Customers Sue Darden Restaurants Over Information on Receipts

A class action lawsuit was recently filed against Darden Restaurants, Inc. (“Darden”), alleging that Darden violated the Fair and Accurate Credit Transactions Act (“FACTA”).

Specifically, the plaintiffs alleged that Darden, which includes Olive Garden among its restaurant chains, violated FACTA by printing the full expiration date on credit card receipts, allowing potential identity thieves to readily discern whether the card is still active and narrow their focus to more viable targets. Plaintiffs alleged they suffered actual harm by asserting that they are now “burdened with elevated risks of identity theft” and because a “portion of the sale from the credit or debit transaction is intended to protect consumer data.” The plaintiffs are seeking statutory damages and injunctive relief.

Among other requirements, FACTA prohibits businesses from printing more than five digits of a customer’s card number or the card expiration date on any receipt provided to the cardholder at the point of sale or transaction.

The lawsuit in Florida federal court follows an earlier 2007 lawsuit brought against the company in Illinois.

Takeaway: Identity theft is a serious issue affecting both consumers and businesses. Plaintiffs are still taking advantage of FACTA claims, and businesses should be proactive in their compliance efforts in order to avoid costly litigation.

 

Advertiser Fined By FCC For Use Of Emergency Tones in Football Ads

The FCC entered into a settlement late last month with TEGNA, Inc. (“TEGNA”) for $55,000. The case erupted after TEGNA used Emergency Alert System (“EAS”) tones in its television ad promoting the Jacksonville Jaguars NFL team.  The advertisement at issue opened with EAS tones along with sounds of gusting winds and thunder claps, and aired four times over three days prior to being pulled.

The EAS is a national public warning system used to deliver emergency information to targeted areas. According to the FCC, it enforces laws prohibiting use of the tones except in emergency situations or authorized tests in order to preserve the effectiveness of these emergency tones, and avoid the risk of desensitizing the public.

Takeaway: In addition to complying with truth in advertising laws, advertisers may be subject to the purview of the FCC.  Advertisers should take caution when using sounds or symbols that are typically associated with emergency situations.

 

 

SCOTUS Strikes Down Ban on Disparaging Trademarks

Earlier this week, a unanimous but fractured Supreme Court ruled that a controversial provision in the Lanham Act prohibiting the registration of trademarks that disparage “persons, living or dead, institutions, beliefs, or national symbols” violates the First Amendment. This decision may be most remembered for the impact it may have on the NFL’s Washington Redskins, who have been fighting disparagement clause claims against the organization’s valuable trademarks.  However, First Amendment practitioners may long remember this decision for the Court’s powerful language affirming a “bedrock” First Amendment principle: “Speech may not be banned on the ground that it expresses ideas that offend.”

This case arose out of a trademark application filed by Simon Tam, the lead singer of “The Slants,” an Asian-American dance rock group that seeks to “reclaim” and “take ownership” over Asian ethnic stereotypes. The United States Patent and Trademark Office (“USPTO”) denied Tam’s application under the Lanham Act’s disparagement clause, finding that a “substantial composite of persons . . . find the [band’s name] offensive.” After exhausting his administrative remedies, Tam took the USPTO to federal court, eventually landing before an en banc panel of the United States Court of Appeals for the Federal Circuit.  The Federal Circuit reversed decades of precedent interpreting the disparagement clause, holding that the Lanham Act’s prohibition on disparaging trademarks facially violated the First Amendment’s Free Speech Clause.  The USPTO appealed.

Writing for the Court, Justice Alito was unanimously joined by his colleagues in affirming the judgment of the Federal Circuit. The Court also unanimously agreed that registration of a trademark does not convert the mark from private speech into government speech, rejecting an argument by the USPTO that would have subjected trademark regulations to lesser First Amendment scrutiny.  The remainder of Justice Alito’s opinion rejected various USPTO arguments, reasoning that (1) granting federal trademark was not akin to subsidizing speech, (2) the clause was not protected from harsher First Amendment scrutiny as a “government program,” and (3) trademark registration standards could not be regulated as commercial speech. From this analysis, Justice Alito concluded that the disparagement clause was unconstitutional.  Only three justices – Chief Justice Roberts, Justice Breyer, and Justice Thomas – joined Justice Alito in these remaining sections, limiting their precedential value.

