• by Wendy Davis , Staff Writer @wendyndavis, November 5, 2013

Companies that deal in so-called native advertising face a dilemma: Anyone who wants to avoid trouble with the Federal Trade Commission should make it clear that marketers have paid for particular pieces of content -- such as by labeling them as “advertorials,” “sponsored content” or some other terminology. But if advertisers and publishers clearly label a piece of content as an “ad,” they could lose crucial free-speech protections for the material.

That's according to Rick Kurnit, president and partner of the law firm Frankfurt Kurnit Klein & Selz. Speaking at the OMMA Native conference today, Kurnit suggested marketers and publishers need to walk a fine line between making full disclosure and ceding critical protections.

Like other observers, Kurnit expects the FTC will address how publishers and marketers inform consumers about native ads at an upcoming workshop. That's a fair assumption, given that the FTC has made clear that it's paying attention to the labels that companies use online. Most recently, earlier this year the FTC warned search engines that they must clearly differentiate paid ads from organic results.

Kurnit predicts that many advertisers or publishers will decide to simply say, “We'll slap 'sponsored stories' on it.” But, he warns, doing so “does not serve you as well as you may like.”

That's because labeling something as advertising could potentially deprive publishers and marketers of critical protections. What kinds of protections? One big one centers on the use of celebrities' names and photos.

Consider, People magazine can put a photo of Reese Witherspoon on the cover, whether she approves or not. But a company like Kellogg can't just use her image in a cereal commercial without her permission. That's because the legal system protects editorial speech to a far greater extent than advertising.

But it's still an open question how courts will react to content that blurs the lines between editorial and advertising, like “native” advertising, Kurnit says.

Of course, simply labeling a piece of content as “advertising” or “editorial” isn’t' the end of the issue. Judges presumably will decide for themselves whether particular articles are entitled to free-speech protections -- regardless of how it's labeled.

At the same time, publishers have more at stake than litigation risks. Companies that create ambiguity about whether content is an ad risk their credibility with consumers. And that could ultimately prove more damaging than losing a lawsuit.