Many thanks to the International Law Office (ILO) for publishing a derivative of our Legal Bytes article. You can download and read a personal copy of the ILO posting FTC Targets Ads That Target Kids, or you can read the original Legal Bytes blog posting at "Mom, is it OK for them to follow me?" FTC Targets Ads That Target Kids.
The column focuses on the use of statistics by competitors and analysts alike – in this case statistics that related to claims made by Chicobag about the environmental impact of reusable plastic bags that many retail stores use to bag items, from groceries to clothing, when you check out with your purchases. It seems that Chicobag made some claims – citing statistics – about its products. Mr. Bialik's column notes that Hilex Poly and some other competitors challenged the claims being made by Chicobag, and were unable to come to grips with either the numbers or the claims; litigation ensued.
Although Mr. Bialik focuses on the way numbers are used and the difficulties inherent in accumulating and using statistics – often when the subject matter may actually be a moving target – the legal issue is similarly complex. More often than not, false, misleading, deceptive advertising claims challenge the explicit veracity of a claim and whether that claim can be substantiated or whether the "net impression" or implicit claims (e.g., pictures or activities) can mislead or potentially deceive consumers. This claim, brought as an action under the Lanham Act – seeking an injunction and damages for false advertising and unfair competition for both a violation of section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and under a state statute (South Carolina Unfair Trade Practices Act, South Carolina Code Annotated § 39-5-10, et seq.) – really revolves around whether the veracity or inaccuracy of claims (even if they can be substantiated or derived from facts that were believed to be true when stated) makes any difference at all in the minds of consumers.
Without giving away The Numbers Guy's secrets (or forgetting the Federal Trade Commission Act that prohibits "unfair or deceptive acts or practices in or affecting commerce"), the legal claim, in my view, hinged not on whether the statistics claimed by Chicobag were incorrect or even in some cases materially inaccurate, but whether the particular claims as made using those statistics, were material to a consumer. Whether a consumer was likely to make a different purchasing decision – or might at least be informed enough to consider doing so – based on the degree of inaccuracy.
So when you think of my blog Legal Bytes, I'll close with a claim that everyone sees on those pizza cartons around the country – maybe the world: "You've tried the rest. Now try the best!" Can you say "puffery"?
Many of us remember when kids were actually worried about being caught misbehaving. Back in those days, parent’s concern over children’s behavior dealt with whether the kids were ‘fresh’ or ‘mischievous’ or talked too much in school. I was perennially the subject of “he would do so much better in class if he just stopped horsing around and paid attention.” Dear Mrs. Frohman, Mrs. Handel, Mrs. Flynn and Mrs. Bernstein – thanks! It took me several decades, but I finally got the message. Today, however, when we hear the terms children and behavior – well, at least according to the FTC, it ain’t the children that are misbehaving.
In a proposed amendment to rules that have been in effect since 2000, the Federal Trade Commission (“FTC”) is proposing amendments to COPPA (the Children’s Online Privacy Protection Act”) that “would require parental notification and consent prior to the collection of persistent identifiers where they are used for purposes such as amassing data on a child's online activities or behaviorally targeting advertising to the child." In describing the proposed changes (the proposed Amendment runs 122 pages long), the FTC notes that these new rules would apply to any identifying or tracking technology (cookies) that would link a child’s browsing behavior across multiple web pages and services – ostensibly including advertising networks and metric/measurement/analytical service providers who routinely have access to such information.
Although a ‘safe harbor’ for compliance with self-regulatory programs is included within the FTC’s proposal, it did suggest that these programs (and individual company compliance with these programs) be more closely monitored and supervised – including mandatory audits every 18 months and reports detailing actions taken by the self-regulatory body against the companies that do not comply. Clearly, one of the FTC’s objectives is to not only ensure a mandatory review of compliance, even for those companies that have not been subject to proceedings, but also to create a record-keeping and reporting system that gives the FTC the ability to obtain detailed information about the proceedings and the compliance efforts of individual companies.
Comments, which are due by November 28, 2011, may be filed with the FTC using it’s COPPA Rule Review Form. If you are interested, concerned, want your voice heard, or otherwise need to be guided by experienced counsel in this area, please feel free to contact me, Joseph I. Rosenbaum, or the Reed Smith lawyer with whom you regularly work. We would be happy to help!
Late this past June, the Federal Trade Commission indicated it was launching an investigation into Google’s search engine technology and whether it pushes consumers to Google’s other services in a manner that is unfair to competition.
That also means that the FTC will not only be asking Google for records and information about the way it conducts its business, but it will also be asking for information from Google’s competitors (presumably who would provide information gleefully, except that they best be careful about celebrating too prematurely when they hand over information to the government), AND – here it comes – lots of companies who do business with Google: The host of third parties that are advertising and marketing networks, publishers, services, sponsors and, yes, even advertisers and agencies themselves.
What should you do? Well we’ve prepared a handy reference guide – What Should You Do When the FTC Calls About Google? to explain what the FTC can ask, to explain a few of the basic legal principles that apply to the "asking" the FTC may engage in and, frankly, a warning that you should be calling your lawyers—lawyers knowledgeable in this process—and protecting your interests. For you in-house lawyers out there, if you aren’t familiar with handling these inquiries and third-party requests, perhaps you should consider engaging the services of outside lawyers who know how to help. So whether you know you need help, before or after receiving an inquiry from the FTC – formal or informal – or if you aren’t sure, you might just want to call Joseph I. Rosenbaum, Rachel A. Rubin or the Reed Smith lawyer with whom you regularly work. We would be happy to help!
An Open IMHO Letter to Google
I’ve heard that the FTC has served you with a civil investigative demand in connection with your search-advertising business. They have raised the question as to whether your search engine technology pushes consumers to your other services in a manner that is unfair to your competition.
