Are Virtual Branded Worlds the Future?

The COVID-19 pandemic has had immeasurable effects on consumers and how they engage with brands, with the elimination of in-person consumer interactions for nearly a year. As a result, some brands are taking consumers’ entrance into the metaverse one step further by developing virtual worlds that allow the consumer to engage with the brand in a whole new way. These worlds and experiences have helped brands stay connected to consumers throughout the pandemic. One such brand taking advantage of consumers’ search for new online experiences is the global skincare brand SK-II, which launched a virtual city based around iconic Japanese sights. Consumers can watch movies and get a tour of SK-II studios. Other brands have joined the virtual branded experience train. Luxury fashion house Burberry launched an interactive virtual replica of its flagship Tokyo store that allows customers to navigate around the store and buy items from its collection.

Virtual worlds and experiences have benefits beyond connecting with consumers during the pandemic. They are easily changeable and can adapt more quickly to consumer preferences and trends than a brick and mortar store can. The reach of a virtual world and experience is well beyond that of a physical one. While after more than a year of lockdowns and quarantines, consumers may be ready to interact with brands, it is also clear that the virtual brand worlds and interactions are here to stay.

Takeaway: Virtual worlds provide brands opportunities for consumer engagement and are capable of reaching a far wider audience than brick and mortar. But, in post-pandemic life, consumers’ desire to get back into the real world might cause them to shun online experiences. Time will tell.

FTC Seeks Monetary Penalties for Deceptive Marketing of COVID-19 Treatments in First Action under the COVID-19 Consumer Protection Act

Last week, the Department of Justice (“DOJ”) together with the Federal Trade Commission (“FTC”) announced a new civil lawsuit filed against St. Louis-based chiropractor Eric Anthony Nepute and his company, Quickwork LLC, alleging that they deceptively marketed products containing vitamin D and zinc as scientifically proven to treat or prevent COVID-19. This is the first enforcement action alleging violations of the COVID-19 Consumer Protection Act.

The COVID-19 Consumer Protection Act, passed by Congress in December 2020, prohibits deceptive acts or practices associated with the treatment, cure, prevention, mitigation or diagnosis of COVID-19. Those in violation of the new law may be subject to civil penalties, injunctive relief, and other remedies available under the FTC Act.

According to the complaint, the defendants marketed their “Wellness Warrior” vitamin D and zinc products as being just as effective as, or more effective than, the COVID-19 vaccines currently available. For example, the defendants falsely touted that their products “will prevent [COVID-19] from infecting your body”, “a ‘high dose’ of Vitamin D would help to turn COVID-19 into a ‘mild illness’”, and vitamin D and zinc “actually works better than . . . any vaccine” and, therefore, customers did not “really need a vaccine.”

In May 2020, the FTC sent a warning letter to the Nepute, warning him about unsubstantiated COVID-19 efficacy claims that he was making for other products. Despite the FTC’s warning, Nepute continued marketing his products, including the Wellness Warrior vitamin D and zinc products, as proven immunity boosters that effectively treat or prevent COVID-19, while regularly dismissing public health guidance and promoting the products as equal or better protection against COVID-19 than currently available vaccines.

The complaint asks the court to exercise a provision of the new law to impose monetary penalties and to grant a preliminary injunction to stop the defendants from continuing to make the allegedly deceptive advertising claims.

Takeaway: With the FTC’s new authority under the COVID-19 Consumer Protection Act, this lawsuit signals that the Commission will take a much more aggressive stance in policing the proliferation of consumer scams and frauds by companies touting fake drugs and treatments for COVID-19. For marketers that fail to comply with FTC warning letters, they may find themselves subject to similar suits and could face potentially significant civil penalties.

ANA Law & Public Policy Conference, Hosted by Reed Smith – The Future is Now

The ANA’s Law & Public Policy 1-Day Conference returns virtually to examine the ways in-house counsel can help their marketing teams “future proof” their advertising and marketing programs. From a deep dive into the new administration’s policies to cutting edge discussions on privacy, measurement, transparency, brand safety, and more, this is a must-attend conference for senior and operations level marketing and advertising lawyers who wish to stay ahead of the curve, proactively help their client, and be an insurance policy that protects their brands and fosters growth. Continuing Legal Education (CLE) credit will be offered.

