A Straight-up Victory for States Rights in Regulating Sports Betting

On May 14, 2018 the Supreme Court of the United States released its decision in Murphy v. National Collegiate Athletic Association.  This decision invalidates the key Federal prohibition on State-authorized sports gambling businesses, the Professional and Amateur Sports Protection Act (PASPA).  Under PASPA, except in connection with very narrow exemptions, States could not authorize entities to operate, sponsor, or advertise betting, gambling, or wagering businesses that were based on sporting events.  The Court invalidated PASPA because it unconstitutionally regulated that which a State could regulate in violation of our system of “dual sovereignty,” which reserves for the States certain rights to regulate themselves free from Federal intervention.

 

Citing a variety of sources, including the Declaration of Independence, the Federalist Papers, and notes from the Constitutional Convention, Justice Alito, joined by six other justices and joined in part by Justice Breyer, recognized the “anti-commandeering principle,” which dictates that the Federal government may not “command to the States” or its officers and subdivisions that they administer or enforce a Federal regulatory program.  Applying this principle to PASPA, the Court held that a statute that tells a State – in this case New Jersey – how to regulate sports gambling is unconstitutional.  Thus, New Jersey is now free to change its State constitution and enact a statute – 2014 N.J. Laws p. 602 – that authorizes most sports gambling in casinos and horse betting tracks in New Jersey.

 

PASPA contains a separate provision that prohibits private parties from sponsoring, operating, advertising, or promoting sports-gambling schemes if state law authorizes them to do so.  The Murphy decision takes a “wrecking ball” to PASPA, according to Justice Ginsberg’s dissent (joined by Justice Sotomayor and Justice Breyer, in part) because the decision applied to the entire statute, rather than just the State-prohibitive language.  The majority reasoned that it was nonsensical to say that a State was free to authorize sports gambling and then create a Federal civil cause of action to enable the State or other third parties to seek an injunction against a private entity who engages in the State-authorized activity.  The dissent reasoned that it was not unreasonable to interpret the Congressional intent to encompass a broad belt-and-suspenders approach to stem the spread of sports gambling.  The dissent argued that New Jersey could be permitted to act independently because of the “anti-commandeering principle”; but the Federal government could still seek to suppress the spread of sports gambling by regulating the actions of individuals affecting interstate commerce.  Justice Breyer agreed with the interpretation articulated by the dissent, and he noted that it would have left New Jersey with a Pyrrhic victory:  The State could authorize sports gambling but entities in the State could be sued for actually operating a sports-gambling company.

 

Though any State that wishes to authorize sports gambling may do so now, the decision did not mandate that every State authorize sports gambling.  The decision is distinctly focused on the principle of respecting “the policy choices of the people of each State” on controversial issues such as gambling.  Further, the decision reiterates the important principle that the Federal government cannot ban advertising speech about a lawful activity.

 

The decision did not affect any of the other Federal criminal statutes that prohibit gambling including 18 U.S.C. § 1955, prohibiting operation of a gambling business if that conduct is illegal under state or local law; 18 U.S.C. § 1953, prohibiting interstate transmission of wagering paraphernalia; 18 U.S.C. § 1084, prohibiting interstate transmission of information that assists in the placing of a bet on a sporting event if the underlying gambling is illegal under state law; and 18 U.S.C. § 1952, prohibiting travel in interstate commerce to further a gambling business that is illegal under applicable state law.

 

Takeaway: The Murphy decision does not immediately open the entire U.S. to sports gambling.  Entities seeking to operate a sports gambling business must analyze each State’s approach to this area separately and carefully.

Judge Dismisses Some Country of Origin Claims Against Guinness Beer

In January 2016, a class action lawsuit was filed in Massachusetts against Guinness beer for misrepresenting that Guinness Extra Stout was brewed in Dublin when it is actually brewed in Canada. Plaintiff claimed that the prominent use of “Traditionally Brewed” and “St. James’s Gate Dublin” in conjunction with “Imported Guinness Extra Stout” created a false impression that the product was manufactured, brewed, sourced, bottled and/or imported from Ireland.  Plaintiff’s claim was supported by a statement on the Guinness website that “All Guinness sold in the U.K., Ireland and North America is brewed in Ireland at the historic St. James’s Gate Brewery in Dublin”.  Although Guinness Extra Stout includes a small disclosure on the back label indicating that the beer is actually brewed in Canada, plaintiff argued that the disclosure was not sufficiently conspicuous, as compared to the prominent references to Ireland made on the outer packaging and front labels.

