Advertising in the Metaverse | Fenwick & West LLP

The Metaverse is the newest way in which brands are thinking about engaging with existing and new customers. Wendy’s, for example, launched “Wendyverse” in Meta’s Horizon Worlds where users can engage virtually with the content and potentially unlock free food in real life. Given the understandable excitement that brands have about reaching their audience in new, exciting ways, brands need to remember that—similar to social media—the not-so-new rules regarding truth-in-advertising apply in the Metaverse.

Fenwick recently hosted a National Advertising Division seminar, and regulators emphasized that ads in the Metaverse must be truthful and not misleading even if the technological medium for delivery of those ads is nascent. The focus of our discussion is on three critical issues: (1) making advertising claims in the Metaverse; (2) deploying influencers to the Metaverse; and (3) avoiding user interfaces that use dark patterns to “trick” or “trap” in a way that can be perceived as deceptive. The risks of making such false claims not only invite regulatory scrutiny, but the potential for consumer class actions and competitor suits.

Claims Made

One unique issue about advertising in the Metaverse is the potential to make three-dimensional claims. A Metaverse application that purports to reflect how a real-life article of clothing would look could be found to make the claim that the article of clothing would fit as shown digitally if worn by the consumer in reality. This is a natural extension of the law as it has currently been applied to claims made in product images.

For example, in what is commonly referred to as “web 2.0,” consumers have filed lawsuits alleging false advertising over the promotion of products alleged to be digitally enhanced. In a recent federal lawsuit against Burger King in this web 2.0 context, consumers allege that Burger King misled consumers about its hamburgers through photographs used in advertising. They allege that advertisements of the Whopper “materially overstated” the size of the burger and amount of meat as compared to what is actually served, as shown here.

The risk with making allegedly false claims is not confined to consumer litigation and regulatory scrutiny. It is important to emphasize that a brand’s competitor may elect to bring a challenge at the National Advertising Division, which reviews these kinds of challenges and can refer a brand to the FTC, or bring a false advertising suit. In one recent NAD challenge related to the visual fit of the Depend product “Silhouette” and “Silhouette Active Fit,” the NAD concluded that “[a]lthough consumers may expect advertised products to be meticulously arranged by professional stylists who use techniques like camera angle, film, lighting or background to optimize the of a product for a photograph, advertisers may not materially alter or artificially enhance the appearance or performance capability of the product beyond the scope of the supporting evidence.” Kimberly-Clark Worldwide (Depend Incontinence Underwear)Case Number 6100 (July 2017).

In web 3.0, brands need to consider not just the two-dimensional, but the three-dimensional, auditory and/or performance claims that might be made by a particular advertisement, and whether the claims being made about the products or services are accurate and substantiated with reasonable evidence that can support the claims.

Influencers

It is now commonly known to advertisers and influencers alike that any material connections between the two must be disclosed in accordance with the FTC’s Endorsement and Testimonial Guidelines. Brands who use influencers must consider how to disclose a material connection when the advertising appears in the Metaverse. Many brands have become accused to the disclosure obligations in Twitter, Instagram and other social media platforms. These disclosures are often primarily textual, although in many existing web 2.0 media textual disclosures are not sufficient (eg, video streaming, podcasts, etc.).

It is possible that certain applications in the Metaverse will not include a textual feature through which an influencer could disclose that connection. The 2013 FTC .Com Disclosures reinforce that web 2.0 disclosures must be “clear and conspicuous.” These disclosures also reinforce that a clear and conspicuous disclosure is not necessarily one that is textual. And, again in its 2015 Enforcement Policy on Deceptively Formatted Advertisements, the FTC reinforced that “[d]An eception occurs when an advertisement misleads reasonable consumers as to its true nature or source, including that a party other than the sponsoring advertiser is the source of an advertising or promotional message, and such misleading representation is material.”

The FTC clarified that the formatting of ads can render them deceptive and that clear and conspicuous disclosures may be required, such as “audible disclosures to be delivered in a volume, cadence, and speed sufficient for ordinary consumers to hear and understand them.” Whether a disclosure is clear and conspicuous will remain the touchstone in the Metaverse. Therefore, brands operating in the Metaverse will need to consider the context of the new medium to determine whether a disclosure is clear and conspicuous. It will likely be incumbent upon the brand and the influencer to find non-textual ways to adequately disclose that material connection (eg, through auditory and/or visual disclosures). Brands also have an obligation to monitor the activity of their influencers or media partners to ensure these adequate disclosures.

Platforms comprising a Metaverse or applications published therein should certainly consider these issues, too, because brands and influencers should decline to use any platform or application for influencer marketing where an adequate disclosure cannot be made to consumers. Both brands and platforms should also consider the potential risk of deception to consumers arising from the failure to disclose that a digital human (eg an influencer who is not the voice of a real human, but is a creation) is not real. As the regulators from the NAD reminded us, “you’ve got to remember that the rules apply” and you are “going to have to figure out a way to make it clear that this is a paid promotion.”

Dark Patterns

The Federal Trade Commission has already warned companies against employing dark patterns in their subscription offers. One way to think about dark patterns is the use of technology to take advantage of users’ heuristics to trick or trap them into a decision they did not want or intend to make. The director of the FTC’s Bureau of Consumer Protection, Samuel Levine, stated that the FTC’s 2021 statement about dark patterns “makes clear that tricking consumers into signing up for subscription programs or trapping them when they try to cancel is against the law… firms that deploy dark patterns and other dirty tricks should take notice.”

Many states also have laws relating to how subscription offerings must be presented to consumers. In the online and mobile application environment, the requirements of those laws are progressively becoming defined and specific. However, three-dimensional interactive environments are likely to present new and exciting ways to offer subscriptions to consumers. A touchstone of the development of any such offering will be the answer to the question of whether the offer is made in a way that is clear and conspicuous, even if the technology is breaking new ground.

Takeaways

Advertising in the Metaverse is unlikely to require the passage of new laws or regulations. However, how existing laws and regulations get applied to advertising in the Metaverse remains to be seen. For example, the FTC guidance on dark patterns is not dissimilar from the FTC’s guidance on internet advertising more generally. In the native advertising context, the FTC warns of “deceptive door openers” likening internet advertising back to when someone would knock on your door in the 1.0 universe and try to sell you a physical product. Whether a consumer is receiving direct mail, is surfing the web or is now doing all of these activities in the Metaverse, deceptive door openers will always be treated as a deceptive advertising practice by the regulators.

At a minimum, the advertising needs to be evaluated for whether it is truthful and not misleading in the context in which it is delivered (ie, in that fully immersive three-dimensional world) and is clear and conspicuous to the consumer in any world they are living in at the moment.

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