The full agenda and registration can be found here.

12:45 – 1:30 pm ET: Join New York, partner Keri Bruce for I DON’T KNOW MUCH, BUT I KNOW I NEED A CONTRACT: IN-HOUSING MEDIA. In-housing is everywhere in marketing land. Marketers are “in-housing” creative and media and everything else in between. It’s happening at different speeds and in various flavors, all in the name of better, faster, cheaper, and with (hopefully) more transparency. The more digital transformation accelerates toward maturity, the more in-housing marketers will likely face. For legal counsel, that means dealing with new terms and contract puzzles that they have not had to understand and solve before. It also means dealing with marketers and procurement who are often in the same boat. When the rubber meets the road, legal will no doubt ask the business, “What are you actually buying? What does this term really mean? Have you thought about that condition? What if this consequence happens? What if that other thing doesn’t happen?” And in most cases, the business will simply respond, “I don’t know, I just need a contract.” In this session, Keri and Tom Triscari will provide practical tips for legal teams to make sure the right questions get asked before the contract gets negotiated. It all starts with a simple question: What is the trade? And how does this provider fit into the advertising ecosystem?

3:25pm – 4:25 pm ET: Join Global Diversity & Inclusion Advisor, Iveliz R. Crespo for BUILDING DIVERSE TEAMS. Studies show that diverse teams are more innovative, have higher collective intelligence, and are better at making decisions and solving problems. In this session, attendees will learn research-based strategies for successfully developing diverse and inclusive legal teams.

 

“Ignite”-ing another Photo Copyright Case

On April 12, 2021, Florida-based creative agency, Creative Klick Agency LLC, filed a lawsuit in the Southern District of Florida against Dan Bilzerian and his spirits company, Ignite Spirits Inc. and related companies. Creative Klick alleged that the spirits brand used its photos on various social media accounts, including those belonging to Bilzerian, and on Ignite’s websites, without the agency’s permission.

The complaint alleges that Ignite was first introduced to Creative Klick when the brand sought to hire the agency (through another agency) to produce social media marketing materials and related content, including high-end photography. The complaint further alleges that Ignite informed the agency that to help sway the brand to hire the agency, the agency should produce some sample images of one of Ignite’s vodka bottles. Creative Klick produced such a photoshoot and sent the photographs, which are registered with the U.S. Copyright Office, to the prospective client. Creative Klick argues that Ignite then re-appropriated, reproduced, and distributed copies of the photographs, and created derivative works thereof for use on both Bilzerian’s and Ignite Spirits’s social media pages without any license, permission, or approval by Creative Klick.

The complaint accuses Ignite of willful and intentional copyright infringement, contributory copyright infringement, and vicarious copyright infringement. Creative Klick seeks an order from the court requiring Ignite and its affiliates (i) to stop using copies of the photos, and (ii) to pay the agency actual and statutory damages and any profit attributable to the alleged infringement, including interest, attorney fees, and costs.

Takeaway: Photographs and other creative materials submitted as part of a pitch are subject to copyright protection. The sending of materials for presentation to a prospective client does not, in and of itself, transfer an ownership interest or license to the prospective client. Set forth how pitch materials will be treated at the outset of a relationship. This can be accomplished in a non-disclosure agreement.

FCC issues reminder to broadcasters on sponsorship IDs

Earlier this month, the Federal Communications Commission (FCC) issued an enforcement advisory to remind broadcasters of their sponsorship obligations.

What is the Sponsorship Identification Rule?
Under section 317 of the Communications Act of 1934 (the Sponsorship Identification Rule), when a broadcast station transmits any matter for which money, a service, or other valuable consideration is either directly or indirectly paid or promised to, or charged or accepted by, such station, the station, at the time of the broadcast, must make a disclosure that states: (1) that such matter is sponsored, paid for, or furnished, either in whole or in part, and (2) by whom or on whose behalf such consideration was supplied. The notice provides that broadcasters who are paid for programming without disclosing the program’s sponsor can “mislead the public and promote unfair competition.” Further, the disclosures help audiences distinguish third-party content from station editorial content.

