Federal Court Holds That Casino In Video Game App Is Not A Gambling Device

A Federal court in Illinois dismissed a class action lawsuit against Machine Zone, Inc. Machine Zone is the maker of the popular “Game of War” mobile app.  Although the app can be downloaded for free, a portion of the game, known as the “Casino” permits players to receive free spins on a virtual wheel.  A player may click the “play” button to spin the wheel for a chance to win a prize as indicated on the wheel.  Following a free spin, a player may exchange chips for additional spins.  Chips can be obtained through a variety of manners, including purchasing them for money via in-app purchases.  The plaintiff spent hundreds of dollars on in-app purchases to obtain chips to play in the casino.  The plaintiff alleged that Machine Zone was operating a gambling device which resulted in a loss greater than $50 in violation of the Illinois Loss Recovery Act (“ILRA”) and the Illinois Consumer Fraud and Deceptive Business Practices Act (“IFCA”).

To prove a violation of these statutes, the plaintiff must show that the defendant was the winner of the plaintiff’s gambling losses.  The court concluded that the plaintiff’s allegations do support a finding that Machine Zone violated state law because Machine Zone was not the “winner” of the plaintiff’s gambling losses.  Rather, Machine Zone keeps the money a player pays to buy additional chips, regardless of the prize the player wins in the casino.  The plaintiff therefore does not win or lose that money.  Importantly, the court determined that Machine Zone is not putting any of its own money at risk in the game – simply a risk of potential future sales.  Since the plaintiff did not propose additional pleadings, the case was dismissed with prejudice.

TAKEAWAY:  Companies that offer in-app purchases to participate in casino-style games may not run afoul of state gambling laws because these games do not constitute gambling devices if the company does not risk their own money as part of the game.  Put differently, if a player cannot use his or her winnings for cash, a company may not be offering a gambling device.  A careful analysis of state gambling statutes, however, will be required to determine if the Illinois court’s holding would be instructive for other states’ gambling laws.

New York Marathon Settles Illegal Lottery Litigation

Last week, the New York Road Runners (“NYRR”) settled a class action lawsuit regarding their famed New York City Marathon and other New York-area races. The class action lawsuit was filed in March 2016, alleging that NYRR charged prospective runners a non-refundable processing fee of up to $11, whereby the entrants had a chance to win the right to participate in the marathon or half marathon.  In connection with the settlement, NYRR will issue race credits to certain runners for the non-refundable fees paid.  For the next three years, NYRR will not charge any fee to an individual to enter a drawing for a non-guaranteed entry into its races, nor will NYRR apply for a license to conduct a lottery in New York.  Interestingly, NYRR will disclose that for the next three years, it will select runners based on specific criteria, including promotion of geographic diversity, among other factors.  NYRR will also make a $100,000 donation to the City Parks Foundation and pay legal fees to plaintiff’s counsel not to exceed $650,000.

TAKEAWAY:  Random drawings with a purchase must have a non-purchase method of entry.  Importantly, purchases made should be for goods or services, and not solely for the chance to win a prize.

 

Autozone Sued Over Its Loyalty Program

Late last week, a class action lawsuit was filed in California state court against AutoZone. The case was filed pursuant to AutoZone’s rewards program.  According to the complaint, AutoZone’s loyalty program provides consumers with a “reward credit” for each purchase they make over $20.  After five credits, consumers would allegedly receive a $20 reward, which they could use for AutoZone purchases.  The plaintiffs allege that AutoZone subsequently created an expiration policy – noting that the reward credits accumulated expire after 12 months and the $20 reward expires after three months.  AutoZone, according to the complaint, did not adequately disclose the change to its program.  The plaintiffs, among other claims, are alleging breach of contract and violations of the California False Advertising Act and Unfair Competition Law.

TAKEAWAY:  Many advertisers are well-aware that state and federal laws expressly permit expiration dates on gift cards received in connection with loyalty programs.  However, companies that wish to start applying expiration dates to certain gift cards should take care to clearly and conspicuously communicate such changes to their members.