Now the FTC will try to determine if your market power is dominant because your practices are unfair and whether consumers are harmed, either directly or by not having competitive choices in the marketplace. Of course, the FTC has taken into account the complaints of your competitors. That is significant because I’ve heard a rumor that companies rarely try to incite trouble for their competitors at a regulatory agency.
So what happens next? Senior executives scramble. Lawyers do research and prepare briefs. Finance people set up cost centers and budgets. Evidence is gathered. Experts are retained. Distraction will be pervasive, invasive, consistent and persistent - until a settlement is reached. It won’t be pretty. It won’t be fun. It never is. But it’s here and at least the sword of Damocles is not hovering above. The issues will be confronted and the scope will be expanded – government always uses what it finds as a basis for going farther than originally planned (it’s great leverage). Then the serious business of trying to reach an accord will begin.
This isn’t about winning or losing. It’s about making a point. But it’s de facto, a recognition that you are thriving at what you do and have grown large and successful as a result. True, this action is probably not the recognition you prefer, but when the government wants everyone to believe you might be too big, too dominant, too much in control at the expense of competition and the detriment of consumers, the target is painted on you and it’s just a question of how much pain is inflicted before a settlement is reached.
Now I am not an economist or a market dominance expert, I’m a lawyer and blogger; but I thought I might help out by offering some observations you can bring to the attention of the FTC that might give the government (maybe others in the industry and even your competitors), pause to question whether their analysis, their efforts, their investigation, is correct or necessary. I’ve taken the liberty of including an attachment to this letter (see Attachment A) that provides some tips. Feel free to use them and tell your lawyers to back them up with lots of research and briefs – those are always impressive and useful.
Joe Rosenbaum at Legal Bytes.
P.S. If your people end up spending hours, days and months with government regulators, working through lunches, late nights pouring over documents, huddled around conference tables, it may give you an opportunity to point the officials to their next target. You know who.
P.P.S. Feel free to use these and other quotes from the FTC if you like:
“And, as the information industry is still emerging, quite dynamic, and not yet well understood, plausible efficiency benefits should, perhaps, weigh heavily in the balance against asserted risks of decreased competition, especially when the technology is changing so fast that adverse effects on competition are likely to be transitory.”
“Antitrust and Technology: What’s On The Horizon?” Prepared Remarks of Federal Trade Commissioner Christine A. Varney, before the American Society of Association Executives, Legal Symposium, Washington, D.C., October 6, 1995
“A less confrontational approach suggests that because of the robust pace of innovation in high-tech industries, government should not intervene 'unless certain that doing so will benefit consumers and the economy.' (See, Priest, The Law and Economics of U.S. v. Microsoft, AEI Newsletter, August 1998).” Antitrust Analysis in High-Tech Industries: A 19th Century Discipline Addresses 21st Century Problems, Prepared Remarks of Robert Pitofsky, Chairman, Federal Trade Commission, to the American Bar Association Section of Antitrust Law's Antitrust Issues in High-Tech Industries Workshop, February 25-26, 1999, Scottsdale, Arizona
You really need to see Attachment "A" so if it isn't already displayed, point whichever browser you are using and click the "Continue Reading" text on the left below.
Responses to the FTC Antitrust Investigation *
Google is not a verb.
Brand and reputation management is more important than trademarks in the online and mobile space. Get over it. Google is a company. The presence of other search, advertising-supported browsers, platforms and technology is actual evidence that no specific company or technology is truly dominant through the exercise of "control," but rather of the innovative appeal, utility and functionality to consumers. Do the names Netscape, MySpace or Sega ring a bell?
Google doesn’t and can’t control consumers.
Dominance implies barriers to entry, control and the evil things monopolists ostensibly do to protect their turf. My mouse is free to go where I tell it, free of any browser or search technology. Try this at home everyone: Open Internet Explorer. Firefox. Opera. Chrome. Safari. Don’t close any. Did Chrome take over control of your screen as the 1963 TV series "Outer Limits" did? Want more? Please refer to the Comparison of Web Browsers available on Wikipedia, starting with Nexus in 1991. You do remember dominant Nexus, don’t you?
Google presents no barrier to entry.
Bing searches. Facebook socializes. Twitter chirps. Groupon clips. FourSquare locates. LinkedIn networks. Anyone feel they can’t innovate? Generate buzz? Grow their own consumer-user base? Entry, algorithms, technology, costs almost nothing in this market – sadly hackers and cybercriminals often call attention to that fact. Perhaps a better question is whether innovation is stimulated by companies that constantly evolve and look for ways to improve the consumer experience, rather than lock them into one. I don’t have a two-year exclusive contract for my web browser with Google. Do you?
Google dominance based on consumer choice is neither bad nor illegal.
Dominance isn’t bad or illegal if it is earned, not coerced. Big doesn’t always equal bad – the government would be guilty if that were the measuring criteria. What if consumers prefer Google’s search technology because of utility, functionality, accessibility or another reason. I like the doodles on each day’s opening web page. Nothing is tied to my browsing, nothing controls or coerces my actions, and although I use a variety of browsers for reasons that are unique to me, none of them dominates my activity or behavior on the web. Just curious, does each government agency (e.g., the FTC) have a choice of browser used internally?
Google doesn’t harm consumers.
At the end of the day, if consumers aren’t harmed, if no unfair competition has occurred, if no barriers to entry exist, and if no control is exercised because of dominant position—the question we must all ask is whether the government is simply targeting each 800-pound gorilla in each decade, or whether some wrong must be set right. I wonder how many consumers have contacted the FTC complaining that they were forced to use a browser against their will. Does it not strike anyone as strange that a company that looks at the market, identifies an opportunity, and innovates for the benefit of consumers in that market, is targeted because it has done a good job? If there is no evidence that a consumer is harmed, precluded from making choices in a competitive marketplace, or prevented from using or benefiting from some product or service as a result of unfair or deceptive practices, riddle me this, Batman – whose interests is the government protecting?
