Adlaw By Request : Advertising & Marketing Lawyer & Attorney : Reed Smith Law Firm : AdLaw By Request & KidAdLaw

The U.S. District Court for the Southern District of New York recently issued a “first-of-its-kind” opinion in a case with potentially wide-ranging implications for anyone engaged in the online dissemination of news. (See, The Associated Press v. All Headline News Corp., et al., 08 Civ. 323 (PKC), Memorandum and Opinion, dated Feb. 17, 2009). By denying a motion to dismiss in the matter, the court has cleared the way for a possible showdown between old and new media.

In its complaint, the AP alleges that online venture AHN enlisted “poorly paid individuals” to cull the Internet for news, including AP stories, and then either rewrote or cut-and-pasted those stories, and disseminated them to the websites of its own paying customers in the form of news reports and breaking news—thereby freeloading on the great effort expended, and great expense incurred, by “one of the world’s oldest and largest news organizations,” self-described as the “gold standard of objective journalism.”

This appears to be the first case to apply an old principle known as the “hot news” doctrine to Internet content. However, in this era of greatly reduced advertising, subscriber revenues, and life-or-death challenges for even the most venerable newspapers and other newsgathering organizations, it is not likely to be the last attack on alleged online “freeloaders.”

The “hot news” doctrine invoked by AP and relied on by the court goes back to a 1918 U.S. Supreme Court decision (International News Service v. Associated Press, 248 U.S. 215), which found breaking news to be “quasi property,” subject to protection from free-riding, or misappropriation, by competitors. In International News Service, the Supreme Court held that allowing one news agency to appropriate and profit from the work of another would “render publication profitless, or so little profitable as in effect to cut off the service by rendering the cost prohibitive in comparison with the return.” (Id., at 241.) As the Court explained, news gathering carries with it “the expenditure of labor, skill and money,” and its appropriation by another “is endeavoring to reap what it has not sown.” (Id., at 239-40.)

Although the common law origins of this doctrine render it non-binding now in federal courts (where it has been preempted by the federal Copyright Act), the doctrine is still recognized in various states, including New York, the state law found by the court to govern AP’s claims. In New York, the court ruled, a cause of action for misappropriation of “hot news” remains viable and has not been preempted.

The court also allowed AP’s claims under the Digital Millennium Copyright Act (for “intentionally altering or removing copyright management information”) and under New York State unfair competition common law to go forward, but dismissed two counts of AP’s complaint based on the Lanham Act (for trademark infringement and for unfair competition under the statute).

The court’s docket does not yet reflect when an answer will be due, but the case bears further monitoring by anyone engaged in the gathering and/or dissemination of news.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

On February 12, 2009, the Federal Trade Commission (FTC) staff issued a supplemental report of its December 2007 draft “Self-Regulatory Principles for Online Behavioral Advertising.” The report further develops the FTC’s voluntary best practices for the behavioral advertising industry and supports continued self-regulatory treatment. However, the document is not an endorsement of the status quo. The revised principles are likely to spur the following changes to your company’s treatment of behavioral advertisements, including: (1) the development of more consumer education content regarding behavioral advertising, (2) the development of internal privacy protections for anonymous data profiles, (3) the creation of opt-in customer notice mechanisms for use and collection of information perceived as sensitive (such as, information related to health, finance, or children), and (4) the creation of opt-in customer notice mechanisms for retroactive changes to your company’s privacy practices.

Further, you may think that existing website billboard privacy polices are sufficient for conformance with the FTC’s revised guidelines. This is unlikely. The staff report clearly indicates that static privacy policies may not be sufficient notice for behavioral advertising purposes, and disclaimers in proximity to the targeted advertisements may be needed. Notwithstanding the additional disclaimers outside the privacy policy, traditional billboard privacy policies may need revision to conform to the new guidelines, as well. Specifically, the staff report adopted a very broad and open-ended definition of PII¹ for these purposes, and indicated that the sharing of information inside a corporate family could fall outside the “first party” sharing of data exemption.

