data Innovation asserts that “depending on how metaverse platforms develop, practices common on two-dimensional online advertising, such as text-based disclosures, may be insufficient or inappropriate for advertising on AR/VR platforms.”

 

Reflecting on the need for disclosures in the metaverse, Dudukovich questions the “circumstances [in which] disclosures are necessary or appropriate.” In addition to calling on the FTC to conduct research “around Web 3.0 and other advanced technologies to better understand how sponsored content is used,” he asserts that there is a need for an explanation of how “the disclosure requirements … may be integrated into VR and/or the Metaverse (e.g., through sponsorships, virtual billboards, product placements, use of virtual branded products by influencers/avatars, etc.), and how those compare to their counterparts in Web 1.0 and 2.0.”

This is relevant, he says, as “consumer expectations and assumptions in VR and the Metaverse may be drastically different than in Web 2.0, and disclosures may not be required in all of the same circumstances because of those different expectations and assumptions.” In the brick-and-mortar world, for instance, “when a consumer walks past a billboard advertisement or a branded storefront, there is no need for the billboard or storefront to include any affirmative disclosure that the consumer is seeing advertising or retail placement, because the consumer knows.” Likewise, in a virtual world, “if a user sees a billboard or a storefront, isn’t the same assumption true?,” he asks, noting that “this is different from many Web 2.0 environments and should be treated as such in the updated Dotcom Disclosures.”

Finally, the BBB says that the FTC should “assess the technological constraints on the display of disclosures in VR and the metaverse and provide clear guidance to advertisers that clear and conspicuous disclosures are required even when technological constraints make disclosures difficult.”

The Potential Harms at Play

Despite (or maybe in light) of the relative novelty of VR and the metaverse, multiple comments place importance on the fact that companies are readily investing in this space in order to reach sizable pool of consumers. “It was only just recently that investment really picked up in the area,” the CCIA asserts in its submission. “Companies, brands and influencers,” alike, have “jumped into these games and closed platform metaverses with reckless abandon,” echoes Truth in Advertising (“TINA”), which states that entities involved in the metaverse and gaming are “exploiting children’s inability to distinguish organic content from marketing, and manipulating users with undisclosed promotions that are nearly identical to organic virtual items and experiences.”

The harm at play is heightened, TINA states, given the scale at which virtual/metaverse advertising is “being surreptitiously pushed in front of millions of U.S. consumers, including children and adolescents, by a multitude of tech platforms and [metaverse/gaming] companies.” (TINA makes specific mention of such alleged advertising tactics by Roblox, mirroring the claims that it made in the complaint that it lodged with the FTC in April, calling on the agency to take action against the metaverse platform.)

 

“Such digital deception is widespread, in part, because meaningful guardrails to ensure compliance with truth in advertising laws have not been established in this digital landscape, effectively allowing marketers to manipulate millions of consumers in captivating games and virtual platforms on a daily basis,” per TINA, which argues that brands are “exploit[ing] unsuspecting consumers, tricking them into taking part in immersive advertising experiences and unwittingly interacting with walking, talking endorsers that are indistinguishable from other avatars on platforms.” In the process, “the companies and brands are taking users’ time, attention and money while extracting their personal data.”

In terms of the potential for harm, Princeton states in its letter that “compared to mobile and web mediums, ads in MR/VR have the potential to be especially harmful,” with the “immersive nature of the medium [capable of] presenting health and safety concerns for consumers – so called ‘shockvertising.’” Simultaneously, the academics assert that researchers have found that “it is harder for users to avoid ads in more immersive environments,” thereby, giving rise to “unique and exacerbated harms.”

Moving Forward

In addition to a number of submissions suggesting that the FTC make clear that its existing rules apply across mediums and thus, are relevant in spaces like the metaverse and gaming environments, the general consensus is that the FTC should tread carefully in issuing new guidance. One of the strongest voices on this front is the Association of National Advertisers, which tells the FTC that “overly prescriptive guidance can lead to a disappointing and confusing consumer experience,” and “a rush to issue guidance would run the risk of creating an unworkable framework that fails to address developing practices relevant to the consumer experience,” especially since “we do not yet know what is technologically possible [in the metaverse], and these immersive spaces hold promise for a range of consumer benefits in everything from education, health care, and gaming to commerce, the arts, and entertainment.”

“Given this ongoing developing landscape, any guidance that constrains the consumer experience at this stage is premature,” the ANA declares, advising the FTC that “these technologies should be given time to develop before a decision is made regarding guidelines.”

The CCIA strikes a similar tune, stating that the FTC “should keep a light hand in its oversight,” as in order “to allow this market’s potential to come to fruition, regulation should preserve an open and unconstrained environment for innovation, free from undue chilling effects and other powerful disincentives.” As such, metaverse-focused guidelines that are “adopted too prematurely would present the risk of being ineffective, unneeded or, even worse, harmful.”

 

The PDMA concurs that “speculative guidance would be neither enlightening nor effective,” and instead, the FTC should modify its guidelines once “concrete issues emerge with these new technologies.” Dudukovich concurs, stating that while the Dotcom Disclosure guides may need to be updated, it should be on an “as-needed basis to track with and to accurately reflect how compliance looks in the face of new and changing tactics, platforms, and user expectations, for instance, as the metaverse grows, expands, and sees greater adoption by both consumers and brands.”

And in what appears to be the most proactive comment on the issue, Princeton states in its submission that the Disclosure Guidelines “should anticipate issues that may arise with respect to advertising that appears in mixed and/or virtual reality, or the metaverse,” but even so, the academics recommend that the FTC do so “by providing clarity that services should interact with consumers in those new mediums in a fair and transparent manner.” (They also call on the FTC to “be watchful for emergent forms of dark patterns that may take hold in this space.”)

As for when changes to the FTC’s guides may be appropriate, the CCIA contends in its submission that a 2022 study involving 200 respondents from companies that have invested in metaverse technologies shows that 67 percent of them believe that the metaverse will only “start ‘booming’ in the next 5 years,” with another 13 percent claiming that “we are still 10 years away from the technology’s highest potential.” As such, the FTC may deem it too soon to adopt new guidance at this point.

Not the last call for comment that is relevant to the virtual world, the FTC said in a release on August 23 that it is seeking “additional public comment on how children are affected by digital advertising and marketing messages that may blur the line between ads and entertainment.” Marketers can “increasingly reach children via digital media, including by embedding advertising in video sharing platforms, social media platforms through influencer and celebrity posts, games, virtual worlds, and other digital environments,” the agency stated, seeking public input in conjunction with an October 19 event that will examine these topics.