Last month, a Massachusetts federal judge dismissed plaintiff’s claims to the extent that they were based on labels affixed to Guinness Extra Stout bottles and packaging. Since the labels were approved by the Alcohol Tobacco Tax and Trade Bureau (“TTB”), they were entitled to safe harbor protection.  However, the Court found that the TTB did not approve the clearer statement on the Guinness website that “all Guinness sold in … North America is brewed in Ireland” and therefore, such claims could proceed.

TAKEAWAY:  Check your websites.  This case should serve as a reminder that misrepresentations on a website or in advertising may survive a motion to dismiss, even if similar claims approved by TTB are barred.

Brexit and Copyright Law

At the end of March the European Commission issued a “Notice to Stakeholders. Withdrawal of the United Kingdom and EU Rules in the Field of Copyright.”  It is a helpful but notably incomplete summary of the legal repercussions of Brexit on copyright law in the UK and EU.

In what ways is the Notice incomplete?

  • It assumes that as from the withdrawal date, 30 March 2019, EU rules in the field of copyright will no longer apply in the United Kingdom. That is unlikely to be the case, because the European Union (Withdrawal) Bill now being debated in Parliament provides that on and after that date EU-derived UK legislation will continue to have effect and direct EU legislation (for example, an EU Regulation) will continue to form part of UK law. Moreover, some EU rules have been embedded in UK legislation in ways that mean they will be unaffected by Brexit.
  • It omits to mention at least one of the implications of Brexit – see paragraph 1(b) below.
  • Inevitably, until we know if the transitional agreement that will govern EU/UK relations for a two year period from 30 March 2019 will preserve reciprocity in the copyright field, it is impossible to say with certainty what the full range of the implications will be during those two years. Moreover, what the situation will be after those two years will depend upon the terms of the trade agreement that the UK will be negotiating with the EU to govern their long-term relationship.

The EU Notice outlines under the six headings used in this Alert the consequences of Brexit in the field of copyright and related rights.

1.                  Broadcasters

  1. The Notice draws attention to the fact that the EU Satellite and Cable Directive provides that the act of communication to the public by satellite broadcasting occurs solely in the Member State where the broadcast signals are introduced into an uninterrupted chain of transmissions that lead to the satellite and down to the earth. Thus, satellite broadcasters only have to clear rights in that Member State. Unless the transitional agreement preserves this rule for broadcasts from the UK, the consequence will be that UK broadcasters who uplink their channels in the UK for reception in Europe could have to clear rights in all Member States within the satellite’s footprint, a daunting prospect.  By contrast, contrary to what is stated in the Notice, the fact that the country of origin rule is embedded in the Copyright, Designs and Patents Act 1988 will have the effect of preserving the rule for EU broadcasters whose signals are receivable in the UK.  To give an example of the potential consequences of this, if a presently UK-based broadcaster moved its operations to an EU Member State, it would have to obtain its licence to broadcast music to its UK audiences from the collecting society in its new country of origin.
  2. There is a curious omission in this section of the Notice, curious because the Notice refers here to the Satellite and Cable Directive but does not address the cable aspect. The Notice fails to mention the effect of Brexit on cable retransmissions of broadcasts from other Member States.  The Directive’s rule is that in respect of such retransmissions, rights owners (other than broadcasters) may only exercise their rights through collecting societies.  The Withdrawal Bill appears intended to preserve this rule in respect of retransmissions in the UK, so that such retransmissions will continue to be facilitated by the Directive’s rule.  By contrast, unless the Transitional Agreement preserves this rule for retransmissions of UK channels in Member States on and after 30 March 2019, the UK broadcasters will be faced with the possibility of claims being made against them or their cable operator licensees by rights holders who have chosen not to license such retransmissions through local collecting societies.