More to Say? Twitter To Allow Longer Tweets Starting September 19

Starting September 19, 2016, Twitter users will be able to say more in their Tweets.  As it stands, Twitter limits Tweets to 140 characters – and every character, including images, videos and URLs – count towards this limit.  Beginning next week, Twitter will eliminate the types of content which count against its 140 character limit.  Specifically, media related attachments, including images and videos, usernames (@replies) and quoted Tweets will no longer impact the character count.

TAKEAWAY: Advertisers engaging in social media campaigns, including sweepstakes and contests, will now have additional character space to communicate their messages to consumers.  The increased space for communication via Tweet provides more room for advertiser’s to comply with potentially applicable disclosure requirements.  Advertisers may wish to reassess their disclosure practices on Twitter to ensure compliance with FTC guidelines, sweepstakes laws and truth in advertising laws.

House of Representatives Passes Consumer Review Fairness Act and Better Online Ticket Sales Acts

The House of Representatives passed two bills last week relevant to the advertising industry: the Consumer Review Fairness Act and the Better On-line Ticket Sales Act (“BOTS Act”).

The Consumer Review Fairness Act is aimed at protecting consumers who write online reviews on certain websites, by invalidating “form contracts” which would impede those reviews from being made. The bill also prohibits contracts which transfer or require “an individual who is a party to the form contract to transfer to any person any intellectual property rights in review or feedback content, with the exception of a non-exclusive license to use the content, that the individual may have in any otherwise lawful covered communication about such person or the goods or services provided by such person.”  Examples of this conduct cited in the media include wedding planners who require their clients to sign non-disclosure/non-disparagement agreements, hotels which require guests to sign certain form non-disparagement agreements upon check-in, and apartment complexes who have included language in leases which claim to own all intellectual property in reviews made by their tenants.  The bill empowers the Federal Trade Commission to consider a violation of this bill (to the extent it becomes law) as an unfair or deceptive act pursuant to Section 5 of the FTC Act.

The BOTS Act prohibits the sale or use of certain software to circumvent control measures used by Internet ticket sellers in order to ensure equitable access to tickets for various events. Specifically, the bill prohibits both: (a) the use or sale of the software to circumvent security measures or control systems established on a ticket seller’s website that is used to ensure equitable consumer access to tickets for events; and (b) selling tickets which are knowingly obtained by someone who used or sold such software.  A violation of this bill (to the extent it becomes law) is deemed an unfair or deceptive act or practice pursuant to the FTC Act.  Additionally, an injured person may seek damages plus statutory damages of $1,000 for each distinct use or sale of the software in violation of the bill.  Finally, the BOTS Act amends the fraud section of the federal criminal code, making such conduct a criminal offense.

TAKEAWAY:  Since both bills have implications for several clients, we encourage you to keep updated on these bills, as the passage of these bills may require changes to business practices and revisions to contracts.

Dun & Bradstreet Settles TCPA Class Action Lawsuit for $10 Million

Late last week, Dun & Bradstreet Creditability Corp. and its related entities settled a class action lawsuit. In the lawsuit, the plaintiffs alleged that Dun & Bradstreet violated the Telephone Consumer Protection Act (“TCPA”) by using an automatic dialing system to call cellular phones without prior express consent of the plaintiffs. As part of the settlement, neither party admitted wrongdoing. If the court approves the settlement, a $10.5 million fund will be established to be distributed among the class. Additionally, the defendants initiated certain practice changes that are designed to prevent TCPA violations in the future.

TAKEAWAY: This case serves as a reminder to advertisers who engage in telemarketing campaigns. Advertisers should take care when engaging in these campaigns, as the costs of litigation and settlement can become expensive.

NBA Team Sued By Fans Over Mobile Application

Earlier this week, a putative class action was brought against the NBA’s Golden State Warriors concerning the team’s mobile application. According to the complaint, the free app provides an interactive experience for fans by delivering scores, news and other information relevant to the Golden State Warriors. The plaintiffs allege that the app contains certain Bluetooth beacon software that allows the Warriors to target specific consumers and send them tailored content, promotions or advertisements based on their location.

The app allegedly listens for audio beacons by secretly activating a consumer’s built in microphone in their mobile device (regardless of whether the consumer is using the app). The app then listens to and records all audio within range, including consumer conversations. The plaintiffs contend that they were not informed, nor did they consent to this technology. Accordingly, the plaintiffs are asserting a violation of the Electronic Communications Privacy Act, and seeking statutory damages and injunctive relief.

