FTC Workshop on the Sharing Economy: Insights and Promise

This post was written by John P. Feldman and Jonathan R. Davey.

Following Commissioner Ohlhausen’s opening presentation, Stanford Professor Liran Einav introduced the first morning panel. It was moderated by Nathan Wilson, Economist for the FTC’s Bureau of Economics.  Panelists beyond Prof. Einav were Chiara Farronato, professor at Harvard Business School; Joshua Gans, University of Toronto professor of strategic management; and Glen Weyl, University of Chicago economics professor currently working for Microsoft Research.

Highlights included: 

  • Einav argued that the sharing economy should be observed for at least three or four years before regulators attempt to customize a level regulatory playing field.
  • Weyl disagreed – “wrong that uncertainty should lead to forbearance.”
  • Gans said he trusted Uber to take his kids from place to place, but not the Toronto taxi system.  Uber’s inherent lack of privacy allows him to see where his kids are the entire time, as well as who is driving them.
    • Gans also asked the audience to consider how much of the sharing economy might make up the entire economy; the point here was that economists do not know and are not well situated to predict.
    • He also highlighted what he saw as the two major concerns for regulators in the sharing economy: safety and market dominance.

Andrew Stivers, Deputy Director of the FTC’s Bureau of Economics, and Cecelia Waldeck, attorney with the FTC’s Bureau of Competition, moderated the second panel. It consisted of Chrysanthos Dellarocas, professor at Boston University Business School; Andrey Fradkin, National Bureau of Economic Research fellow; Ginger Jin, University of Maryland econ professor; Chris Nosko, University of Chicago Business School professor; and Steven Salter, V.P. of Standards and Services at the Council of Better Business Bureaus.

Highlights included: 

  • Dellarocas discussed (and has written on) how online reputation serves as quasi-regulation. Also, he discussed challenges inherent to online reputation systems.
  • Fradkin discussed the rating biases he found in Airbnb data.
  • Nosko used eBay data to support Dellarocas’ argument.
  • Salter focused his time on highlighting changes to how the Better Business Bureau uses consumer complaints and sharing economy company responses to generate its ratings.

Professor Arun Sundararajan at NYU’s business school gave a presentation entitled, “Platform Power, Reputation, and Regulation: Policy Framing Presentation.”

Highlights included: 

  • The sharing economy might lead to “Data Darwinism” and may put companies that cannot develop positive online reputations out of business.
  • The sharing economy blurs the personal/professional line. Is this a hobby one is doing for money or a profession?

After lunch, Commissioner Catherine Sandoval of the California Public Utilities Commission (CPUC) presented on the complexity of regulating the sharing economy.  Her best illustration of this was a torts fact pattern that highlighted how accidents involving transportation network companies (TNCs, such as Uber, Lyft, etc.) can complicate liability issues. The CPUC has issued rulings that disallow TNCs from relying on their drivers’ personal insurance, how TNC driver insurance requirements change depending on when they are seeking to provide rides, when they are “off duty,” and when they have accepted a fare but have yet to pick up the passenger.  But who is liable when a TNC driver advertises that he is available to pick up a passenger, collides with another car that hits a hydrant and causes a cover to fly hundreds of feet away, breaking an unrelated pedestrian’s leg?  Further, what if the TNC broadcasts daily events updates for certain regions so that its drivers can be available for passengers seeking to attend or leave these events?

The third panel, hosted by Julie Goshorn, attorney with the FTC’s Bureau of Competition Office of Policy and Coordination; and William Adkinson, Jr., attorney advisor with the FTC’s Office of Policy Planning, was titled, “The Interplay between Competition, Consumer Protection, and Regulation: Business and Regulatory Views.” Participants were Matthew Daus, Partner at Windels, Marx, Lane & Mittendorf and the former Chairman of the New York City Taxi and Limousine Commission; David Hantman, Head of Global Public Policy at Airbnb; Ashwini Chhabra, Head of Policy Development at Uber Technologies; Brooks Rainwater, Director of the National League of Cities’ City Solutions and Applied Research Center; and Vanessa Sinders, Senior Vice President and Head of Government Affairs at the American Hotel and Lodging Association.