While it is tempting to ignore a cumbersome (and voluntary) examination of information policy, the staff report also comes with a fair warning to take these guidelines seriously. The concurrences of Commissioners Jones Harbour and Liebowitz indicate that if companies do not engage in these voluntary regulatory efforts, mandatory behavioral advertising regulation could lie ahead. As stated by Commissioner Leibowitz, “[p]ut simply, this could be the last clear chance to show that self-regulation can—and will—effectively protect consumers’ privacy in a dynamic online marketplace.”

Click here to read the full white paper written by Amy S. Mushahwar and John P. Feldman.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

On Feb. 4, 2009, Facebook decided to change (aka “update”) its Terms of Use Policy. The new policy provided, essentially, the right of Facebook to continue using a user’s data even once he/she left the service. The following is an excerpt from Facebook’s current Terms of Use Policy:

You hereby grant Facebook an irrevocable, perpetual, non-exclusive, transferable, fully paid, worldwide license (with the right to sublicense) to (a) use, copy, publish, stream, store, retain, publicly perform or display, transmit, scan, reformat, modify, edit, frame, translate, excerpt, adapt, create derivative works and distribute (through multiple tiers), any User Content you (i) Post on or in connection with the Facebook Service or the promotion thereof subject only to your privacy settings or (ii) enable a user to Post, including by offering a Share Link on your website and (b) to use your name, likeness and image for any purpose, including commercial or advertising, each of (a) and (b) on or in connection with the Facebook Service or the promotion thereof.

The change that caused the uproar, however, was the deletion of the following, which appeared at the end of the aforementioned section: “You may remove your User Content from the Site at any time. If you choose to remove your User Content, the license granted above will automatically expire, however you acknowledge that the Company may retain archived copies of your User Content.”

Interestingly, Facebook’s amended policy went largely unnoticed until the popular consumer rights advocacy site, Consumerist.com, brought these changes to light.

This has sparked a very interesting debate on data ownership, and one that Facebook for now has decided to avoid as it backed down last week and reverted to its previous Terms of Use. According to Mark Zuckerberg, founder and CEO of Facebook, “Going forward, we’ve decided to take a new approach towards developing our terms. We concluded that returning to our previous terms was the right thing for now.”

While the arguments supporting why a user should have the right to control his/her data and information are both persuasive and intuitive, one must also consider the “reality” of the situation. For example, Facebook currently boasts a user base of approximately 175 million users around the world. Without having first-hand knowledge of Facebook’s IT policies and protocol, presumably a user’s data is stored across multiple networks and servers that are backed up regularly. Is it even possible for Facebook to delete all of a user’s data when he/she leaves Facebook? It is reasonable to demand that Facebook undertake a search and destroy mission for each departing user by deleting his/her data from each and every server that ever touched such data (including each back-up server), and then scrub the same servers to ensure that the deleted data can never be recovered? Moreover, if a user elects to leave the service without deleting his/her information, should Facebook then be required to do so?

Furthermore, social networking sites like Facebook are designed for data sharing between users—hence the term “social network.” Is it reasonable to expect Facebook to comb through millions of user pages to hunt down data that must be deleted and purged when a user leaves the service? Perhaps the changes reflected above were merely intended to address rights-clearance issues and to protect and insulate Facebook against claims from old users.

Whichever position one wishes to take in this debate, two points are certain: one, the reaction to Facebook’s changes to its Terms of Use reflects a much wider issue about user data, who owns the personal information, and what should happen to it if a user decides to leave a service; and two, the industry will be keen to see what Facebook decides to do next.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In January 2009, the FTC published the results of a workshop it held two years earlier on negative options, particularly those that sprout near and around many Internet sales. How many times have you discovered a charge on your credit card that looks suspicious, and you call the reference telephone number and learn that you actually signed up for a membership to some club when you purchased that shirt, that flash drive, or that book online? These are the sort of negative options that the FTC is most concerned about.

Negative options such as these are sometimes referred to as “free-to-pay” conversion plans. Under these plans, a consumer receives goods or services for free (or for a nominal fee) for a trial period. After the trial period, the seller automatically begins to charge a fee (or a higher fee) unless the consumer affirmatively cancels or returns the goods or services. Often, these sorts of “free-to-pay” plans are placed in conjunction with another purchase. An upsell occurs when a consumer completes a transaction and then receives a solicitation for an additional product or service.

