New SIFMA Guidance May Ease Accredited Investor Verification Worries, Assist Reg D Offerings Using General Solicitation

This post was written by Robert K. Morris.

One of the goals of the federal JOBS Act, enacted in 2012, was to expand the ability of companies (both operating companies and funds) to make non-registered securities offerings using general solicitation and advertising.  Offers made through general solicitation and advertising have been prohibited under the SEC’s private offering safe harbor ever since Regulation D was adopted in 1982, and many have complained that the restriction was pointless where all purchasers were accredited investors as defined in Regulation D.  However, the SEC believed a change required legislation.

The JOBS Act made that change.  However, the Act, and the new rule adopted in 2013, imposed a new requirement – the issuer of the securities must take reasonable steps to “verify” that all the purchasers in a general solicitation offering are accredited investors. Failure to take reasonable verification steps would violate the rule even if it turned out that all purchasers actually were accredited.

For an individual to be an accredited investor, he or she must have net worth excluding principal residence of at least $1 million, or net income of $200,000 ($300,000 with spouse) in each of the two most recent years and a reasonable expectation of achieving the same in the current year.  Under the new rule, reasonable steps by the issuer to verify these criteria would include reviewing tax returns, bank statements, brokerage statements and consumer reports from recognized agencies.  To date, these steps have not seen significant use, as issuers have found them burdensome, and investors have asserted privacy concerns.  Critically, the SEC has made it clear that an issuer may not simply rely on the investor’s own representation that he or she is an accredited investor.

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Get Your Docs in a Row: A Practice Tip for Promotions

We wanted to share the following best practice tip with our readers who conduct sweepstakes, contests, and other prize-based promotions:  When conducting such promotions, we always recommend that our clients have the potential winners execute and return a set of verification documents before confirming them as winners.  Generally, this involves having the winner sign an affidavit and release form confirming their eligibility, compliance with the official rules of the promotion, and releasing the sponsor (and their agencies and parents, subsidiaries, and affiliates) from any liability that may arise in connection with the promotion.  In addition, if you need to conduct a background check on the potential winners before issuing a prize to them, you should have them complete a form authorizing you (and/or your agencies) to do so prior to obtaining any consumer reports from a consumer reporting agency.  Under the federal Fair Credit Reporting Act (FCRA), consumer reporting agencies may only issue consumer reports with a consumer’s consent, or for one of the other delineated permissible purposes.  Obtaining a properly executed authorization will not only allow you to conduct your background check more seamlessly, but it will also help to reduce the risk in playing part to a potential FCRA violation, which can result in high statutory penalties.

Canada Requires Closed Captioning for All TV Commercials

Effective September 1, 2014, all advertising commercials, sponsorship messages and promotions broadcast on television stations in Canada must be aired with closed captions for the hearing impaired.  This requirement may necessitate that you add closed captioning to commercials previously produced and aired that will be broadcast on or after September 1st.

For a complete explanation of the requirements, please download the Institute of Communications Agencies (ICA) member bulletin.

Is There a Bankruptcy Lawyer in the House?

This post was written by Mark Silverschotz and Douglas Wood.

When businesses pay for goods and services, they generally like to receive them.  Unfortunately, as any bankruptcy lawyer will tell you, this consistent desire is not matched by uniform experience.

Most recently, the bankruptcy of KSL Media again illustrated the risks and concerns when an advertiser entrusts significant funds to an entity that is too thinly capitalized or, as some allege, guilty of diverting funds that were to be passed through and in breach of a fiduciary duty to its clients.  KSL’s bankruptcy, of course, was also noteworthy not because KSL was a start-up, but because it was not.  We might expect capitalization risks with start-ups.  But KSL was an established media company that failed.  So the question remains: how can advertisers protect funds entrusted to suppliers, particularly those that are earmarked for payments to third parties?

First and foremost, a little research goes a long way toward preventing surprise and disappointment.  This is true with any supplier, even those not entrusted with funds.  But where pass-through funds are given to a supplier, it is irresponsible not to investigate the financial stability of the supplier as a first step.

When considering engaging any supplier, the advertiser should, at a minimum, ask the following questions:

  • What is the company’s operations history?
  • What does its balance sheet look like?
  • How is the entity capitalized?  Is the entity funded with capital or debt, and – if the latter – when are interest payments or principle reduction payments due?
  • What strain does debt service put on the company’s cash flow and its ability to make capital investments?
  • How has the company grown?  Did it grow by taking on debt as opposed to organically?
  • Are bank references available?  Are there any other credit reports?
  • Have you seen certified financials?

Where cash is given to a supplier in anticipation of a “pass through” of the cash to the eventual provider of a good or service, several additional questions should to be asked:

  • Who “owns” the money as it is transferred along the chain of distribution?
  • How are the relevant accounts structured?  Are dollars earmarked for the company or are those earmarked for pass-through co-mingled?
  • Who has control over those accounts?
  • What is the procedure for the release of funds?  Who has the right to release the funds, and under what circumstances?
  • Are there any “secured” creditors with potential claims to the relevant funds?  Over what funds do those secured creditors have a right to assert a claim? Is there an agreement with creditors defining the relative rights to those funds?
  • If the funds are not passed through on a timely basis or if they are diverted for improper purposes, what are the ramifications to the advertiser?  The KSL bankruptcy best illustrates how the seller (the media company) will go up the supply chain and demand payment from the advertiser, asserting that everyone in the supply chain was an agent for the advertiser.  And it’s not just about media buying.  It applies to any supplier entrusted with pass-through monies.  An astute advertiser will also determine if non-pass-through of the monies creates statutory violations, e.g., sales tax, payroll, and associated taxes.
  • Are funds from multiple clients pooled together in a common fund and, if so, how are respective rights to such monies determined?

What advertisers should be wary of is reliance on indemnities or contractual provisions that adopt the concept of sequential liability, or assert that the supplier is acting as a principal and not an agent.  All too often, particularly with media buys, the media does not agree with sequential liability or that the media buyer is acting as a principal.  Nor is the advertiser necessarily told what the media will agree to.  Instead, media outlet forms generally provide for joint and several liability, i.e., the media outlet can go after either or both the media buyer and/or the advertiser.  In such circumstances there is no “meetings of the mind” with respect to debtor(s) against whom a claim can be asserted.  This creates a textbook case of who is liable to third parties in an agent/ principal relationship.  Absent extenuating circumstances, the law is clear: an agent is not responsible for third-party obligations it incurs on behalf of its principal, regardless of whether the principal has paid the agent.  While the principal may be able to seek reimbursement from the agent, non-payment by the agent is not a defense to paying the third party what it is due.  Over the years, all too many advertisers have been stung by such double payments, and an agent that has either gone bankrupt or diverted the entrusted funds to other (sometimes illegal) purposes.

The bankruptcy of a supplier entrusted with pass-through monies can be even worse.  The classic bankruptcy-court example is the case of a buyer who prepays for goods or services, and the would-be supplier goes out of business prior to delivery.  In such circumstances, the funds earmarked for the purchase may not be traceable and, even if they are, they may be the subject of a senior claim of a lender or other party and therefore not recoverable.  Worse, in some industries, the customer of the bankrupt service provider may remain responsible for the services that the bankrupt supplier was supposed to perform, and liable if they are not performed.

Undercapitalized or over-leveraged suppliers present a challenge to those who do business with them.  It is important to make sure that you will get what you pay for.  And in order to be safe, a goodly measure of investigation is crucial.

Do-Not-Track Working Group: Survey Shows Dwindling Support

The future of the Do-Not-Track working group remains unclear, according to a recent survey taken among its participants.  Forty-three of the 100 or so working-group participants submitted responses to the survey, which proposed five paths for the group moving forward. 

According to the survey, 17 participants voted that they have “no confidence” in the group and that all work should be discontinued.  Some of the comments described the proceeding as “so flawed [that] it’s a farce.”  Others called the progress made to date, “shameful.”  Other participants remained somewhat more hopeful; though, ideas on how to achieve a more meaningful Do-Not-Track standard varied.  Twenty-six participants voted against continuing to stay on the current path and resolving the remaining open issues as outlined in the proposal.  The remaining proposals, which garnered the most votes, recommended splitting up the working group’s focus on establishing a technical means for sending a Do-Not-Track signal and establishing compliance standards for when a company receives a signal. 

While the working group’s future may be in question, there may still be a glimmer of hope for finding a Do-Not-Track standard.  The Digital Advertising Alliance, who recently departed from the working group, has said that it will start its own “process to evaluate how browser-based signals can be used to meaningfully address consumer privacy.”  In addition, at least one state has taken proactive measures regarding Do-Not-Track.  See our previous blog post on California’s new law requiring companies to disclose in their privacy policies how their websites and apps respond to a “Do-Not-Track” signal.  We’ll continue to follow the industry’s efforts in this space.

Recent VPPA Amendments Allowing for Easier Sharing of Viewer Preferences Could Also Mean Increased Litigation

In 2012, streaming entertainment accounted for almost half of peak Internet traffic.  In 2013, the online viewing phenomenon continues to generate massive amounts of actionable information about named consumers, from interests to habits to schedule to mood.  Until now, the Video Privacy Protection Act – launched in the heyday of VHS – has blocked companies who provide online video content from sharing subscriber histories with third parties, in almost any circumstance.  As explained in President Signs Amendment to Video Privacy Protection Act, Ushering in a New Era for Widespread Sharing of Viewing Histories, the rules have now changed, presenting new opportunities for video platforms and advertisers, as well as new challenges to avoid becoming a target of the plaintiffs’ class action bar.

For more information, please visit our sister blog, Global Regulatory Enforcement Law Blog.

French ISP Restores a "Free" Internet for Advertisers

On Monday, the French Internet service provider, Free, reneged on its original decision to place a default ad-blocking filter on its customers’ routers after receiving pressure from advertisers and the French government. To learn more about this story, read the latest post on our Advertising Compliance blog, ReACTS.

Industry and Union agree to Clearinghouse Initiative

As you are aware, for the last several years, the industry and SAG-AFTRA have been jointly engaged in a progressive study to investigate, develop and build a GRP-based residual system as an alternative to the current residual payment model under the SAG Television + AFTRA Television Commercials Contracts.

The industry and the unions agreed as part of the 2009 Commercials Contracts negotiations to conduct a year-long pilot test of such a system and which is called the "GRP-E Pilot." In addition the parties agreed to hold early bargaining on or about October 2011 to discuss the results of the GRP Pilot and bargain over the possible implementation of the GRP System. The parties subsequently agreed to defer that obligation as part of a one-year extension of the obligation to bargain successor agreements to the 2009 Commercials Contracts.

Among other things, we learned from the GRP-E Pilot that there are certain challenges regarding obtaining data necessary to complete the GRP-E calculations and rendering that data in a consistent and usable manner for that purpose. Commercial identifiers, network names and program names are not used consistently. These challenges resulted in the need to estimate a significant percentage of the use fees calculated as part of the GRP Pilot.

The adoption of a uniform system for labeling programs and broadcast outlets to work in conjunction with Ad-ID is a major step toward adoption of the GRP-E as a basis for determining compensation for actors performing in commercials. Using uniform digital identifiers for all silos in the ecosystem will be a major breakthrough, and will insure more accurate tracking and accounting than today's system of varied identifiers and manual calculations.

The ANA, 4A’s and SAG-AFTRA have agreed to jointly undertake a supplemental project to the GRP-E --the Clearinghouse Initiative - designed to address these challenges. The goals of the Clearinghouse Initiative include: implementing a common set of standards in commercial identification; the development of standardized nomenclature for both programs and broadcast and cable media outlets/networks related to airing information, promoting the adoption of these standards by a range of industry players across the advertising ecosystem and creating and maintaining a registry designed for the cost-effective management and tracking of these common standards.

The costs of the Clearinghouse Initiative will be paid for with funds secured from the SAG Producers-Screen Actors Guild Industry Advancement Cooperative Fund ("IACF") and the AFTRA Industry Advancement Cooperative Fund ("AICF"). The project will be conducted by PwC as part of the GRP-E project.

In light of the necessity for the Clearinghouse Initiative, the negotiations regarding the GRP proposal and GRP-E pilot results will be postponed until after the completion of the Clearinghouse Initiative.

For further information, ANA members may contact Stacy Marcus, Reed Smith; and 4A members should contact Kathleen Quinn,4A’s.

FTC Calling On Ad Networks to Limit and Justify Data Collection

The issue of data collection is an important one in online privacy, particularly as it applies to ad networks. This issue is especially contentious in the context of Do Not Track mechanisms. A number of browsers – such as Safari, Internet Explorer, and Firefox – have mechanisms that permit consumers to instruct websites not to track their activities across the web. The FTC has said on numerous occasions, though, that an effective Do Not Track system should go beyond opting consumers out of receiving targeted advertisements; it should opt them out of the collection of behavioral data for all purposes, unless the purpose is consistent with the context of the interaction (e.g., to prevent click-fraud). Such sentiments were expressed in the FTC’s Privacy Report, as well as its testimony before Congress.

Last month, FTC Commissioner Julie Brill delivered a speech at the State of the Net West conference in San Francisco, calling on ad networks to spell out why they say they must collect data from consumers who do not wish to be tracked. "On numerous occasions, the FTC and other stakeholders have asked the advertising networks for specific market research and product improvement uses that require retention of linkable consumer data. The advertising networks are the only ones who can make the case for such use; without input from them it will be hard to see how such uses can be justified when a consumer has opted out of tracking." In that same speech, Commissioner Brill cited to a recent study by the Pew Research Center on privacy concerns with mobile devices. That study noted that 54 percent of app users have decided to not install an app after they discovered how much personal information they would need to share in order to use it, and that 30 percent of app users have uninstalled an app that was already on their phone because they learned it was collecting personal information that they didn’t wish to share.

Ad networks, and more broadly, all companies that collect data about consumers, should take note of the FTC’s focus on data collection. Data collection efforts should be limited appropriately and be accompanied with accurate disclosures.

NLRB Rejects Social Media and Confidentiality Policies

This post was written by Stacy Marcus and Joel Barras.

The National Labor Relations Board’s recent decision in Costco Wholesale Inc., invalidated certain personnel policies, including social media policies, protecting the dissemination of employee health information and personal identifiers. This case marked the NLRB’s first decision involving its independent General Counsel’s interpretation of federal labor law as it applies to social media and other personnel policies. The decision (profiled here by Joel Barras) signals the NLRB’s agreement with its chief prosecutor’s attack on commonly adopted policies regarding, among other things, confidentiality of company information, and follows the series of reports issued by the NLRB General Counsel on social media.

Proposed Graphic Labels Go Up In Smoke

In a 2-1 decision on August 24, 2012, the U.S. Court of Appeals for the District of Columbia upheld a federal district court’s decision to strike down FDA regulations promulgated under the Family Smoking Prevention Act (the "Act"), which would have required large graphic and textual warning labels on cigarette packaging.

The majority found that the Central Hudson test typically applied to laws regulating commercial speech should be applied in this case. The majority rejected the FDA’s argument that the standard in Zaurderer should apply – a test that permits the government to require purely factual and uncontroversial disclosures, provided that such disclosures are reasonably related to the state’s interest in preventing deception of consumers and are not unjustified and/or unduly burdensome. The court found that the graphic warnings were not necessary to prevent current cigarette packaging from misleading consumers, nor that the warnings imparted "purely factual, accurate, or uncontroversial information."

The Central Hudson three-part test requires that the government prove that (1) its asserted interest is substantial; (2) the restriction directly and materially advances the interest; and (3) the restriction is narrowly tailored. The court accepted for the sake of its analysis that the government’s asserted interest in reducing smoking rates was substantial, but noted that it was "skeptical that the government can assert a substantial interest in discouraging consumers from purchasing a lawful product, even one that has been conclusively linked to adverse health consequences." The court found, however, that under the second prong, the "FDA has not provided a shred of evidence – much less the ‘substantial evidence’… showing that the graphic warnings will ‘directly advance’ its interest in reducing the number of Americans who smoke," and also rejected the FDA’s reliance on inconclusive studies from other countries.

Why This Matters:

Requiring disclosures – mandatory speech – is a controversial issue and has a major impact on advertisers. It is not limited only to tobacco advertising and this ruling is an important precedent for limitations on federal agencies relying on foreign studies and unsupported opinion. On the other hand, the decision may conflict with a decision by the 6th Circuit in March upholding the constitutionality of most of the provisions of the Family Smoking Prevention Act, including the requirement of graphic disclaimers. Only an appeal to the United States Supreme Court can resolve any such conflict. Until then, it remains unclear what is, and what is not, required. That creates a very unpredictable marketplace.

FTC to MySpace: Watch What You Do in Consumers' Space

On Tuesday, the FTC approved a final order and consent decree settling charges that MySpace misrepresented its protection of users’ personal information. The settlement bars MySpace from future misrepresentations about its privacy practices, and requires MySpace to implement a comprehensive privacy program with regular, independent privacy assessments for the next 20 years.

For more information, please visit the Global Regulatory Enforcement Law Blog and read their Client Alert, "FTC’s Final Order with MySpace Focuses on Privacy by Design and Protection of Unique Device Identifiers" written by Paul Bond, Amy S. Mushahwar, and Christine E. Nielsen.

Sorry, Your Baby Can't Read

Just before Labor Day, the Federal Trade Commission (FTC) filed false advertising charges against the marketers of “Your Baby Can Read!” The program, widely promoted via infomercials and the Internet, purports to use videos, flash cards and pop-up books to teach babies as young as 3 months old how to read. The complaint charges Your Baby, LLC, its former CEO, and the program’s creator, Dr. Robert Titzer, with false and deceptive advertising and deceptive expert endorsements. According to the complaint, the defendants failed to provide competent and reliable scientific evidence that babies can learn to read using the program, or that children at age 3 or 4 can learn to read books such as Charlotte’s Web or Harry Potter.

The program’s former President and CEO, Hugh Penton, Jr., has already settled with the FTC. The settlement imposes a $185 million judgment (equal to the company’s gross sales since January 2008), but suspends the judgment upon the payment of $500,000 because of the company’s financial condition.

This case is one of many recent FTC cases attacking the issue of “competent and reliable scientific evidence.” Advertisers should monitor the FTC’s enforcement actions to stay abreast of changes.

Illegal Gambling and Legal Promotions: The Effect of the Recent Poker-Related Decision

There is a fine line between a lawful promotion and illegal gambling. Sweepstakes are legal, while private lotteries are not. Paying entry fees for a skill contest can be legal (depending on the circumstances), while placing bets is generally not. So it is with great interest that we follow gambling laws – of both the federal and state variety – throughout the country (and internationally as well).

