Recent federal court decision highlights importance of effective TCPA compliance measures before sending marketing texts

A federal court in Missouri recently held that a restaurant’s promotional text messages did not violate the Telephone Consumer Protection Act (TCPA) because the messaging equipment used by the restaurant did not qualify as an automatic telephone dialing system (ATDS) as defined by the statute. The district court noted a split between the circuit courts on this issue, highlighting the uncertainty regarding whether the equipment at issue must have the capacity for sequential or random number generation to fall within the definition of an ATDS, thus requiring prior express written consent.

To read more about the implications of the issues raised in Beal v. Outfield Brew House, Case No. 2:18-cv-4028-MDH (W.D. Mo. Feb. 20, 2020) please click here.

To learn more about this topic, please join Reed Smith for a CLE webinar on February 26, 2020 for a discussion on the latest TCPA legal developments and regulatory and compliance risks.

Proposed updates to German influencer labeling #Ad

On February 13, 2020, the German Federal Ministry of Justice and Consumer Protection (BMJV) published a proposal to soften the regulatory requirements for influencers for labeling their posts as advertising (Proposal). Under the Proposal, statements posted on social media about products for which no consideration was given – either in the form of monetary compensation or other benefits – shall be excluded from labeling requirements. In the view of the BMJV such posts are intended solely to shape public opinion and are not made in the pursuit of commercial purposes (see the BMJV’s press release of February 13, 2020, available in German here).

To read more about how these proposed changes might affect the legal framework on labeling requirements, please click here.

Was it all a fantasy? New York Appeals Court says fantasy sports are illegal

Introduction
On February 6, 2020, the New York Supreme Court’s Appellate Division, Third Department upheld a lower court ruling from 2018 which held that daily fantasy sports (DFS) contests amount to illegal gambling, and are thus unconstitutional in the state. In light of this decision, the New York DFS operations of popular companies like FanDuel and DraftKings will be called into question at the same time that legal sports betting is in its relative infancy in the state.

Background
New York’s Constitution provides that “no lottery or the sale of lottery tickets, pool-selling, book-making, or any other kind of gambling . . . shall hereafter be authorized or allowed within this state.” However, the constitution does not include a definition of “gambling,” and the legislature and courts have instead looked to the New York Penal Code’s definition, which states that “[a] person engages in gambling when he [or she] stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his [or her] control or influence, upon an agreement or understanding that he [or she] will receive something of value in the event of a certain outcome” Penal Law section 225.00(2). There has been ongoing debate as to whether DFS, which involves an arguably skill-based element of assembling a lineup of a fantasy team (namely, a group of players that do not actually play together) to win contests based on the performance of that team’s players, qualifies as such a “contest of chance.” That debate has reached both the New York legislature and the courts.

The February 6 decision in White v. Cuomo, N.Y. App. Div., No. 528026, stems from the legislature’s 2016 amendment to New York’s “Racing, Pari-Mutuel Wagering and Breeding Law,” which sanctions certain forms of gambling. The 2016 amendment excluded DFS contests from the definition of gambling, and formally qualified DFS contests as games of skill rather than games of chance. Stop Predatory Gambling, an anti-gambling organization, filed the lawsuit in an effort to invalidate the amendment, arguing that DFS is, in -fact, gambling, and thus the legislature’s decision to exclude DFS from the definition of gambling violated New York’s constitution. So far, New York courts have agreed with this assessment.

Implications
The ruling leaves the status of DFS uncertain, and highlights separate legal issues in the potentially even more lucrative mobile sports betting market in New York. DFS may no longer be legal, but more traditional in-person sports betting on the outcome of actual sporting events is currently legal and operational at New York’s brick-and-mortar commercial and Native American upstate casinos. While the debate over whether DFS is gambling or not continues, New York legislators are considering whether and how to operationalize mobile sports betting, which could raise different constitutional issues regarding whether or not the 2013 bill that allowed sports gambling at brick-and-mortar casinos can be stretched to include online operations, and could require a separate constitutional amendment to legalize if such legislation cannot pass. In the meantime, DFS may continue to operate until the case is fully decided.

The state may still appeal the decision to the New York Court of Appeals, New York’s highest court, which would automatically stay the Appellate Division’s order. In the event an appeal is filed, it could mean business as usual for DFS customers until the Court of Appeals rules. However, in the event that the state decides not to pursue an appeal (or the appeal is lost), companies offering DFS services in New York will need to quickly reevaluate how to approach their operations in New York, and may consider alternatives such as pursuing a constitutional amendment to formally recognize legalized DFS, or pivoting their focus to nearby markets, like New Jersey, where mobile sports betting and DFS have been legal and operational since 2018’s Supreme Court decision in Murphy v. NCAA, which invalidated a federal prohibition on state-authorized sports betting and opened New Jersey for the betting business in casinos and online.