2.                  Collective Rights Management

At present, Directive 2014/26 on the collective management of copyright and related rights and multi-territorial licensing of  rights in musical works for online use in the internal market creates an obligation on a collective management organisation (a ‘CMO’) to represent another CMO for such multi-territorial licensing.  While the Notice correctly states that, as of the withdrawal date, EU CMOs will not be subject to the obligation to represent UK-based CMOs for such licensing; it does not mention that the apparent intended effect of the Withdrawal Bill is that UK-based CMOs will have to represent EU-based CMOs for such licensing if so requested.  Absent a provision in the Transitional Agreement, this disparity will continue.

3.                  Orphan works

The same disparity will occur in the case of orphan works, where the Orphan Works Directive provides that certain cultural institutions in the EU can benefit from a system of mutual recognition in relation to certain permitted uses of such works.  To remove the disparity, the Transitional Agreement and the subsequent trade agreement will need to ensure that online uses made in Europe of orphan works by UK cultural institutions continue to have the cover provided by the Directive.

4.                  Access to published works for persons who are blind, visually impaired or otherwise print-disabled

Here the disparity arises in relation to the rule created by Directive 2017/1564 that requires Member States to have an exception for the benefit of such disabled persons and authorised entities operating on their behalf, such that (a) any authorised entity may rely on the exception for a beneficiary person or authorised entity in another Member State, and (b) that beneficiaries and authorised entities may have access to accessible format copies from an authorised entity established in any Member State.  In the absence of a transitional agreement, print-disabled persons in the UK will not be able to obtain accessible format copies from authorised entities in the EU under the framework of the Directive.  Since, the effect of the Directive would not seem to be sufficient to allow authorised entities and beneficiary persons in the EU to obtain such copies from authorised entities in the UK after Brexit, it would certainly seem to be in the EU’s interest to cover this point in the Transitional Agreement.

5.                  Online content portability

As from 1 April this year, by virtue of the Portability Regulation 2017/1128, UK residents have been entitled to access and  use their digital online subscription services when temporarily present in other EU Member States; the access and use of the service is deemed for copyright purposes to take place solely in the UK.  Unless the Transitional Agreement preserves this rule, UK providers of such services will lose its protection and will have to clear rights in each Member State in which they wish to continue to make their services available to their travelling subscribers.

By contrast, the Withdrawal Bill, when enacted, will preserve the “legal fiction” created by the Regulation in relation to use by EU-based subscribers who are temporarily in the UK of online services provided from EU Member States.

6.                  Sui generis database right

The beneficiaries of the protection created by the Database Directive are restricted to persons who are nationals of an EU Member State, have their habitual residence in the territory of the EU or are companies formed in accordance with the law of an EU Member State and having their registered office, central administration or principal place of business in the EU.  As will be evident from our analysis in the preceding paragraphs of this note, the effect of the Withdrawal Bill, absent a Transitional Agreement that preserves the reciprocal effect of the Directive, is to create a disparity of protection.  The Commission’s notice is not correct in stating that EU Member State nationals and companies/firms will not be entitled to maintain or obtain a sui generis database right in the UK in respect of their databases. The Withdrawal Bill appears to afford that protection, but a Transitional Agreement is needed to ensure reciprocity.

The Sapin Decree on digital advertising services has come into force. It nevertheless raises several questions regarding its implementation.

The much-awaited Decree No. 2017-159 of February 9, 2017 on digital advertising services (the “Sapin Decree”) has entered into force as of January 1, 2018.

This Decree adapts the rules of the French Sapin law of January 29, 1993 – originally introduced for traditional media, i.e. television, radio and press – to digital media and constitutes a clear step forward in terms of transparency in the digital advertising sector. Its impact will be particularly felt in the interpretation and enforcement of audit clauses in advertiser/media agency agreements requiring transparency across all media platforms.

However, the conditions of implementation of the Sapin Decree raise some unanswered questions in practice that the French Competition Authority has asked the government to clarify.

Background

The French digital media market was estimated at more than 4 billion euros in 2017, and has therefore become the leading advertising media, ahead of television advertising. The magnitude of abusive practices in this sector have led the French legislator to take over and to extend the scope of the Sapin law to digital media (Macron law No. 2015-990 of August 6, 2015). While not behind the change, the 2016 K2 Intelligence report commissioned by the U.S. Association of National Advertisers on media transparency cited a variety of non-transparent transactions in media buying that will no longer be shielded from discovery under the new law.