For example, recall that last year the U.S. Department of Justice revised its interpretation of the Wire Act to exclude communications about state-run lotteries (thereby opening the door for sales of state-run lottery tickets via the Internet). Or take a look at our compilation of state gambling laws that we provide to you free of charge (though this hasn’t been updated since 2009, so laws may have changed).

As such, we were very interested in last month’s opinion from Judge Jack Weinstein, Senior Judge for the Eastern District of New York, in the case of United States of America v. DiCristina. This was the case that found that operating a private poker game was not a violation of the Illegal Gambling Business Act, 18 U.S.C. § 1955 ("IGBA").

The upshot of this decision is that the defendant – DiCristina – could not be guilty of violating the IGBA for running a private poker game because it was unclear under the IGBA whether poker was "gambling" or not. The IGBA had an enumerated list of gambling activities – slot machines, roulette wheels, dice games, etc. – but did not explicitly include poker, which by its nature has more of an element of skill than a slot machine or a roulette wheel. As such, the judge could not say with certainty whether poker was intended to be covered by the IGBA, and therefore could not allow a conviction of the defendant based on the rule of lenity.

So, does this mean that poker is now legal, and you can begin operating private, for-profit poker games anywhere in the country? No, it does not. There are several reasons why this decision, though interesting and possibly important in the long-term evolution of U.S. gambling laws, should not be taken as blanket approval for all poker-related activities:

  • The case was brought under a federal law – the IGBA – not state anti-gambling laws. Had this case been brought in state court for violations of New York law, the defendant likely would have been convicted because New York state laws have long held poker to the same standards as other gambling activities, like roulette or blackjack.
  • The decision in this case was highly fact- and statute-dependent. Had other allegations been brought against the defendant – e.g., that the defendant used telephones or the Internet to set up games, invite players, establish table minimums, etc., or that there was an organized crime element to the games – and had the government charged the defendant with violations of the Wire Act or RICO, then the outcome would likely have been different.
  • This is just one judge’s opinion, and therefore is not binding on any court other than the Eastern District of New York. Thus, courts in California, Texas, or even other parts of New York can disagree with Judge Weinstein’s findings.
  • A decision in the Third Circuit casts doubt upon Judge Weinstein’ reasoning. That case – United States v. Atiyeh – held that the operation of a sports-betting business violated the IGBA because it violated state anti-gambling laws. There was no proof in Atiyeh that running a sports betting operation was "gambling" as defined by the IGBA, but the Third Circuit did need that to establish liability. Instead, the Third Circuit was satisfied that a business that met the state law definition of gambling was "gambling" for the purpose of the federal law. That was not the reasoning adopted by Judge Weinstein. Judge Weinstein held that the business must also be "gambling" as defined by the IGBA for there to be an IGBA violation. Thus, there is a conflict between this case and Atiyeh, and it could be the basis for an eventual appeal to the Supreme Court.
  • By pointing out that the IGBA is not sufficiently clear as to include poker in its definitions, this gives Congress the opportunity to revise the statute so as to explicitly include poker games.

Why This Matters:  The decision is important because it shows a trend toward the liberalization of laws and interpretations regulating poker. If Judge Weinstein’s reasoning is upheld, it could be the basis for future actions designed to establish poker as a legitimate business operation under federal law. This could also have a collateral effect on helping clarify the line between legally permissible promotions and illegal gambling.

Fox Hopes to Nix Dish Network's Hopper and PrimeTime Anytime Technology

In May, a series of lawsuits were filed against Dish Network by the broadcast networks -- CBS, NBC, ABC, and Fox -- over Dish Network’s Hopper feature. Hopper allows viewers to automatically skip through television commercials on their DVR recorded programs and avoid messages from advertisers who have paid for commercial announcements. In connection with that suit, Fox is now seeking a preliminary injunction to stop the Dish Network from offering that feature, along with another feature called PrimeTime Anytime(and its AutoHop feature), arguing that such features cause fewer advertisers to buy commercials or to pay less for what they buy, therefore costing Fox revenue, and destroying the model upon which free television relies and ratings for commercials are calculated. Dish has responded that Fox is all wrong and that the fears expressed by Fox were unfounded. As reported in the press, this case is important because it puts technology in the center of a serious battle between what Dish believes consumers want and what Fox believes is essential to a healthy business environment.

Case Update - Kim Kardashian Settles Her Look-Alike Lawsuit Against Old Navy

Just before the Labor Day weekend, Kim Kardashian ended her battle with Old Navy over the use of a look-alike. The settlement ends a year-long lawsuit (Kardashian v. The Gap Inc., et al., case number 2:11-cv-05960) in the U.S. District Court for the Central District of California that alleged violation of California's right-of-publicity statute and the Lanham Act, seeks unspecified damages, and seeks an injunction barring Old Navy from using Kardashian look-alikes in future ads. Kardashian claimed that the Old Navy ad “incorporated a storyline associated with (her) likeness, identity and persona” to highlight the look-alike’s resemblance. (See "Kim Kardashian Following in the Footsteps of Jackie O?" for additional details.) The settlement amount remains confidential.

The original spot is below: So, what do you think, was it wise for Old Navy to settle?

 

A Growing Trend - Employers Prohibited from Requesting Employee or Applicant Social Media Log-In Information

Earlier this year, Maryland enacted Labor and Employment Code §3-712, becoming the first state to pass a law explicitly prohibiting employers from requesting or requiring employees or applicants to disclose their usernames and passwords for their personal social media accounts. The law also prohibits an employer from discharging, disciplining, or penalizing the employee (or threatening to do so) or refusing to hire an applicant for refusal to disclose this information.

This law only applies to Maryland employers, but employers across the nation should take note as a number of other states are contemplating similar laws. Illinois’ version has already passed both legislative houses and is likely to become law within the next couple of months. California, Delaware, Michigan, Minnesota, New Jersey, New York, Ohio, South Carolina, and Washington are also contemplating their own versions of the law. The federal government has introduced similar bills in both the Senate and House as well.

While the need for such legislation has been debated, there is undeniably a growing trend among the states to introduce legislation prohibiting employers from asking employees or applicants for their social media log-in information. In response, employers should take steps now to account for this growing trend, such as reviewing and revising their internal policies and procedures so that they are consistent with the legislation. Further, employers should communicate these revised policies and procedures across the company so that hiring personnel are aware of what they can and can not ask from employees or applicants.

We will continue to monitor this arena for developments.

New gTLD Applications Revealed: What Comes Next?

Now that the gTLD list has been released, find out what steps you should take to help you protect your brand by reading Reed Smith's most recent client alert. Learn what is to come and the key dates you should keep in mind.

Should you have any questions, please contact any one of our Global Task Force members:
Douglas J. Wood, Judith L. Harris, Amy S. Mushahwar, Brad R. Newberg, John L. Hines, Jr., Joseph I. Rosenbaum, Darren B. Cohen, Steven J. Birt, Dr. Alexander R. Klett, LL.M., Emma Lenthall and Gregory S. Shatan

ICANN releases list of applicants and proposed new top-level domains

Today, June 13, the Internet Corporation for Assigned Names and Numbers (ICANN) published the list of applicants and proposed new top-level domains (TLDs) tied to its program to radically expand the domain name system (DNS). Click here to access the list (in the form of an Excel spreadsheet).

A TLD is the string of letters to the right of the last "dot" in an internet address, e.g., .com, .org, or .net. Today, there are 22 TLDs.  ICANN's announcement may result in thousands of new TLDs to compete with the current 22. Examples may include .home, .food, and .mail.

This program has come under considerable criticism. See www.crido.org. Despite the concerns expressed by many brands and marketers, ICANN is proceeding with plans that may result in new domains as early as the first quarter of 2013.

We have formed a Global Task Force to work with clients facing decisions in this potentially changing Internet ecosystem and will provide a more detailed review and webinar shortly.

Should you have any questions, please contact any one of our Global Task Force members:
Douglas J. Wood, Judith L. Harris, Amy S. Mushahwar, Brad R. Newberg, John L. Hines, Jr., Joseph I. Rosenbaum, Darren B. Cohen, Steven J. Birt, Dr. Alexander R. Klett, LL.M., Emma Lenthall and Gregory S. Shatan

'Sunshine Act' à la française adopted on 29 December 2011. Healthcare and cosmetics companies will be subject to a tough transparency regulation in France

New French regulations, mirroring similar rules in the United States, place health care and cosmetics companies operating in France with heavy disclosure requirement if they have any pecuniary relationship with researchers, universities, or any other third parties in connection with the marketing of their products. For a full bulletin on this development, please visit our sister blog, the Global Regulatory Enforcement Law Blog.

Is the United States ready to put its bets online?

U.S. States may soon have the ability to run full scale on line gambling activities based on a 180 degree turn by the United States Department of Justice, the regulator that has historically held that any online gambling is illegal in the United States.

For more information, please visit our Legal Bytes blog or read the issued Client Alert here: U.S. Federal Government Reverses its Stance on Online Gaming.

Protecting Your Trademarks in the World of .XXX Domain Names

As described in Reed Smith's April 22, 2011 Client Alert, to go along with .com, .net, and the other current top-level domains ("TLD's"), the formation of a new .xxx TLD has been approved for websites related to the adult entertainment industry.

Since the .xxx TLD is intended only for adult entertainment industry websites, applicants who want to set up .xxx domains will need to certify that they are in the industry; however, trademark owners may worry that cybersquatters and other entities will attempt to register .xxx domains related to well-known brands to take advantage of (and thereby damage) the brand's goodwill. Reed Smith's prior Client Alert discussed some of the initial details regarding the system set up to deal with some of those concerns. This Alert serves as an update to the most important trademark protection in the .XXX system by far: the "Sunrise B" Period.

For more information, please read Reed Smith's Client Alert, written by Brad R. Newberg, Gregory S. Shatan, John L. Hines, Jr. and Angela M. Washelesky.

Facebook and Lamebook Settle Trademark Dispute

On August 25, 2011, Facebook and Lamebook, a self-described “fun humor blog” which highlights funny, absurd and “lame” things people post on Facebook, settled their trademark dispute. The dispute began in early 2010 with Facebook sending Lamebook a cease-and-desist letter to change its name and stop using the Lamebook mark. After months of discussions between the parties, Lamebook filed a lawsuit in Texas in November 2010 seeking declaratory judgment that it was not infringing the Facebook trademark or trade dress rights. Days later, Facebook filed its own suit in California claiming trademark infringement. Facebook then dismissed its case, without prejudice, after a failed attempt to have the Lamebook suit dismissed or transferred. 

The parties released a mutual statement settling the Lamebook lawsuit, stating that, “We are pleased to arrive at an agreement that protects Facebook’s brand and trademark and allows for Lamebook’s continued operation … The parties are now satisfied that users are not likely to be confused.” As part of the settlement, Lamebook agreed to add a “prominent disclaimer” to its website and won’t seek trademark protection for its name. The disclaimer that now resides on the Lamebook website states, “This is an unofficial parody and is not affiliated with or associated with, or endorsed or approved by, Facebook.”

It’s unclear whether Facebook settled because it was concerned about the possible outcome of litigating a case in Lamebook’s hometown of Austin, Texas, or whether it wanted to avoid the potential negative publicity associated with the case. Or maybe Facebook was concerned that, given Lamebook’s argument that it was a parody website, the case would have turned out similar to the prominent Louis Vuitton Malletier, S.A. v. Haute Diggity Dog, LLC case (507 F.3d 252), which found that the defendant Haute Diggity Dog did not infringe or dilute the Louis Vuitton trademark with its Chewy Vuiton line of products. Regardless of the reason, the settlement is surprising considering how protective Facebook is of its intellectual property rights. Facebook currently has unresolved disputes against other “-Book” marks, including TeachBook.com, FacebookOfSex.com, and Shagbook.com. 

The FTC's Investigation of Google: What To Do When The FTC Sends Your Company An Inquiry

This post was written by Rachel A. Rubin and Joseph I. Rosenbaum.

In June, Google confirmed that the Federal Trade Commission (FTC) opened an antitrust investigation against it. While the scope and details of the investigation have not been disclosed, the FTC is likely examining whether and how Google has used its dominance in Internet search and advertising to stifle competition, and whether Google’s actions cause harm to consumers.

As part of its investigation, the FTC can and will reach out to third parties, including Google’s partners, advertisers, and competitors, to learn more about the way Google behaves in the market. As the recipient of an FTC inquiry that is not purely voluntary, you are obligated to provide certain information to the FTC. While the nature and extent of this information will vary by company, receiving an FTC inquiry raises a host of legal questions and concerns.

So what do you do when the FTC reaches out to your company? We have prepared a set of FAQs – What Should You Do When The FTC Calls About Google? – to help your company understand the range of possible inquiries, the process of responding to the FTC, and your company’s potential liability.

For more information before or after you receive a letter from the FTC, please contact Joseph I. Rosenbaum or Rachel A. Rubin.

FTC OKs Self-Regulation Program for Online Behavioral Advertising

The Federal Trade Commission issued an advisory opinion letter this week saying that it has no present intention to challenge the Council of Better Business Bureaus' accountability self regulatory program for companies engaged in online behavioral advertising. The program is designed to foster compliance with the Self-Regulatory Principles for Online Behavioral Advertising, which were released by the FTC in 2009. The issue presented to the FTC by the CBBB was whether the accountability program would be viewed as a restraint of trade under the antitrust laws.

For more information, please read Reed Smith's Client Alert, written by Christopher G. Cwalina, Amy S. Mushahwar and Frederick Lah.

Tax Deal in New Jersey for Media Companies

In the latest state grab at more tax dollars, New Jersey, perhaps believing it is a major media center, announced that it is targeting media companies for taxes that are due. That's the bad news. The other news (there is no "good" news when it comes to taxes) is that companies can get a break if they file before November 15. Click here for our client bulletin on the matter.

NASCAR Sued Over Unsolicited Text Messages

On August 10, a California woman filed suit against Nascar Holdings, Inc., alleging that the company violated the 1991 Telephone Consumer Protection Act (“TCPA”) by sending out unsolicited text messages. According to the complaint, the text messages were sent in February of this year to promote a Sprint Cup race at Daytona. Interestingly, the plaintiff alleges that both the initial marketing message AND the unsubscribe confirmation message violate the TCPA.

The complaint demands that NASCAR pay statutory damages in the amount of $1,500 per unsolicited text. While the plaintiff does not include a calculation of total damages in her complaint, she alleges that they are at least $5 million.

This case comes on the heels of recent FTC activity surrounding cramming, and indicates that even in the age of Web 2.0, regulators and plaintiffs’ counsel are still focusing on traditional advertising methods, such as telemarketing.

Advertisers Push ICANN to Drop New gTLD Proposal

Reed Smith partner and ANA General Counsel Doug Wood said in an interview with the National Journal that if ICANN fails to respond to the ANA’s concerns, it may be forced to sue to block the proposal. “If they choose to ignore us, which I hope they don’t, then we will have no choice but to litigate,” he said, adding that this would only be a last resort. According to Wood, ICANN’s current proposal for gTLD registration could cost companies as much as $2 million a year per trademark. The full text of the National Journal’s interview with Doug Wood and ANA President, Bob Liodice can be found here.

SAG/AFTRA Propose 1-year Extension of Commercials Contracts

The following link contains the full text of the JPC’s recent bulletin regarding SAG/AFTRA’s proposal for a 1-year extension to the Commercials Contracts. It is the intention of the JPCto agree to the extension. During this extension year, all rates, terms and conditions of the 2009 – 2012 Commercials Contracts would remain the same, i.e., there will be no increase in wages or Pension + Health/Health and Retirement contributions.

The JPC will formally notify the unions on September 1, 2011 of the JPC’s agreement to the extension. If you do not wish to accept the one year extension, you must withdraw your authorization from the JPC no later than Monday, August 29, 2011. Please refer to the following link for details regarding the withdrawal process

Association of National Advertisers Challenges ICANN Authority to Establish New Top Level Domains

Today, in a letter to Mr. Rod Beckstrom, President, Internet Corporation for Assigned Names and Numbers (ICANN), the ANA (Association of National Advertisers) detailed major flaws in the proposed ICANN program that would permit applicants to claim virtually any word, generic or branded, as Internet top-level domains once the application window is opened in January 2012. The ANA argues that implementation of the ICANN program is economically unsupportable and is likely to cause irreparable harm and damage to its membership and the Internet business community in general. By means of this letter, the ANA with the assistance of Reed Smith, kick starts a serious effort to prevent billions of dollars of harm to brand owners and return ICANN back to the negotiating table by any means necessary.

To learn more about generic top-level domains, read Reed Smith's Client Alert.

Kim Kardashian Following in the Footsteps of Jackie O?

Jackie O, Better Midler and Vanna White are leading ladies who paved the way in “look alike” and “sound alike” lawsuits. Now, Kim Kardashian is stepping into the ring against Old Navy. The suit (Kardashian v. The Gap Inc., et al., case number 2:11-cv-05960), in the U.S. District Court for the Central District of California, specifically alleges violation of California's right-of-publicity statute and the Lanham Act, seeks unspecified damages, and an injunction barring Old Navy from using Kardashian look-alikes in future ads. Kardashian claims that the Old Navy ad “incorporated a storyline associated with (her) likeness, identity and persona” to highlight the look-alike’s resemblance.

 

At issue is whether consumers will be shown to be confused by Old Navy’s Kim Kardashian look alike and, if so, whether the court will follow the ruling in the Bette Midler case and find that “the defendants . . . for their own profit in selling their product did appropriate part of her identity” through the use of a look alike. It remains to be seen whether, as in the Lindsay Lohan lawsuit against eTrade, documents will surface in discovery that evidence Old Navy’s attempt to emulate Kardashian. Old Navy did, however, post the following Tweet: “@CBSNEWS reports that Old Navy's Super CUTE star looks like @kimkardashian. #LOL. What do you think?” As an interesting side note, the alleged look alike, Melissa Molinaro, is said to be dating Kim’s ex, Reggie Bush.

So, what do you think, does Kim have a case?

New gTLD Plan Approved by ICANN; Now is the Time to be Asking -- How Valuable is my Name?