* Note: Neither the author nor, to his knowledge, his law firm, represents Google. The author has not and does not do business with Google, although he has used its browser, used its search capabilities and other features and functions when he chooses to do so. The above analysis would and does apply to any similar situation. Why? Because it’s my humble opinion. IMHO, that’s why.
First issued in 1992 and revised in 1998, the Federal Trade Commission three years ago (2007) began an extensive review of its Guides for the Use of Environmental Marketing Claims, also known as the "Green Guides," focusing mainly on the dividing line between deceptive and non-deceptive speech. Noting the increasing use of "greenwashing" – the use of unsubstantiated environmental claims in advertising – the FTC is seeking to spell out the specific environmental claims that advertisers can and cannot make about their products and services. After hearings, surveys and feedback, the FTC recently formulated draft revisions to the Green Guides, publishing them for public comment.
Our own John P. Feldman prepared an insightful analysis of the draft revision and what it may mean if it is ultimately adopted by the FTC in its current form. That analysis, originally prepared as a presentation to lawyers, and advertising and marketing professionals, has now been recast into a narrative discussion; and thanks to the assistance of Carolyn Boyle and the editorial staff at the International Law Office, you can read all about it on the International Law Office website. The article, published as the Revised Green Guides: A Balanced Approach to Environmental Claims in Advertising, represents a terrific overview of the FTC's current thinking in this area, and it is a must read for any legal, regulatory, advertising and marketing professional who does "green" marketing and advertising or who may be responsible for it.
If you need help, need more information, or need knowledgeable counsel and representation in this important area of law and regulation – either now or increasingly in the future – please don't hesitate to contact John P. Feldman directly, or me, Joe Rosenbaum, or any of the Reed Smith attorneys with whom you regularly work.
Well, it seems like almost yesterday (actually a little more than a month ago), that a subsidiary of Mixx, the popular social voting site, launched TweetMixx, a new service that enables companies, brands, politicians, and celebrities collect and aggregate all the mentions about them on Twitter on a single page. “TweetMixx Channels,” as the service is branded, enables you to create a branded page, tailored to you – from your own Twitter Tweets and RSS Feeds to comments from customers, reviewers, fans or pretty much anything you like. We’ll use “you” generically to mean any label that fits – people, brands, goods, services, you name it.
Ever see those vanity license plates on cars? Now you can have your own vanity Twitter Mixx channel, and the service uses “Tabs” to allow a variety of features and functions. There’s one that uses search terms to find links and tweets about you on Twitter, in apparent deference to the new Federal Trade Commission Endorsement Guides (see our post FTC (Revised) Endorsement Guides Go Into Effect earlier today; there’s an “Insiders” tab that identifies anyone with a material connection or that is associated with you (e.g., employees, agents, paid endorsers); and other tabs that enable you to customize and populate the channel. In addition, since the service appears to act both as an aggregation and a search tool for content about you, consumers can find all the Twitter traffic and channel information about you in one place, and at the same time, you can use the service to track and monitor conversations and references to you on Twitter. Right for consumers; right for you – clever.
Remember Facebook’s personalized URLs just a few months ago (Legal Bytes blog post Facebook Adds Personalization & a (Brand) New Dimension)? This is not simply another social media fad. Already companies are getting on the bandwagon (or should we say birdwagon). Today, the National Hockey League (www.nhl.com) will be among the first few enterprises launching its TweetMixx Channel – its own private label branded distribution platform using the TweetMixx service. TweetMixx even provides you with a widget that can be embedded on other websites (think bloggers, profile pages, etc.). The NHL’s “Chatter” tab on TweetMixx, for example, will provide streaming tweets from hockey fans, while a “Links” tab will keep track of the tweets that are retweeted most often, and will rank these favorites by putting them at the top of the TweetMixx Channel web page.
So for advertisers, brand managers, marketing professionals and agencies, this new tool is the beginning of enabling a clearer strategic use of Tweets. Just as branded pages and channels, enabling two-way conversations, have emerged on YouTube and Facebook, allowing brands and celebrities to engage with consumers and fans, TweetMixx seeks to provide an ecosystem for Twitter traffic. Chris McGill, founder and CEO of Mixx, noted that each TweetMixx Channel can be analogized to a “tree.” You have TweetMixx plant a customized tree of your choice, then you are given the tools to nurture it, to prune it and to watch it grow. Do it right and you have branches where Twitter users can “flock, sit and sing” about you – the people, products, services and things they care about. TweetMixx owns the forest!
Can you or your brand afford to stay out of the social media arena? Are you afraid of the new risk-reward paradigm and uncertain what to do? Do you know you have to do something, but are suffering from analysis paralysis? Have traditional models got you stuck in the mire? Call us. Our Advertising Technology & Media law practice group and our newly formed Social Media Task Force already have unparalleled depth, experience and bench-strength in understanding, working with, and advising clients in this brave new world. From developing policies to monitoring compliance; from protecting and enforcing your rights to developing relationships and partnerships with others to engage in the conversation. To win it, you have to be in it. If you need help, contact me, Joseph I. (“Joe”) Rosenbaum, or the Reed Smith attorney with whom you regularly work. We are happy to help.
This post was written by John P. Feldman.
