“You’re Fired” – The Growing Fallout from Celebrity Rants

While the beginning of the Trump era started with debates over the size of crowds and immigration bans, last week was all about brands and their affiliation (or desire to be unaffiliated) with President Trump. Most recently, this issue came to the forefront when Under Armour’s CEO gave an interview on CNBC and called Trump “a real asset for the country.”  In response, several Under Armour celebrity spokespersons – Stephen Curry, The Rock and Misty Copeland – voiced their disapproval with the CEO’s comments.  While most people probably viewed this disapproval from a political lens, advertising/media lawyers immediately thought:  “I wonder what their contract says?”

It is highly unlikely that any of their contracts contain a provision that would allow the celebrity to terminate the contract because he/she doesn’t agree with the political statements of a company executive.  Such a provision isn’t practical or realistic from either party’s perspective.  Further, as the Rock wisely stated in an Instagram post, the statements of a corporate CEO are not necessarily the statements of the brand.  Things are more complex when dealing with a multi-national corporation.

On the other hand, almost all celebrity spokesperson agreements contain some type of “morals” or “behavior” clause.  Such clauses give the advertiser the right to terminate a contract if the celebrity does something material that could be damaging to the brand.  Nike did this with Maria Sharapova, Manny Pacquiao, Michael Vick and Lance Armstrong, to name a few.  Tiger Woods was reportedly dropped by Gillette, Accenture, AT&T, Gatorade and Tag Heuer.

While morals clauses vary and can be quite elaborate, a simple clause might read:

Advertiser shall have the right to terminate the Agreement if Spokesperson (1) commits an act which brings Advertiser into public disrepute, contempt, scandal or ridicule; or (2) makes disparaging statements about Advertiser or Advertiser’s products.”

(1) “Commits an act which brings Advertiser into disrepute, contempt, scandal or ridicule.”   From the advertiser’s perspective, if you’re paying a celebrity millions of dollars to endorse your brand, the celebrity should be on good behavior and not do anything to tarnish the brand’s reputation. That said, it wouldn’t be fair for a brand to terminate a contract for an act that has no true damaging impact on the brand.

  • What type of “act” will trigger the clause?
    • A celebrity will want the provision to be narrow and specific, such as “commits a felony or a crime of moral turpitude and is convicted by a court of law.” In response, an advertiser will argue that merely being “charged” with a crime should be sufficient for termination because it’s likely the term of the agreement will be over before the celebrity is tried or convicted for the crime. Also, from the advertiser’s perspective, the damage is done once the act is publicized.
  • What effect did the act have?
    • The celebrity will argue that the bottom line should be whether or not the brand is impacted. They would want the act to substantially diminish the value of the celebrity’s association with the advertiser. In response, the advertiser will argue that the damaging impact of the act should be decided in the advertiser’s sole discretion.
    • In all reality, however, if an advertiser has invested substantially in the ad campaign behind the celebrity, it is unlikely to terminate an endorsement deal for an act that will have little or no impact on the brand or its core values.  The more common approach is to deal with the aftermath through a concerted public relations campaign.

(2) “Disparages Advertiser or Advertiser’s products.” Why would an advertiser pay a celebrity only to have them say bad things about the brand? Here are some things to think about with this provision:

  • What does disparage mean?
    • The celebrity will want any provision to be narrow and specific, such as “Intentionally and knowingly makes disparaging public statements about Advertiser.” In response, the advertiser will assert that the intent of the celebrity is irrelevant. Further, the advertiser will argue that the disparagement doesn’t need to be of a public nature; even comments made in private can have an adverse effect on a brand if the comments are later disseminated to the public.
  • Who is being disparaged?
    • The celebrity will want to limit the disparagement to only the advertiser (i.e., the brand itself), and not to any individuals. In response, the advertiser will argue that disparagement of an “employee or officer” of the advertiser should trigger a termination right if such disparagement has a negative adverse effect on the brand.

What is notably absent from today’s morals provisions are express prohibitions on political speech. While it’s not uncommon to have an advertiser prohibit a celebrity from making statements or supporting causes that are antithetical to the advertiser’s business practices (for instance, a fashion brand that sells fur coats would not want its celebrity to publicly support PETA – People for the Ethical Treatment of Animals), if more advertisers become concerned with celebrities making public statements about their personal political views, such clauses may see changes.  There is no question that brands prefer to avoid publicity that is coupled with political rants that could alienate a brand’s purchasers (even if the brand’s leadership agrees with the celebrity’s viewpoint).  For most brands, politics is not part of their marketing strategy.