We have written quite extensively over the last several months about the developments brewing within the International Corporation for Assigned Names and Numbers to change the current domain name system. In short, companies and organizations located anywhere in the world will soon be able to register and operate a gTLD that corresponds to just about any any word or phrase (including a company's / organization's own name), and use that as the top level domain without the traditional extensions of .com, .net, .org, etc. The following Client Alert discusses this important development in greater detail.

Facebook Gets In Your Face

This post was written by Spencer Wein.

Facebook has rolled out a new feature that uses photo recognition technology to suggest friends’ names to tag in uploaded photos. While certainly an impressive feature, the problem is that the social network giant introduced the feature as a default setting rather than as an opt-in option. This has left privacy advocates up in arms. 

Prior to facial recognition technology, Facebook users could manually tag pictures without permission from their friends. Under the new default settings, when a Facebook user adds photos to his or her pages, facial recognition software suggests names of people in the photos to tag based on pictures in which that user’s friends have already been identified. The feature is active by default on existing users’ accounts, though Facebook does explain on its blog how users can disable the function if they don’t want their names to be automatically suggested in their friends’ photographs.

On June 10, Washington-based Electronic Privacy Information Center (“EPIC”) filed a complaint with the Federal Trade Commission regarding Facebook’s new automated tagging feature. EPIC uses strong, Orwellian language, alleging that “[u]sers could not reasonably have known that Facebook would use their photos to build a biometric database in order to implement a facial recognition technology under the control of Facebook.” EPIC further warns that “absent injunctive relief by the Commission, Facebook will likely expand the use of the facial recognition database it has covertly established for purposes over which Facebook users will be able to exercise no meaningful control.” In its request for relief, EPIC urges the FTC to force Facebook to suspend photo-recognition “pending a full investigation, the establishment of stronger privacy standards and a requirement that automated identification, based on user photos, require opt-in consent.”

Facebook, on the other hand, has downplayed the recent complaints, writing on its blog that “Tag Suggestions” had already been widely available in most countries as it had been phased in over several months. “We launched Tag Suggestions to help people add tags of their friends in photos; something that’s currently done more than 100 million times a day,” Facebook further noted in an emailed statement. “Tag suggestions are only made to people when they add new photos to the site, and only friends are suggested.”

By limiting the feature to a user’s friend list, Facebook has attempted to minimize privacy infringement. However, there is no guarantee that Facebook does not eventually extend the tag suggestions to its complete user base. A person could conceivably take a picture in a public place, and then easily learn a stranger’s identity. At worst, this could help facilitate criminal acts. At a minimum, the technology could create online reputation problems. 

Additionally, it is unclear if Facebook will make the technology available to advertisers. Though certainly not an imminent danger, it is possible that the technology will reach a point where advertisers will recognize people in physical spaces and present personally tailored ads. Further, we cannot know how Facebook will respond to subpoenas and government requests for such data. 

Regardless of the technology’s “Big Brother” potential as well as the ongoing backlash that Facebook seemingly continues to experience with the rollout of each new feature and tool, it's quite surprising this company maintains the same, standard modus operandi of making its privacy-related features and tools the "default" setting. It will be both important and interesting to monitor how Facebook and its opponents handle this latest privacy issue.

Facebook's Newest Revision to its Promotional Terms of Use

This post was written by John P. Feldman and Drew R. Boortz.

Facebook revised its promotion rules for sweepstakes and contests on the premier social networking site. These revised terms went into effect May 11, 2011.

Communication About a Promotion Still OK

Although the revised promotion guidelines define “communication” broadly, they do not add any new restrictions in this regard. Thus, as it was before, one may advertise on Facebook for a promotion that exists outside of Facebook. 

Clarifications Regarding Administration of Promotions

The real meat of the revision is in Facebook’s clarification that one cannot use Facebook functionality to administer a promotion, including the entry process, voting, or communication, with potential winners.

  • All promotions administered on Facebook must be accomplished through an application. This is not a new requirement, but it was not always clear when and where that application must reside. Now, Facebook states that all promotions must be administered within Apps on Facebook.com, either on a Canvas Page or an app on a Page Tab. 
  • As before, all promotions on Facebook must include the following:
    • A complete release of Facebook by each entrant or participant.
    • Acknowledgment that the promotion is in no way sponsored, endorsed or administered by, or associated with, Facebook.
      • These were generally required under the older guidelines but seemed to apply even when a promotion was simply communicated on Facebook. Now, it’s more clear that they apply when you are administering a promotion on Facebook
      • Plus, there is now an additional required disclosure: Disclosure that the participant is providing information to [disclose recipient(s) of information] and not to Facebook.
      • Also, Facebook has underscored its desire to distance itself from any third-party promotion by prohibiting promoters from using Facebook’s name, trademarks, trade names, copyrights, or any other intellectual property in connection with a promotion, or to mention Facebook in the rules or materials relating to the promotion.
        • This obviously creates a tension – how can a promotion-sponsor tell consumers how to participate in a promotion run on Facebook without using the word “Facebook”?
        • Furthermore, Facebook is generally liberal with third-party use of certain IP (e.g., the “Like” functionality), so this provision seems at odds with how Facebook typically operates.
        • This provision is likely to be enforced when a promotion sponsor borrows “too much” of Facebook’s IP, and makes Facebook appear to be a promotion participant or sponsor. 
  • Facebook has now restricted the use of standard Facebook features as a method of registration or entry into a promotion. The new guidelines state: “One may not use Facebook features or functionality as a promotion’s only registration or entry mechanism. For example, the act of liking a Page or checking in to a Place cannot automatically register or enter a promotion participant.” Although this provision could be interpreted as prohibiting the use of “liking” or “checking in” for any promotion, we do not think this is Facebook’s intent. Rather, when this provision is read in context with the following provision, we think it more likely that Facebook means that the use of standard Facebook functionality cannot be the only method used for entry or registration; entry or registration must still utilize an application.
    • This could mean that a promotion sponsor cannot do a simple “fan” giveaway where it distributes prizes to one or more of its “fans.” A promotion such as this would involve selection of winners from among individuals who merely utilized Facebook functionality (i.e., “Liking”). Because it does not utilize an application, the promotion would be prohibited under the Facebook guidelines.
  • The next provision states: “You must not condition registration or entry upon the user taking any action using any Facebook features or functionality other than liking a Page, checking in to a Place, or connecting to your app.  For example, you must not condition registration or entry upon the user liking a Wall post, or commenting or uploading a photo on a Wall.” This prohibition essentially says that to the extent you have built an application to administer your promotion, you can require that people download your application, Like your Page, or check into a Place as part of the entry process. But, you cannot require any other action that implicates other Facebook features or functionality, such as liking a Wall post or commenting on a photo on a Wall. 
    • Perhaps the reasoning for this stems from spamming concerns. For example, a promotion entry mechanism that requires someone to post to a Wall would typically get a post devoid of useful content (e.g., “register me,” or “entry”). 
    • This provision should not be interpreted as banning the use of photo upload contests on Facebook. The application built to administer a Facebook-based promotion should include a photo upload element; the promotion should not utilize the standard Facebook “upload to wall” functionality.
  • Facebook has added a new prohibition on the use of “Liking” as a voting mechanism. “You must not use Facebook features or functionality, such as the Like button, as a voting mechanism for a promotion.” This is perhaps the most dramatic change in the revised promotion guidelines as many promotions used “Liking” as a proxy for voting. Now, the application built to administer the promotion must include a mechanism for voting that is different from the “Liking” feature. 
    • One interesting question that is not addressed by these guidelines is the use of the “Like” functionality outside of the Facebook network. The “Like” functionality has been distributed throughout the Internet and can appear on a variety of websites not controlled by Facebook. Thus, it is possible that a promotion sponsor could build a microsite to host video uploads and allow viewers to “Like” the videos. Facebook’s system would tabulate the number of “Likes,” effectively transforming them into “votes,” but arguably would not be able to enforce these promotion guidelines as the promotion was not being run “on Facebook.”
  • Finally, Facebook clarified the old prohibition on the use of Facebook messaging systems (e.g., messages, chat, wall posts, etc.) to notify winners: “You must not notify winners through Facebook, such as through Facebook messages, chat, or posts on profiles or Pages.” This further separates Facebook from any implication of sponsorship, and means that a sponsor must be sure to obtain entrants’ contact information so that it may contact them outside of Facebook.

Performance-Based Revenue: A Marketing Services Grand Slam

The following article appeared in AdAge and we acknowledge the author's consent to repurpose it for AdLaw By Request.

Much has been presented and written about the increasing use and success of performance incentives in the Client/Agency relationship. Industry bellwethers P&G and Coca-Cola, and more recently Intel, are all touting and branding their own versions of “value-based” compensation. Regardless of what you may call it, be it pay-for-performance, enhanced profitability, or just plain incentive compensation, these are all just words meaning different things to different people. What is clear is that beyond the major creative and media advertising relationships, the use of performance incentives of any type is paltry, at best. Results from the ANA’s triennial Trends in Agency Compensation Survey, published last year, indicate that other marketing services, such as Interactive / Internet / Digital show a 14% utilization of Agency performance incentives, going all the way down to merely 2% for Public Relations firms. (Other marketing disciplines falling between these lows are Promotion / Event Marketing, Multicultural, and Direct Marketing.)

So what are the reasons for the disparity in the adoption of these much publicized arrangements that marketers profess are leading to Agency performance and overall relationship improvements? Many of them can be traced to a reluctance by the service provider community -- in particular executive management and that “new” Agency stakeholder, the CFO -- to embrace placing any compensation at risk in categories where results are difficult to measure and an Agency’s impact on marketers’ key performance indicators is suspect. All too often, and mainly due to insufficient trust in the relationship, Agency management view these arrangements as marketers’ way (and Client Procurement) to gain unnecessary transparency, to give them a “haircut,” or to make promises which they may or may not choose to fulfill. This situation is most acute in the Public Relations discipline, where firms of all sizes, whether independent or part of a holding company, are stubbornly refusing to play and/or clinging to a remuneration model which Client Procurement and Strategic Sourcing are scratching their collective heads to logically understand.

Continue Reading...

Doug Wood Takes on Social Media in Hollywood

Doug Wood's latest social media piece on Law.com smacks a little of Animal Farm, a little Fountainhead, and a little…well you judge for yourself. Enjoy.

Getting Lost in the Amazon

As I was working away yesterday on a SAS (software-as-a-service) agreement and enjoying a most delicious piece of matzah and chocolate egg (a veritable ecumenical feast), I received a call from a client asking me if I knew why his site was down. I'm sure some of you know where I'm going with this -- the Amazon cloud was down. Sounds chicken-littleseque, right? Actually it's true and this rarity brought down many of the largest and most highly visited sites on the Web, which are similarly hosted out of the Cloud. Please enjoy this LegalBytes post prepared by my colleague, Joe Rosenbaum, and me about this development.

Protecting your Trademarks on the Web Is Getting Even Harder

You may want to read this Reed Smith Alert after the holidays are over, but if you can't wait this alert will shed some important light on certain important evolving dynamics that we've written on previously within the universe of domain name registrations, and how they are likely to affect your trademark on the Web.

Changes Coming for Domain Names: Are You Ready to "Dot" Your Brands?

The domain name system is now poised to change dramatically based on a highly controversial proposal for new generic top level domains (gTLDs) approved initially in 2008 by the International Corporation for Assigned Names and Numbers (ICANN), the not-for-profit organization responsible for coordinating the Internet addressing system. Currently, the domain name system is limited to 21 "generic" gTLDs (.com, .org, .net, .info, .biz, etc.). Under the new proposal, organizations located anywhere in the world would be able to apply to operate a gTLD that corresponds just about to any word or phrase, including an organization's name or brand. This is relevant to nearly all businesses, and in particular their marketing/advertising efforts, because it places new burdens on companies to police their brands through the ocean of hundreds, if not thousands, of new channels. My colleagues at Reed Smith outlined the relevant aspects and implications of the proposal and I encourage you to read it here.

Active vs. Passive Websites -- New Legal Developments

Is my website an active or passive website? This is a question that many companies and their counsel have grappled over, as it has important legal and regulatory applications. Recent case law in the 9th Circuit has shed some light on this issue, and it's well worth a read. Please click here for our just released, hot off the press Client Alert.

Email Marketing Under Attack

In recent months, a number of major brands have faced complex legal and reputational risks that arose from the hacking of email fulfillment vendors.

These cases generally present the following challenges:

  1. Gaining a technical, business and legal understanding of what happened, to who, when and how, and developing privileged and unprivileged messaging about the event to interested constituencies;
  2. Analyzing US and non-US notice obligations to customers, business partners, government and others, as well as assisting with identifying the judgment calls regarding such notice that must often be made, in real time;
  3. Monitoring and helping in discussions with responding/complaining customers, including developing scripts, protocols and a risk-based triage approach;
  4. Analyzing relevant insurance coverage and coordinating with in-house insurance experts or brokers on notice to carriers and responses to initial denials;
  5. Preparing a litigation-ready story, and advising the on privilege issues that arise during investigation and response activities.

In light of these recent email vendor breaches, forward-looking and consumer-focused companies are working around these ongoing challenges:

  1. Your own company's policies, procedures and training, including event and litigation-preparedness ("is my own house in order?");
  2. Knowledge/due diligence concerning vendors on these issues ("are we working with the right people and how do we measure that?");
  3. The process/flow among the company and its business partners ("do we have to outsource this work at all, and, if so, is there a simpler or lower risk way to do design the system?");
  4. The information being collected ("what are we collecting, how long are we keeping it, and why?");
  5. Contracts/indemnification provisions and insurance coverage ("if the worst happens, do we have the right contractual protections and insurance coverage?").

The recent data security breaches have highlighted legal and reputational vulnerabilities for the national brands. No amount of spending on data security technology or attention to policies, procedures and training on consumer privacy issues at the national brands immunizes one from reliance on vendors. Their data security events end up becoming yours. The letter notifying customers of such a breach ends up on your letterhead.

For more information, feel free to contact Douglas J. Wood at 212 549-0377, email dwood@reedsmith.com or Mark Melodia at 609 520-6015, email mmelodia@reedsmith.com.

The First of Many?

Have many people realize the digital advertising industry stood witness to two important developments recently? One was a highly publicized incident and the second one, lesser so. First, on Monday of last week, Aflac announced that it was terminating Gilbert Gottfried as the voice for its iconic duck, as a result of a series of inappropriate tweets that he posted the previous weekend about the crisis in Japan. 

The second incident, which in this author’s humble opinion has greater industry-wide implications, was the announcement by the Federal Trade Commission that it reached a settlement with the online ad company Chitika, Inc. over the company’s “opt-out” settings. Chitika is a data analytics and online ad network that utilizes user information to sell and target ads based on likely interest.

According to the FTC, Chitika offered users an opt-out feature that allowed them to “opt-out” of being tracked and targeted online, though only for a mere 10 days. After the 10-day period expired (and each one thereafter), Chitika would resume tracking a user’s online activity unless he/she underwent the same opt-out exercise. According to Chitika, the 10-day timer was an inadvertent and unintentional glitch in the code.  

In the FTC’s settlement:

  • Chitika is restricted from making misleading statements about the way in which it collects and uses consumer data
  • Chitika is required to post a permanent opt-out link on each targeted ad that provides consumers the choice not to be tracked or targeted for at least five years
  • Chitika must destroy any and all identifiable user data that was collected from users who previously sought to opt out before March 1, 2010, and more…

Why is this FTC action so important and relevant to advertisers, ad networks, agencies, data aggregators, etc.? For many reasons, including:

  • It demonstrates through actions, and not just through rhetoric or policies, just how seriously the FTC is taking and policing online behavioral advertising
  • Although this case turns primarily on an ad network saying one thing to consumers/users and seemingly doing something else, the FTC nevertheless believes that it can assert a section 5 FTC Act claim (i.e., deceptive and misleading advertising practices) against a company engaged in online behavioral advertising
  • The FTC seems to reconfirm its belief in the benefits of an opt-out system, and apparently believes that a five-year opt-out is a reasonable period of time
  • In painstaking detail, the FTC actually lays out what it believes to be an acceptable opt-out notice and system, from the number of clicks away a consumer can be from the opt-out notice to the actual opt-out notice text
  • The FTC has ordered Chitika to deliver a copy of the FTC settlement/order to all current and future employees, agents and representatives who are responsible for upholding and enforcing the FTC’s mandate

While this case clearly raises more questions than it delivers answers, it’s essential to appreciate that Chitika’s conduct was deemed deceptive by the FTC, not because it failed to offer a more robust opt-out program to consumers, but because it led consumers to believe they had opted-out permanently, when in reality it was for just 10 days at a time. Although players within the online behavioral advertising ecosystem should begin to look carefully for trends and whispers of best practices according to the FTC, these are not simple issues, and the privacy landscape is getting considerably more complicated and complex. Between proposed federal and state legislation, governmental agency policies and positions, and the DAA’s self-regulatory program taking shape, advertisers, ad networks and agencies alike should be increasingly turning to their privacy officers and legal counsel on these kinds of matters before they run afoul and become the next FTC test case.

A Tweet Silences the Aflac Duck - A Case Study in Celebrity Agreements

Gilbert Gottfried is looking for gainful employment, and Aflac is looking for a new voice-over man. Gottfried was terminated Monday as the voice behind Aflac’s iconic duck when he tweeted jokes and one-liners over the weekend about the recent crisis in Japan that Aflac determined to be tasteless, inappropriate and insensitive. “Gilbert's recent comments about the crisis in Japan were lacking in humor and certainly do not represent the thoughts and feelings of anyone at Aflac,” the company, which does 75 percent of its business in Japan, said in a statement.  “There is no place for anything but compassion and concern during these difficult times.”

While a celebrity getting fired for inappropriate conduct isn’t a novel concept, what makes this specific firing interesting is the social media component. Social media has the immediate effect of amplifying a conversation, and turning one twitter posting (aka, a tweet) into thousands of recycled and re-tweeted postings within seconds.1

Aflac, as expected, invoked the morals clause under Gottfried’s contract, as the basis for his termination. While morals clauses are often the most difficult and uncomfortable provisions to negotiate in celebrity talent contracts, this recent event and several others of late demonstrate their indispensability. In that spirit, advertisers should take away at least three important points:

  • Make sure your morals clause covers anything a celebrity does, says, writes or posts in any medium, including digital (it may be even be a good idea in this day and age to have a specific social media reference within the clause)
  • In addition to the usual suspects like illegal or publicly obscene or indecent acts, be sure the morals clause is broad enough that it also covers things like: (i) the celebrity conducting him/herself with due regard for public morals and decency, (ii) non-disparagement of the advertiser, (iii) behavior consistent with the advertiser’s dignity, high standards and public image, and (iv) any other events that would have a materially adverse effect on the advertiser’s reputation. Equally important, make sure that any determination as to whether or not a celebrity has violated the morals clause is left up to the advertiser in its sole (i.e., subjective) discretion, rather than applying some reasonable-person standard that will take three years to resolve in the courts.
  • Put in place a social media policy before it’s too late, and make sure to cross-reference the policy in your celebrity agreements. Without a carefully crafted and prudently enforced social media policy, advertisers will be increasingly faced with these kinds of rogue incidents, and are even more likely to be held accountable for the acts and omissions of their employees, consultants and celebrities.