Yesterday, Dec. 1, 2009, the revised "Guides Concerning the Use of Endorsements and Testimonials in Advertising" released by the Federal Trade Commission came into effect. If you are a loyal Legal Bytes' reader, you know we have been following this as early as November 2008, when we posted Endorsements & Testimonials - FTC Broom Proposes Some Sweeping Changes. Numerous updates and informational pieces have graced these pages since then (now when we say "pages," we mean web pages), and you can refer back to any or all of them, or you can check out any you may have missed right here: FTC Testimonial and Endorsement Guides Stimulate Industry Comment (March 2009); a presentation given at the University of Limerick on the subject entitled "Trust Me, I'm a Satisfied Customer: Testimonials & Endorsements in the United States," which you can download (If You Didn't Make It to Ireland ...); Ghostwriters: Medical Research or Paid Endorsers (and are they mutually exclusive?) and Rights of Publicity - Wake Up and Smell the Coffee! (both in August 2009); and FTC Releases Updated Endorsement & Testimonial Guidelines and Reed Smith Analysis of the New FTC Endorsement and Testimonial Guidelines (both in October 2009).
Yesterday, John P. Feldman, an authority in these types of advertising regulations and compliance and who is based in Washington, D.C., put together some thoughts concerning the implications of these Guides upon coming into effect, continuing his thoughtful and practical analysis. While we will maintain bringing you news and information about the Guides, John's analysis is timely and helpful, and outlines some considerations every advertiser – online, in social media and off-line – and every blogger, viral marketer, celebrity endorser or consumer making a testimonial, should take into account. John's analysis, which you can download and read in its entirety by selecting the link below, asks and answers the following questions about these Guides:
- What does this mean for advertisers?
- What is the most dramatic shift in enforcement policy?
- What will this mean for advertisers that use celebrity endorsers?
- How much control should sponsoring advertisers exercise over endorsers in new mediachannels?
- What impact will the FTC's new approach to clinical trials have on the OTC, cosmetic, and pharmaceutical industry?
- Is there a role for self-regulation and what do you make of the proposed "best practices" recently announced by the Word of Mouth Marketing Association (WOMMA)?
You can download your own copy of John's analysis or you can read it online right here: "FTC Endorsement Guides (Revised) - Some Thoughts As They Become Effective". You won't be disappointed. In addition, if you want to know more about these issues or have questions about your particular circumstances, please do contact John P. Feldman directly, or you can call Joseph I. Rosenbaum or Douglas. J. Wood or, of course, any Reed Smith attorney with whom you regularly work.
The New York Times today has published some of the views of David C. Vladeck, the new head of the Bureau of Consumer Protection at the Federal Trade Commission, regarding the FTC’s role in protecting consumer privacy.
By way of background, in announcing Mr. Vladeck’s appointment April 14, 2009, the FTC noted that “David C. Vladeck, who will serve as Director of the Bureau of Consumer Protection, has been a Professor of Law at Georgetown University Law Center, teaching federal courts, government processes, civil procedure, and First Amendment litigation. He co-directed the Center’s Institute for Public Representation, a clinical law program for civil rights, civil liberties, First Amendment, open government, and regulatory litigation. Vladeck previously spent almost 30 years with Public Citizen Litigation Group, including 10 years as Director.”
The FTC has been, and likely will continue to be, among the most aggressive federal agencies in the U.S. privacy arena. Traditionally, the FTC had prosecuted companies for how they collect and use consumer information, if consumers had been deceived, or if consumers had suffered economic harm. Although you can read The New York Times article in full, Mr. Vladeck has proposed adding a new thrust to the future of FTC privacy enforcement. He is reported to have suggested that if companies collect too much information from a consumer, that, in itself, is a harm to the inherent privacy of individuals AND (if his views turn out to be prophetic) is prosecutable, no matter how conspicuously or completely the nature and extent of information collection is disclosed to the consumer. This concept of damage to the "dignity" of the consumer goes well beyond the traditional U.S. privacy principles that have typically compensated consumers only when economic harm or damage has occurred, or when there are statutory penalties for violations of law or regulation.
If Mr. Vladeck’s views transform into regulatory policy and enforcement activity, this highly subjective and vague standard (How much is too much? Why shouldn’t proper disclosure and choice be sufficient?) could have a huge impact on data collection, could lead to a huge flurry of litigation, and would arguably create a "big chill" for all—including consumers. Stay tuned.
Earlier today, the FTC staff issued a report concerning consumer protection issues arising in the mobile commerce marketplace. A copy of the full report, Beyond Voice, Mapping the Mobile Marketplace is available by clicking the link. The key findings in the report:
- Cost disclosures about mobile services continue to generate consumer complaints. The FTC staff intends to monitor cost disclosures, bring law enforcement actions, and work with industry to improve self-regulatory enforcement
- The FTC and its law enforcement partners should continue to monitor the impact on consumers of unwanted mobile text messages, malware and spyware, and take law enforcement action if and as needed
- Although spyware and malware are not yet significant problems on mobile devices, the FTC is encouraging development of strategies to prevent or minimize their spread, since the issue is likely to magnify as consumers increasingly use mobile devices for a wider range of applications, including Internet access
- Increasing use of smart phones to access the mobile Web presents unique privacy challenges, especially regarding children. The FTC will expedite regulatory review of the Children’s Online Privacy Protection Rule to determine whether the rule should be modified to address changes in the mobile marketplace. This review was originally set for 2015, and will now begin in 2010 instead.
Given the numbers of wireless and mobile devices in the hands of individuals under the age of 18 (and 13), and the increasing proliferation of mobile devices, this will become a hotter topic in the months and years ahead. As if this point needed to be emphasized, it has been reported that as of January 2007—two years ago—there were approximately 800 million cars, 850 million personal computers, 1.5 billion television sets, but already 2.7 billion (yes, billion) wireless and mobile devices in use around the globe, with more than 800 million e-mail and 1.8 billion SMS text-messaging users.
Reed Smith acts as counsel to many of the advertising industry’s leading trade and membership associations – The Association of National Advertisers, The Word of Mouth Marketing Association, the Interactive Advertising Bureau, to name only a few. As you may have notices, a recent Legal Bytes blog post noted that just last month the FTC supplemented its December 2007 “Self-Regulatory Principles for Online Behavioral Advertising” report.