Avoid the Perfect Storm

Washington has been hit with a political Tsunami unlike anything we’ve seen in our lifetimes.  But you know that.  What you may not know is how this tidal wave is going to change your day-to-day operations in advising marketers and their supply chain.  You may not know what to expect and how to respond.  Need answers?  This year’s Annual Association of National Advertisers Advertising Law  & Public Policy conference on March 28-29 in Washington could not be more timely.  Reed Smith partner, Douglas Wood, is once again honored to co-chair it with Dan Jaffe, head of ANA’s Government Relations office.  Not only will it again be the top networking event among the highest level players in the industry, this year’s list of speakers includes critical movers and shakers you need to hear.  Meet regulators, influencers, and law enforcement folks like Rebecca Meiklejohn (U.S. Department of Justice Antitrust Division), Connecticut Attorney General George Jepsen, Acting FTC Chair Maureen Ohlhausen, Wall Street Journal reporter Suzanne Vranica, Carla Michelotti, and more.  Join top legal counsel from some of the world’s largest advertisers, including L’Oreal, American Express, Dell, Fiat Chrysler, Unilever, Subway, InterContinental Hotels, and Mondelez.  Interact with Ad/Fin Solutions, TubeMogul, and WhiteOps, key technology companies poised to offer solutions you need to know.  And, of course, hear from Dan Jaffe on what’s in store for all of us in Washington and from the world’s A-List of private practitioners.  Missing this conference may leave you and your clients in a perfect storm without a plan. 

 

Indianapolis Colts Set Their Eyes for Home-Field Advantage in Second Class Action Complaint

As a follow-up to our previous article, the Indianapolis Colts are moving to move venues in a federal class action lawsuit to Indiana.  The plaintiff alleges that the beacon technology integrated in the Colts mobile application secretly recorded all user’s audio, including private oral conversations, for purposes of targeted advertising.  In the latest development, the Colts and co-defendants requested that the Massachusetts judge grant their motions to transfer the case to the Southern District Court of Indiana, or, alternatively if the Massachusetts court retained the case, dismiss the complaint.  The Colts argue that “Indiana is the locus of this lawsuit” and that the only connection that Massachusetts has to the case is that co-defendant Adept is located in Massachusetts.  The Colts further argue that even if the court does not grant the transfer, the lawsuit should be dismissed because the plaintiff failed to state a claim under the Electronic Communications Privacy Act (ECPA).  The Colts also pointed out that this is the second lawsuit filed by the plaintiff and that the plaintiff voluntarily dismissed the first lawsuit.

 

FTC Settlement Applies “Made in the USA” standard to “Built in the USA” Claims

Continuing its focus on “Made in the USA” claims, the Federal Trade Commission (“FTC” or “Commission”), on February 1, applied its standard for those claims to “Built in the USA” claims by entering into a settlement with water filtration company, iSpring Water Systems, LLC (“iSpring”).

In a move that appeared contrary to previously released guidance, the FTC action seemed to equate the term “built” with “made” rather than the term “assembled.” iSpring had claimed that its water filtration systems and parts were “Built in the USA,” but the FTC pointed out in its complaint that the products were either “wholly imported” or “made using a significant amount of inputs from overseas.” As a preliminary part of its analysis concluded that the company’s claim was deceptive, the FTC must have determined that “Built in the USA” was the equivalent to an unqualified “Made in the USA” claim. The FTC’s standard for “Made in the USA” claims is that the manufacturer should have a reasonable basis to back up the claim that the product is “all or virtually all” made in the U.S. The Commission therefore concluded that iSpring was deceiving consumers with misleading claims about the origin of its products.

In 1998, the FTC released guidance determining that consumers would interpret the term “manufactured” to be the equivalent of “made.” The guidance distinguished those terms from the term “assembled”, clarifying that a product that includes foreign components may be labeled “Assembled in the USA” without qualification when its principal assembly takes place in the U.S. and the assembly is “substantial.”

But in this case, the word at issue was “built.” By applying the “Made in the USA” standard to “Built in the USA” claims, the FTC appeared to equate “built” with “made” or “manufactured” rather than with “assembled.” Empirical evidence as to how consumers actually interpret the term “built” might help to demonstrate its reasonably held meaning. As it currently stands, it is unclear whether the word “assembled” is still considered distinct from the term “made,” or whether it, too, might be held to a “Made in the USA” standard.

The FTC continues to be serious about “Made in the USA” claims. We will keep you updated on developments in this area.