Justice Kennedy filed a concurring opinion – joined by Justices Ginsberg, Sotomayor, and Kagan – arguing that the Court should have invalidated the disparagement clause based upon the First Amendment’s protections against viewpoint discrimination. Justice Gorsuch did not take part in this decision.

Takeaway: This decision ensures that entities seeking to promote or protect their brand through the benefits of obtaining a federal trademark will not be turned away on the basis that their proposed trademark is socially controversial.  While certain key issues raised by this case are left undecided due to the four-four split in the Court’s reasoning, the Court’s unanimous agreement in the outcome and support for the First Amendment should provide a measure of comfort for those in the advertising industry who seek to break through every day noise with socially provocative material.

 

 

Vermont Legislature Passes Fantasy Sports Bill

In a move to become the latest state to regulate daily fantasy sports (“DFS”), the Vermont Legislature has passed a bill defining fantasy sports games and directing the state attorney general and governor’s office to develop a registration fee and tax system for fantasy sports operators and players in the state. Additionally, the bill bars DFS operators, employees and their relatives from participating in such contests and also places restrictions on professional athletes. Finally, the bill regulates DFS advertising depicting minors and children and mandates that contest participants be at least 18 years of age.

Approximately 80,000 residents in Vermont currently participate in DFS contests—a number expected to increase as these contests grow in popularity not only in Vermont but throughout the country. If the bill is signed by the Governor, Vermont will become the 10th state in the nation to develop a legal framework for DFS and the 3rd state in 2017 to have done so.

TAKEAWAY: Daily fantasy sports continue to grow in popularity and state authorities and regulators are and will continue to find ways to remain on top of this growth. Advertisers who market or otherwise engage with fantasy sports should keep an eye on new regulations, including special requirements impacting the advertising of fantasy sports.

Consumer Protection Class Action Lawsuit Over “Free” Candy Crush Plays Will Proceed

A class action lawsuit against the developer of Candy Crush will continue in Illinois federal court. According to the complaint, Candy Crush, a popular mobile game, entices users into sharing the game with Facebook friends in exchange for free “lives” (or plays) only to have those lives promptly deleted.  The plaintiffs allege that the lives are valued at $0.20 each.  The court rejected Candy Crush’s argument that failing to receive free lives does not constitute an “injury in fact,” and permitted breach of contract, unjust enrichment and state consumer protection claims to proceed.  The plaintiff will, however, need to identify individuals who’ve lost free lives outside of Illinois in order for claims under any other state’s consumer protection laws to proceed.  The Court dismissed the remaining claims under the Computer Fraud and Abuse Act and the Illinois Consumer Fraud and Deceptive Business Practices Act.

Takeaway: Companies that offer virtual items, plays, currency, skins, or other digital benefits to game players should pay special attention to this case, as it may suggest that game publishers are required to provide such items (even those with a nominal value) to players in the future.

 

We’ll Always Have…

Paris Cannes

Next week, the advertising industry gathers in Cannes, France for its annual awards celebration. In addition to the much coveted Lion statuette, countless leaders in the industry will be on hand for networking, speeches, and partying.  And there will be the usual dose of celebrities as well.  Amid all this revelry will be conversations about cutting edge issues, including media transparency.  I’m privileged to participate in a panel on Monday hosted by International Advertising Association and moderated by Carla Michelotti, entitled “Presumed Innocent: Finding Clarity in Transparency”.  With Carla leading the discussion, Emmanuelle Rivet, Cross-Industries Technology Practice Leader at PwC, and I will explore the murky world of media and production transparency.