The Gottfried happening may have been best summarized by John Diefenbach, Chairman of MBLM in New York, when he remarked, “The liberties that have been created by the Internet, by social media” must be balanced against “the idea that there’s an accountability and a responsibility if you’re being paid by someone to do a job.”

If you have questions or concerns about celebrity agreements or social media policies, feel free to contact Adam Snukal or the attorney within Reed Smith with whom you regularly interface.

 


1   A tweet was the basis of another high-profile termination last week, this time an agency agreement, when an account representative from New Media Strategies, the agency entrusted with managing the Twitter account for Chrysler, tweeted, “I find it ironic that Detroit is known as the #motorcity and yet no one here knows how to #*@& drive.”  The tweet was taken down, the employee was terminated, and Chrysler announced that it would not continue to use the services of New Media Strategies.

When Tweets Go Wrong

You’re a cutting edge digital agency, right? You have the capabilities to drive and manage your clients’ social media presence. Now, the question is, do you really want to? Today, Chrysler decided not to renew its contract with New Media Strategies (NMS) two days after an NMS employee tweeted from the @ChryslerAutos account: “I find it ironic that Detroit is known as the #motorcity and yet no one here knows how to [expletive] drive.” Although the tweet was quickly deleted, it had already spread to blogs, some of which criticized Chrysler’s “cold and corporate” response. Fortunately for you, NMS’ downfall can serve as a cautionary tale. First, determine who controls social media content, you or your client, who has access to the accounts, and whether or not content must be pre-approved or screened prior to posting. Second, have a plan in place regarding how to address negative posts (even accidental ones made by your own employees). Be creative, in some cases, you might be able to take a humorous spin on the screw up. Last, keep in mind that all it takes is one accidental tweet to kill a strategy. Be sure to check out the comments on the original article.

Verzion Wireless Takes on Premium SMS Bad Actors

Our Editor-in-Chief offers some perspective on a recently filed mobile marketing lawsuit brought by Verizon Wireless against a group alleged to have engaged in fraudulent premium SMS activity. You can access the article here.

Reed Smith Attorney Weighs in on Recent FTC Action

Our Editor-in-chief, Adam Snukal, was recently quoted in an article that appeared in Mobile Marketer concerning an FTC action brought against a company in the financial services industry. The article and quote can be accessed here.

Agency and Ownership - An Oxymoron or a Growing Reality?

No matter how many times I’ve been told that “it’s always been done this way,” I still have difficulty getting my head around the seemingly eternal practice of agencies whipping up near-complete ads, concepts and campaigns entirely on spec (or for a de minimis amount of fees) to win the business of a potential client, and agree to hand over all rights to such materials whether the agency receives the work or not. Case in point: an article that appears in Advertising Age this week. In what other industry does this practice exist?  As attorneys, we may provide some general direction or insight to a prospective client for purposes of demonstrating our competence within a particular area of the law, but I don’t know very many attorneys that would agree to draft a complaint on spec. The same goes for accountants, architects, consultants, developers, and on and on…

Well, the times may be changing – slowly, but changing nonetheless. Having the distinct privilege of representing both advertisers and agencies alike, we are often able to see trends on both sides of the table. Let me offer a few observations:

            (i) As more young professionals take on leadership roles within both agencies and the marketing departments of advertisers, there seems to be a greater sense of fairness and equity within the fabric of the client-agency relationship.

            (ii) As the nature of advertising continues to skew digital, the traditional cross-media campaign is likewise evolving. A digital (whether Web, ITV or mobile) advertising and media strategy is as much about monitoring and optimization on the fly as it is well-thought-out-planning. 

            (iii) Agencies are waking up to the reality that there is a benefit to developing their own portfolio of assets – ranging from creatives, to digital tools that have the ability of transcending a particular client or campaign but which can be used in various forms on multiple occasions.

This last point is deserving of greater extrapolation. As consolidation continues to exist within the agency universe, there is a growing spirit of discontent over the way these deals have traditionally been structured and the multiples employed to arrive at a purchase price. Essentially, agencies have always been viewed as service entities, and there’s only so much one will pay for services and good will. If, however, an agency becomes the composite of services, good will and proprietary technology, tools and/or creatives, then the traditional valuation methodologies may quickly cease being the only value indicators, and agencies may have greater and inherently more “valuable” value propositions to offer a potential acquirer. As a first step in this direction, agencies should seriously consider reaching out to their attorneys to explore intellectual property protection and monetization strategies and programs, which may include better monitoring of work product, reworking of both internal and external agreements, intellectual property registration initiatives and global coverage considerations.

One area in which I’m seeing this dynamic play out is in agency service agreements. It’s almost commonplace now to find a Pre-Existing Property clause in the intellectual property section of these agreements. Whether I’m on the agency or advertiser side of the deal, agencies are increasingly seeking to ensure that, to the extent they utilize tools, applications and content which pre-date their engagements, they retain ownership rights over those elements. A typical clause might read as follows:

Each of Client and Agency agrees and acknowledges that all software applications, databases, computer programs (including source code and object code for any such programming), and executable code (collectively "Code") as well as other creative content, methodologies and materials in existence prior to this Agreement (or created outside the scope of this Agreement) and all Code or portions thereof provided to Client by Agency hereunder, excluding any materials provided by Client (“Agency Property”), shall remain the sole and exclusive property of Agency. Agency hereby grants a fully paid-up, perpetual, non-exclusive, non-transferable license to Client to use the Agency Property to the extent integrated into the Advertising Materials and without modification, and solely for the benefit of Client. For clarity, it is understood that (i) Agency shall own all modifications, improvements or enhancements to the Agency Property and (ii) any and all Code utilized by Agency, or made available by Agency for use by Client, that is not integrated within the Advertising Materials, may not be used by Client after the term of this Agreement (or applicable Scope of Work) except pursuant to a separately negotiated license agreement.

…and if you’re the advertiser that is being asked to agree to one of these provisions? Make sure the following points are in place:  (i) you receive a royalty-free license to use such pre-existing tools, (ii) the licensing language is broad enough that you can use the pre-existing tools as may be necessary to craft and run your campaigns (both in the United States and elsewhere, if applicable), (iii) the agency is willing to give you a representation that such tools do not violate the rights of third parties, and if a problem should arise the agency will indemnify you, and (iv) to the extent these tools and/or creatives are inextricably integrated within yours, the license should be perpetual and will not expire if and when the agreement or the engagement terminates. Lastly, be sure that you, as the advertiser, own anything and everything that is custom created or developed by the agency for you, and that the agreement contains the requisite language which allows that to happen.

Hopefully, this provides readers with some valuable food for thought. We certainly welcome a healthy debate and discussion over the issues presented, and we’d like to know what our readership is experiencing. Finally, we’re always available to answer any questions or assist in structuring any of the ideas presented.

Mobile Marketer's 2011 Mobile Predictions

Our own Editor-in-Chief, Adam Snukal, was asked by Mobile Marketer to look into this mobile crystal ball and predict what he saw to be the major mobile trends of 2011. Hopefully someone is keeping score!

Reed Smith's Financial Services Regulatory Group Gets Boost With New Hire

Reed Smith is pleased to announce that Mark Oesterle has joined its D.C. office as Counsel in its Financial Services Regulatory Group. Mark joins Reed Smith on the heels of a lengthy and well-respected tenure in the Senate Banking Committee where he led the minority staff through passage of the massive Dodd-Frank banking and securities legislation. Mark will be instrumental in helping to expand Reed Smith's bank regulatory presence in the beltway, expand its legislative practice in banking and beyond, and use his many years of contacts to trigger new business opportunities involving investigations, litigation and more.

Mark can be contacted at +1 202 414 9429 or via email at moesterle@reedsmith.com.

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Use of Bot Raises Copyright Question

Reed Smith attorney Brad Newberg recently wrote on the topic of "Use of 'bots' in Game Play Questionable Under Copyright Law." This article first appeared on our sister-blog, Legal Bytes, and subsequently in the Media & Entertainment – USA newsletter of the International Law Office (ILO). The article can be accessed here. Joe Rosenbaum was involved in editing the article. Of course, if you have questions or need help or more information, feel fee to contact Brad Newberg directly.

Survey on Privacy Law Developments

Although somewhat outside our traditional scope, I came across an excellent PowerPoint that our colleague, Christopher Walina, presented to Council of Chief Privacy Officers in New York yesterday. We all deal with privacy issues in the workplace, and these materials will hopefully provide our readership with a contemporary and comprehensive state of the law summary.

Enjoy...

Enhanced Control over Behavior Advertising In the Works

A group of the nation's largest media and marketing trade associations, with support from the Council of Better Business Bureaus, today announced the details of a self-regulatory program that will give consumers enhanced control over the collection and use of data regarding their Web viewing for online behavioral advertising purposes.

Letter from the President of the Council of Better Business Bureaus -- Self-Regulation of Behavior Advertising

Dear Corporate Partners,

As the Internet and the advertising practices that increasingly support online content continue to evolve, a group of the nation's largest media and marketing trade associations in conjunction with the Council of Better Business Bureaus (CBBB) have been working to develop enhanced industry self-regulation in ways that will foster transparency, knowledge and choice for consumers.

Today, I am pleased to announce the details of a comprehensive Self-Regulatory Program for Online Behavioral Advertising that will give consumers enhanced notice and control over the collection and use of data regarding their Web viewing for online behavioral advertising (OBA) purposes. 

I am writing to introduce a few key components of the Program and to encourage your participation in a set of educational sessions where you can learn much more.

This new Program provides specific implementation practices in support of the Self-Regulatory Principles for Online Behavioral Advertising, which the industry released in July 2009. Together, the Principles and Program respond to the Federal Trade Commission’s call for more robust and effective self-regulation of online behavioral advertising practices.  The Program includes several important components:

  • Advertising Option Icon: The Program promotes the use of an icon and accompanying language, to be displayed in or near online advertisements or on Web pages where data is collected and used for behavioral advertising.  The Advertising Option Icon indicates that the advertising is covered by the self-regulatory program, and by clicking on it consumers will be able to link to a clear disclosure statement regarding the data collection and use practices associated with the ad, as well as an easy-to-use opt-out mechanism. 
  • AboutAds.info: Starting today, companies collecting or using information for behavioral advertising are encouraged to visit www.AboutAds.info to acquire and begin displaying the Advertising Option Icon, signaling their utilization of behavioral advertising and adherence to the Principles.  Interested companies engaged in behavioral advertising can also register to participate in the easy-to-use consumer opt-out mechanism on the www.AboutAds.info site.
  • Consumer Choice Mechanism: As business registration and use of the Advertising Option Icon expand, consumers will have an opportunity later this fall to visit www.AboutAds.info for information about online behavioral advertising and to conveniently opt-out of some or all participating companies’ online behavioral ads, if they choose.
  • Accountability and Enforcement: Starting in 2011, the CBBB and the Direct Marketing Association (DMA) will be responsible for monitoring and enforcing compliance, as well as managing consumer complaint resolution.  DMA and CBBB will employ monitoring technology to report on companies’ adherence to the transparency and control provisions of the Program. 
  • Educational Campaign: To build awareness of the program among the business community and consumers, the trade associations will conduct a broad-based educational campaign.  To facilitate this initiative, we have planned a series of webinars for businesses on how to implement the Principles.  (Details on how to register for those sessions are included below.)

Over the coming weeks and months, the Council of Better Business Bureaus is committed to doing everything we can to help the industry understand and comply with the requirements of this new self-regulatory program.  As a next step, we hope that you will join us for one of the implementation webinars scheduled throughout the month of October:

  • Thursday, October 7 from 12:00-1:30 p.m. Eastern Time
    Register
  • Friday, October 15 at 12:00-1:30 p.m. Eastern Time
    Register
  • Wednesday, October 20 at 9:00-10:30 a.m. Eastern Time
    Register
  • Tuesday, October 26 at 12:00-1:30 p.m. Eastern Time
    Register
  • Thursday, October 28 at 9:00-10:30 a.m. Eastern Time
    Register

Sincerely,

Stephen A. Cox
President and CEO
Council of Better Business Bureaus

Update: The GRP Talent Payment JPC/Unions Pilot

Earlier this year, the GRP Pilot, testing a new way actors who perform in television commercials are paid, got underway. More than 2,000 commercials are being tested to see if a GRP (ratings)-based compensation model will work. The results of the Pilot will be the centerpiece of negotiations with the unions that are scheduled to begin in October 2011. If adopted, this model will revolutionize the way advertisers pay actors. Some advertisers will pay less; others will pay more. But for the first time since the union agreements were adopted in the 1950s, there will be a measureable correlation between what an advertiser pays actors and their ROI on those costs.

Many advertisers are participating and more are being invited to do so. Surprisingly, some advertisers who have been asked to participate have declined, citing concerns over confidentiality of the data they share in the Pilot, or because they do not like the idea of paying on GRPs (fearful of paying more than the current model requires).

Without question, confidentiality of the data is critical, but the concerns on confidentiality in the Pilot are unfounded. PricewaterhouseCoopers is running the Pilot under strict confidentiality requirements. PwC routinely handles highly confidential information for advertiser clients, many of whom are competitors. They have never had a breach. The same standards are being applied in the Pilot.

Fear of how a new payment model will affect costs is understandable. That is the precise reason we are running the Pilot—to see where price changes will occur and to adjust the model to insure equitable distribution of costs. By not participating, an advertiser will not have the opportunity to raise real, measurable concerns, and the JPC will not have an opportunity to take those concerns into consideration. That leaves non-participating advertisers in the dark. If adopted, there will be no choice in how actors are paid—it will be the new model. So not participating is, quite frankly, short sighted. It's a gamble that the Pilot will have an advertiser in it that has the same media profile as the advertiser electing not to participate. In a Pilot that is dealing with annual industry spending of more than $1 billion, that's a gamble with very poor odds.

If you would like to participate, please contact Allan Linderman at allan@lindermanmedia.com or call him at +1 805 498 5163. If you have decided not to participate, I urge you to reconsider or to call me to discuss your concerns. I can be reached at dwood@reedsmith.com or +1 212 549 0377.

Douglas Wood is the Chief Negotiator for the advertising industry in its relations with SAG and AFTRA, is General Counsel to the ANA, and is a partner in the law firm of Reed Smith LLP.

Important Developments within Behavioral Advertising in Europe

Behavior advertising is not solely a contemporary and hotly debated issue on these shores. Case in point, last month the influential Article 29 Working Party ("Working Party"), consisting of all the European Union's national data privacy regulators, adopted Opinion 2/2010 on online behavioral advertising (the "Opinion").

The Working Party has made it clear they are taking on the challenge of creating better checks and balances for digital advertising through its national implementation of amended Directive 2002/58/EC (the "ePrivacy Directive"). This Directive calls for a complete overhaul of existing technology and practice, including currently available browsers and opt-out mechanisms, thereby seeking to achieve the level of informed consent from users which they claim the national law requires.

To view the entire alert please click here. This alert was written by Cynthia O'Donoghue and Nick Tyler of Reed Smith in London, England. For additional information please contact one of the authors.

ANA Wins Major Legislative Victory on New FTC Enforcement Powers

This post was written by Dan Jaffe.

ANA and the entire marketing community won a major victory on the day after we celebrated our 100th anniversary!

At 3:05 AM this morning, Senate and House conferees approved the final version of the Wall Street reform legislation. Fortunately for us, that bill does not include the sweeping new enforcement powers for the Federal Trade Commission (FTC) that were included in the House version. Those changes would have serious implications for every ANA member.

The House passed its version of the financial regulatory reform bill last December. Buried in that bill were three critical changes in FTC authority:

  • Repealing the Magnuson Moss rulemaking procedures (including the requirement that an activity be “prevalent” in an industry before Commission action) and allowing the FTC to promulgate broad industry-wide rules on any consumer protection matter in a highly expedited procedure – all done with a lower standard of judicial review;
  • Expanding the FTC’s authority to immediately impose civil monetary penalties for any violation of the FTC Act without the involvement of the Department of Justice;
  • Providing new liability for “aiders and abettors” of companies that violate the FTC Act, potentially putting thousands of companies at risk by running ads.

These changes were not limited to the authority of the FTC over financial products and services. They would have applied to the broad regulatory authority the FTC has over almost every segment of our economy, including anti-trust.

These expanded powers were not included in the Senate’s version of the financial reform bill. ANA and our member companies and other industry groups met with all of the conferees and more than a hundred other members of both the Senate and House to argue that these sweeping changes should be separately considered as part of FTC reauthorization rather than being added to the Wall Street reform bill.

House Energy and Commerce Committee Chairman Henry Waxman aggressively pushed for these changes at several points during the conference. Each time, Senate Banking Committee Chairman Chris Dodd and other Senate conferees held firm in opposition to these provisions.

While our victory in the conference committee is important, it is clear that these issues will not go quietly into the night. ANA and other industry groups met earlier this week with Senate Commerce Committee Chairman Jay Rockefeller to discuss these issues. Chairman Rockefeller stated that he will continue to aggressively push for new enforcement powers for the FTC during this Congress. We expect Chairman Waxman to join that effort and it is likely to begin very soon.

We believe this was one of the most concerted across-the-board efforts of the ad community. Throughout the past several months, we have worked closely on these issues with virtually every segment of the ad community. We continuously alerted our members to developments and got a number of member companies actively involved in the fight. We should feel very proud of this success which was not certain until the final minutes of the conference committee.

If you have any questions about this matter, please contact Dan Jaffe (djaffe@ana.net) or Keith Scarborough (kscarborough@ana.net) in ANA’s Washington, DC office at (202) 296-1883.