18 months later, the government adopted the Sapin Decree in order to define the contours of the principle of transparency, which is now applicable to transactions in the digital media market.

The adoption of the Sapin Decree was much-awaited by French advertisers. It extends the French legislator’s fight against the opaque pricing practices to the various intermediaries providing online advertising services.

Merits of the new regulations

With the recent entry into force of the Sapin Decree, sellers of advertising space established in France – as well as those established in another EU or EEA Member State, insofar they are not subject to similar obligations, are now subject to a reporting obligation towards advertisers on the global campaign price and on the unitary price of each advertising space, including the date and place of diffusion of the advertisements. This new requirement includes any heretofore undisclosed rebates or other incentives received by media buying agencies that have previously not been disclosed to advertisers.

In addition, in case of digital advertising campaigns that rely on real-time services purchasing methods, the sellers of advertising space are required to provide advertisers with information on the actual implementation and the quality of their advertising services, as well as on the ways and means used in order to provide adequate protection of the image of the advertiser.

Grey areas to be clarified

Following a vast sector-specific investigation into online advertising, the French Competition Authority (the “FCA”) has made public an opinion No. 18-A-03 on March 6, 2018 regarding data exploitation in the online advertising sector (the “Opinion”).

This Opinion outlines the necessity to develop a legislative framework which will allow publishers and advertisers to benefit from a high level of transparency in their relations with advertising intermediaries and content distribution platforms.

Regarding the new Sapin Decree, the FCA notes that the law gave rise to different interpretations between advertisers, publishers and technical intermediaries. In that respect, the FCA expresses doubts as to whether a publisher of a website or an agency could be considered as a seller of advertising space within the meaning of the Sapin Decree. If not deemed a seller, then the law may not apply.

The differing interpretations in the context of digital advertising is notably due to the fact that there is a considerable number of intermediaries which are likely to be involved in a digital advertising campaign (such as platforms, trading desks, demand side platforms “DSP”, supply side platforms “SSP”, etc.). Indeed, in the online advertising market, the relations between advertisers and digital media owners are rarely direct, as advertising professionals with varied roles often intervene between them. The qualification of these numerous actors under the Sapin Decree remains uncertain and needs to be clarified.

The FCA is also concerned about the scope of the exclusion according to which the reporting requirements introduced by the Sapin Decree are not applicable to media owners (and their agencies) established in another EU or EEA Member State, provided that they are subject to “equivalent reporting duties” in their Member State of origin. The FCA outlines that this concept may be too vague and could lead to significant differences of interpretation and thresholds, depending on the jurisdictions. Therefore, a clarification of the term of “equivalent reporting duties” is necessary, according to the Opinion.

Finally, the FCA criticises the French lawmakers for not taking into account all transparency issues in the digital advertising sector and, in particular, for failing to regulate publishers’ access to campaign data. According to the FCA, the intermediaries used by the publisher to sell parts of its advertising space should also be subject to specific reporting obligations.

Expected actions from the French Government

There is no doubt that the aforementioned grey areas call for clarification.

The French government, fully aware of the difficulties, has indicated a willingness to provide further advice in order to clarify several points of the Sapin Decree and to specify the conditions for its implementation.

The future developments on this topic should therefore be closely monitored.

Monkey See, Monkey Selfie, No Copyright

In 2016, People for the Ethical Treatment of Animals (“PETA”) brought an action on behalf of Naruto, a Crested Macaque residing in Indonesia.  PETA asserted claims of copyright infringement against a wildlife photographer who published a book which included a selfie taken by Naruto using the photographer’s camera. The United States District Court for the Northern District of California granted the photographer’s motion to dismiss, including for failure to state a claim.  PETA appealed.  The Court of Appeals held that though Naruto had constitutional standing to bring an action, he lacked statutory standing to claim copyright infringement and, therefore, an animal, including a monkey, may not sue humans, corporations, or companies for damages and injunctive relief arising from claims of copyright infringementNaruto v. Slater, No. 16-15469 (9th Cir. Apr. 23, 2018).