Advertising Watchdog Says Gwyneth Paltrow’s Goop Is Making False Health Marketing Claims

Last month, prominent advertising watchdog, Truth in Advertising, Inc. (“TINA”), notified the California Food, Drug and Medical Device Task Force (the “Task Force”) in a formal complaint letter that Gwyneth Paltrow’s lifestyle brand Goop is violating a 2018 stipulated judgment that it entered into with the State of California.

The 2018 stipulated judgment prohibits Goop from, among other things, making false or misleading statements about a nutritional supplement or medical device and claiming that any nutritional supplement or medical device can diagnose, mitigate, treat, cure or prevent any disease without prior FDA approval.

In its letter, TINA claims that Goop is “deceptively marketing products as able to treat and/or mitigate the symptoms of several medical conditions including anxiety, depression, OCD, hormonal imbalances, and hair loss, as well as address the symptoms of excessive alcohol consumption” in violation of the 2018 stipulated judgment. To illustrate, TINA points to more than a dozen examples, including Goop’s $165 Edition 02 Shiso perfume, in which the ingredient descriptions claim that the perfume’s clove leaf ingredient helps to “improve memory,” while birch oil “treats OCD,” patchouli “dissipates” anxiety and depression, and agar wood/aloe wood “treats neurosis.”  Similarly, Goop sells a “Yoga in a Cup” supplement on its website, which is marketed as able to relieve anxiety.

TINA’s letter states that despite a $145,000 monetary penalty and court order prohibiting Goop from making deceptive and unsubstantiated marketing claims, “Goop continues to deceive consumers with inappropriate health claims in order to sell products.” TINA’s letter urges the Task Force to re-open its investigation into Goop’s marketing and take “appropriate enforcement action.”

Takeaway: Advertisers should be aware that in addition to regulators and consumers, watchdog groups, including TINA will be reviewing advertising and sending letters to governmental organizations when it believes certain advertising is in violation of a truth in advertising law.

Former “Bachelor” Contestant Stripped of $1 million Fantasy Football Win

Last month, a former Bachelor contestant was stripped of her $1 million prize won in a DraftKings online fantasy football contest after the company opened an investigation into the win amidst accusations of collusion.

As we previously wrote about here, Jade Roper-Tolbert, a former contestant on the reality TV show “The Bachelor” beat more than 100,000 entries to win first place in the DraftKings’ Millionaire Maker Contest. Roper-Tolbert and her husband both submitted the maximum of 150 lineups per person for the contest. However, nearly none of the couple’s entries duplicated the other’s, leading to accusations that that the couple may have colluded to increase their chances of holding the winning combination.

After conducting an investigation into the contest, DraftKings issued a statement that it “decided to update the standings for several contests. All customers affected by the updated standings will be notified directly. It is our general policy not to comment further on such matters.”

On the same day, attorney Alan Milstein tweeted that his client was declared the winner in the DraftKings’ Millionaire Maker Contest, in which he further stated, “I have had my share of interesting cases but never conceived this would be one of them.”

It remains unclear whether a settlement was reached with Roper-Tolbert to strip her of her prize or if she will pursue legal action against DraftKings.

Takeaway: This resolution serves as a reminder to contest sponsors to have clear language in the rules that set forth methods for dispute resolution and disqualifying entrants who engage in fraud.  Additionally, games with public leader boards and other voting contests should employ fraud-detection technologies.  Contest sponsors should work with their agencies to ensure such software and processes are in place.

Proposed Class Action Targets CBD Maker Over ADA Website Accessibility

Last month, a putative class action lawsuit was filed in New York federal court against Charlotte’s Web, Inc., a Colorado-based maker of cannabidiol (“CBD”) oils, balms and gummies claiming that its website is not accessible to visually impaired shoppers, in violation of the Americans with Disabilities Act (“ADA”).

According to the complaint, plaintiff Joseph Guglielmo, who is visually impaired, visited Charlotte’s Web’s website several times in December 2019, where he had difficulty navigating the site because it was not coded such that it was compatible with his screen-reading software. As a result, Guglielmo claims he was effectively barred from determining what specific products were offered for sale.

The complaint further alleges that the company’s website does not meet the World Wide Web Consortium’s guidelines for blind and visually impaired website accessibility. Moreover, the complaint alleges that because websites are places of public accommodations under the ADA, the company’s alleged denial of equal access to its website and refusal to make changes to improve the accessibility of the website amounts to an ADA violation.

The suit seeks a court order requiring the company to modify its website to conform to the Web Content Accessibility Guidelines, hire a consultant to improve the accessibility of the website, and regularly monitor the site’s current state of accessibility.