Reed Smith Takes on Cloud Computing

Led by Joe Rosenbaum and Adam Snukal, Reed Smith has embarked on a new, exciting and groundbreaking initiative on cloud computing, entitled Transcending the Cloud: A Legal Guide to the Risks and Rewards of Cloud Computing. In addition to the some of the classic topics that have been extensively discussed in the context of cloud computing like privacy and data security, we’ll also be covering a broad array of other issues such as tax, e-discovery, government contracts, financial services and much more. Please follow the link to Joe’s introduction and the articles which follow. Also, please check back each week for the next article or two on cloud computing.

Questions about cloud computing -- feel free to contact Joe, Adam and/or one of our many contributing authors.

Reed Smith Attorney, Adam Snukal, quoted in Market Watch

Adam Snukal was quoted in an article which ran on CBS's Market Watch last week. The article, which discusses anti-trust trends within the mobile marketing space, can be accessed here.

What the New Consumer Privacy Bill Means for Data Collection

On Monday, May 10th, 2010, the article "What the New Consumer Privacy Bill Means for Data Collection" appeared on Mobile Marketer, a widely read publication within the mobile marketing and advertising community. The article, written by Adam Snukal, summarizes the proposed privacy legislation introduced in the U.S. House of Representatives last week. If you have any questions about the article or the new bill, please contact Adam Snukal or another attorney within Reed Smith.

Four Tips for Mobile Marketing to Kids

This post was written by Shira Simmonds, President, Ping Mobile.

A 2007 study by the Nielsen Company reported that 35 percent of American "tweens" (kids 8‑12) now own mobile phones. How can we reach them via mobile marketing programs without violating any legal or ethical guidelines?

The answer turns out to be remarkably simple. The potential is enormous for mobile marketing to be used as a learning tool and to promote healthy, educational products and services. There is a tremendous opportunity to use mobile in creative ways that actually support good parenting while teaching kids how to be responsible, discerning consumers.

Here's how:

  • Implement safety measures, such as parental consent – Smart kids with cell phones can easily respond to a call-to-action on a cereal box or TV commercial, and opt-in to promotions without their parents' knowledge or consent. As such, advertisers will often be required—or at least strongly encouraged—to add legalese that may range from asking respondents to confirm they are of a certain age, to expressly prohibiting the participation of certain groups from a program or promotion. Sometimes the best approach is to add extra precautions on top of the legal requirements, such as sending a confirmation link to a parent or guardian’s e-mail address before anything is activated. Some mobile phone providers, such as Kajeet, offer computer programs that allow parents to monitor activity on the child's cell phone account. 
  • Market to both parents and kids by creating a marketing message that would be parent-approved and kid-friendly –If a brand's mobile marketing campaign offers healthy, educational products, such as an opportunity to join a book club, discounts on a local art class or coupons for healthy snacks, parents will be happy to opt-in. No matter how tech-savvy a 12-year-old might be, it's the parents who make the purchase. A brand is basically marketing to a parent via the child's cell phone. Promotions should be created with the parent in mind, but should be designed to appeal to the child.
  • Follow all legal guidelines – Ad campaigns and programs targeting children should be analyzed on a case-by-case basis to determine both the legal requirements and the potential risks associated with such programs. This is an evolving area, and many issues still sit somewhere within a spectrum of different shades of gray. The laws and regulations governing this area of business can be complex and even conflicting at times. They can range from Federal Trade Commission laws (COPPA – Children’s Online Privacy Protection Act) and various state laws, to self-regulatory principles and best practices, like those promulgated by the Direct Marketing Association, the Children’s Advertising Unit of the Better Business Bureau, and the Mobile Marketing Association. While government regulators and self-regulatory agencies alike understand that no sweepstakes, contest or program is child-proof, they do expect advertisers to do their part to protect the safety of our kids. Along with a whole host of information on-line, sound legal advice in this area is key. Get it and follow it.
  • Empower kids by giving them a voice, create a campaign that lets kids voice their opinion – In order to engage kids, create an interactive environment, such as a mobile game, a poll where they can vote for something, or interactive SMS or IVR that enables kids to participate and play. Kids learn through play, and brands will be most remembered when kids have had the opportunity to interact with the brand.

Mobile marketing doesn't have to turn kids into mindless consumers. Instead, it can open up a world of educational and developmental potential that parents can embrace rather than resist. Managing time and texting costs is a great way to teach kids how to budget their resources. Using advertised toys as an incentive for performance is an effective motivational tool. And mobile coupons that encourage kids to read books or participate in physical exercise is an idea that any parent would love.

###

Ping Mobile is a full-service mobile marketing and technology company providing a complete range of mobile marketing services, including SMS, MMS, IVR, WAP applications and Bluetooth. With an industry-leading focus on consultancy, reporting, data analysis and client services packages, Ping Mobile is the mobile marketing agency of choice for clients that have included Warner Brothers, Ford Motor Company, Days Inn, Disney's Soap Channel, Kentucky Fried Chicken, Arby's, Pizza Hut and Hawaiian Airlines.

Ping Mobile is headquartered in Englewood Cliffs, NJ with offices in Los Angeles, CA, Atlanta and Tel Aviv, Israel. For more information please visit www.PingMobile.com

@Promoted Tweets: Twitter Wades into the Ad Game

For the past few months, my colleagues and I have been giving speeches regarding the legal and practical challenges inherent in social media. One of those “practical” challenges is developing a strategy to monetize social media initiatives. While this is of importance to brands using social media services, it is certainly important to the services themselves. To highlight this point, I usually mention that Twitter, which handles approximately 50 million Tweets a day, doesn’t make money off its service, yet people like Kim Kardashian may be getting paid up to $10,000 to Tweet (which any reader of this blog will note raises concerns under the Federal Trade Commission’s Endorsement and Testimonial Guides – for analysis of those concerns, see here and here).

Now I may have to change the presentation because Twitter has announced a plan to start advertising through the use of “Promoted Tweets.” Promoted Tweets are Tweets that businesses and organizations want to highlight to a wider group of users, according to Twitter’s company blog. In fact, Twitter has already signed up companies like Best Buy, Bravo, Red Bull, Sony Pictures, Starbucks, and Virgin America to participate in Promoted Tweets.

As the program is currently described, Promoted Tweets will be rolled out in two phases. The first phase, which should launch today, will insert Promoted Tweets into Twitter search results, and will be seen by between 2 and 10 percent of Twitter users. The second phase will extend advertising practices to user-feeds both on Twitter.com and to third-party clients who access the service, including Tweetie (which was acquired by Twitter just a few days ago).

As is to be expected, the Promoted Tweets are themselves Tweets, meaning that Twitter users can “re-Tweet” the ad to share it with their followers, can make the ad a favorite, or can comment on/reply to it. Interestingly, though, Twitter has factored this ability into the metrics for Promoted Tweets, which may ultimately be used to determine how much an advertiser pays for the keyword. The key metric, at this stage, is something Twitter is calling “resonance,” which measures how Twitter users interact with a particular Promoted Tweet. If users don’t interact with a Promoted Tweet (replying to it, favoriting it, or re-Tweeting it), the Promoted Tweet will disappear. This is not the case for regular Tweets.

What does this mean for advertisers? Well, let’s say you’re a movie studio. You know that people use Twitter to search for reviews, thoughts, and criticisms of currently released and soon-to-be-released movies, often to help them decide what movie they should see tonight. You want them to see your movie, and you happen to have surprise “midnight screenings” scheduled in locations across the country. While you could use a regular Tweet to advertise those locations and generate both interest in and buzz about your movie, that Tweet would only be read by your followers. If you used Promoted Tweets, however, you could reach Twitter users who are not (currently) your followers, but who are interested in movies and are likely to engage whole groups of other similarly situated people. In short, Promoted Tweets can offer you a whole new means of reaching consumers.

Why This Matters: For users, this matters because you will soon see advertising on Twitter spaces that wasn’t there before. For advertisers, this matters because you will now be able to buy keywords to get your Tweets higher placement in search results (and ultimately, placement in user feeds, if Twitter follows its plan). This can be both good and bad – good for increasing exposure to your Tweets (as described above), but bad because your competitors will be able to do the same. Moreover, this raises interesting trademark law questions, especially regarding sales of trademarked words and phrases as Twitter keywords. Even now this is an area of law that is still evolving in the world of search engines like Google, so rest assured that the same issues will apply here.

The Show Must Go On - But First Get Consent

…another important development in the area of mobile marketing and advertising.

Last week, the U.S. District Court for the Northern District of Illinois’ Eastern Division found that a 20th Century Fox SMS campaign violated the Telephone Consumer Protection Act (the “TCPA”). While these cases provide extremely important guidance as mobile marketing continues to evolve into legitimate and effective marketing medium, equally noteworthy is the fact that the SMS campaign in question took place five years ago.

On Oct. 1, 2005, 20th Century Fox sent text messages to various consumers advertising the release of its “Robots” movie on DVD. Victor Lozano was one of many individuals who received these text messages without having signed up for, or otherwise consented to, receiving them. Over the next several months, Mr. Lozano asserted that he received additional unsolicited text message advertisements from 20th Century Fox concerning “Robots” and other properties that were being marketed. As a result, he filed a lawsuit alleging that that text-message campaign was unlawful.

As we’ve written here in the past, the TCPA generally prohibits the use of an automatic telephone dialing system (“ATDS”) to place calls to a mobile number without the prior express consent of the recipient. Moreover, this court, like others before it, found that it is not necessary to prove that the sender actually used the equipment’s ATDS capacity, only that the equipment had that capacity. Although section 227 of the TCPA places certain restrictions on the making of an unsolicited “call,” the FCC has taken the position that sending SMS is the equivalent of making a call, at least when it comes to marketing communications.

Despite 20th Century Fox’s argument to the contrary, the court found the FCC’s interpretation to be reasonable and held that the 20th Century Fox text-message campaign was subject to the TCPA. Additionally, the court rejected the defendant’s notion that the TCPA only prohibits calls that result in a charge to the recipient.

Along with the case presented above, a class action lawsuit was filed very recently in Chicago against Selling Source, a web development, hosting and Internet marketing company, for sending “unsolicited” SMS messages via an ATDS, which the plaintiffs claim is a direct violation of TCPA laws.  The defendant in the case filed a motion to have the case dismissed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, which states that lawsuits with insufficient legal theories underlying their cause of action is grounds for dismissal in court. Despite Selling Source’s defense as to why SMS marketing messages should not fall under the terms of the TCPA, the FCC had already ruled that SMS was in fact covered under TCPA laws and were considered “calls” just like phone solicitations, and, as such, are subject to the same regulations set forth by the TCPA.

Why This Is Important: Consent is absolutely essential for SMS marketing and, as the recent string of cases in this area strongly support, an argument that text messages aren't subject to the TCPA is likely to fail.  In addition, marketers should be cognizant that they are being regulated by yet another governing body (the FCC), thereby adding to the complication and worry on behalf of marketers who must apply, and make sure they adhere, to strict opt-in and deliverability standards, while being subject to lawsuits such as the one described above, where clear-cut laws under the TCPA are still not fully in place.  

Hollywood - Wake Up!

If you’ve entered into a celebrity endorsement agreement lately, you’re not alone in being amazed that, while we’re all feeling the brunt of a recession (even though prognosticators tell us it’s over), celebrities (or more often their agents), seem to be getting greedier than ever.

It’s bad enough that the typical annual fee for a few days’ work is now almost always in the seven figures, but isn’t it a bit much when they also want things like this:

  • Travel. First-class airfare not just for themselves (as required under SAG and AFTRA), but also for their entire entourage? What? They can’t travel alone like the rest of us working stiffs? For what they’re being paid, they could bring just about anyone they’d like. Just think of the frequent flyer miles they’d get! Worse, of late, the “stars” are demanding private jets – as in about $75,000 per trip! Really now, isn’t that a bit much? The usual reason they demand to fly private jets is personal security. I bet even the TSA would argue with an agent as to whether that’s justified. Or maybe it’s really because they don’t want to associate with those fans who contribute to their fame and fortune. Or, it’s the paparazzi. But if all of that is a problem, I’m sure the airlines can find a way to get them to the plane through some secret entrance that only they know about. Get real and join the rest of us (we’ll be the ones in the back of the plane).
  • Work Days. Increasingly, days of service are limited to no more than 10 hours, sometimes even eight. And less for photo shoots or personal appearances. Gee, don’t you feel bad for someone being paid seven figures who might have to work overtime? And, yes, I’m willing to concede that much of what an advertiser pays is for the fame associated with the celebrity, which certainly eats into the day rate. But come on. Don’t we all wish we could go home after 10 hours?
  • Behave! Judging by the behavior clauses agents are demanding, one can’t help but think that agents for celebrities simply don’t trust their clients. If you can call them behavior clauses at all. When the standard is “convicted” of a felony, you might as well ignore the clause. The contract will long be over by the time the jury decides what to do. And please, agents, stop telling us how wonderful your client is. I suspect they said that for just about every celebrity who fell from grace with prostitutes, alcohol, drugs, bigotry, or domestic violence. Shouldn’t agents ask their clients to behave just like the rest of us do? Imagine if any of us embarrassed our employers in public like some celebrities do. Guess what happens then?
  • Approval. Just how far can approval rights go before the celebrities might as well write the ads? Maybe I can understand approval rights over executions that directly reflect negatively on the celebrity themselves, but approval of overall copy is ridiculous. Perhaps it’s best for advertisers to send a portfolio of what they’ve done in the past and ask the celebrity not to waste their time unless they don’t mind how the advertiser historically sells its products. And best of all are the celebrities who won’t let anyone else appear in an advertisement with them. Imagine telling a movie producer they want to be the only actor in a movie. Stop already.
  • Prohibited Media. Increasingly, the list of media an advertiser can’t use is longer than the media permitted. I can remember when life-sized cutouts and some outdoor was all that was prohibited in most contracts. Now, it’s anything that wasn’t invented 10 years ago, including mobile, social media, and all the new media platforms where advertisers are migrating more and more media dollars. Does that make sense? Worse, an increasing number of celebs want to approve media schedules! Since when did a celebrity earn that right? I think it’s pretty safe to say that the advertiser knows best where to place ads so that, God forbid, they lead to sales.
  • Exposure. Hello? What do you think advertising is about? Hoping that someone might see the ad in some obscure magazine and then maybe buy the product? Let’s get real here. Celebrities are hired by advertisers for one reason – to increase sales. Surprise! And that means one thing – exposure, and as much of it as the advertiser can afford. But then again, I guess the exposure problem makes sense when you look at all the celebrities whose careers have been ruined because they appeared in advertising. Oh, wait. I can’t seem to find that list. But how about the one I did find – the one listing all the actors who would be unemployed memories but for the advertising they’re asked to do? Now that’s an interesting list agents and their clients ought to appreciate a lot more than they do.

The insanity goes on and on and the greed seems unending. Yep. Hollywood needs a wake-up call. Or do they? Maybe it’s not Hollywood that needs to wake up. After all, they’re getting away with it. Maybe, just maybe, it’s the advertising community – the advertisers, the advertising agencies and the celebrity brokers – that needs the wake-up call. Because as long as they keep saying “yes” to whatever a star wants, the less and less they’ll get and the more they’ll pay for it.

PleaseRobMe.com - Highlighting the Perils of Location-Aware Social Networking

FourSquare, Loopt, Twitter, and even Google Buzz are testing the intersection between social networking online and real world, location-dependent activities. For example, you can use Loopt to see which of your friends are nearby, or you can earn points and badges on FourSquare by visiting locations around you. Even some companies are starting to specialize in helping advertisers prepare location-aware advertisements, which has created some (humorous) responses by the public

But location-aware social networking has a dark side as well. Podcaster Israel Hyman was robbed after he posted a tweet on his Twitter feed saying he had arrived safely in Kansas City. The problem was that he did not live in Kansas City. 

So it may not come as a surprise that a new site is trying to raise awareness of this problem. The site – available at PleaseRobMe.com – aggregates postings from various social media sites that involve the poster being away from home. The result is a laundry list of people who are not in their homes, and where those homes are located.

According to the sites’ operators:

The danger is publicly telling people where you are. This is because it leaves one place you’re definitely not… home. So here we are; on one end we’re leaving lights on when we’re going on a holiday, and on the other we’re telling everybody on the Internet we’re not home. It gets even worse if you have "friends" who want to colonize your house. That means they have to enter your address, to tell everyone where they are. Your address.. on the Internet.. Now you know what to do when people reach for their phone as soon as they enter your home. That’s right, slap them across the face.

As an attorney, my mind immediately jumps to what level of liability PleaseRobMe.com may face for its work. After all, it could be assisting would-be robbers with their nefarious activities, which can raise aider/ abettor liability.

Professor Rebecca Tushnet raised the interesting question of whether the Communications Decency Act (47 U.S.C. § 230) would insulate PleaseRobMe.com from liability. As discussed on this blog in the past, the CDA (as 47 U.S.C. § 230 is commonly called) immunizes interactive computer service providers from liability arising out of the speech of another. The immunity also extends to reposting speech by another (see, e.g., Barrett v. Rosenthal). 

However, reposting immunity can be lost under two exceptions. First, under the Roommates.com decision, CDA immunity can be lost if the interactive computer service provider contributed to the speech in a material way. Second, CDA immunity can be lost if the information that was reposted was illegal (see, FTC v. AccuSearch). Here, it would be hard to argue that the information being reposted by PleaseRobMe.com is illegal. But the Roommates.com material contribution exception is less clear. Does data aggregation materially contribute to the individual data points that make up the aggregate? In other words, is a fact (e.g., Drew is in the office) changed in some way if it is presented within a list of other people who are (or are not) in certain places? If so, then CDA immunity may be lost.

Certainly, this question is difficult to answer, and I anticipate that if a case is brought against PleaseRobMe.com, it will turn upon the facts at hand. One can only hope that if a case is brought against PleaseRobMe.com, it will not be a situation where bad facts make bad law.

There is an 'I' in Behavioral Advertising

Coming soon to many websites near you (possibly…), you may find a slew of little blue “I” icons populating the Internet. This icon represents the latest collaboration between the Federal Trade Commission, Congress and the advertising industry to create a standardized icon, known as the “Power I,” intended to notify consumers of the online behavioral advertising practices and policies that are followed by specific websites and advertisers. Online behavioral advertising is essentially the practice carried out by some advertisers to collect and use consumers’ surfing history, demographic profiles and other personal data to deliver ads tailored to their unique and individual interests. More formally, online behavior advertising is “the collection of data from a particular computer or device regarding Web viewing behaviors over time and across non-Affiliate Web sites for the purpose of using such data to predict user preferences or interests to deliver advertising to that computer or device based on the preferences or interests inferred from such Web viewing behaviors.”