In support of this holding, the Court of Appeals cited Cetacean Cmty. v. Bush, 386 F.3d 1169 (9th Cir. 2004) quoting Citizens to End Animal Suffering & Exploitation, Inc. v. New England Aquarium, 836 F. Supp. 45 (D. Mass. 1993), setting forth that “[if] Congress and the President intended to take the extraordinary step of authorizing animals as well as people and legal entities to sue [under a particular statute], they could, and should, have said so plainly.” Id. at 1179. The Court of Appeals in Naruto held, even if a statute at issue refers to “persons” or “individuals,” if an Act of Congress does not plainly state that animals have statutory standing, then animals do not have statutory standing.  Naruto, No. 16-15469 at 16.  As such, the case was dismissed and the photographer awarded attorneys’ fees.

Naruto affirms prior holdings that animals other than humans lack statutory standing to sue under an Act of Congress unless such statute expressly authorizes animals to sue.  The Compendium of U.S. Copyright Office Practices affirms that an original work of authorship may be registered for copyright protection provided that the work was created by a human being. U.S. Copyright Office, Compendium of U.S. Copyright Office Practices § 101 (3d ed. 2017).  The Compendium asserts that copyright law protects “fruits of intellectual labor” that “are founded in the creative powers of the mind.” Compendium (Third) § 101.1(A); Trade-Mark Cases, 100 (U.S. 82, 94 (1879).  As such, “the Office will refuse to register a claim if it determines that a human being did not create the work.” Compendium (Third) § 101.1(A); Burrow-Giles Lithographic Co. v. Sarony, 111 U.S. 53, 58 (1884).

Takeaway: Content creators and owners must ensure that work submitted for copyright protection is, in fact, created by a human being and not produced by nature, animals, plants, divine or supernatural beings, or by “a machine or mere mechanical process that operates randomly or automatically without any creative input or intervention from a human author.” Compendium (Third) § 101.1(A).  Content owners procuring work from third parties may memorialize such assurances in the form of a contract, specifically set forth as representations and warranties.

 

ANA Legal & Regulatory Webinar: TCPA Trends and Hot Topics

Please join us on Tuesday, May 8th, 2018 at 1:00 pm eastern for a webinar providing an overview of TCPA exposure risks in telemarketing, including the risks for calls and SMS using an Automatic Telephone Dialing System (ATDS) and what previously constituted an ATDS under FCC guidance. It will also cover the recent D.C. Circuit Court of Appeals decision in ACA International v. FCC and its rejection of the FCC’s guidance on the ATDS definition and where things stand now, as well as the ongoing perils for marketers in using prerecorded/artificial voice communications.  It will also discuss the implications of the Reyes decision, which looked at whether consent can be revoked, and the latest on manufactured TCPA claims.

Register here. 

FTC Sends Warning Letters to Companies Over Warranty Claims

Earlier this week, the Federal Trade Commission (“FTC”) sent warning letters to six (6) major companies that market and sell automobiles, cellular devices, and video gaming systems. The FTC indicated that it has concerns about the companies’ statements that consumers must use specified providers to keep their warranties intact. Unless warrantors provide the parts or services for free or receive a waiver from the FTC, such statements generally are prohibited by the Magnuson-Moss Warranty Act, and may be deceptive under the FTC Act. The FTC has requested that each company review its promotional and warranty materials to ensure that they do not state or imply that warranty coverage is conditioned on the use of specific providers, and, if necessary, modify such materials. The warning letters state that the FTC will review the companies’ websites after thirty (30) days and that failure to correct any potential violations may result in an enforcement action.

Takeaway: Companies should review and, if necessary, update their product warranties for compliance with the Magnuson-Moss Act and the FTC Act, as these recent warning letters may signal additional enforcement by the FTC.

“Weight Loss” vs. “Weight Management”: Vitamin Shoppe Sidesteps False Advertising Suit

Putative class representative Andrea Nathan renewed her efforts to hold Vitamin Shoppe, Inc. liable under California’s Unfair Competition Law, False Advertising Law, Consumer Legal Remedies Act, and breaches of express and implied warranties over Vitamin Shoppe’s “Garcinia Cambogia” dietary supplements after a California district court judge tossed the suit in February of this year. Vitamin Shoppe markets two products that contain the supplement, for “appetite control” and “weight management” respectively.  Nathan cited several studies in her first complaint, stating that the products’ only active ingredients (hydroxycitric acid and chromium) “are scientifically proven to be incapable of providing [] weight-loss benefits.”  The court, however, found such studies to be irrelevant because Vitamin Shoppe’s advertising does not promote weight-loss benefits, as opposed to “appetite control” and “weight management,” and dismissed Nathan’s complaint with leave to amend.