Well the FTC has been busy in re-examining it’s policies regarding testimonials and endorsements in this digital age. As previously reported in Legal Bytes, the FTC indicated it was revising it’s Testimonial and Endorsement Guides (the first time since the 1980s). Well comments have now been submitted and we strongly recommend that anyone in the advertising and marketing business take a look at some of them. In fact, to help you, Legal Bytes has a couple you can look at right now – Comments for The Association of National Advertisers and Comments for The Word of Mouth Marketing Association – and when you finish reading them ask yourself:
- Now that public comments are in, what do we think will happen?
- What is in front of the FTC that might affect its decision making?
- How would self-regulation differ from the way the FTC has been operating?
- What does the new FTC Chairman think about self-regulation?
- Do we expect the new administration to shift direction? If so, which way?
- How is all this likely to affect advertising and marketing using product placements, branded entertainment, blogs, consumer generated content, buzz, viral and word of mouth marketing?
FTC Releases Revised Ad Guidelines: Are New Marketing Practices in Your Wallet?
On February 12, 2009, the FTC supplemented its December 2007 “Self-Regulatory Principles for Online Behavioral Advertising” report, highlighting the FTC’s voluntary best practices for the behavioral advertising industry. While continuing to support self-regulation, that should not be taken as a vote of confidence for continuing the status quo. Change is in the air and you may well need to:
- develop more consumer education concerning behavioral advertising;
- develop internal privacy protections for anonymous data profiles;
- create opt-in notice mechanisms for collection of sensitive information; and
- create opt-in notice mechanisms for retroactive changes to privacy practices.
. . . and if you think your privacy policies are ok, as is, think again. The FTC has taken a broad brush to paint a picture of what it considers personally identifiable information (PII) and what ‘sharing’ of that information may require. Our experts Amy S. Mushahwar and John P. Feldman have written an alert that describes what you need to know in more detail. To read the full alert, with links to the FTC releases, click here.
The FTC is expected to release a Report on how violence is being used to market to children—in movies, music and video games. Some insiders fear the FTC will suggest the entertainment industry has violated or outgrown its voluntary standards—can you say “regulation.” Both the FTC and the FCC have targeted children’s advertising, programming and products. Want to know more? Contact John P. Feldman in our Washington, D.C. office; me or Douglas J. Wood in our New York office; or Stephen Edwards, Michael Skrein or Carolyn Pepper in our London office. Please also visit our www.KidAdLaw.com web pages. If you market or advertise to children or if you are a company that carries advertising which is or could be targeted to children, why would you look anywhere else for legal counsel.
The FTC, in a recent advisory opinion, highlighted the possibility that a seller’s failure to disclose the connection with an endorser could result in a violation of the FTC Act. This opinion has legal implications for blogging by employees, even on personal time and even if the company is unaware of the employee’s activities. Employees should be advised to strictly abide by their employer’s blogging policy, and if they blog about a product, they must identify their employment status. What? You don’t have an employee blogging policy? Shame on you. Come get one. Come to Reed Smith. Need to know more? Read our Labor & Employment e-flash bulletin "According to the FTC, Employee Blogging May Subject Employers to Liability" and contact the authors, Angela M. Washelesky in our Chicago office or Sara A. Begley in our Philadelphia office.
Based on a complaint that Xanga knew it was collecting (and sharing) personal information from children under the age of 13 (they asked for and were given the birth dates from registrants), the FTC reached a settlement agreement in which Xanga.com agreed to pay a civil penalty of $1 million. The complaint also alleged that Xanga didn’t notify children’s parents, nor did they give parents access to or control over their children’s information.
The Children’s Online Privacy Protection Act (“COPPA”) mandates that commercial web sites give parents notice and get consent before collecting personal information from children they know to be younger than 13 years old. The order which is part of the settlement with the FTC forces Xanga to erase any personal information collected and stored that violates the Act. Xanga also will have to put up hypertext links for the next five years to FTC-designated consumer educational materials.
Social networking has been in the news recently for many reasons. Recently, Facebook was faced with controversy when it started serving automated alerts about users’ friends and classmates. Facebook has less than 10 million users, compared with MySpace—which is now owned by News Corp.—which has in excess of 100 million users.
Those name brands appearing in hit shows. Those logos on the motion picture screen. The characters at the breakfast table with a favorite cereal. The star driving around in a particular automobile. The airline shown flying the lead character off to an exotic destination. Reality? Coincidence? Hardly. They are the result of contracts between the entertainment company or producers and the advertisers, and they represent a growing and important trend in marketing to consumers, along with the Internet, as reaching market segments through traditional radio and television advertising becomes increasingly difficult in our on-demand, fast-forward world.
In some cases, such “branded” entertainment is subtle—inserting itself into a scene or a sequence quite seamlessly and, not necessarily inconsistent with, reality. In other cases—“Harold and Khumar Go to White Castle”—yes, this really was the name of a movie, as was “Akeelah and the Bee,” which Starbucks helped finance and promote. In case you didn’t know, the FCC (and the FTC) regulate advertising on television—the FCC’s regulations concerning disclosure arose primarily from the quiz show scandals in the 1950s. When does creative control over programming yield to paid sponsorship and financing dollars or Euros (or British Pound Sterling). At what point does a program or movie become an infomercial or advercast? Are there vulnerable groups (e.g., children) that might not distinguish so readily between advertising and programming and at what point is that deceptive? What does SAG say about their actors being de facto appearing to endorse a product or brand inserted into their scenes and programs? If an actress is under contract with a cosmetic brand exclusively and a movie scene requires her to use a different brand—actionable? When the trailer with that clip airs on broadcast television—problem? Witness the following quote from Jonathan Adelstein, FCC Commissioner: “Now, products have even seeped into plot lines. Soap operas have woven cosmetic lines into their tales of who-did-what-with-who, while “The Apprentice” sounds more and more like an hour-long infomercial for the latest corporate sponsors.”