TAKEAWAY: Companies developing apps should understand the tracking technology used for geo-targeting or other behavioral advertising so as to ensure that they clearly communicate such technology to consumers, and, if applicable, offer opt-in/opt-out options.

Second Pokémon Go Alliance Announced: SoftBank

The international phenomenon surrounding the mobile game Pokémon Go has captured the attention of marketers. As we have discussed before, until Niantic, the developer of Pokémon Go, makes sponsorship more readily available, marketers in the U.S. and across the globe have found interesting and innovative ways to latch onto the Pokémon Go craze. The promise of sponsorship was underscored when Pokémon Go launched in Japan along with the announcement that McDonald’s had entered into a sponsorship arrangement whereby its 3,000 restaurants in Japan would be PokeStops and the “golden arches” logo would appear on the gyroscope image that enables players to obtain pokeballs, eggs, incense and other virtual items that are critical to effective gameplay.

Yesterday, a second sponsorship was announced. SoftBank, the Japanese multinational telecommunications and Internet corporation, announced that approximately 3,700 SoftBank-branded stores and Y!mobile-branded stores in Japan will appear as ‘PokéStops’ or ‘Gyms’ in the Pokémon Go game from September onward. It was also reported that additional promotional campaigns exclusive to SoftBank may be planned in the future connected to this arrangement. It is still unclear when and in what form U.S. companies will be able to enter into similar sponsorship deals.

Privacy Watchdogs File Complaint With FTC over WhatsApp’s Privacy Policy Change

Yesterday, the Electronic Privacy Information Center (“EPIC”) and the Center for Digital Democracy (“CDD”) filed a complaint with the Federal Trade Commission against WhatsApp, Inc. According to the complaint, WhatsApp posted an entry on its company blog on August 25, 2016 announcing an update to its Terms of Service and Privacy Policy. The updated Privacy Policy states that WhatsApp can share some information with Facebook and the Facebook family of companies, including the phone numbers provided by users when they registered for WhatsApp. WhatsApp and Facebook will use this data, the complaint alleged, to provide friend suggestions and targeted advertising on Facebook. Moreover, EPIC and CDD allege that users of WhatsApp will have a 30-day time period to opt out of the proposed data transfer, notwithstanding the fact that before this update, WhatsApp’s Privacy Policy promised not to use a WhatsApp user’s mobile number to send commercial or marketing messages without their consent. EPIC and CDD believe this change is bad for the privacy of WhatsApp users and a violation of Section 5 of the FTC Act (the federal prohibition on unfair and deceptive acts and practices). EPIC and CDD are asking the FTC to open an investigation. Additional news reports indicated that UK’s information regulator will also open an investigation into this change.

TAKEAWAY: Companies who wish to change their privacy policies or terms of use should carefully review the promises made to and the methods by which such changes are communicated to consumers. Additionally, companies should take care to ensure that all changes will comply with applicable laws in all countries in which they operate.

Twitter Sued For Right of Publicity Violations Over Profile-Trading Game

A class action lawsuit was filed in California yesterday against Hey, Inc. and Twitter regarding Hey’s online trading game in which players collect profiles of (and use virtual currency to invest in) real-life people as if they were baseball cards. App users may purchase virtual currency to buy and trade these profiles. According to the complaint, the majority of the individuals displayed in the app did not agree to participate. Instead, Hey used Twitter’s API to obtain the users’ profiles, including their names and profile images, without Twitter users’ consent.

This data practice concerned Congresswoman Katherine Clark (D-MA), who sent a letter to Twitter asking it to cease this practice “until nonconsenting profiles are removed and safeguards are implemented to ensure that no Twitter profile may be used by the application without clear, express consent.” The plaintiff is seeking damages and an injunction that would require Hey to remove personal identities from the app and enjoin Twitter from granting Hey access to Twitter’s API.

TAKEAWAY: Companies who wish to use the Twitter API for their own business purposes should determine whether they will need to obtain separate permissions for use of the data received. Depending on the nature of the proposed use, companies may wish to consider separately negotiating for the use of the Twitter API directly with Twitter.

LexBlog