Posted on March 22, 2011 by Adam Snukal

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.

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Posted on April 6, 2009 by Adam Snukal

Israel's Anti-Spam Legislation with a Kick - This Could Cost You!!

This post was written by Benjamin Waltuch, Adv.

Worldwide Anti-Spam legislation is now more than six years old. However, the amount of spam that we all receive daily continues to grow despite the installation of spam blocking software. The Israeli Knesset has approved an “Opt-In” anti spam statute in its communication law which was modeled after European Union’s Directive 2002/58/EC and requires affirmative permission before a commercial message is allowed. This is much more extreme than the CAN-SPAM Act in the US, which requires that a sender must provide a method to be removed from the mailing list or an “Opt-Out” method but does not require specific affirmative permission.

The “kick” is that the Israeli Anti-Spam Law provides for a minimum liquidated civil damage amount of approximately US$250 (one thousand New Israeli Shekels) PER EMAIL without any necessity to prove that the recipient was damaged in any way by the email. The law allows for a recipient to sue the sender in small claims court and also amended the Israeli class action law to allow for a cause of action under this anti spam statute to be certified for class actions. In addition, the statute provides for criminal fines of approximately $50,000 for sending emails without consent and approximately $17,000 for emails that do not follow the procedural requirements spelled out below. Finally, the law states that the individuals who comprise the management of a company are considered liable for any violation of the law with the civil penalty of approximately $17,000. Upon violation of the law by a company, it is presumed that the members of management of that company have not fulfilled their duty to keep the law.

The Israeli Law

The law provides that commercial message may be distributed in a commercial manner to encourage the purchase of a product or service or to encourage the transfer of money in another way. The law applies to emails, text messages and automated telephone calls.

There are a number of exceptions to this rule, which include where the recipient has previously consented (“Opted-in”) to receiving emails or where the recipient provided its information in the process of purchasing a similar product. In addition, the sender may send an email to businesses (but not individuals) asking for their permission to send additional emails provided that such email is only sent only one time. 

Moreover, the law provides that where a commercial email is permitted, there are strict guidelines of how to send any such message including the necessity to include in the message (1) the word “Advertisement” or equivalent in the heading of the message, (2) the name of the sender, and the method of contacting them including their telephone number, email address and fax number and (3) a method of opting not to receive such messages in the future.

Recent Class Actions

In 4 short months, actions for damages as well as large class actions have already been filed in Israeli courts. In February, Israeli portal Walla and its 30% shareholder were sued for 840 million NIS (approximately $210 million) for violations of this law. The Likud political party was sued for 100 million NIS (approximately $25 million) because its political emails linked to its website which has a section accepting political donations. While all of these cases are certainly in their early stages, we expect that the Israeli courts will have many more of these types of actions in the coming months.

Could this law be used against non-Israelis?

Foreign companies have asked whether this Israeli law will apply to Israeli recipients of spam sent by companies with no other nexus to Israel. While a case against a non- Israeli has not been publicized as of yet, the law is broadly written and we believe that Israeli courts will hold foreign companies to the Israeli standards if they direct their spam to Israel.

Israeli courts have held that emails or web browsing in the internet gambling arena is subject to Israeli law, especially when such websites or advertisements are directed at the Israeli public or are in Hebrew.  International courts, including those in New York, have also held that internet activity can be considered to be taking place in the local jurisdiction in the internet gambling arena and that the gambling companies must be held to local internet gambling laws. We would expect Israeli courts to specifically rule that the Israeli law applies when give the opportunity.

Admittedly, there are certainly various hurdles to initiating and then enforcing judgments by Israeli courts against non-Israeli companies. However, we believe that these hurdles are not insurmountable and that this risk should be considered before marketing products or services in Israel. 

Recommendations

Before targeting an Israeli market with commercial advertisements, make sure that you have complied with the Opt-in requirements of Israeli law. This is particularly important if you are advertising in Hebrew or sending many emails to Israelis domains, often with the suffix “.co.il” or “.il”. Keep a record of those who have agreed to receive such messages and comply with the content requirements. 

Benjamin Waltuch was a Reed Smith corporate associate in the New York office before moving with his family to Israel. He is currently a corporate partner at Gornitzky & Co., one of Israel's oldest and largest law firms, and is available to advise on Israeli law issues at waltuch@gornitzky.co.il.
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