Takeaway: This putative class action serves as an important reminder to all companies who maintain websites for promoting and selling their products that such websites should be free of accessibility barriers that could support a plaintiff asserting an ADA claim. Unless a website has been coded with accessibility in mind, cannabis companies and dispensaries appear to be among the disability rights bar’s next targets in the ever increasing number of class action lawsuits filed alleging digital access ADA violations.

 

 

Kendall and Kylie Jenner “Klauber-ed” for Allegedly Infringing Lace Designs

Last month, a New York based fabric manufacturer, Klauber Brothers Inc., filed a copyright infringement lawsuit in California federal court against apparel companies owned by Kendall and Kylie Jenner for allegedly stealing the company’s lace designs and using them to make and sell apparel under the Kendall + Kylie collection name.

According to the complaint, Klauber Brothers, Inc. holds copyright registrations for two lace designs, and sold over 30 million yards of fabric featuring the designs to numerous parties in the fashion and apparel industries in New York and Los Angeles. Following the distribution of the product bearing the protected designs, Klauber Brothers alleged that the Jenners created and sold garments bearing lace-featuring designs that are “identical or substantially similar to” the fabric, and alleged that their infringement was willful.

Klauber Brothers, Inc. seeks to enjoin the Jenners from further infringing its lace designs and to award lost profits, among other relief. 

Takeaway: Product designs such as lace have proven to be popular points of copyright infringement litigation. Marketers and retailers should take caution when advertising and selling apparel that may appear common or ornamental, but may still be protectable under trademark or copyright law.

 

Expected changes to COPPA: bipartisan proposals and the FTC review

With newly proposed legislation, the House has joined the Senate in introducing bipartisan legislation making changes to the Children’s Online Privacy Protection Act (COPPA). This pending legislation, when combined with the Federal Trade Commission’s (FTC) ongoing COPPA review and workshop, foreshadows expanded COPPA protections, especially for teenagers between 13 and 15 years of age.

To read more about how these proposed changes might affect online advertisers, please click here.

NCAA’s Consideration of Training Expenses for Olympic Athletes and Name, Image and Likeness Debate to Take Center Stage at Annual NCAA Convention

Last week, the National Collegiate Athletic Association (“NCAA”) proposed a new rule allowing elite Olympic and Paralympic athletes to have “additional training expenses” paid without jeopardizing their NCAA eligibility.

Athletes designated “elite” by the U.S. Olympic and Paralympic Committee and national sport governing bodies would be allowed to receive “developmental training expenses, including travel for parents, guardians, coaches and sports experts” under the proposed legislation, which is to be voted on at the NCAA 2020 Convention taking place this week in Anaheim, California.

The Olympic and Paralympic athlete rule marks one of several modernization updates that the NCAA is considering instituting to its rules and policies. In October 2019, the NCAA Board of Governors announced it would take steps toward allowing college athletes the “opportunity to benefit from the use of their name, image and likeness in a manner consistent with the collegiate model.” NCAA rules currently prohibit college athletes from being paid to play college sports beyond receiving a scholarship and aid package that covers the cost of their attendance and prohibits them from earning money from their publicity as a college athlete.

The NCAA’s proposed process to enhance name, image and likeness opportunities seemed to be a response to legislation introduced in several states that would allow college athletes to be paid for use of their name, image and likeness, including California’s “Fair Pay to Play Act” and several other bills in states such as Florida, Minnesota, New York, and New Jersey.

The NCAA Board of Governors Federal and State Legislation Working Group, which includes presidents, commissioners, athletic directors, administrators and student-athletes will gather feedback through April 2020, with each NCAA division having until January 2021 to create new rules.

Takeaway: The NCAA’s proposed new rules signify a potential marked change in the organization’s decades-old policies, including its traditional “collegiate model” of barring student athletes from earning any money from their name, image and likeness. Time will tell whether the NCAA’s openness to modernize its policies will lead to the organization enacting real reform.

Key takeaways from the ICO’s draft Direct Marketing Code of Practice

The UK Information Commissioner’s Office has published a draft Code of Practice on Direct Marketing, which is now out for consultation. Here we discuss the context for this and key takeaway points from its 120+ pages.

Why is the ICO publishing this document?

The ICO is required under the Data Protection Act 2018 to publish a statutory code of practice on direct marketing, so this is the ICO delivering on that requirement. It draws on the feedback from the call for views undertaken last year. As a statutory code, once finalised, it will need to be presented to government for review and sign off.