The “I” is intended to essentially function as both a trusted standard in the area of behavior advertising that consumers will immediately identify, and also as a link that, when clicked on, will take a user to a separate web page detailing why particular ads are being shown to him or her. Although websites or ads are not legally required to post the “I,” the leading trade associations behind this initiative are clearly hoping that the advertising industry will adopt this new measure, and thereby avoid the need for further government action and regulation. A detailed description / PR campaign of the “Power I” initiative has already been launched and can be accessed here, and a second PR campaign is underway.

While it’s far too early to gauge the effects of the Power I, its rate of adoption among industry players, and its success in staving off governmental action, this program is certainly an important step in the right direction, namely, a step toward further transparency and consumer education. This author wants to know if we’re likely to see a “Power C” for user consent and/or a “Power R” for data retention practices.

Arms' War in Italy: Aggressive Marketers Versus Privacy Watchdog

This post was written by Avv. Felix Hofer, and first appeared in Volume V of the Gala Gazette.

1. Implementing both, EU Directive 2002/58/EC of July 12th, 2002 (Directive on privacy and electronic communications) as well as Directive 2000/31/EC of June 8th, 2000 (Directive on electronic commerce) the Italian legislator decided that unsolicited commercial communication must always to adopt a strictly “opt-in” approach. The choice clearly didn’t drive marketers into a state of happiness: they felt that their business was unnecessarily harassed by complex and costly burdens. Therefore they decided initially not to care too much about the requirements set by the new regulations and to continue in their proven aggressive marketing techniques.

In doing so they nevertheless had underestimated a couple of factors: on one hand, consumers’ reaction (who became more and more annoyed by SPAM and behavioural targeting and were no longer tolerant of disturbing intrusions into their sphere of personal intimacy), on the other hand, the role of a Special Authority (the Privacy or Information Commissioner - DPA) in charge – in all countries members to the EU - of supervising proper compliance with the key principles of protection of personal data (and quickly focusing on the purpose of achieving a correct balance between consumers’ privacy and electronic marketing.
 

Click here to read the full article as published in Volume V of the Gala Gazette.

Déjà Google

Give Google credit that when it announced its acquisition of AdMob, a leading provider of mobile advertising services and technology, in November 2009, it proactively addressed the likelihood of a Federal Trade Commission (FTC) investigation into the transaction. Google even went as far as posting a web page that the media, regulators and other interested parties alike could access that explained why it believed the deal did not pose any “competitive” (note: antitrust) concerns.  Whether it was a self-fulfilling prophesy or just an inevitable step whenever Google makes an acquisition in the digital advertising space, Google last week announced it received a second request for information from the FTC on the AdMob acquisition. This, however, is familiar territory for Google, which has been the target of government scrutiny over previous deals. The FTC held an eight-month investigation into Google's plan to buy DoubleClick Inc. in 2007 before approving that transaction, and last year Google walked away from a search deal with Yahoo after the U.S. Justice Department indicated that it would consider blocking the agreement and strategic alliance.

What Google may not have expected is the data privacy and consumer protection industry group backlash that has taken up the not-yet-completed transaction as a struggle to protect consumer data and the mobile advertising market. At least two prominent consumer groups reportedly approached the FTC, asking it to block the acquisition, arguing that a Google/AdMob combination would put “significant amounts of data for tracking, profiling and targeting” of U.S. mobile consumers into the hands of a single advertising network. Google and AdMob combined will form the largest mobile-advertising company, with 30 to 40 percent of the market, according to Karsten Weide, an analyst with researcher IDC in San Mateo, California. These groups want the FTC to consider whether Google's access to AdMob's technology will give it an unfair advantage in selling mobile advertising.

Understandably, Google has asserted that the economic/market impact of such an acquisition would be almost impossible to measure against the dozens of other mobile ad networks that compete with AdMob on a daily basis. Moreover, a spokesperson for Google has suggested the deal will provide users with more free mobile applications, in some cases as an alternative to pay-to-download apps, since it will allow developers to subsidize their products through better and more targeted mobile advertising.

One interesting issue that has arisen from this and other similar transactions over the past couple of years is whether and how consumer privacy fits into an FTC antitrust analysis. It is well documented that the FTC primarily rests its antitrust analysis on two categories: (i) agreements that are per se illegal, and (ii) agreements that are analyzed under the Rule of Reason. Types of agreements that have been held per se illegal include agreements among competitors to fix prices or output, rig bids, or share or divide markets by allocating customers, suppliers, territories, or lines of commerce. On the other hand, agreements not challenged as per se illegal are analyzed under the Rule of Reason to determine their overall competitive effect. A Rule of Reason analysis entails a flexible inquiry and varies in focus and detail, depending on the nature of the agreement and market circumstances. While this analysis still begins with a review of the primary agreement (e.g., merger, joint venture, license, etc.) driving the FTC’s analysis, it will then extend to other external factors.

Largely until 2007 and the Google/DoubleClick transaction, the issues and types of analysis described above were primarily centered on consolidations and combinations of goods and services, and not privacy or consumer information. During the FTC’s review of Google’s acquisition of DoubleClick, however, all five FTC commissioners who reviewed that transaction agreed that data privacy can constitute a form of non-price competition under a Rule of Reason analysis and, where/when appropriate, should be considered as one of many pieces in their study and review of a prospective transaction. In fact, the FTC, in its decision approving the Google/DoubleClick transaction, provided, “We investigated the possibility that this transaction could adversely affect non-price attributes of competition, such as consumer privacy.” At the core of the FTC’s review was whether, given the nature and economics of online and digital advertising, the concentration of user information that results from a Google/DoubleClick combination meant that no other company would be able to buy, target and optimize ads as profitably, thereby substantially reducing the ability of other ad networks to compete.

On what basis, then, is consumer privacy evaluated? Proponents have successfully argued that privacy harms can reduce consumer welfare, which is a principal goal of modern antitrust analysis. In addition, these same groups have argued that privacy harms can lead to a reduction in the quality of a good or service, which is a standard category of harm that results from excessive market power. On the other hand, those who oppose the incorporation of a privacy review in any antitrust analysis generally rest their argument on two points: (i) they disagree that privacy is a competition-related issue and point to precedents in which non-competition issues (like pollution) have not been traditionally factored into an antitrust analysis, and (ii) these transactions have proved themselves to create market efficiencies and improved offering/technology that ultimately benefit consumers with a more personalized online experience. This latter opinion may best be summarized in a Yahoo statement from 2008: “The advertising model has made Internet content and services available to millions of people in the United States and around the world—for free. The business model of relying on advertising revenue to fund websites has meant that vast amounts of information on the Internet has been fully accessible to people of all ages and income levels.”

Why this Matters: 

Those who ignore history are doomed to repeat it. Our economy today is flush with companies that have been created to essentially trade in almost every aspect of behavioral advertising and consumer data. In fact, one might argue that consumer data has become a currency of sorts in the digital advertising and media industries. As consumer privacy becomes, on the one hand, increasingly protected by both legislation and self-regulatory initiatives (leaving aside the even more complex discussion of the implications of cross-border transactions and acquisitions where the same piece of consumer data may be subject to varying laws), and also a valuable commodity that is highly sought after, companies should be more aware of the legal implications associated therewith in all spheres of their business – including the arena of mergers and acquisitions. Whether one agrees that consumer privacy should be factored into an FTC antitrust analysis or not, it seems unlikely that the FTC will shift from the position it seems to have taken (as evidenced by the Google/AdMob transaction) over the past couple years, and therefore, companies that are contemplating mergers or acquisitions in the digital media and advertising arenas should at least consider the implications that consumer privacy may have on their deals.

Chilly Reception at the White House

On January 6, 2010, The Weatherproof Garment Company (a division of David Peyser Sportwear) put up a billboard (actually two, a diptych) in New York's Times Square. The advertiser used an Associated Press (AP) licensed photo of President Barack Obama during his visit to China's Great Wall back in autumn wearing a Weatherproof jacket. Legal pundits have long discussed and opined whether the First Amendment trumps the commercial product endorsement (commercial free speech being more limited than free speech per se). One thing is VERY clear--the AP's contract required that "the necessary clearance" be obtained prior to the Weatherproof Garment Company's use of the image. Weatherproof president Freddie Stollmack blandly told the media he had not bothered to obtain the clearance. The White House legal team has already been in contact with both AP and Weatherproof's parent company.

…and what about the Wall? It will be interesting to see if the Chinese Consulate complains about the advertiser's unauthorized use of that country's GI--geographical indication--namely the image of The Great Wall of China. For those who may not be aware, this is a growing and interesting area of international IP law, which extends protection to countries over the commercial use of their cultural icons.

Bottom line, agencies and advertisers alike need to consider which rights (image, voice, video, etc.) need clearance--whether it’s the Chief of Staff in a wind slicker or a protective barrier built in the 7th Century B.C.

Advertising and Online Music: An Overview

This post was written by Laura Hicks.

This article was previously published in Media & Marketing Online.

It is no secret that the consumer habits for accessing and consuming music are changing incredibly quickly. In December 2009, radio audience measurement body Rajar revealed that 4.5 million people in the UK regularly use personalised online radio services, an increase of 1.6 million from October 2008. These figures reflect the explosive growth in online music consumption over the past year and highlight the potential gains to be made by advertisers who target the ad-supported music services sector. In this article, we will look at some of the major online music services and then outline key developments and opportunities to be aware of when considering this new market proposition.

The most successful online music service providers (both in terms of subscriber numbers and press coverage) rely at least partly on advertising to help cover the significant operational cost of obtaining the licences necessary to make premium content available to the public. Last.fm is the largest, with over 30 million users. The service, part ad-funded and part subscription funded, differentiates itself with its “scrobbling” system, which recommends songs to users based on their musical taste. Users can also engage with the Last.fm community through the site’s social networking features or create custom radio stations and playlists from the Last.fm music library. Spotify’s service has turned column inches into subscriber numbers, boasting an ad-supported streaming service with over 6 million users, around half of whom are in the UK. It comprises both Spotify Free, with commercial breaks, and Spotify Premium, which is ad-free. And We7, with over 2.5 million users and 4 million tracks available for streaming in the UK is a predominantly ad-based service. Each time a user plays a track the site has four opportunities to show an advertisement targeted at the user.

Until these newer services offered a legitimate alternative to illegal peer to peer file sharing networks, advertisers and brands were understandably cautious about being associated with online music sites. So, how should you make the most of the opportunities now available in the legal online music ecosystem?

The commercial value is obvious; the proliferation of personalised music services allows more effective and targeted advertising. Let’s take an example: If an advertiser wishes to sell trainers endorsed by, say, Jay-Z, they will wish to target fans of Jay-Z (and other similar artists). Personalised services provide a demographic identification service which is invaluable. If a sportswear brand wants to target fans of hip hop or other urban music, they can now do so, and better still, they can engage with them in ways not previously possible with traditional advertising.

Behavioural targeting uses information collected about an individual's online behaviour, such as the pages they have visited or the searches they have made, to select which advertisements to display to that individual. This helps advertisers deliver online advertisements to the users who are most likely to be influenced by them, thereby making campaigns more effective. Because of the individual nature of the information used to identify users, the law and regulations dealing with this kind of advertising are subject to constant review. For example, under European e-privacy law, it will soon be a requirement that a user’s consent is actively obtained before cookies are employed to identify user preferences.

Looking forward, the partnership between artists and brands will continue to strengthen and develop, with artists such as Mariah Carey already breaking new ground. Those who bought her most recent album in certain markets were given a copy of an Elle magazine special edition dedicated to the singer. This collaboration demonstrates the shift from traditional advertising where a celebrity is used to promote a brand; here, it was Elle that effectively promoted the singer.

As artists and brands become more aligned, businesses dedicated to helping brands connect with their consumers through music are prospering. Organisations like VerveLife, a digital music marketing organisation, have established new promotion and distribution channels for thousands of content publishers, such as artists, movie producers, television and game distributors. Companies like Starbucks, Toyota and Burger King have recently sought to reach a particular demographic by focusing on the music that potential consumers listen to.

Along with these emerging models, new legal issues have inevitably arisen. Many of these typically emanate from the existing contractual relationship between artist and recording label. Record labels are increasingly trying to capture the ancillary revenue streams of artists by negotiating 360 record deals which may in turn affect the ability of an artist to engage with a brand. It is also important to be aware of who owns what copyright in music, and what rights need to be cleared.

As the scope and popularity of online entertainment services grows and the level of user-interactivity develops, the online music sphere will continue to provide numerous opportunities for brands and advertisers to connect with music fans in an aspirational way. The new breed of legal online music services offer a dynamic platform for advertisers and brands to reach a targeted and valuable audience.

Doug Wood's Legal Predictions for 2010 -- Prophet or Just Really Good Attorney?

December always brings traffic, strange weather patterns, spirit and joy and Doug Wood's predictions for the 10 most important legal developments in the advertising industry in the year to come (in this case, 2010), as published by AdAge. This year is no different and it's our pleasure to present you with Doug's predictions.

If we were keeping score (and we secretly are), Doug went 10 for 10 in 2009.

Tags:

Status of Legislative, Regulatory and Legal Issues Affecting Advertising - A Report from the ANA

This post was written by Dan Jaffe.

Adlaw by Request is pleased to present you with the Association of National Advertisers' recently released Study, entitled "Status of Legislative, Regulatory and Legal Issues Affecting Advertising". This is an important read that covers a very broad range of contemporary issues affecting almost every sector of industry.

If you have any questions about this study, please contact Dan Jaffe / Keith Scarborough in ANA’s Washington, D.C. office at (202) 296-1883, or Doug Wood / Adam Snukal in New York.

Social Media and the Law

Reed Smith just released its White Paper on legal issues surrounding social media. You can download "Network Interference: A Legal Guide to the Commercial Risks and Rewards of the Social Media Phenomenon", a 69-page, 10-chapter White Paper positioned to be the definitive source for information about legal issues in social media. The White Paper covers a myriad of practice areas, including Advertising & Marketing, Commercial Litigation, Data Privacy and Security, Employment Practices, Government Contracts & Investigations, Litigation, Evidence & Privilege, Product Liability, Securities, and Trademarks. We will keep building the White Paper to ensure that it remains the definitive source addressing social media issues and solutions.

Congressman Kucinich to Introduce Ad Tax Bill

To:              ANA Washington Reps and Legal Affairs Reps

From:         Dan Jaffe

Subject:    Congressman Kucinich to Introduce Ad Tax Bill

Date:          October 29, 2009

 

We have learned that Ohio Congressman Dennis Kucinich plans soon to introduce legislation to eliminate the tax deduction for certain food advertising directed to children.

This comes on top of the legislation introduced on October 8th by Senators Al Franken (D-MN), Sherrod Brown (D-OH) and Sheldon Whitehouse (D-RI) to disallow the deduction for DTC prescription drug advertising and promotion expenses.  They intend to try to move that bill as part of the Senate’s consideration of health care reform.

The tax deduction for advertising costs is the number one bottom line issue for the entire marketing community.  In addition to product-specific attacks on food and pharmaceutical advertising, we face a serious threat of an across-the-board attack on the tax deductibility of all advertising expenditures as the Congress looks for revenue to fund various programs.

We need your help to protect the deductibility of all marketing costs.  It would be very helpful if you would contact the members of Congress where you have employees or operations to express your opposition to any restriction on the deduction for advertising costs for any product or service.  If we don’t oppose attacks on product-specific categories, we will face increasing pressures across the board.  As Benjamin Franklin said, “we must all hang together or most assuredly we will all hang separately.”

ANA is working with all other marketing and media associations to let Congress know that we stand united in opposition to any attack on ad deductibility, on an across the board or product specific basis.  It is critical that members also hear directly from the companies that provide jobs in their states and districts.

We will provide more information on the Kucinich legislation on food advertising deductibility as well as Senator Franken’s bill as it becomes available.

If you have any questions about this matter, please contact Dan Jaffe (djaffe@ana.net) or Keith Scarborough (kscarborough@ana.net) in ANA’s Washington, D.C. office at (202) 296-1883.  Please let us know of any feedback you get from these contacts.

 

Dan Jaffe
EVP, Government Relations
Association of National Advertisers
202-296-2359 office
646-369-4886 cell

Job Opening - Joint Policy Committee for Broadcast Talent Relations - JPC Project Manager

The Joint Policy Committee on Broadcast Talent Union Relations (JPC) is the multi-employer bargaining unit that represents the advertising industry in negotiations with the Screen Actors Guild and the American Federation of Television and Radio Artists in connection with the union agreements covering actors who perform in commercials for traditional and non-traditional media.. Established in 1962 by the Association of National Advertisers and the American Association of Advertising Agencies, the JPC is looking for one or two individuals who can join the JPC team to work with a consultant company hired jointly by the JPC and SAG and AFTRA. The consultant will be developing and running a pilot project testing a new way to pay actors in television commercials that is based upon a payment per GRP (in network, national cable, and syndication) (the "Project"). The JPC will be appointing one full time employee to work with the consultant and be the "eyes and ears" of the JPC while the Project software and hardware are developed, during operation of the actual Pilot Test (April 1, 2010 through March 31, 2011), and in post pilot test evaluation. While the ideal candidate would be full time and have experience in both areas described below, the JPC may hire two individuals part time to cover the experience required. The project is expected to end at some time between August and October 2011. The person(s) selected would most likely be based in New York City but the JPC is open to discussions in that regard for qualified individuals. Some travel will be required.

The candidate(s) needs the following experience and skills:

  1. Media Buying: At least five years experience as a media buyer. Experience requires a thorough knowledge of up front and scatter buying, in network, national cable, and syndication. The person chosen must also have a thorough knowledge of how to apply Neilson ratings (C-3) to media buys and how such media buys are reconciled in order to be certain the GRP's promised are delivered, including credits and make-goods.
  2. Talent Payments: A thorough knowledge of the SAG and AFTRA Television Commercials Agreements with a minimum five years experience in paying actors under those agreements including experience in working with databases used in such payment process, handling audits by the unions, reconciling claims and familiarity with internal agency processes between media buying, talent payment and broadcast traffic departments.

The individual(s) hired for each role will be expected to work closely with the consultant and report back to the JPC on a weekly basis with respect to developments in the Project. The individual(s) will be employed directly by the consultant. The candidate will be expected to work from both their residence and the consultant’s offices.

Salaries for the positions will be commensurate with the individual's experience and the full or part time status.