The FTC outlined five principles that should be kept in mind when structuring a negative option plan. First, marketers should disclose the material terms of the offer in an understandable manner. Second, marketers should make the appearance of the disclosures clear and conspicuous. In the Internet context, this second point means that a marketer should place the disclosures in a location on the webpage where consumers are likely to see them, and in a form that is easy to read. Third, marketers should disclose the offer’s material terms before the consumers pay or incur a financial obligation. Making these disclosures more than once is favored by the Commission. Fourth, marketers should obtain consumers’ affirmative consent to the offer. [WHOA! Wait a minute. I thought this blog entry was about negative options! What’s up with “affirmative consent”?] Basically, to demonstrate their consent, the FTC wants marketers to make consumers click a button that says “I accept” or “I agree.” Really, it’s still a negative option because you are simply agreeing to the fact that if you do nothing, you’ll be charged. Finally, marketers should not impede the effective operation of promised cancellation procedures. This is the big one. You can disclose as much as you want, but if the phone number or URL used for cancellation is ineffective, or if the wait on the phone in interminable, the FTC will consider this a frustration of the cancellation procedure, and could determine that it is a violation of § 5 of the FTC Act.

Why this matters. There has been an explosion of free-to-buy conversion negative option offers on the Internet, and the FTC believes that there may be a significant amount of abuse out there with regard to such offers. States such as Washington have also actively sought to beef up their negative option statutes to take into account these more modern methods that tend to produce significant regulatory concern. Where there is a workshop report, FTC enforcement is never far away. So Internet marketers: proceed with caution and keep these five principles in mind.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Federal Trade Commission staff will host a forum March 12, 2009 to gather input for its upcoming education program on advertising literacy for “tweens,” or kids who are 8 to 12 years old. At the forum, experts on advertising and marketing to kids will discuss a range of issues, including:

• What kids experience in the commercial world
• What kids understand about their experience
• Which consumer education efforts will help kids to navigate better in the commercial world

The goal of the campaign is to educate kids on how to be better-informed consumers of information.

Why this matters: We’re not sure yet who is speaking at the event, but our hope is that we’ll hear from those who can actually shed some light on this important marketing segment. CARU has long lumped kids under 12 into one basket, with some very strange results. For instance, not so long ago, CARU was bringing actions against movie studios for advertising “Harry Potter” and “Star Wars” during shows that were attractive to “tweens” on the grounds that they were meant for children 13 and over. Luckily, Wayne Keeley’s CARU has taken a turn toward reality and has involved the MPAA in making better determinations as to which movies are appropriate for kids advertising. 

Thus, our hope is that this workshop will help demonstrate that older kids (in the 8-12 range) are very savvy both in terms of their emotional development and their maturity for purposes of distinguishing between advertising and editorial content. It would be a shame if the Commission puts up a series of paternalistic, anti-ad activists who think most kids should not be exposed to any commercial messages. We also hope that the workshop will focus on the key issue of “blurring” that impacts video game manufacturers, and anyone who uses advergames as a form of marketing to kids.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Florida-based travel promoter All in One Vacation Club, and its principals, agreed to pay civil penalties to the FTC of $275,000 for allegedly violating the Do-Not-Call list and other Telemarketing Sales Rule (TSR) provisions. The company used a direct mail sweepstakes entry to entice consumers to obtain a chance to win a vacation. The official rules purported to constitute consent by the entrant to be removed from any no-call registry for the specific purpose of allowing the sponsor to contact the entrant for marketing purposes. All in One took the position that the fine print of the official rules constituted a “written agreement” for purposes of compliance with the TSR, but the Commission disagreed. The FTC stated that any such written agreement must be “clear and conspicuous,” and must include the customer’s signature demonstrating the consumer’s assent. Stuffing the consent provision in the official rules of a sweepstakes wasn’t going to cut it.