Trademark issues, endorsement and competitive/ambush marketing issues, free speech, freedom of expression, adequacy of disclosures, misleading or deceptive advertising—the list of potential issues is growing as the balance between creative control and commercial reality infect the entertainment industry. At one extreme is the traditional product placement in which an advertiser pays a fee for the hopes that the scene with its product doesn’t get cut and wind up on the editing room floor. At the other extreme is a placement fee and promotional campaign that is so integrally tied with the plot and the program that the two are indistinguishable—think “The Apprentice” or “Home Makeover.”
The FTC recently held that Rambus, a developer of computer memory technology, violated Section 5 of the FTC Act, engaging in monopolistic practices—abusing the process for setting industry standards for memory chips (DRAM). Rambus participated in the standard setting, but didn’t reveal it applied for and obtained patents that included technology incorporated into the very standards Rambus helped to craft. The FTC held that as a result of Rambus’ deceptive conduct, it engaged in anticompetitive conduct. The FTC found Rambus had intentionally and willfully engaged in deceptive conduct and misled others in the standards-setting organization—clearly to its detriment.
The Commission determined that Rambus’ conduct enabled it to acquire patent monopoly power in a number of relevant and related markets, while its deceptive behavior within the standards-setting organization led to the adoption of standards by the industry group that unwittingly incorporated Rambus’ patent rights. At least one FTC Commissioner went even farther and wrote that the abuse and deception within the standards-setting process was not only in violation of antitrust laws, but also constituted an unfair method of competition in violation of the broad scope of the FTC Act.
A proposed new “Truth in Video Game Rating Act” (H.R. 5912), would require the Federal Trade Commission to promulgate rules prohibiting unfair and deceptive acts or practices by video game marketers, and would require ratings to be based on video or computer game content as a whole. It would also be a violation if any producer or maker of these games hid or grossly mischaracterized the content of the game. Joysticks ready?
The Mobile Marketing Association has promulgated guidelines, now adopted by many leading wireless carriers and programming networks, to deal with the growing use of email, SMS (text messaging) and similar mechanisms in advertising and marketing. As you will recall, legal and regulatory actions have arisen based on the fact that some companies’ marketing practices fail to adequately disclose the charges, whether subscription or imposed by the wireless carriers, that apply to some of their services and, in some cases, to the advertisements and marketing messages themselves.
Wireless carriers are beginning to adopt content guidelines for what they will or will not transmit from content partners—regulating such things as sexually explicit, graphic violence, profanity, hate speech and other topics, words and images—in some cases including lengthy lists of “forbidden words.” CTIA, the wireless industry trade association, issued fairly broad content guidelines last November, but left the specific implementation to the individual carriers. Some carriers have carried this implementation to a level of detail that covers everything from games, music, images and video, and in some cases even governs the file names of anything downloaded or transmitted.
Wait until you wake up to the issues raised by transmission and posting of “user generated content.” As you may know, in addition to the FTC regulating advertising and certain content in the U.S., and on top of state laws, the Federal Communications Commission (“FCC”) having authority to regulate indecent content on television and radio and the mobile phone as a media and entertainment device is no longer fiction, but fact in many cases. Did you know that our Advertising, Technology & Media Law group has significant experience in all these areas (Judith Harris for FCC and communications; Doug Wood for advertising and marketing; and, of course, any of us or me, if you simply can’t figure out where your need fits).
In November 2005, Legal Bytes told you about how branded entertainment and product placement was one of the forces shaking up the world of advertising and marketing. We add to these forces even more creative innovations that are challenging the advertising and marketing world, as well as the legal and regulatory experts. “Buzz” or “viral” marketing is word-of-mouth advertising that promotes a product without disclosing any direct connection between the advertiser and the message. If you are a marketing professional, of course you want to identify people who will be interested in a particular message, and deliver the message in a way that makes it enjoyable and encourages them to share it with more people—you remember the hair color commercial on TV that ends with something like “she tells two friends and they tell two more friends and so on and so on….”
Now clearly, if an individual makes deceptive or misleading statements that weren’t induced, authorized or controlled by the advertiser, it’s hard to hold that advertiser responsible. But now advertisers are paying buzz “agents” to relay messages and encourage further word-of-mouth advertising. Thus, if the advertiser pays, it is hard to argue the advertiser is not liable for the truthfulness of authorized statements. But what happens if the buzzer’s unscripted message (i.e., their own message in their own words) is deceptive? Are their words similar to testimonials, regulated by the Federal Trade Commission, or a form of social spam, requiring disclosure like that mandated in the CAN SPAM Act? False testimonials have been the subject of state and federal actions for years. In some cases, actors in commercials looked so real, some Attorneys General required them to superimpose the words “dramatization” as a disclaimer on the TV screen. Years ago, a motion picture studio had billboards and commercials praising their movies. Unfortunately, the quotes and the purported journalist were invented by marketing staff at the studio.
These cases clearly establish that an advertiser is responsible for deceptive or misleading net impressions created by its advertising. Similarly, the FTC’s Guides Concerning Use of Endorsements and Testimonials in Advertising provides that, “When there exists a connection between the endorser and the seller of the advertised product which might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience) such connection must be fully disclosed.” There is no reason to believe these same standards do not apply to buzz marketing.
If an otherwise ordinary consumer becomes a buzz agent and is paid or given free products or other consideration in exchange for creating “buzz,” appropriate disclosure is likely to be required. Keep in mind, that to prevail in an action alleging a violation, the FTC must still show the activity was deceptive or misleading under Section 5 of the FTC Act—recall from November’s issue, that to make advertising actionable under Section 5 of the FTC Act depends on whether there is a representation or omission likely to mislead the consumer, viewed from the perspective of a reasonable consumer in the situation involved, and the representation or omission must be “material.” As noted in that issue, “if the consumer knew or was told the truth, is it likely to affect a consumer’s behavior in connection with the product.”