Highlights included: 

  • Chhabra noted that one in two Uber trips in Chicago starts or ends in a neighborhood the City of Chicago has deemed under-served.
  • Rainwater emphasized that local regulatory control was important; every city is different.  Further, cities are generally adapting their regulations as they need to, as the sharing economy grows.
  • Despite their different backgrounds, Hantman and Sinders agreed that the future is bright for hotels.
  • Daus said that the same liability, insurance, and safety concerns should apply to taxi companies and other transportation services equally.
  • Sinders made the same argument about hotels and Airbnb-type services.

The last panel was titled, “The Interplay between Competition, Consumer Protection, and Regulation:  Policy Perspectives,” and was moderated by Marina Lao, director of the FTC’s Office of Policy Planning; and Megan Cox, attorney with the FTC’s Bureau of Consumer Protection’s Division of Privacy and Identity Protection.  The panel’s participants were Lee Peeler, President and CEO of Advertising Self-Regulatory Council and executive vice president of the Council of Better Business Bureaus National Advertising Self-Regulation; Sofia Ranchordás, a fellow with Yale Law School’s Information Society Project; Maurice Stucke, professor at the University of Tennessee College of Law; Arun Sundararajan, NYU Business School Professor; and Adam Thierer, a Mercatus Center fellow at George Mason University.

Highlights included:

  • Sundararajan noted that self-regulation is different from deregulation and non-regulation; it is regulation separate from the government.
  • Thierer took the approach that the sharing economy might solve problems faster/ better than regulations on the sharing economy.
  • Ranchordás was concerned that the sharing economy is more innovative than regulations can ever be.

New Insights from FTC on Its Endorsement Guides to Reflect Continued Focus on Disclosures

This post was written by John Feldman, Keri Bruce and Sara Shahmiri.

After the FTC revised its Guides Concerning the Use of Endorsements and Testimonials (the “Guides”) in 2009, it followed up with a set of frequently asked questions entitled “What People Are Asking” (the “FAQs”) to address questions that were on advertisers’ minds.  More than five years later, the FTC has updated the FAQs to address new questions frequently being posed to the FTC about a variety of topics, including, among others, “like” buttons, employee endorsements, online reviews and incentives, and contest and sweepstakes.  Many of these new topics are clearly meant to reiterate messages the FTC has made through enforcement actions and inquiries over the past few years.  While the FAQs continue to reflect the FTC’s emphasis on clear and conspicuous disclosures of all material connections, they also highlight the increasing responsibilities the FTC is placing on marketers to ensure proper disclosures in social media posts.

The following highlight some of the key take-aways from the FAQs:

  1. Pictures can be endorsements.  The FTC previously addressed pictures as endorsements in its letter to Cole Haan regarding its Wandering Sole Pinterest Campaign. The FAQs reiterate the FTC’s view that you don’t have to use words to convey a positive message.  Even if you are only posting a visual that could imply an endorsement, you still need to disclose any material connection to the company marketing the product represented in the picture.
  2. Employees Must Make Disclosures, Too.  The FAQs are clear that an employee’s disclosure of his or her place of employment on that employee’s social media profile is not likely sufficient if the employee is promoting its employer’s or its client’s products or services in social media.  As reasoned by the FTC, businesses are often diversified and readers of the employee’s social media post may not know which brands are manufactured by which company.  The FTC suggests making disclosures in all posts promoting an employer’s or client’s products or services.  Further, the FTC emphasizes that employers should never ask their employees to post anything that is not true or endorse a product they have never used, or say things they don’t believe.
  3. Place Less Emphasis on “Likes.”  The FTC acknowledges that some platform features, like the Facebook “like” button, do not allow for disclosures.  The FTC suggests that advertisers should not encourage endorsers to use features that don’t allow for disclosures.  The FTC emphasizes that “likes” must be authentic, and writes that if “likes” are from non-existent people or from people who have no experience using the product or service, they may be deemed deceptive and could elicit enforcement action.
  4. Disclose Free Items and Compensation.  The FTC emphasizes that endorsers are responsible for disclosing the full nature of their material connection.  Therefore, if a person receives a free product to review in addition to another monetary benefit—such as money or gift cards—the person should disclose not only that he received free product, but also that he was paid.
  5. Social Media, Contest, Sweepstakes and Video Disclosures.  Consistent with the principles set forth in the Dot Com Disclosure Guidance, the FTC indicates that even where space is limited, disclosures of material connections need to be made. The FTC suggests that for platforms such as Twitter, starting the tweet with the clear and concise disclosure “Ad” or “#ad” would likely be effective.  The FTC also indicated that hyperlinks or buttons with the words DISCLOSURE or LEGAL are likely insufficient means of disclosing material connections as consumers may not click on the link and they may not understand the important nature or relevance of the information to which the hyperlink leads.  With respect to sweepstakes and contests, advertisers should require that entrants disclose in their social media posts if the post was made as part of a contest or sweepstakes entry.  The FTC noted that a hashtag with the word “sweeps” is probably not be enough of a disclosure as many people (according to the FTC) may not know what that means, but “contest” or “sweepstakes” as part of an entry hashtag should be enough of a disclosure.  For video disclosures, the FTC states that disclosing a material connection only in the video description section of a YouTube video or only at the end is insufficient as consumers may not see these disclosures.  According to the FTC, a disclosure “has the most chance of being effective if it is made clearly and prominently in the video itself.”  The FTC suggests that a disclosure at the beginning would be good, but multiple disclosures throughout a video would be even better.  And if a video is being streamed live, a continuous clear and conspicuous disclosure throughout the video is the best way to ensure that no matter when a person tunes-in to the feed, he or she sees a disclosure.
  6. Even Celebrities Need Disclosures.  The FTC acknowledges that in the context of celebrities, determining whether followers are aware of a celebrity’s relationship with an advertiser is tricky, but stressed that if a significant portion of the celebrity’s followers don’t know that the celebrity has a relationship with an advertiser, then a disclosure needs to be made.
  7. Use Caution when Incentivizing Reviews.  Consistent with the FTC’s recent consent order with AmeriFreight, the FTC’s guidance explains that soliciting reviews is permissible as long as reviewers are required to disclose that they were incentivized for their review. Moreover, the FTC cautioned that advertisers should not incentivize reviewers to post positive reviews.  Endorsements must reflect the honest opinions or experiences of the endorsers.