Why this matters: This is not the first time a regulator has expressed concern about hiding in the official rules of a sweepstakes, language that would purport to give the sponsor the right to override the consumer’s decision to be placed on the Do-Not-Call list. Back in 2005, then New York Attorney General Eliot Spitzer challenged A&P grocery stores and Kitchen Magic, Inc. for virtually the same marketing practice. Promoters put all sorts of goodies in their official rules. Most of the time, these terms are construed as valid provisions in a contract between the consumer and the sponsor. But, when you seek to undermine a consumer’s statutory or regulatory right by virtue of the consumer’s entry into a promotional offer, watch out. Not only might the provision be unenforceable, but it could also be a violation of federal or state law. (See also Michigan’s Consumer Protection Act, §445.903(t).)

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Welcome. Adlaw^® by Request™ has become a staple in the diet of many both inside and outside of the advertising industry, as a go-to resource for current, relevant and important legal developments. We believe it’s now time to put even more information at our readers’ fingertips, while also giving them an interactive and dynamic forum in which to share their perspectives and experiences.

Some of the other changes in our new blog format include: weekly updates on developments in the advertising industry, monthly articles from at least two Reed Smith attorneys that will delve more deeply into a particular subject or issue, and contributions/feedback that we hope will come from our readership. We’ll still send an email describing the entire month’s updates to subscribers at least once a month. If ABR was previously a destination for knowledge and information, it will now become a crossroad.

In light of the new administration’s agenda and priorities; technology that is rapidly changing the way data is collected and used across all mediums; recessionary concerns; and a consumer environment with heightened sensitivities for health, privacy, finance, and a “green” world; our objective is to make ABR an indispensable tool to help you navigate these waters.  

As Editor-in-Chief of ABR, I welcome your feedback at any time (asnukal@reedsmith.com).

Best regards,

Adam Snukal, Reed Smith LLP

• Email This
• Print
• Comments
• Trackbacks
• Share Link

This post was written by Dan Jaffe.

Last November, the Federal Trade Commission released a Federal Register notice detailing the changes that it plans to make to its guidelines for the use of endorsements and testimonials in advertising.  These are the first changes to the guidelines in decades and will dramatically change how marketers can use endorsements and testimonials in advertising. 

The deadline for comments was originally January 31, 2009, but the FTC recently extended the comment period to March 2, 2009.  We are planning to file comments and need our members’ assistance to effectively respond.  If you can offer specific guidance on how the proposed rule will affect your use of endorsements and testimonials, please let us know as this will help us formulate our detailed comments.

Background

The guidelines currently allow marketers to use truthful testimonials that are not generally representative of what consumers can expect from the advertised product so long as the marketers clearly and conspicuously disclose either (1) what the generally expected performance would be in the depicted circumstances, or (2) the limited applicability of the depicted results to what consumers can generally expect to receive; i.e., that the depicted results are not representative or typical.  The revised guidelines would require substantiation of results that consumers would generally achieve (“generally expected results”) through use of the product.  The FTC states that this change eliminates the existing “safe harbor” which allows advertisers to include non-representative testimonial claims in their ads if they clearly and conspicuously state that the depicted results are “not typical.”  The Commission now argues that non-typicality disclaimers alone generally are not sufficient to overcome the false or deceptive impressions of typicality generated by testimonials.  The FTC, therefore, is demanding additional substantiation delineating “generally expected results.”  

In taking this action, the Commission largely discounted the constitutional arguments made in comments filed in 2007 by both ANA and other groups in response to the FTC’s review of the guidelines.  We argued in our comments that the Commission already has sufficient power to penalize false or deceptive claims.  We also argued that requiring pre-publication proof of claims is more extensive than necessary to advance the government’s interest.  Therefore, it would impose an unconstitutional burden on truthful, nondeceptive speech while providing little benefit to consumers. 

In response, the Commission, while making multiple references to our comments, argued that its new guidelines would withstand scrutiny under the U.S. Supreme Court’s Central Hudson test for commercial speech.  It argued that its interest in requiring further disclosure is to prevent deception.  By requiring pre-publication substantiation, the guidelines would materially advance this interest, and since they would require information to prevent a misleading impression, they are reasonably tailored to meet that objective. 

The Commission relied on two consumer surveys in formulating the new guidelines.  In our original comments, we argued that these studies had numerous serious methodological and technical flaws.  These concerns were dismissed by the FTC, claiming that the studies provided “useful empirical evidence” regarding testimonial messages.