Please send your resume to Marilyn Colaninno at Reed Smith LLP, 599 Lexington Avenue, New York, NY 10022. 

Ten Data Security Questions Faced by Every Company

This post was written by Paul Bond

When emergencies hit, Reed Smith's clients routinely call upon the Firm's Privacy, Security, and Management Group. We've dealt with everything from lost laptops to international hacking, database thefts by employees to pharmacy dumpster diving. On the litigation side, we have defended more than sixty (60) consumer class actions arising from privacy incidents, along with significant government relations and insurance recovery work. We are assisting a wide variety of clients with emerging challenges to what personal information they capture and utilize, both in connection with marketing as well as for day-to-day business operations.

There is no perfect privacy compliance program. However, in an article recently published by The Privacy & Data Security Law Journal, Paul Bond has presented a series of "Ten Data Security Questions Faced by Every Company." A comprehensive approach to privacy compliance will address each of these questions, and reduce the incidence and likely severity of privacy events going forward.

If you have questions about this article, feel free to contact Paul directly, the Group's head Mark Melodia, or the Reed Smith attorney with whom you regularly work.

Copyright Law Primer Desktop Companion

It's our distinct pleasure to provide you with a Primer on Copyright Law, prepared by John Hines, Jr., a partner in our Chicago office. The primer was developed by John for a Practicing Law Institute (PLI) event this coming November, at which he's speaking on the topic of Copyright Licensing. The primer is both comprehensive and user-friendly, and should be a desk companion for anyone who regularly deals with copyright-related issues.

If you have questions about the Primer, U.S. copyright laws, or want to know more about the PLI event mentioned above, feel free to contact John directly or the Reed Smith attorney with whom you regularly work.

Allergan Complaint to allow certain off-label drug promotion

In what could be a watershed case between a pharmaceutical company and the FDA, Allergan has filed suit against the FDA in the U.S. District Court for the District of Columbia, seeking a ruling from the court that would allow Allergan to share relevant information about the safe use of BOTOX with the medical community for non-FDA approved uses (i.e., off-label uses). Under current law, the FDA restricts its approvals on pharmaceuticals for very specific uses and treatments. Although physicians have quite a bit of maneuverability and flexibility to prescribe drugs for off-label uses, both the FDA and the Justice Department have taken the hard-line position that federal law prohibits pharmaceutical companies from proactively providing information (including advertising) to the medical community regarding off-label uses, even when such information is accurate, complete and beneficial. For the reasons mentioned in the article below, this is particularly problematic for Allergan.

This is a case we'll be following closely on Adlaw by Request, and we'll make every effort to keep you updated on all important developments.The press release is available on Allergen's website.

Read the full complaint (PDF).

Advertising Fake Drugs May Result in Criminal Liabilities in China

This post was written by Michael Dardzinski.

The Supreme People’s Court and Supreme People’s Procuratorate on May 27, 2009 jointly issued “Interpretations on Several Issues Regarding the Application of Law on Criminal Cases Concerning the Production and/or Sale of Fake and Substandard Drugs” (“Interpretations”) to address the serious crimes of manufacturing and selling counterfeit and/or substandard pharmaceutical products in China. Pursuant to Article 5 of the Interpretations, individuals or companies are considered liable as accomplices for the crimes of creating, manufacturing or selling fake and/or substandard drugs if they know or should have known that the drugs are fake and/or substandard.

There has been extensive media coverage of complaints from the general public against problematic products endorsed by celebrities. A high profile case in 2008 involved endorsements by several movie stars of milk products tainted with melamine. The Chinese government imposed severe penalties on the milk manufacturer, including the imprisonment of its executives which led, in part, to the company’s bankruptcy. However, celebrities that endorsed these milk products were not subject to penalties, due to the lack of any clear legal foundation for litigation. The Interpretations require celebrities and other potential endorsers of medical products to exercise more care when choosing whether to support a particular product.

Christoff v. Nestlé USA, Inc. - A Lesson in California's Single-Publication Rule

This post was written by Rachel Rubin and Adam Snukal.

Is there an advertiser in California (or perhaps anywhere) who has an idea of what California’s single-publication rule even provides?

Before answering that question, let’s define the rule itself.

The single-publication rule generally provides that publishers and advertisers alike that use a person’s image, either in an inappropriate and tortious manner or without authorization, with broadly circulated products that are visible to most people, can generally only be slapped with a single tort claim no matter how many times the offending image was reprinted. The rule carries a two-year statute of limitations, commencing from the first publication, unless a person whose image was used had no “meaningful ability” to be aware of that publication.

So that’s the rule. And at least one company – Nestlé USA – is now very aware of it.

In 2002, Russell Christoff, a former model, unexpectedly came face to face with his own picture on a container of Taster’s Choice coffee when a woman standing in line with him at a Home Depot store told him he looked just like the guy on her coffee jar. Several years earlier, Christoff had posed for the photograph for Nestlé Canada. He was paid $250 and given a contract guaranteeing him $2000 plus an agency commission if Nestlé Canada used the photo. Christoff never heard another word. Allegedly unbeknownst to Christoff, Nestlé Canada used his image on the product. And between 1997 and 2003, Nestlé USA placed his image on millions of Taster’s Choice labels cross the United States and abroad. Within a year of his fateful discovery in the checkout line (and six years after Nestlé USA began using his image), Christoff brought suit for appropriation of his likeness under California’s right of publicity law, where use of a person’s photo for advertising is prohibited absent his or her written consent.

In 2005, the California trial court held in favor of Christoff and the jury awarded him $15.6 million on the basis that Nestlé used Christoff’s image without permission or the requisite rights to do so. On appeal in 2007, however, the Court of Appeals reversed the $15.6 judgment, holding that the “single-publication rule” applied to a right of publicity claim such as that asserted by Christoff. Since Christoff had not filed his lawsuit within two years of Nestlé’s first “publication” of the label in question, his cause of action was barred by the statute of limitations. According to the Court of Appeals: “unless a reasonable person in Christoff's position had no meaningful ability to discover the publication, Christoff must have filed a lawsuit within two years of when Nestlé first published his image or republished his image.” Because the trial court refused to apply the single-publication rule, and permitted Christoff to proceed on his claims even though he did not file suit until approximately five years after Nestlé's first use of his image, the Court of Appeals held that the entire judgment had to be reversed for a new trial, and narrowed the scope of any new trial to just “republications” of Christoff's image by Nestlé, if any, that occurred within the limitations period.

Christoff then appealed to California’s highest court. On Aug. 17, 2009, the California Supreme Court agreed, in general, that the single-publication rule applies to causes of action for unauthorized commercial exploitations / misappropriations of a likeness. The court, however, disagreed that Christoff’s claim was barred by the two-year statute of limitations. According to the court, “The Court of Appeal’s ruling presupposes that Nestlé’s various uses of Christoff’s likeness, including its production of the product label for a five-year period, necessarily constituted a ‘single publication’ within the meaning of the single-publication rule. While Christoff’s counsel argued that the single-publication rule does not apply to Nestlé’s printing of its product label because it is not ‘a single publication’ (i.e., a one-time occurrence) such as a newspaper, book, magazine, or television broadcast, Nestlé asserted before the court that the single publication rule was intended all along to apply to multiple printings of the same publication.”

The California Supreme Court has remanded the case back to the lower court to decide whether producing the labels was a single substantiated publication or not, citing that the parties never had the opportunity to present their positions on this issue. If on remand it is established that all or some portion of the production of the label constituted a single integrated publication, then the lower court was instructed to further consider whether the statute of limitation began anew because the label was “republished” within the meaning of the single-publication rule.

The key element of the California’s Supreme Court’s ruling in this case centers around what constitutes a “single integrated publication,” as this is the primary determinative factor in applying the single-publication rule. “While it is clear that the publishing of a magazine or a newspaper is a well-defined publishing event, there is limited authority or case law on the characterization of a label or dissemination of a national advertising campaign.” The court noted that Christoff’s likeness not only appeared on coffee jars, but also on coupons, transit ads, Internet banners, newspapers and magazines. All of these various examples raise the question of whether each such use should be considered a “single integrated publication” or whether, collectively, they constitute a “single integrated publication.” 

Why This Matters

Though book and magazine publishers are guaranteed some repose from defamation, libel or misappropriation suits after the first publication of their product, advertisers do not yet have this protection. Because the court declined to define “single publication” as applying to advertising materials and campaigns, and because there is, according to the court, little guidance as to whether a manufacturer that produces a product label for a period of years is entitled to the same limited liability (especially while that product label is still being produced), it remains a factual question as to whether the unauthorized use of an image on a product is a single, overt act, or a continuing wrong. The court indicates that this decision will turn on “the manner in which the labels were produced and distributed, including when production of the labels began and ceased.”

Secrecy and Blogging - When the Two Don't Mix

Has blogging made critics out of us all? Maybe so, but we still have to watch what we say as illustrated in a recent New York case, Cohen v. Google/Blogger.com. Fashion model Liskula Cohen filed suit demanding that Google disclose the name of an anonymous blogger (who we now know was Rosemary Port) who created and operated the blog now infamously known as “Skanks in NYC.” Cohen alleged that Port posted sexually suggestive pictures featuring her, together with derogatory comments about her — labeling her as, among other things, “skank,” “ho” and “whoring.” Google refused to reveal the blogger’s IP address, citing its policies on protecting the privacy of bloggers. 

In New York, the elements for a cause of action for defamation “are a false statement, published without privilege or authorization to a third-party, constituting fault as judged by, at a minimum, a negligence standard, and, it must either cause special harm or constitute defamation per se.”   Cohen petitioned the court that because Port posted, essentially, “per se” defamatory content about her, the blogger’s identity must be disclosed to enable her to pursue her viable claim for defamation. Port filed papers on an anonymous basis in response to the petition, claiming that the statements were “non-actionable opinion and/or hyperbole,” and further argued that even if the words were capable of defamatory meaning, “the context here negates any impression that a verifiable factual assertion was intended” since blogs “have evolved as the modern day soapbox for one’s personal opinions,” by “providing an excessively popular medium not only for conveying ideas, but also for mere venting purposes, affording the less outspoken, a protected forum for voicing gripes, leveling invective, and ranting about anything at all.” While this pleading is certainly an accurate description of how blogs are frequently used by bloggers, the court was not persuaded that Port’s identity should be protected from disclosure because her statements were “reasonably susceptible of a defamatory connotation and are actionable.” The court held that Cohen was entitled to an order directing Google to disclose information as to the identity of the blogger. 

It turns out that Port is an acquaintance of Cohen who frequently attended the same social functions as she did. With Port's identity discovered, it has been reported that Cohen will file a defamation suit against her. In turn, Port has indicated that she will sue Google for $15 million for failure to protect her privacy, claiming that Google “breached its fiduciary duty to protect her expectation of anonymity.” While the merits of Cohen’s claim against Port and Port’s claim against Google are yet to be determined, the lesson for every blogger is that he or she may not hide behind a mask of anonymity with respect to blogs that may cross legal lines and create causes of action, such as defamation. 

Companies also need to be vigilant in connection with the development of policies around blogging by employees or agents. Imagine the scenario where an employee of a consumer products manufacturer posts malicious statements on a consumer opinion blog regarding a competing product. The rival company petitions for the identity of the blogger, and ultimately discovers that the blogger is an employee of a competitor. In this situation, not only the individual, but potentially the company as well, may be subject to a claim by the rival company for unfair competition, or for certain other Lanham Act or Communications Decency Act claims.

Tread carefully with your blogging, or you might get a flogging. (Sorry, we couldn’t resist).

Will Nielsen Fall Prey to its Own Ratings?

For decades, advertisers, agencies and the media have hung onto every Neilson rating to tell them who was watching television, what they were watching, and for how long. 

Others have tried to capture a piece of this ratings market with different measuring tools, technologies, or methodologies, but almost all of them have fallen by the wayside. But in the latest news, Neilson’s monopoly is being challenged once again; this time by a consortium consisting of several large media, marketing and advertising companies that have joined forces to develop an alternate source of audience measurement.

What is driving this initiative? According to news reports, it’s primarily a belief among the consortium participants that more detailed, precise, and reliable data and measurements are possible, particularly as more consumers turn to the Internet and mobile to watch TV. The fact that new technologies such as set-top boxes and digital video recorders enable data to be compiled more readily seems to be fueling the desire of the consortium members to take another crack at creating a competitor to Nielsen.

Interestingly, each category of participant within the consortium comes to this initiative with its own agenda and objective. In the case of media companies, TV networks for many years have frequently disputed the accuracy of Nielsen data in traditionally difficult areas of viewership measurement. Advertisers, similarly, have questioned Nielsen’s figures, though primarily in connection with determining the real, monetized value for all the money they spend to buy commercials on TV (estimated at $70 billion in 2009). Advertising agencies, naturally, are always seeking data to both guide and support their channel and network recommendations, especially if/when their clients take issue with the accuracy of the ratings presented by their agencies.

Why This Matters: Whether or not the consortium successfully achieves traction in its ability to produce a viable data product that is recognized across different but related industries is an idea that has seen many past iterations. Perhaps this effort, joined by a diverse group of interested parties, will work this time. If it does succeed, whether the consortium can grab market share from Nielsen is a difficult question to answer. Regardless, the mere fact that such a consortium exists demonstrates that changes are needed to the way industry tracks, understands and sells TV ads. As TV viewer habits and dynamics change, so too must the measuring stick that tracks and sells this medium. However, central to the consortium’s success is retrieving more robust information on consumer habits, and that means skirting the edge of privacy rights, inextricably linked to this initiative. This may well fuel a privacy debate that could turn out to be the Achilles Heel for both the consortium and Nielsen.

Gift Cards: The Chart is Free. It's Our Experience You Pay For.

Thanks to our colleague, Joe Rosenbaum, Editor-in-Chief of LegalBytes, we are happy to provide our Adlaw by Request readers with a uniquely comprehensive survey of the Gift Card laws across the country. As the title suggests, the guide is a good tool but shouldn't replace your local, advertising attorney.

Self-Regulatory Online Behavioral Advertising Principle No. 1: Education

In collaboration with our sister blog, LegalBytes, we're jointly taking on the recently disseminated Self-Regulatory Principles for Online Behavioral Advertising, topic by topic, to explain these Principles in a way that our readership can better understand. Please check back with us on a weekly basis as we tackle each of these 7 Principles.

The Amazon Tax; Friend or Foe?

According to eMarketer, online sales in 2009 are likely to reach $133 billion. It shouldn’t come as any great surprise to discover that cash-strapped states all across the country are trying to figure out ways to convert these sale dollars into tax revenues. Well, some states have figured out a way, but at what cost?

From the dawning of e-commerce, affiliate marketing has been a fundamental, cost-effective and ubiquitous vehicle for marketing and lead-generation in the vast digital marketplace. Moreover, these affiliates were almost universally likened to advertising channels (i.e., no different from a local radio station or regional magazine) than employees or contractors. Aside from entering into affiliate agreements, complying with a retailer’s affiliate marketing policies, and receiving commission checks, little, if any, relationship has traditionally existed between retailers and affiliates. The universe of affiliate marketing, however, has been shaken by recent developments within various state tax regimes.

Before going further, let’s understand some basic principles of State Sales Tax 101: Retailers are generally required to collect and remit sales tax to the state in which a sale of products or services occurs. A state may generally not impose a sales tax on sales made outside of its borders, unless the retailer has a sufficient taxable nexus in the state. Although each state will apply its own nexus standards, the answer will generally depend on an application of an inherently imprecise facts-and-circumstances analysis that asks whether the seller has “sufficient” contacts with a state to be subject to its jurisdiction. Traditionally, “nexus” was established where an out-of-state retailer had employees or agents physically present in the state, or where the out-of-state retailer engaged in-state, third-party contractors to perform certain activities on its behalf.

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Your Medical Information; Just A Mouse Click Away - From Hackers?

It's our pleasure to provide you with a link to an article written by Joe Rosenbaum that recently appeared on our sister-blog, Legal Bytes, describing yet another controversy over Facebook's User Policy.

Online Gaming Laws Survey - Free (Yes, You Read Correctly)

Thanks to our colleague, Joe Rosenbaum, Editor-in-Chief of Legal Bytes, we are happy to provide our Adlaw by Request readers with a uniquely comprehensive Survey of U.S. Federal and State Gaming Laws & Regulations.  The chart, which you can refer to at any time, lists each state (including the District of Columbia) in the United States, and a citation to the relevant statutes and regulations (organized so that amendments are cross-referenced by date and relevant citation), followed by a brief summary of the salient provisions of the law or regulation itself. We have also noted, where there was current activity, any pending legislation that may apply.

The World Federation of Advertisers/Nielsen Survey

The World Federation of Advertisers, in conjunction with Nielsen, has published a major survey on consumer attitudes on the value of advertising. The results show a significant appreciation among consumers worldwide of the important role advertising plays in communicating valuable and useful information. For an overview of the survey, click here.

Just When You Thought You're Too Old for Facebook

Earlier today, you may have received numerous memos from law firms and bloggers anxious to respond to the announcement by Facebook that Facebook is allowing trademark owners to notify Facebook of their IP rights through use of a special electronic form. The purpose is to allow trademark owners to record their IP rights in advance of Facebook allowing its users to register personalized Facebook URLs. While we applaud advising clients and friends of issues, we think the matter is considerably more complicated than previous briefs and hasty reports may indicate. As is so often the case, the devil is in the detail and this memorandum provides a deeper look at the process and related issues before undertaking Facebook’s new program to record trademark.

Facebook Announcement

On Tuesday, June 9, Facebook, Inc., the popular social networking website, announced that on Saturday, June 13th at 12:01 a.m. U.S. EDT, it will allow Facebook users, subject to certain criteria and qualifications, to create personalized URLs for their pages on Facebook. By way of example, John Smith will be able to register "Facebook.com/johnsmith." Currently, a user’s Facebook URL consists of the Facebook.com URL followed by a random series of numbers, e.g., facebook.com/profiles.Php?349485).

Whenever users can register any name on the Internet, however, it raises infringement issues under federal and state trademark and related intellectual property laws, particularly for owners of well know brands. Any registration process creates fears of cybersquatting or other attempts to hijack trademarks and brand names. Sometimes these fears are real; other times they are not.