Nathan filed her first amended complaint a week later, which purports to fix the pleading deficiencies noted by the court. However, as Vitamin Shoppe pointed out in its motion to dismiss, it relies on the same studies as the original complaint and still mentions the fatal phrase “weight loss” over thirty times.  Vitamin Shoppe’s motion to dismiss remains pending.

Takeaway: In false advertising suits, specific language matters.  To survive dismissal, parties should plead only the specific claims made in the allegedly false advertisement.

FTC Slams Anti-Aging Supplement Seller for False Advertising

The Federal Trade Commission (“FTC”) recently reached an agreement with New York-based Telomerase Activation Sciences, Inc. and its CEO Noel Patton (collectively, “TA Sciences”), barring TA Sciences from making false or unsubstantiated claims regarding the efficacy and health benefits of two of TA Sciences’ products. According to the FTC’s administrative complaint, TA Sciences falsely advertised that its products reverse aging, prevent and repair DNA damage, restore aging immune systems, increase bone density, reverse the effects of aging skin and eyes, prevent or reduce the risk of cancer, and decrease the time needed for skin to recover after medical procedures. In addition, the FTC alleged TA Sciences misrepresented that a television segment it paid for in 2012 was independent, educational programming instead of advertising, and that TA Sciences deceptively represented that consumers in its advertisements were independent, impartial users, when in fact they received free product samples worth up to $4,000 in exchange for their endorsement.  Finally, the FTC claimed TA Sciences gave promotional materials containing false or unsubstantiated claims to other supplement marketers.

The proposed order settling the FTC’s complaint prohibits TA Sciences from making any representation about the health benefits, performance, efficacy, safety, or side effects of any covered product unless the representation is “non-misleading” and is supported by “competent and reliable scientific evidence.” It also prohibits TA sciences from misrepresenting that any paid commercial advertising is independent programming or that any endorser is an independent user of the product, and requires disclosure of any material connection between a product endorser and the company.  Finally, the proposed settlement order requires TA Sciences to notify its licensees of the order and monitor those licensees’ advertisements to ensure compliance, and to inform consumers who purchased the disputed products within the past year about the order.

Takeaway: The FTC issues an administrative complaint when it has “reason to believe” that the law has been or is being violated and initiating a proceeding is in the public interest.  To minimize risk of liability, advertisers should disclose paid television segments as advertisements rather than independent or educational programming, and also disclose when consumers in advertisements receive free product samples in exchange for endorsement.

High Stakes: Iowa Ends Up Paying $1M For Blocking Pro-Marijuana T-Shirts

The state of Iowa will be covering the bill in a protracted lawsuit over Iowa State University’s decision to bar a chapter of the National Organization for the Reform of Marijuana Laws (“NORML”) from using the university’s trademarks on T-shirts. ISU students won approval in 2012 to use the ISU mascot bearing a marijuana leaf and the slogan “Freedom is NORML at ISU,” but the university reversed itself after an article on the story drew the ire of state legislators.  The students then sued the university, claiming school administrators infringed the First Amendment by imposing more stringent trademark policies “expressly to restrict” NORML’s pro-marijuana speech.  The trial judge and the Eighth Circuit both sided with the students, holding the administrators “at least implied that the additional scrutiny imposed on NORML ISU was due to the views for which it was advocating” and “were motivated at least in part by pressure from Iowa politicians.”

Last month, an Iowa federal judge ordered the state to repay $598,000 in legal bills to the lawyers who represented the students through the district court proceeding. This amount was awarded in addition to the amounts the state agreed to pay in settling the action, namely, $193,000 to the lawyers for legal bills associated with the Eighth Circuit appeal and $150,000 to the students.

Takeaway: This case provides a warning of the potentially steep costs of viewpoint discrimination in deciding who may use state university logos or mascots, regardless of outside press or political pressures.

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