What to make of this?  Remember that the Endorsement and Testimonial Guides are not “the law.”  The FTC must still prove that an act or practice is deceptive or unfair in order to enforce its will on any advertiser.  And, an FAQ has even less authority than a guide.  FAQs can change from year to year and even from month to month.  There are ways in which the FTC can index their predictably restrictive viewpoints in a manner that it believes will be more digestible and accessible to the great multitude of marketers, than making them read the tea-leaves of enforcement actions.

Also, remember that the standard for “clear and conspicuous” disclosure is a performance standard.  If a substantial number of people are confused then the disclosure isn’t working.  We are not aware of any legitimate study conducted by the FTC or anyone else that would show that American consumers are generally confused by “#sweeps,” or that they would understand better the compensated nature of a Tweet if it included the extra characters for “#sweepstakes” or “#contest.”  (As a practical matter, notwithstanding a technical difference between contests of skill and sweepstakes that involve chance, “#contest” would seem to be the disclosure of choice moving forward in light of only requiring one more character.)

Finally, review your “ambassador” or “advocate” guidelines.  Get them in sync with the FTC staff’s frame of mind.  It would be a small investment that will pay dividends if someone downstream, whether an employee or simply some kind of affiliate marketer, slips up and fails to include sufficient information in an endorsement to make the viewer aware of the material connection between him and the sponsoring advertiser.

FTC Sharing Economy Workshop: Ohlhausen Sets the Stage for Innovation

This post was written by John P. Feldman and Jonathan R. Davey.

As we, and countless others, have previously written, peer-to-peer sharing services are transforming the world economy.  As Tom Goodwin at Havas Media pointed out in March, the world’s largest taxi company owns no vehicles, the world’s largest media company creates no content, the world’s most valuable retailer has no inventory, and the world’s largest accommodation provider owns no real estate.   Readers, especially those in urban locations, have undoubtedly seen news reports of city and state regulators trying to find regulatory solutions to the challenges posed by new sharing economy companies, even as these companies have come to dominate their markets.  As illustrated in Uber’s fight to pick up passengers at Chicago’s airports, zoning complaints against Airbnb in New York, or the recent creation of the Congressional Sharing Economy Caucus, it is clear that the sharing economy poses unique challenges to government regulators.