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Google Amends Its U.S. Trademark Policy: Creates 'Special Advertiser' Status to Allow Use of Another Trademark in Ad Copy

Using another’s trademark as a keyword for online search marketing purposes is a murky area of law. Is this trademark infringement? Is this a permissible action? Although one may assume that these questions are two sides of the same coin, in reality they are not. The case law on this issue – especially those cases extending from WhenU to the more recent Rescuecom – provides some guidance as to when trademark-as-a-keyword can be problematic; but the real issue is with the trademark-use guidelines promulgated by the search engines themselves. Generally speaking, search engines permit advertisers to purchase another’s trademark as a triggering keyword, but some do not allow the advertiser to use the trademark in the ad copy. In other words, the advertiser can show the ad to the consumer, but can’t explain why the consumer is seeing the ad in the first place.

Thus, even though use of another mark’s may not rise to the level of trademark infringement, it may not be permissible under the search engine’s terms of use. To combat this, advertisers sometimes speak in “soft language” – code that tries to get around use of the mark. For example, imagine that a store like WalMart or Best Buy wants to advertise a new Sony laptop. The store’s search engine marketing (SEM) purchases may use “Sony” as a keyword, but may say “sale on laptops from large Japanese-based company that is a mainstay in the consumer electronics space” in the ad copy, to ensure that it does not run afoul of Google’s trademark policy. To me, this need to speak in “soft language” does not decrease consumer confusion – it increases it.

In response to this problem, Google has taken steps to liberalize its U.S. trademark policy. Specifically, it has created a special class of advertisers that can use another’s marks in ad copy. This new class – which is made up primarily of resellers, review sites, and sellers of compatible, complementary, or replacement products – will be permitted, under certain circumstances, to use another’s trademark in the ad copy. The text of Google's official announcement can be found here.

Why This Matters:  While this change is important in that it brings the practice of SEM more in line with trademark and advertising law, the change does not cover all uses of another’s mark. Going forward, competitors making comparative claims in the online ad copy may still be rejected by Google. Although this class of advertiser should be permitted to use another’s trademark in online ad copy, competitive ads – based upon the theory of nominative fair use – may still need to resort to “soft language.”

Keeping Ahead of the (Other) Creditors in Bankruptcies

This post was written by Michael Venditto and Andy Rahl.

During the first quarter of 2009, business bankruptcy filings were at the highest levels since 2001. If the pace of bankruptcies of large corporations continues at the current rate for the balance of the year, the number of large business bankruptcies will be the highest in history. Last week, the auto industry was the latest victim when Chrysler filed for bankruptcy in New York.

In January, we advised our advertising and media clients to prepare for this unprecedented environment by reviewing their credit policies and limiting their exposure to businesses in troubled industries. And with financial problems spreading to so many sectors of the economy, it is almost inevitable that you will be a creditor by a bankruptcy. While that’s certainly better than being the company filing a petition for bankruptcy, managing the financial impact can be just as devastating. When it happens, you will have many questions. What will happen to outstanding billings? How long will it be until we are paid? How can I get to the front of the line? The questions are endless.

The Chrysler chapter 11 case, although not typical of every bankruptcy, provides some useful lessons. The filing by Chrysler was long-anticipated, since the United States government had set a deadline for an out-of-court restructuring, and the negotiations with the various creditor groups were widely reported in the media. Yet when the petition was filed, advertising agencies and media companies—even those who had taken prophylactic measures—were left exposed to millions of dollars of potential losses. So now, quick action is key to limiting, or even eliminating, those losses.

Creditors who took a proactive approach to Chrysler’s bankruptcy had an opportunity to affect how they would be treated. On the day that Chrysler filed the case, it also filed a number of applications with the court seeking permission to take certain action with respect to its unpaid bills. These applications were filed in the middle of the night and were heard by the court at a hearing early the following morning. By noon, the court had entered orders granting Chrysler the discretion to give special treatment to those providers it considered critical to Chrysler’s future. The orders were not clear whether advertising or media suppliers could benefit from these procedures. More importantly, to some degree the court gave Chrysler the freedom to pick and chose how to deal with each of its creditors.

After this early effort to protect its trading partners, Chrysler turned its attention to a well-publicized battle with a group of dissident lenders, followed by efforts to consummate a sale of its business to a new company that will be controlled by the U.S. government, the United Autoworkers, and Fiat. Could there ever be an odder set of shareholders? This left many advertising and media companies wondering whether and when they would be paid. But, some creditors were in a better position because they got involved in the process and elevated their visibility before the attention of Chrysler and the bankruptcy court was diverted.

How is this possible if the Bankruptcy Code is intended to ensure that similarly situated creditors are treated equally?  The reason, to paraphrase George Orwell, is that all creditors are equal, but some creditors are more equal than others.

Creditors that are denominated as “critical vendors” are routinely accorded special treatment, earning the right to have their billings paid in the ordinary course, while other creditors may have to wait months or years until the case concludes. And since some other creditors are accorded payment priority by several provisions of the Bankruptcy Code, obtaining a special classification is the key to surviving the process with as little downside as possible.

To be one of the “more equal” creditors in any bankruptcy case, you must understand the Bankruptcy Code, as well as the orders the court may have entered authorizing special treatment for certain creditors. Most of these special treatments have time deadlines, so a lack of diligence can be costly. Timely and expert legal advice is critical to benefitting from any special priorities that might be available.

So finding a law firm with experience to assist you through the minefield is essential. While Reed Smith, with its experience in advertising, media and bankruptcy law, is available to assist you whenever these cases arise, our best advice to you is to get qualified counsel, whether it’s Reed Smith or another top firm. As the saying goes, the clock is ticking …

Google To Launch 'Interest-Based' Advertising

Rumor has it that Google will be launching its much-publicized "interest-based advertising" in April, allowing advertisers to serve ads based on a user's prior interactions (e.g., browsing the advertisers' websites, tracking interests). Google will track categories of web pages that users visit in Google's content network and if, for example, a user visits motion picture and film pages, Google may add them to a corresponding interest category that might be labeled "motion picture aficionado." As we understand it, Google will enable use of the DoubleClick DART cookie in advertising served on websites with AdSense for content advertising. Thus, when a user browses an AdSense publishers' site and views or clicks an ad, the user's browser may have a cookie added.

For the full article, please visit LegalBytes.

Reed Smith Teleseminar: Broadband Money in the Stimulus Package

How Much is Available?  Who Is Eligible?  How Do I Apply?

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009, otherwise known as the stimulus package. That package contains $7.2 billion in appropriations for broadband infrastructure and billions more for broadband-related activities (such as telemedicine, education, intelligent transportation and smart electric grids). Join us for a practical discussion on how to participate in the funding opportunities available.

Everyone expects these funds to move quickly. Most in the industry are wasting no time in devising their business plans and application strategies, and if your organization is interested, neither should you. These applications will require much advanced planning. For example, your organization should: seek matching funds for any broadband-related proposals, interface with government officials to determine your state's broadband priorities, and explore the feasibility of public-private partnerships for any broadband-related proposal. This session is designed to help your organization get up-to-speed quickly, and it will cover broadband funding opportunities for the:

  • Telecommunications,
  • Education, and
  • Health Care sectors.

Our speakers include: Judith L. Harris, a partner in Reed Smith's Washington, D.C. office and a member of the Global Regulatory Enforcement Group. Judy concentrates on telecommunications and antitrust/trade regulation matters before the Federal Communications Commission, the Justice Department, the Federal Trade Commission, in the courts, and on Capitol Hill, especially on behalf of companies in emerging technologies. Amy Mushahwar, an associate in the Washington, D.C. office, is a member of the Advertising Technology & Media Group. Amy concentrates on telecommunications and privacy matters before the Federal Communications Commission, Federal Trade Commission and the Department of Commerce's National Telecommunications and Information Association. Rob Jackson, who is also affiliated with the Washington, D.C. office, is a member of the Global Regulatory Enforcement Group. Rob is a government relations professional with broad experience addressing the legal and regulatory aspects of financial, technical and marketing issues associated with telecommunications, Internet and cable.

Date: Friday, March 13, 2009

Time: 12 p.m. EDT/9 a.m. PDT/4 p.m. UK (GMT)

Length of Teleseminar: 1 Hour

You are invited to participate in this discussion via teleconference. Participation is free, although long-distance telephone charges apply outside of the United States, the UK, France, and Germany, where 800 numbers are used. The call-in ports will be limited, so please contact Sarah Stein no later than Thursday, March 12, to receive a dial-in number and a passcode. This is one call you don't want to miss.

If you require additional information, contact Sarah at +1 312 615 1509.

Facebook Makes a U-Turn

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.

FTC Endorsement & Testimonial Guidelines

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.

What Do We Have to Look Forward to in 2009

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.

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Celebrity Endorsements - The Devil Really is in the Detail

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. 

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Managing Bankruptcy Risks in a Recession

This Alert compares the current recession to prior cycles, and summarizes precautions and protections that advertisers, agencies and media can employ to reduce their exposure to today’s risks.

Background of the Credit Crunch

It is generally understood that the ongoing credit crunch has led to a shortage of financial liquidity. We now seem to be entering a new phase as businesses and consumers retrench.

  • Loss of Confidence. One of the cornerstones of business is the confidence we have in the ability of those we contract with to pay us what they owe. For most, that means having the ability to pay debts as they come due and be financially solvent on a balance sheet basis. The model for our major financial institutions is quite different. As long as confidence prevails, their business continues as usual; but if there is a sudden loss of confidence in an institution’s ability to repay or return its customers’ deposits and assets, then a run on the firm ensues and, absent intervention, a financial failure quickly follows.
  • Government Backstop. The Federal Reserve, the FDIC and the U.S. financial regulatory scheme were created to provide a backstop and capacity for intervention in order to forestall the possibility of a systemic financial breakdown. It appears, however, that financial engineering and the growing complexity of the financial system may have outstripped our backstop.
  • The Bankruptcy Process. Bankruptcy does not work well for financial service companies because of the confidence factor—an insolvency proceeding will not stem a run on a bank but only exacerbate it. Bankruptcy historically has worked well outside of the financial sector, particularly in manufacturing, distribution, retail, and many entertainment and other service businesses; entire industries such as steel and the airlines have been restructured in bankruptcy in past recessions. There appears, however, to have been an erosion of confidence in the effectiveness of the bankruptcy process, as reflected in the widespread view that bankruptcy is not a good idea for the U.S. auto industry.
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Age Verification Technology Enables Targeted Advertising

As regulators push website operators to adopt age verification technology to protect children from inappropriate content and social contact with adults, a new opportunity has arisen for advertisers.

Nancy Willard, who calls herself an expert on Internet safety, says age verification companies are using information gained from seeking to verify children's ages to target them with advertising. She points to California-based eGuardian, which solicits personal information concerning children from parents-including kids' birthdates, as well as their addresses, schools and genders. The company then offers schools the entire $29 sign-up fee collected from parents for every parent the school steers to the site.

The company's business plan is to solicit websites that are willing to pay a commission for each eGuardian member, which would allow them use the data collected to tailor their advertising. eGuardian Chief Executive Ron Zayas notes that parents are provided with the choice to opt out of having data shared with advertisers, and says the privacy concerns are a "tradeoff."

"When children go to Web sites today, they are already exposed to ads," Zayas said. "We make sure the ads are appropriate for children. We do not increase the volume of ads shown, nor do we ‘sell them out' in any way to advertisers."

Read more about the controversy at nytimes.com

School Nutrition Policies Push Sweets Out the Door

Between 500 and 600 U.S. school districts have instituted nutritional policies limiting foods deemed to be high in fat, salt and sugar. That's according to a research scientist at the Institute for Health Research and Policy at the University of Illinois at Chicago.

The widespread curbing of snacks in school has some kids pining for the old days.

"I know obesity is a big problem, and it's good the school cares," high school senior Sam Cardoza told The New York Times recently. "At the same time, you shouldn't stop a kid from buying a cookie."

California's nutrition standards limit snacks sold in schools during the day to those that contain no more than 35 percent sugar, and that derive no more than 35 percent of their calories from fat. Sodas will be banned from schools beginning next year. Regulations such as those being implemented in California have brought traditions such as school bake sales and birthday celebrations to a screeching halt.

"I don't think all celebrations need to be around food," said Ann Cooper, the director of nutrition services for the Berkley School District. "We need to get past the mentality of food used for punishment or praise."

The reduction in calories at school does not mean, as some feared, that kids would rush home and raid the fridge. According to the Rudd Center for Food Policy and Obesity at Yale, children do not compensate for the loss of sugar and fat-laden foods at school by increasing their intake of such goodies at home.

"People really do eat what's in front of them," explained center Deputy Director Marlene B. Schwartz.

Read more about the issue at nytimes.com.

Food Companies Try To Adopt Common Labeling Solution

In response to consumers’ desires to easily identify healthier food and beverage options, a number of major food and beverage producers have announced they are provisionally onboard with developing an industry-wide labeling program.

The Smart Choices Program is being launched under the auspices of The Keystone Center, a nonprofit Colorado-based organization that brings together public and private stakeholders to address social issues. Since the devil is in the details, the details surrounding the program’s implementation have not been settled, The Keystone Center warned in announcing the program’s rollout.

Nonetheless, companies that so far have stepped forward as “likely implementers” of the new labeling program include many of the industry’s heavy hitters: Coca-Cola (US), ConAgra Foods, General Mills, Kellogg Company (US), Kraft Foods, PepsiCo (US), Unilever (US) and Wal-Mart. In addition, Nestlé is in the process of reviewing the program to determine whether it will participate.

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Move Over Dot Coms - Get Ready to Dot Your Brand!

The Internet as we know it is changing dramatically. Instead of using domain names ending in “.com”—the most popular of the “top level domains” or “TLDs”—organizations located anywhere in the world may soon be able to purchase a TLD that corresponds to just about any word or phrase, including an organization’s name or brand.

What Will All of This Mean to Your Business?

Consider these examples:

  • A financial services trade association might try to buy the domain “ ?? .bank” with the idea of servicing a financial community and selling second-level domains (the name to the left of the “dot”) to eligible financial institutions. A financial services company may then decide to purchase and do business from “firstnational.bank”.
  • On the other hand, First National might simply buy the TLD domain corresponding to its brand:  “.firstnational”. John Smith, a trust officer, might then be located at jsmith@trusts.firstnational; Susan Jones, mortgage banker, might be located at sjones@mortgage.firstnational, and so on.
  • A consumer goods company might consider a TLD corresponding to its brand as an opportunity to create customer confidence in the shopping experience—a kind of web authentication that distinguishes the company’s site from the many other sites and general “noise” and “static” on the web. Thus, a powerful retail clothing brand might buy the corresponding domain—and organize second-level domains according to categories such as “menswear,” “shoes,” “coats,” etc.
  • On the other hand, a company might use its valuable brand in the form of a TLD to reward its valued suppliers with the opportunity to use the TLD brand extension with the second-level domain. A global fast food chain (call it “goodchicken”) might allow its approved contractors to use “supplier.goodchicken”.

Given the hierarchical structure of the domain name system generally, there are a variety of ways in which the new TLDs might facilitate unique business/organizational objectives, while potentially enhancing the customer experience and increasing brand loyalty and awareness.

Currently, the domain name system is limited to 21 “generic” TLDs (.com, .org, .net, .info, .biz, etc.) and about 240 “country code” domains (e.g., .us, .uk, .fr, etc.). According to Paul Twomey, President and CEO of the International Corporation for Assigned Names and Numbers (“ICANN”)—the international not-for-profit organization responsible for coordinating the Internet addressing system—the expansion of the generic top-level domain space is “driven by the demand for more innovation, choice and change to the Internet’s addressing system…[and] has the potential to be one of the biggest influences on the future of the Internet.” Others disagree about the potential impact—at least as the initiative applies to existing businesses—and see little reason to spend the money for another top level domain other than, perhaps, very reluctantly as a defensive measure to keep others out of their space. Some in this camp resent the introduction of the new TLDs as creating complexities and costs that far outweigh any benefits.

Click here to read the full alert.

Testimonials and Endorsements: Complying with the FTC Guides in Light of Proposed Changes

This post was written by John P. Feldman and Anthony E. DiResta.

One of the most frequent strategies employed by advertisers is to let the consumer hear about the advertised product or service from a third party, someone other than the advertiser itself. At its root, an endorsement or testimonial when used in advertising is the advertiser’s way of saying, “Don’t just take my word for how wonderful my product or service is, listen to this unbiased person whose opinion you should rely upon to make a purchasing decision.” The Federal Trade Commission (FTC or Commission) originally published Guides Concerning the Use of Endorsement and Testimonials in Advertising (The Guides) in 1972. The Guides have not been updated since 1980. In January, 2007, the FTC sought comments on proposed modifications and updates to the Guides. In particular, the Commission sought comments on whether so-called “disclaimers of typicality,” statements like “Results not typical” or “Your results may vary,” should continue to be a valid way to communicate that a testimonial does not represent experiences consumers will generally achieve with the advertised product or service.

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Ad Blocking Technology - The Potential Effects & Implications

The use of ad-blocking programs has recently received considerable attention in the media, brought about in large part by the proliferation of various plug-ins or configurational ad-ons that, in one manner or another, enable the blocking of some or all advertising (or content that seems like advertising) by Internet web browsers (e.g., Adblock Plus” plug-in Firefox). In addition, most of the popular commercially available anti-virus, anti-adware and anti-malware programs also provide ad blocking capability. By implementing and using ad-blocking software and extensions, the user is able to remove or block some or all advertisements from being viewed on web pages.

There has always been a natural balance (some would say ‘tension’) between the consumer’s right to privacy and the marketer’s desire to know more in order to reach the right customer. Although clearly context and culturally sensitive, consumers tend to cling to various degrees and aspects of privacy as a means of protecting themselves from unwanted intrusion into their lives. Consumers, however, often willingly and knowingly give up certain privacy protections – although they may not view it that way – in order to receive the benefits and advantages of offers and purchasing opportunities more tailored to their needs, and to avoid receiving “junk.” Marketers, on the other hand, always want better, more timely, and more accurate segmented data, so that advertising can be focused and can cost-effectively reach those who are more likely to have an interest in buying. But marketers know that reaching too far into the minds and hearts of consumers, without their permission, can backfire and cause mistrust and disdain – not a good thing when you are trying to convince a customer to buy your product or service. Witness the public reaction to the launch of the “Beacon” feature by Facebook in our recent past.

Thus, while there has always been a balance and some tension, the increasing direct intersection of these issues, resulting from the rise of consumer and commercial use of the Internet, has spawned a degree of heat over these issues, never before seen in history. The complexity has also created a good deal of emotion and rhetoric.
 

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