There is already an existing Direct Marketing Code which has long been one of the most well-read and useful codes of practice the ICO has produced and is regularly consulted by data protection and marketing teams alike for guidance on email, post and SMS marketing rules. The code contains key information and pointers given that fines for breaches of direct marketing rules remain the most frequent we see. However, this code is outdated and required updating in light of changes around GDPR and the Privacy and Electronic Communications Regulations 2003, as well as to adapt to new technologies and marketing techniques.

What does the new draft code cover?

The draft code covers much of the ground that was covered by the existing one but there are some new sections and a couple of surprises. Broad topics for guidance are as follows:

  • The scope of direct marketing

This is all common sense stuff and there is little new here – for example the ‘useful’ nugget that a message that says “your local supermarket stocks carrots” would be considered promotional. Good to know.

  • New details and practical guidance around expectations on accountability and planning of marketing campaigns

The buzzphrase ‘DP by design’ makes a frequent appearance here as you would imagine. Worth noting the reminder that data protection impact assessments are required for data matching in direct marketing, large scale profiling and targeting children (remember this is under 18s not just under 13s). This section also contains useful clarification around when legitimate interests and consent are appropriate with the ICO stating that it considers it will be hard to demonstrate the balancing test requirements for reliance on legitimate interests where the marketing involves collecting and combining large amounts of personal data from various different sources to create personality profiles.

The section on special category data is worth noting since it mentions that inferring special category data from customer lists (for example if a company sells disability aids) is not something which triggers the requirements for a lawful basis for special category data under Article 9 unless the data is specific to the individual or used to target marketing on the inference of their health status. This is confusing given the ICO’s updated guidance on special category data which states the converse by expressly includes inferences which it issued last year.

  • Advice on lead generation and collecting contact details

Useful details are provided in this section around the GDPR requirement to inform individuals that their personal data is being processed within one month of receiving the data from another source. This point has been overlooked by some companies to date and involves ensuring practical safeguards to ensure that data collected from public sources, social media or third parties is either deleted or the individual contacted within that time. The draft also indicates expectations around reliance on “disproportionate effort” to do so.

  • Profiling and data enrichment

Profiling is a big focus for regulators so it is good to see more detail in the new code on this area. There is information on data enrichment, matching and data cleansing. None of this is surprising but will be useful for marketing teams, including a checklist of due diligence questions to consider when engaging third party suppliers in this area.

  • Sending direct marketing messages

This section largely follows the existing code. It is a little disappointing that more detail has not been added on the thorny issue of what constitutes “negotiations for a sale of a product or service” in the context of the soft opt in consent for direct email marketing however. The code gives very obvious examples but does not cover issues such as free services, apps or competitions.

  • Online advertising and new technologies

This will be the section that attracts the most attention since the code picks up on new technologies such as on-demand and OTT content services, in-game advertising and mobile apps.

The most useful, but perhaps alarming, section relates to social media marketing. The code discusses commonly used tools such as custom audience and lookalike targeting. It is surprising the draft states that individuals are unlikely to expect custom audience targeting, therefore consent is likely to be the most appropriate lawful basis and that information about such processing should be drawn to the attention of individuals outside of privacy policies. It is incredibly rare to see this approach taken in practice and this is likely to raise an eyebrow or two, especially since elsewhere in the draft it is clear that such form of marketing does not fall within the Privacy and Electronic Communications Regulations.

Similarly surprising is the ICO’s advice that the use of personal data for lookalike audiences on social media platforms, another commonly used tool, is likely to make both brand and the platform joint controllers in relation to the data (and not just the use of pixels and plugins).

We would expect push back on this advice in the consultation responses.

On the other hand, the code does not go into detail around the use of cookies and programmatic advertising. This is largely because this is such a big topic where the ICO has issued recent guidance and, specifically in relation to the use of real time bidding, an investigation has been ongoing, with the ICO announcing in December that it continues to have concerns and is deciding on what action it will take.

  • Selling or sharing data

Helpful information is provided here on considerations that should be made if an organisation is relying upon legitimate interests in order to disclose or sell data, which the code makes clear is only available in certain circumstances. Further detailed guidance is also given on data brokering services and how to comply with transparency and consent requirements if you operate one.

  • Data subject rights

A reminder is given that data subjects should be informed, via your privacy notice, of their right to object to direct marketing, and guidance is given as to how a user may exercise that right. Additionally, when relying upon consent to process personal data for direct marketing purposes, the fact that you cannot swap from consent to another lawful basis when an individual withdraws  consent is repeated – hopefully we are all aware of this by now!

The code also states that (obviously) when operating a suppression list, withdrawal of consent will not preclude an organisation from keeping that user’s details on the suppression list, as the organisation’s lawful basis for operating this list is likely to be ‘necessary for compliance with a legal obligation’ (Article 6(1)(c)).

What is the deadline?

The draft is open for consultation is open until 4 March 2020. You can provide feedback here.

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