To address those challenges, the Federal Trade Commission (FTC) is hosting a conference today titled “The ‘Sharing’ Economy: Issues Facing Platforms, Participants, and Regulators.”  In her introductory remarks, Commissioner Maureen Ohlhausen made it clear that the federal government lags significantly behind local government in understanding how the sharing economy has impacted consumer choice and competition at the ground level.  While reminding her audience that the FTC has a broad mandate to protect consumers and competition that goes beyond enforcement, Commissioner Ohlhausen asked the audience, consumers and industry alike, to help educate the FTC about the sharing economy.  After all, the FTC cannot fulfill its mandate unless the agency is able to understand the complex market dynamics ubiquitous in the sharing economy, possible consumer protection issues posed by the sharing economy, and what second- or third-order effects might arise from FTC involvement.

She posited that market evolution should be driven by consumer demand, not artificial regulatory preferences for one business model over another.  When government picks market winners and losers, the public pays the cost – narrow special interests cannot be favored over the broader public good.  To find a balance between consumer protection and industry competition in the context of the sharing economy, she asked regulators to be careful – especially when they discuss hypothetical rather than demonstrated consumer harm.  She suggested regulators ask themselves the following series of questions:

  • Do existing regulatory rubrics need to be reworked or abandoned to accommodate a flexible regulatory framework that allows new business models to realize their full potential?
  • Can regulators ensure new business models do not destroy existing consumer protections in privacy, data security, health and safety?
  • Can trust mechanisms built into some of these business models effectively, and appropriately, replace regulation?
  • How should regulators avoid creating two distinct regulatory tracts, where traditional business models exist separately from newer models?  After all, picking winners by regulating in favor of new entrants is no any better than retaining regulations that improperly deter new competitors.
  • How should regulators respond to a dynamic market where business models of today might be transformed or destroyed tomorrow?

These questions will not be answered easily, but panelists at today’s conference will provide a meaningful background for industry and regulators to consider as they continue to shape our global economy.

Running a Sweepstakes in France is Less Misérables

It’s not every day that one gets to observe a non-U.S. jurisdiction abandoning frustrating, idiosyncratic requirements on sweepstakes promotions, but – sacré bleu! – we’ve got one to report.

For several years, international marketers have listed France among the jurisdictions included in their international sweepstakes and chance-based promotional games by conforming to certain unique French requirements.  Because of a recent development under French law, we have been advised that certain French requirements that are arguably inconsistent with Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market (the “Directive”), have been abandoned.  In particular, this change will mean the following for international marketers:

  • First, promotional sweepstakes offering prizes on the basis of chance do not need to include reimbursement instructions for postage or Internet connection fees.  This requirement has been deemed to be inconsistent with the Directive as long as the incentive is not so large in relation to the purchase option so as to “distort” the “economic behavior” of an average consumer.
  • Second, the requirement that the official rules be submitted to a huissier prior to advertising the promotion is now a recommended action but is not required.  It is still recommended (as with contests of skill) because it helps to have an “official” version of the official rules filed with an impartial third party in case there is any question as to what the rules said at the time the promotion was launched.  However, it is no longer required because such a requirement is inconsistent with the Directive.

Liberté!

However, do not go overboard with the champagne.  Many unique legal aspects under French law may still apply to a specific promotion.  In particular, French data protection laws have actually tightened over the past few years, often making filings with the CNIL necessary.  Therefore, it makes abundant sense to continue to carefully vet rules with international promotions counsel before launching a multi-jurisdiction sweepstakes.

(Thanks to Michel Béjot and Caroline Bouvier at Bernard Hertz Béjot in Paris for bringing this news to our attention.)

CAP Releases Revised Promotional Rules in the UK

On May 1, 2015, the Committee of Advertising Practice (CAP) released a set of amended Sales Promotional Rules contained in Section 8 of the CAP Code.  This follows a public consultation aimed at amending a number of rules to bring them up to date with the current consumer protection landscape.  For a list of key changes made to the rules in Section 8, please read our firm’s recent client alert.

A 30-Minute Data Breach Drill for GCs

At times, the two most frightening words in the English vocabulary are “data” and “breach.”  Much to the chagrin of companies across the country, data breaches are quite the rage these days.  It seems as if every week a new company falls prey to a cyberattack resulting in the release of secure information.  To help clients address the problem, our Intellectual Property, Information & Innovation team has prepared a 30-minute breach drill for GCs.  To learn more about the nine steps a GC can take in the event of a data breach, read our firm’s latest client alert.