Before I take flight to France, let me recap some important points worth considering as we imbibe on a few glasses of rosé, the apparent official beverage of Cannes. Readers may also find my last blog – [Happy] Anniversary – on what’s happened in the last year of interest as well.

The Schizophrenia of Principals and Agents

Much has been written about the legal status of media buying agencies. Are they buying media as agents for a disclosed principal (the brand) or are they buying media as principals and reselling time and space to their brand customers.  My response?  When it comes to transparency, it doesn’t matter if agencies are acting as principals or agents.  The issue is one of transparency, not legal status.  A principal in a transaction can be as transparent as an agent if a contract dictates it.  So let’s stop wasting time using an agency status as a principal transaction as an excuse to reject transparency.

That said, there is a legal difference between agents and principals that brands need to understand. An agent owes a fiduciary duty to act in the best interests of its principal, e.g., a brand, and to account for all monies entrusted to the agent, including any “hidden” compensation.  An agent also vouches for the performance of suppliers it selects to deliver on promises it makes to the brand.  In the media world, the media agency is the expert and gate keeper.  Who they pick in the supply chain, unless contractually disclaimed, is their responsibility.

On the other hand, a principal reselling goods or services to its customers has no fiduciary duty and is free to act in its own best interests and not necessarily act in a manner that is best for its customer.

There is another important side to principal status as well. When a principal sells goods or services, it is liable for the performance of those goods and services and component parts and sub-contractors in the supply chain.  Absent an agreement with a customer that disclaims liability for components or sub-contractors, a principal remains responsible.  For example, if I were injured in a car accident caused by a defective airbag sourced by the manufacturer from a third party, that does not excuse the manufacturer from liability to me.  The manufacturer cannot defend a claim by telling me my problem is with its supplier, not them.  That doesn’t work.  Thus, in a principal transaction with a media buying agency, a brand has every right, absent a contractual provision to the contrary, to expect the agency to take full responsibility for supply chain fraud, bots, viewability, measurement, and placement on websites that undermine brand safety.  So if agencies want to resell media as a principal, let’s dispense with protestations about being responsible for everyone in the supply chain.

Next up is risk in the context of media buying as a principal.  To understand it, I asked an economist for a definition of risk:

“At-Risk Basis” means Agency’s payment or commitment to pay for goods or services using Agency Assets.  “Agency Assets” means cash, proceeds from credit facilities, or other forms of assets that are not co-mingled with assets that are not the property of Agency or are dependent upon subsequent payments by Advertisers whereby the history of non-collectible accounts receivables from such Advertisers provides the upper limit of “At-Risk Basis” of Agency.

Put another way, without true skin in the game, a media buying agency is not a legitimate principal. Thus when an agency buys space and time relying on guaranteed future payments from its brand clients, where is the risk? How is principal status justified where no true risk exists?

Don’t get me wrong. There is nothing illegal about non-transparent behavior as long as a brand agrees to it or is fully aware it is happening and fails to object.  But where a brand has not agreed or is not aware of the schemes, there may well be a breach of the agent/principal relationship and, perhaps, the contract between the agency and the brand.

It’s Not Just About Media

Since last year’s detonation of the bombshells in the K2 Intelligence report, the debate on transparency has expanded. Published and anticipated reports on transparency and potential losses to brands now include digital analytics and production.

Digital Analytics – Brands Can Have All the Ones and Zeros They Want

Supply chain credibility problems in the digital arena have plagued brands for years without a meaningful solution. Non-human traffic, reporting discrepancies via walled gardens, audits,  alarmingly high waterfall effects on investments, and brand safety concerns are just a few.