The FTC has proposed rules under the CAN-SPAM Act, in which an advertiser is not subject to the Act’s technical requirements if the “send this to a friend” forwarding or sending feature on the website or in the e-mail is not “procured” by the advertiser. In other words, the advertiser hasn’t paid or provided other consideration or induced anyone to initiate the message on behalf of the advertiser—otherwise, the advertiser must comply with all of the CAN-SPAM Act requirements, including disclosing that the message is an advertisement.
While traditional advertising law principles apply, in fact there has been very little actual regulation of viral or buzz marketing. Don’t feel complacent. We should expect the lack of enforcement activity to change reasonably quickly as more advertisers turn to non-traditional avenues to get their message across. New approaches to buzz or viral marketing and, as mentioned in prior issues, product placement, serve to only increase legislative concerns and pressure from consumer advocacy, protection and other groups. As these marketing techniques become more sophisticated and advertisers become more involved in the creative surrounding the medium and the message, the risks increase. Are consumers deceived by information that appears to reflect independent views, when the relayers are actually being compensated for delivering an advertiser’s message? The law appears quite clear that lack of disclosure could violate state and federal law, depending upon the materiality of the statement to a reasonable consumer and corresponding consumer harm.
Psssssst—pass it on.
Product placement is an advertising activity which has grown for decades in the motion picture industry, going virtually unnoticed by legislators. When television began aggressively using product placement for advertising, concerns (and regulation) began increasing. Unlike motion pictures, television is legally required to distinguish between advertising and programming.
First, “infomercials” that looked and felt like programming were targeted by regulators, because they believed the infomercials were deceiving. After a number of cases, the industry developed and implemented disclosures to allay fears of regulators at the FCC and the FTC. Enter reality TV. Suddenly programs were using affiliations with sponsors as part of the content or story line, prompting fresh concerns. As cable television, pay-per-view and video-on-demand services, time-shifting and digital recording devices, and fast-forward buttons have become commonplace, advertisers have struggled to capture viewers’ attention with product placement. In 2004, product placement advertising rose to about $4.25 billion.
Why the fuss? Because product placement is advertising, subject to the same laws and regulations that govern commercials. On television, both the FTC and the FCC can regulate advertising, mandate disclosures and determine if something is deceptive or misleading. Where the line between harmless product placement and deceptive practices is drawn is increasingly blurred.
Whether a product placement is deceptive or misleading—sufficient to make it actionable under Section 5 of the FTC Act—depends on whether there is some representation or omission likely to mislead the consumer. The depiction of the product must be viewed from the perspective of a reasonable consumer in the situation and the representation or omission must be “material.” In other words, if the consumer knew or was told the truth, the consumer’s behavior would likely be affected in connection with the product.
The FCC also regulates deceptive product placements: viewers may not realize they are advertisements, hence the FCC requires disclosure. Failure to properly disclose the commercial nature of a product placement could amount to “payola” and would be illegal. Again, where the line is drawn between harmless inclusion of products in programming versus commercialization which misleads consumers is hardly clear.
The FTC and FCC regulations puts advertisers between a rock and a hard place. The FCC requires disclosure for a paid placement—which makes the product placement commercial speech. If it is commercial speech, is the placement then also subject to FTC disclosure rules? What if the advertiser has no control over the creative content and no approval over scripts or editing or even the extent of the product placement itself? Under those circumstances, how could the advertiser be responsible for the depiction of its product; the director, producer, actors, even the editorial staff, have ultimate creative control of what shows up on the screen. The advertiser could pay a substantial sum of money to watch its product wind up on the cutting room floor in post-production. Ouch.
But what if the advertiser seeks approval over content to ensure it gets what it pays for? Can that advertiser argue it shouldn’t be liable for false representations or the net impression created about the product—especially if the advertiser has some say in the creative surrounding a product placement? Does one risk a negative placement by foregoing participation in the creative, or fight to ensure favorable depiction of a product with the corresponding risk that liability will increase with participation in the content and placement.
Ultimately, the question of whether disclosure is required, whether product placement will be seen as misleading or acceptable, will depend on the “reasonable consumer.” Artistic expression of the creators of programming content, or blatant advertisement? In one case no disclosure is necessary. In the other, the law requires disclosure so the consumer is informed. As product placement becomes increasingly clever and interwoven into the fabric of programming content, and as advertisers increasingly participate in creative decisions surrounding placement and depiction of products, the risks of regulatory action increase.
Outside the United States, it doesn’t get any easier. In Ireland and Finland, product placement is prohibited in all media; in Austria, Norway and Italy it is specifically forbidden in television programming; Germany, Greece, Denmark and Liechtenstein allow it if it is integral to editorial content; and the Netherlands allows only product placement that lasts a “few seconds.” Then there is the European Commission Television without Frontiers Directive—but we digress.
Product placement will continue to challenge the balance between advertising and creative programming. Where and when disclosures will be required are likely to challenge advertisers, consumers, regulators and legislators for some time to come.
What if you offer a tutorial service that teaches how to use peer-to-peer file-sharing programs and refers members to P2P networks but doesn’t actually license file-sharing programs, and doesn’t operate a file-sharing network itself? Sounds like it would be tough to prove copyright infringement—the Grokster case notwithstanding.
But what if you advertise that by becoming a member, subscribing and paying a fee, your P2P file-sharing is legal. “PEOPLE ARE NOT GETTING SUED FOR USING OUR SOFTWARE. YES! IT IS 100% LEGAL,” or “Rest assured that File-Sharing is 100% legal.” What if customers are deceived into thinking that by becoming a member, P2P file-sharing is legal? Remember, when anyone uses a P2P file-sharing program to download copyrighted material, or to make that material available to others without the copyright owner’s permission, it’s copyright infringement. Well the FTC has charged Cashier Myricks Jr., doing business as MP3downloadcity.com, with deceptive advertising by falsely claiming that membership in the service makes P2P file-sharing legal; and acting on the FTC’s action, a U.S. District Court judge has stopped the deceptive ads. The FTC is seeking to make the ban permanent.