European Commission’s “digital single market” strategy attempts to break down online barriers in the EU

In the European Union (EU), online barriers prohibit EU citizens from receiving goods and services that are commonplace to U.S. citizens.  When I travel to Miami, for instance, I am able to use my Netflix streaming subscription to catch up on my favorite shows.  The same cannot be said for a citizen from the UK who travels to Spain; due to European copyright laws, Netflix is required to negotiate rights for its shows on a country-by-country basis.

On Wednesday, May 6, the European Commission (EC) unveiled its strategy to break down these barriers by creating a European “Digital Single Market” (DSM).   To find out more about the EC’s proposal and what the measures mean for the EU media industries, please see our Client Alert.

Negative Reviews: Pamphleteering or Defamation?

Does the First Amendment trump the right of an aggrieved merchant who seeks to unmask the identity of the authors of scathing reviews?  That’s how many framed the key issue in Yelp! Inc. v. Hadeed Carpet Cleaning, Inc., which was appealed to the Virginia Supreme Court.  Did the court answer the question as to whether the alleged malicious reviewer should remain anonymous?  Spoiler alert: you’re going to need your Civ Pro hornbook for this one.

For more details on the case and the Virginia Supreme Court’s ruling, read the latest post on our new firm blog Technology Law Dispatch.

Knowing Your Customer a Little Too Well

I hate shopping.  I know what I want and I do a surgical strike.  In and out; no soldier left behind.

But most normal people browse a bit.  That’s where Nomi Technologies came into the picture.  Nomi’s technology allows retailers to track consumers’ movements through their stores.  How does it work?  According to a complaint issued by the Federal Trade Commission and announced on April 23 in conjunction with a settlement, Nomi placed sensors in its clients’ stores.  Those sensors collected the media access control address (MAC address) assigned to consumers’ mobile devices.  Although Nomi took steps to de-identify the MAC addresses prior to storing them, the method used – hashing – still resulted in an identifier that is unique to a consumer’s mobile device and can be tracked over time, according to the FTC.  And, that was the FTC’s hook.

The complaint alleged that Nomi tracked consumers both inside and outside their clients’ stores, tracking the MAC address, device type, date and time the device was observed, and signal strength of consumers’ devices.  Nomi provided aggregated information on how many consumers passed by the store instead of entering, how long consumers stayed in the store, the types of devices used by consumers, how many repeat customers entered a store in a given period, and how many customers had visited another location in a particular chain of stores.

Yes, there was a way to opt out.  But, according to the FTC, that method was not made readily available to consumers.  The FTC complaint alleged that no opt-out option was available at retailers using the service, and consumers were not informed of the tracking taking place in the stores at all.  The opt-out method resided solely on Nomi’s website.  Under the consent agreement, Nomi agreed to provide an in-store mechanism for consumers wishing to opt out of tracking, and agreed that consumers would be informed when locations were using Nomi’s tracking services.  The FTC also alleged that Nomi’s privacy policy misrepresented the opt-out mechanism by stating that there would be an opt-out method at stores using its services.

This settlement represents the FTC’s first case against a retail tracking company.  It is important because it deals with a growing area of retail marketing.  With consumers more and more predictably connected to the Internet by means of their handheld devices, the technological options available to retailers to learn about potential and actual customer behavior in and around their stores is exploding.  Also, this case is important because of the way “anonymous” data – further anonymized through “hashing” – was not anonymous enough.  Despite the FTC’s facile explanation in its press release that the case turned on a misrepresentation in the respondent’s privacy policy, the hard work to come will be in figuring out what sort of “anonymization” will actually suffice according to the FTC.

Ooh, I like that hat.  But, you already knew that, didn’t you?

GALA to Host Forum on U.S. and Canada Advertising Law

Join members of the Global Advertising Lawyers Alliance (GALA) for a free program on important advertising law issues to consider when advertising in the United States and Canada.  Reed Smith’s Stacy Marcus will be part of a list of featured speakers, which includes representatives from the National Advertising Division and Advertising Standards Canada, covering key areas of regulatory enforcement, advertising in social media, sweepstakes and promotions, talent and talent union issues, and other important advertising law developments in the United States and Canada.

The program will offer CLE credit and will be held on separate dates in New York City and Toronto:

Toronto Program
April 20, 2015
2:00 p.m. to 4:30 p.m. (Cocktail reception to follow)

New York City Program
April 23, 2015
9:00 a.m. to 11:30 a.m.  (Breakfast will be served starting at 8:30 a.m.)

For program details and to RSVP, visit GALA’s event page.

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