Amid this confusion, much can be learned from two recent ANA reports – Programmatic: Seeing Through the Financial Fog and Bot Baseline 2016-2017 Fraud in Digital Advertising. The programmatic study led by Ad/Fin, Ebiquity, the ANA and the ACA is an investigation of transparency in the buy side (DSP) ecosystem. It proves the proposition that the DSP-side of digital transactions can be entirely transparent.  The often heard excuses of confidentiality and ownership of data, among others, are hollow when juxtaposed against the investigation’s results. In that regard, I encourage readers of the report to ask themselves why agency holding company trading desks refused to participate.  The second report is the ANA sponsored study conducted by WhiteOps outlining what more media buyers and brands can do to address bot fraud.   While progress has been made in the last few years, much more needs to be done.

Production – Bidding Déjà vu

A commercial routinely costs hundreds of thousands of dollars to produce. According to a soon to be released ANA report, transparency behind production may be overdue.  To a degree, the current debate harkens back to 2002 when some advertising executives were sent to federal prison for production bid rigging.  Did that incarceration put an end to the practice?  The Antitrust Division of the Department of Justice may believe the answer is “no” and has an active investigation centered on production bid rigging. Watch the press for developments.

In recent years, agency holding companies have also consolidated production and formed subsidiaries that produce commercials and provide other post production work for their clients. One proposition supporting this consolidation is possible savings over what independent production and post production companies charge.  That may be a good thing but whether that is true or false, before brands move their production work to holding company subsidiaries, they may want to ask themselves (1) whether they are comfortable adding production to the services menu of the oligopoly that manages more than 80% of global media buying dollars, and (2) how they insure that the comparative costs and any savings are transparent.

What Lies Ahead

Like it or not, greater transparency in brand/agency relations is here to stay. Agencies can no longer avoid greater scrutiny.  Assuming ANA reports on media, programmatic, and production are accurate, brands and agencies have questions that need to be answered and systemic changes that need to be made.

How all this will eventually be resolved is a matter of speculation.

Let’s talk about it in Cannes!

Color Run Sues Competitive Race for Trademark Infringement

Running-event company The Color Run, LLC filed suit last week against rival company My School Color Run, LLC for willful trademark infringement, unfair competition, and false designation of origin. Color Run asserts that My School Color Run’s similar name, branding, events, and apparel violate both federal and state law.

According to the complaint, My School Color Run’s similar “color”-formative marks allow My School Color Run to benefit from Color Run’s established brand, and are likely to cause confusion amongst consumers as to the origin or association of the company with Color Run. Color Run also alleges that My School Color Run’s comparable events unfairly compete with Color Run, causing the company to lose sales and suffer damage to its goodwill and reputation in the marketplace.

After negotiations between the parties failed to resolve the dispute, Color Run filed this action against My School Color Run in the United States District Court for the Southern District of California. Color Run seeks both equitable and monetary relief from the court.

Takeaway: Sponsored events and other activations are still subject to the same trademark rules as products and services.  Companies should take care to ensure that even events that have become part of pop culture may be owned by a party asserting senior trademark rights.

 

 

 

FTC Settles Claims Against Trampoline Companies Over Online Reviews

The Federal Trade Commission (“FTC”) last week agreed to settle charges levied against the marketers of Infinity and Olympus Pro brand trampolines. Those charges asserted that the marketers, under the guise of a variety of fake business names and review organizations, directed visitors to fictitious websites containing biased reviews that were actually written by one of the marketers who failed to disclose his interested status in the company.  Additionally, the logos from numerous fake independent review entities (e.g., “Trampoline Safety of America”) were also posted prominently throughout the websites, and when clicked, would bring users to pages containing “expert reviews,” allegedly misleading the users about the quality and safety of the trampolines for sale.

The settlement order bars the marketers from continuing to assert the claims alleged in the FTC’s complaint and requires that they clearly and conspicuously disclose any “unexpected connection[s]” between any endorsements available on the websites and the members or affiliates of the company. Additionally, the order requires that any reviews made by members of the company for its products or competing products clearly and conspicuously disclose the interested connection.

TAKEAWAY: Reviews or statements made about a product by its marketers must clearly and conspicuously disclose any connection that the marketer may have in the sales of the product.  Additionally, marketers should only use the real logos of actual independent review entities that have provided actual independent reviews of a product.