Want to know more? The FTC has published “P2P File Sharing: Evaluating the Risks.” Oh, and you should also probably call Reed Smith…after all, we know advertising, marketing and promotion like nobody else.
The FTC has been checking compliance with its e-mail opt-out requirements promulgated under CAN-SPAM, and recently announced the results of a compliance survey it undertook with e-Tailers. The survey indicates that 89 percent of those online merchants who participated in the survey were complying with consumer requests to opt-out of future commercial e-mail. The FTC essentially selected 100 merchants that are big users of the Internet in retail sales and then visited their websites, created test e-mail accounts and registrations, and signed up for promotions—using the retailers systems to prompt both an initial message and their ability to reply with an “opt-out” request. All of the merchants selected did provide clear notice to consumers of their opt-out rights and a relatively easy means to do so. After six weeks of monitoring, about 89 percent of the merchants honored all opt-out requests, with 93 percent honoring some. In case you were thinking the FTC doesn’t take CAN-SPAM enforcement seriously or can’t possibly monitor and track your compliance efforts, think again. Use e-mail/e-Tail advertising and marketing? Need to understand your obligations? Need to develop policies and practices for compliance? How quickly and with what level of accuracy do you honor the requests? Need help in understanding when and to what CAN-SPAM applies? Contact either Joe Rosenbaum or Doug Wood at Reed Smith. We can help.
At least that’s what the FTC thinks. They charged BJ’s Wholesale Club with failing to maintain adequate computer security—it is the first time the FTC has used Section 5(a) (the section that says if you engage in an unfair or deceptive act, or practice in or affecting commerce, it’s unlawful). The FTC cited failures to encrypt consumer information, storing sensitive computer information for a needlessly long time in files with common or default passwords, and lax measures regarding prevention of unauthorized access, detection and security investigations: The complaint alleged that when taken together, BJ’s failed to provide legally adequate security for sensitive consumer information. The Chairman of the FTC has called for Congress to enact legislation requiring notification to consumers if there is significant identity theft risk, and has asked Congress to consider extending the Gramm-Leach-Bliley Safeguards Rule currently applicable to financial institutions, to non-financial institutions.
As we mentioned in last month’s issue, sweepstakes, contests and promotions are primarily regulated by state law, although federal statutes and regulations must be considered. Jurisdiction and eligibility across borders, language, currency restrictions, licensing and export of technology, liability, billing and payment, whether a deposit to play might be construed an account for banking purposes, or whether gathering non-public, personally identifiable information about contestants may have privacy implications, are just a few of the issues that transcend the “gaming” aspects of any legal analysis.
On the U.S. federal level, although the FTC can take regulatory action and sue advertisers for deceptive or unfair acts and practices, it relies heavily on the states to regulate the industry. The FTC has, however, promulgated rules that do have significant impact on promotions. For example, the Children’s Online Privacy Protection Act (“COPPA”) was enacted to protect children from marketers who collect or use personal information obtained online from under-age children without parental permission, and authorized the FTC to develop a rule that requires “verifiable parental consent.” Because contests are extremely popular for Internet marketing, online advertisers must be cognizant of COPPA if a portion of their online traffic is, or is likely to be, children under the age of 13.
To illustrate the maze of legal and regulatory issues, let’s use an example: Joe’s Airline, Widget and Screen Door Company wants to conduct a contest on the Internet in which participants are charged $2 to play successive rounds of chess, with prizes at various levels and a grand prize of a million dollars. Our promotion is really a unilateral offer to enter into a contract, subject to terms and conditions (e.g., rules) agreed upon through some manifestation of acceptance. Participants accept the offer by performing a required act—registering, paying, selecting an “I ACCEPT” link—and a binding contract is formed. Point number 1: if Joe fails to adequately disclose the rules upon which the offer is made, the promotion could be construed as an illegal lottery, rather than a contest. Point number 2: Joe better get the rules right and disclose them properly because there are cases which indicate once a participant enters (“accepts”), Joe cannot change the rules (i.e., unilaterally amend the contract). Something to think about: Could each chess game be viewed as a new contest, permitting amendments prospectively?
In general, to qualify as a contest, skill, and not chance, must determine the outcome, and chance may not determine the winner or prize amount. Most, but not all, state laws distinguish games of skill from games of chance, although states do not use a uniform standard to differentiate between the two. While some states prohibit requiring consideration to engage in a promotion where a prize is awarded, most states do not prohibit the payment of money if the promotion is a bona fide contest of skill. What constitutes skill? Good question. The decision is often a question of fact, and when the Internet is involved, evidence can be complex and technology-based, straining judges and juries. Two criminal courts in New York judging the legality of a shell game and a card game reached opposite conclusions.
A number of states have disclosure statutes which apply. Some (e.g., California) arguably apply to skill-based contests, while others do not. Many prize notification statutes were not intended to apply to skill contests, but are worded broadly to include any promotion requiring an entry fee or a purchase. Joe should also be aware that some state gambling laws do not limit their application to games of chance, but focus on whether players are asked to risk or wager something of value. In those states, a skill-based contest that involves betting or offers prizes dependent on the number of entries or the amount of entry fees should be reviewed carefully against state gambling laws. Remember the three elements that constitute an illegal lottery? A prize, consideration and chance. By including an equal and alternate means of entry in which there is “no purchase necessary” to enter or win, and by avoiding a payment (i.e., consideration), Joe can introduce the element of chance in the determination of the winner and not be in violation of federal or state law.