The advisory also reminds broadcast licensees to exercise reasonable diligence to obtain from their employees, or from third-party suppliers, sponsorship identification information in order to enable the licensee to air the required sponsorship identification announcement disclosing that the material was broadcast in exchange for consideration.

Per the public notice, violation of the Sponsorship Identification Rule can lead to sanctions, including imprisonment or monetary forfeitures.

Takeaway: The enforcement advisory serves as an important reminder to commercial broadcasters to ensure they understand and comply with the Sponsorship Identification Rule. Advertisers should be aware of the rule as well, especially those that might be running public service announcement-like ads in paid media. The Sponsorship Identification Rule is generally met if: (i) the advertisement mentions the name of the source of the ad (i.e., the name of the brand, company, non-profit or governmental entity paying for the advertising space), and (ii) there is a commercial product or service mentioned in the advertisement. However, in the context of a public service announcement, there is not normally a commercial product or service mentioned in the ad. Thus, advertisers who want to run public service announcement-like advertisements will likely receive pushback from commercial broadcasters if their ads do not also disclose the source and the fact that the ads were paid for.

FTC Drops A $31 Million Hammer On Live Event Ticket Brokers In First Ever BOTS Act Enforcement Case

The illusive secondary market for tickets to live events from concerts and theater performances to sporting events may be experiencing a new step towards reform. The Federal Trade Commission took legal action against three New York-based ticket brokers and an officer of each entity for violating the Better Online Ticket Sales (“BOTS”) Act. In 2016, the BOTS Acts was enacted to help curb companies and individuals from using computer software, or “bots,” to purchase massive amounts of live event tickets and resell them to consumers for a mark-up. Pursuant to the BOTS Act, ticket brokers who use these bots are prohibited from circumventing purchase controls and ticket allocation measures used by online ticket sellers.

According to the consent order, Cartisim Corp. and Simon Ebrani; Just In Time Tickets, Inc. and Evan Kohanian; and Concert Specials, Inc. and Steven Ebrani, each purchased tens of thousands of tickets for performances and events and used hundreds of fictitious Ticketmaster accounts, credit cards, and IP addresses to avoid security measures and control systems implemented on the Ticketmaster websites. The defendants profited millions of dollars in revenue from sales made on secondary market ticketing platforms. The FTC determined that such actions prejudiced consumers, unjustly enriched defendants, and violated the BOTS Act and the FTC Act. The FTC entered orders against the defendants of more than $31 million, which are partially suspended due to the defendants’ inability to pay. That said, defendants will cut checks to the FTC for civil penalties in the amount of $3.7 million.

Takeaway: In this first-ever case brought by the FTC over live event ticket sales, both first party sellers and third party purchasers should be aware of the FTC’s ability to enforce the BOTS Act. Given the breadth of FTC’s authority, we expect it will continue to use the BOTS Act as an enforcement tool against those who attempt to purchase bulk tickets to live events with the goal of reselling them at a markup to consumers.

FTC reaches settlement over misleading mobile advertisements for in-game rewards, and warns of growing scrutiny towards today’s gaming gatekeepers

The Federal Trade Commission (FTC) has settled with mobile advertiser Tapjoy, Inc. (“Tapjoy”) over allegations that it misled consumers by failing to provide in-game rewards that users earned by completing its advertising offers. According to the FTC’s complaint, Tapjoy offered users in-game virtual currency for completing advertising offers like purchasing products or services, signing up for limited-time free trials, providing personal information, or completing surveys. In exchange, Tapjoy allegedly received commissions from its third-party advertiser clients.

The FTC further alleged Tapjoy was aware of these deceptive claims and had received “hundreds of thousands” of complaints from users who did not receive the rewards they were promised. Many consumers complained that they ended up spending a significant amount of money and/or revealed sensitive personal information because of these advertising offers. Rather than take steps to remedy the misleading claims, Tapjoy “implemented policies to discourage consumers from complaining, such as prohibiting consumers from submitting a complaint within 24 hours of completing an offer.”