 

 

 

 

Athletic Tape Manufacturer Settles False Advertising Litigation for $1.75 Million

A class action lawsuit recently settled with KT Health LLC and KT Health Holdings LLC (“KT Health”). The plaintiffs alleged that certain advertising claims regarding KT Health’s KT Tape (kinesiology tape) was false and deceptive.

Specifically, the plaintiffs alleged that KT Health claimed that its KT Tape “can be used for hundreds of common injuries” and “provides 24 hour pain relief per application for days at a time through sweat, strain and humidity.” Despite the allegations, the parties reached a settlement agreement which included $1.75 million payable to the members of the class.  Additionally, KT Health agreed to modify its labeling of their packaging and advertising of KT Tape.

TAKEAWAY:  Health claims continue to be on the radar of the class action bar.  Advertisers should continue to ensure that all health claims are backed by scientific evidence and research.

 

[Happy] Anniversary

A year ago today (June 7, 2016), K2 Intelligence released an Association of National Advertisers’ commissioned study entitled, An Independent Study of Media Transparency in the U.S. Advertising Industry.  The painstakingly-researched and detailed report identified numerous non-transparent business practices that were alleged to be pervasive in the U.S. media ad buying ecosystem. Reminiscent of the Barbarians at the Gate and the Big Short, the findings sent shock waves throughout the industry by suggesting a fundamental disconnect between advertisers and their media agencies.  The report disclosed that long-standing rumors of complicated schemes to hide and divert rebates and other incentives were well-founded and that media agencies were not necessarily acting in the best interests of their clients by, among other things, wrongfully retaining rebates and other incentives given to them by media platforms/publishers that were rightfully the property of the advertisers.  Some headlines read “…CEO Alleges Widespread U.S. Agency Kickbacks and Kickbacks. Yes.  They’re Real.

While non-transparency was an issue well before the K2 Report was released (see WTF is Agency Transparency?), on this anniversary of the K2 Intelligence Report, here’s a summary of how the industry has evolved over the last year.

Agency Response

Not surprisingly, in the immediate aftermath of the K2 Report, many agencies refuted that non-transparent activities took place.  Four of the major media buying holding companies (WPP, IPG, Omnicom and Publicis) issued public statements that denied any wrong-doing and criticized the report.  Over the last year, the holding companies have continued to claim, both publicly and in private, that they are acting in a fully transparent manner despite numerous press reports and other allegations to the contrary.  And there have been interesting changes addressing transparency by Dentsu, WPP, and Havas.  While such changes may be improvements, without robust auditing rights throughout the entire holding company structure, verifying true transparency is impossible.  Only independent media buying companies (e.g., Mediasmith, The7Stars, and Horizon) have publicly embraced audit rights that may insure greater transparency across various media platforms.

Despite some progress, several instances over the last year have called into question the transparent nature (or lack thereof) of the media industry.  Some of the more public incidents/examples include the following:

  • Leaked documents from one “top six” agency showed that about 40% of its ad-buying income in 2015 came from hidden kickbacks as well as “other” income.
  • The Wall Street Journal announced that the US Justice Department is investigating whether advertising agencies are engaging in the practice of “bid rigging” to generate work for their in-house production units. Various agencies have been subpoenaed in connection with the DOJ’s investigation of video-production and post-production practices.
  • A major holding company reportedly engaged in 633 “suspicious” digital ad transactions affecting 111 clients, including “discrepancies in advertising placement periods either made consciously or by human error, failure of placement, and false reporting regarding performance results or achievements.”
  • The former head of digital trading of a “big six” agency stated that agencies make money on deals favorable to the agency that aren’t necessarily in the interest of their clients.  Another media veteran claimed that media agencies are in a “downward spiral” and thus have been seeking hidden programmatic fees.
  • A major publisher in the UK admitted to paying rebates to ad and media agencies.
  • A report from WhiteOps revealed that an ad-fraud scam reportedly cost advertisers $3 million to $5 million per day.
  • Australian press reported “Declining Agency Fees And Dubious Profits: Symptoms Of A Broken Business Model?
  • In Confessions of an ad tech veteran: ‘Publishers need to audit their exchanges’ an executive reported that, “… the ANA report’s focus on rebates eclipsed the fact ad tech tax remains alive and well. In fact, it’s getting even worse…”
  • In “Media Trading Transparency: Where There’s Smoke…”, Media Post contributor Maarten Albarda reported on an ex-agency head of digital trading who claimed, “agencies make tons of money on all kinds of deals that favor their income, but aren’t necessarily in the interest of their clients.”  The article went on to say that, “The ISBA, the U.K. counterpart of the ANA, said [the executive’s] statements were significant and call for scale change in the media industry.” while agencies she interviewed said the executive’s “allegations were only made for his own benefit, since he had just launched himself as a consultant to help advertisers with agency trust issues.”
  • Various reports indicate that programmatic demand-side-platforms and sell-side-platforms engage in non-transparent activity to earn additional fees/payments.

Needless to say, all of this has not helped address the growing feeling of distrust between advertisers and agencies over transparency and other relationship issues. Nor has it helped that the transparency issues are in addition to other supply chain credibility problems that have plagued advertisers over the last year, such as bot fraud, reporting discrepancies via walled gardens, and brand safety concerns. Examples of failed opportunities to resolve some of these concerns are reflected in two recent reports released by the ANA: Programmatic: Seeing Through the Financial Fog and Bot Baseline 2016-2017 Fraud in Digital Advertising. The former report reveals that despite claims to the contrary, the supply chain in programmatic digital buying can be transparent.  The latter report reveals that media buyers can do more to address bot fraud.

Advertiser Response

The K2 report and the incidents listed above have caused many advertisers to take notice of the serious nature of the non-transparent allegations.  Marc Pritchard, Chief Brand Officer of Procter & Gamble Co. has been a vocal advocate of media transparency issues, stating earlier this year that “the days of giving digital a pass are over … It’s time to grow up.  It’s time for action.”  Some advertisers have taken action and made significant strides towards transparency and accountability. Wall Street Journal columnist Suzanne Vranica reported that large marketers have conducted audits of their media agencies and their agency contracts.  Numerous advertisers have renegotiated or are currently renegotiating their media agency contracts while others have settled with their agencies for past practices and recovered, according to press reports, millions in withheld rebates, incentives, and other credits.  Business Insider claims agencies are secretly settling with clients to avoid audits.  Other advertisers now include specific transparency mandates in RFP’s reflecting the terms and conditions in the ANA’s Master Media Planning & Buying Services Agreement form prepared by Reed Smith.  Others are embracing the ANA’s best practices recommendations contained in the ANA-Ebiquity/Firm Decisions Media Transparency: Prescriptions, Principles, and Processes for Advertisers. One advertiser even reportedly let go of its agency due to a breakdown in trust.

So while there are some positive signs, there is much work to be done.   The just released ANA “Trends in Agency Compensation” reveals that while 75% of study participants were aware of the K2 Report and reviewed media transparency with their senior management, less than half of those who were aware have taken any action to address the allegations.  Assuming this report is accurate, that means more than 50% of the industry is either unaware of the transparency issue or may be failing to deal with it.  In today’s world of regulations like Sarbanes Oxley that require adherence to financial controls, that result is astounding.  Thus,  many advertisers, perhaps even the majority, need to come to grips with the issues before they spiral out of control and regulators or shareholders start asking awkward questions.  The question is not, as one agency executive suggested, “Have you heard a lot? Has a major scandal surfaced?”.  The questions are what is happening behind the scenes and what, if any, financial controls advertisers are putting in place to insure they are properly stewarding company and shareholder investments in media and production.

 

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