The FTC’s position in regard to this rulemaking could have significant precedential impact on advertising beyond the testimonial and endorsements area.  The FTC’s point of view in this rulemaking is that truthful statements, even limited by clear and conspicuous disclaimer information, can prove insufficient to protect reasonable consumers.  Clearly, this type of analysis can affect broad categories of advertising.  

You may also wish to examine a detailed memorandum put together by Reed Smith which provides further information in regard to this issue.  Reed Smith provides representation for the ANA through our general counsel, Doug Wood.

If you have any questions, you can reach me at 202-296-2359 or at djaffe@ana.net.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

It’s a new year, and change is in the air. Although the holidays are over, some groups in Washington are hanging on to their wish lists with the hopes that President Obama will grant their desires.

Over the past few months, Obama has sent agency review teams into dozens of government offices, ranging from the Pentagon to the EPA to the FTC. These teams are dissecting agency initiatives, poring over budgets and reviewing functionality. Many lobbying groups see this time of transition as a prime opportunity to achieve desired changes by gaining the ear of the new administration.

In fact, in December, leading privacy and consumer groups met with leaders of the FTC review team to spread the message that the FTC has allowed industries to self-regulate online privacy practices – to the detriment of consumers – for far too long. Privacy groups are not alone in their concern. Obama himself said during his campaign that “[d]ramatic increases in computing power, decreases in storage costs and huge flows of information that characterize the digital age bring enormous benefits, but also create risk of abuse. We need sensible safeguards that protect privacy in this dynamic new world.” He committed to “strengthen the privacy protections for the digital age and to harness the power of technology to hold government and business accountable for violations of personal privacy.”

During their meeting with the FTC agency review team, privacy groups stressed a need for better (more?) regulation of targeted online marketing, oversight in the data broker industry, and privacy policies for medical information, just to name a few. Susan Grant, director of consumer protection at the Consumer Federation, called the Network Advertising Initiative’s behavioral advertising self-regulatory code of conduct “deceptive on its face,” and called for the FTC to establish a “Do Not Track” registry, similar to the popular “Do Not Call” registry for telemarketing. In support of increased oversight of data brokers, Beth Givens of the Privacy Rights Clearinghouse cited numerous complaints from consumers about use of their personally identifiable information by companies in violation of stated privacy policies.

In addition to Obama taking office, a Democratic shift in Congress has the potential to lead to increased regulation. In fact, two senators (Markey (D-Mass.) and Dorgan (D-N.D.)) have already expressed an interest in introducing Internet privacy legislation that would likely outlaw behavioral targeting, cookies and “deep packet inspection.” In addition, a bill currently pending in Congress would expand and enhance the authority of the FTC, possibly increasing the number of FTC litigations.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

This post was written by Douglas J. Wood and Keri Bruce.

Recent headlines about celebrities raise important issues that advertisers and advertising agencies need to think about in negotiating endorsement deals – an early exit strategy, a meaningful morals clause, and a well-defined exclusivity provision. These issues are often thought of as mere boilerplate that are easily deleted or compromised. And while such clauses are rarely used to terminate an agreement, when an advertiser is faced with the situation, the financial cost and impact on brand reputation highlights why such clauses, despite an agent’s protestations, should not be taken lightly in negotiations.

As we closed 2008 and began 2009, we saw Buick drop Tiger Woods and Pepsi-Cola drop David Beckham. According to press reports, the parting of ways was by mutual agreement, but one can assume the economics were most certainly a core issue. In November, it was reported that Charlize Theron settled a $20 million lawsuit brought by watchmaker Raymond Weil, alleging she breached her endorsement contract by doing an ad for Montblanc watches and wearing a Christine Dior watch at a press event. The amount of the settlement remains undisclosed. Nor have celebrities fared well recently on the behavior side. In early February, Kellogg’s dropped Michael Phelps in the wake of accusations that he smoked marijuana. Wrigley has suspended its campaign featuring Chris Brown, pending resolution of the allegations that Mr. Brown made criminal threats against his girlfriend, Rihanna. The recent publicity over Christian Bale’s four-letter tirade won’t exactly enamor him with advertisers. And the latest revelations on Alex Rodriguez’s alleged steroid use will undoubtedly chill the air over his endorsements. 

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link