As part of the proposed settlement, Tapjoy is prohibited from misrepresenting the rewards and terms of its advertising offers, and is required to monitor its advertisers in order to ensure the promised rewards are delivered. The consent agreement is subject to a public comment period, after which the FTC will decide whether to issue a final order. The FTC explained that each violation of such an order could result in civil penalties of up to $43,280.

The action against Tapjoy reveals a more intense scrutiny toward the mobile gaming market structure, particularly with in-app stores and advertising intermediaries. In a joint statement, Commissioners Rohit Chopra and Rebecca Kelly Slaughter warned that “when it comes to addressing the deeper structural problems in this marketplace that threaten both gamers and developers, the Commission will need to use all of its tools — competition, consumer protection, and data protection — to combat middlemen mischief, including by the largest gaming gatekeepers.”  That said, the FTC’s proposed settlement reveals several important signals: a growing trend to regulate the mobile gaming industry as a whole; the materiality of consumer complaint volume; and the strong consensus for continued FTC enforcement, including financial penalties.  With this in mind, gaming gatekeepers that have formal policies and procedures in place to facilitate accountability in connection with claims and practices are often better-positioned to respond to investigations and manage consumer requests or complaints.  Lastly, the joint statement by the Democrat members of the Commission signals increasing recognition of the interplay between competition policy and consumer protection issues—a theme we expect may continue to emerge in the new administration.

Aldi Sued Over “Underfilled” Coffee In Class Action Lawsuit

Last week, a putative class action lawsuit was filed against Aldi Inc. regarding certain Beaumont Coffee products sold in its stores. According to the complaint, the packaging for the coffee product states that a single package will make “Up to 210 6 oz Cups.” According to package instructions, the plaintiffs assert that a single serving consists of one tablespoon of ground coffee and one serving of water. To make the advertised 210 servings, the plaintiffs allege that the package would need to contain 210 tablespoons of ground coffee, not the 137 tablespoons contained in the purchased package. An example of the alleged claim appear on the packaging here:

When compared to the advertised cups of coffee available to be made with this product, the plaintiffs allege that the product is underfilled by over 34%.  Despite one of the named defendants residing in Illinois, and the complaint being filed in U.S. District Court for the Northern District of Illinois, the complaint alleges that the packaging constitutes false advertising pursuant to several California and New York unfair or deceptive acts or practices statutes, including the California Consumer Legal Remedies Act, Unfair Competition Law, and False Advertising Law.

Takeaway: Most slack fill cases involve allegations that a product contains too much empty space commensurate with the overall package size. In this case, however, the plaintiffs allege that the package is underfilled based on the claims of contained on the package itself. Advertisers that make claims about number of servings per package should ensure that such claims match with the instructions and nutrition facts label.

FTC Issues Largest Ever Judgment Over Made In The USA Claims

Last week, the Federal Trade Commission issued a $1.2 Million judgment against glue maker, Chemence. Chemence is the manufacturer of various glues. The judgment originates from the production and manufacturing of various glue products with pre-packaged and pre-labeled Made in the USA claims. Additionally, the FTC alleged that Chemence represented to third parties that their private label products were all or virtually all made in the USA. An example of Chemence’s packaging, including both unqualified Made in the USA claims and use of the American Flag are below:

According to the complaint, Chemence violated a 2016 order with the FTC over identical, unqualified Made in the USA claims. Moreover, the FTC alleged that Chemence’s CEO declared in a 2017 compliance report under penalty of perjury, that Chemence changed the packaging to include the following revised claim: “Made in USA with US and globally sourced materials.”

In addition to the monetary judgment, Chemence is barred from making unqualified Made in the USA claims unless it can show that both the final assembly and all or virtually all of the ingredients of its glues are Made in the USA. Chemence must also notify third party sellers of its white-label products of the order, and provide compliance reports to the FTC.

Takeaway: In the largest-ever judgement against a company over Made in the USA claims, the FTC reaffirmed its commitment to ensuring consumers understand the source of origin of products they buy. This case serves as a reminder that any unqualified use of the American Flag or Made in the USA will require both the assembly of the products and the component ingredients to be all or substantially all made in the USA.

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