FTC Will Consider Spying Toy Privacy Concerns

Last month, the Federal Trade Commission (“FTC”), in response to a complaint filed by Electronic Privacy Information Center (“EPIC”) and other consumer groups, made the decision to review the potential privacy and security concerns associated with electronic, internet-capable children’s toys, namely My Friend Kayla and i-Que Robot, designed by Genesis Toys and Nuance Communications.

EPIC asked the FTC to investigate the toys to determine whether they violate the Children’s Online Privacy Protection Act (“COPPA”) or if the companies are engaged in unfair and deceptive trade practices. EPIC alleged that the toys engage in spying on children under the age of 13 in violation of privacy laws and collect information without parental consent while sending that information to Nuance, potentially exposing the information to unauthorized use by law enforcement and the military.

Takeaway: Advertisers and marketers should note that the FTC and other agencies are taking a proactive approach in investigating the security risks associated with internet-capable children’s toys and should ensure that such items comply with applicable privacy laws.

What’s In A Name? Unwanted Kardashian Affiliation Dooms High-End Cosmetic Product

The Eleventh Circuit recently denied the Kim, Khloe, and Kourtney Kardashian’s (the “Kardashians”) motion to compel arbitration related to a trademark infringement lawsuit filed by upscale cosmetics company, By Lee Tillett (“Tillett”). The parties are now set to litigate the matter in the United States District Court for the Middle District of Florida.  Tillet produces and markets the high-end cosmetic line, Kroma EU.  In an effort to break into the U.S. market, Tillet sent a basket of Kroma products to Kim Kardashian.  Soon after receiving the Tillet gift, according to the complaint, the Kardashians marketed their own makeup line under the Khroma name.  Tillett contended that the Kardashians hijacked the Kroma name, causing wide-spread consumer confusion.

Takeaway:  Companies looking to market products in the foreign jurisdictions by sending those products to celebrities should take caution to ensure their intellectual property rights are protected in the jurisdiction before sending the products.

Tennessee Court Awards $1.9 Million in Mapco Express Data Breach Class Action Suit

Last month, a Tennessee Federal court ordered Mapco Express, Inc. (“Mapco”) to pay approximately $1.9 million to settle class action claims arising from a 2013 data breach of its retail computer systems. The lawsuit was brought in 2014 by Winsouth Credit Union and First National Community bank and alleged that Mapco failed to adequately protect consumer financial information at its retail locations.

The settlement requires Mapco to pay $700,000 into a consumer settlement fund in addition to the $1.2 million that the company has paid to Visa and MasterCard, in furtherance of payouts associated with their data breach recovery procedures, while also certifying a class of the two companies’ card holders.

Takeaway: Federal courts are not shying away from awarding large settlements against companies who expose consumer data to potential breaches. Entities who handle large quantities of consumer financial information should ensure that adequate security measures are in place to prevent breaches as well as clear data breach response plans.

Reed Smith and Ghostery to Host Digital Advertising Webinar on February 8th

Gerry Stegmaier, a partner in Reed Smith’s Washington D.C. office, will be co-presenting a webinar titled “Digital Killed the Media Star: 2017’s Brave New World Perils and Opportunities” with Todd Ruback, Chief Privacy Officer and Vice President of Legal Affairs at Ghostery, Inc.  The webinar will counsel brands on the practical considerations for the development of digital advertising strategies.

To register for the event, click here.

Three States Introduce Bills to Legalize Sports Betting While SCOTUS Decides Whether to Hear Suit Challenging Existing Federal Ban

As the Supreme Court weighs whether to hear a New Jersey challenge to the Professional and Amateur Sports Protection Act (“PAPSA”) – a 1992 federal law that banned sports wagering in all states where it was not already in existence – legislators in New York, Michigan, and South Carolina have introduced legislation seeking to legalize sports betting in their states.

 The New York bill seeks to amend the state constitution to exempt sports wagering from the New York’s existing gambling ban. The bill is sponsored by Senator Tony Avella (D-Queens), who recently announced that he will run for mayor of New York City this year, challenging sitting Mayor Bill de Blasio. South Carolina’s legislation would similarly amend the state constitution. Both states require that the public approve any amendments to the state constitution.

In Michigan, the proposed legislation would submit a referendum to the voters on whether to adopt sports gambling. The Michigan legislation also would require the population of any township or city where sports gambling would take place to approve it by a majority vote.

Even if these proposals become law, PAPSA remains firmly in the way of state efforts to legalize sports gambling. The Supreme Court is currently deciding whether to grant certiorari and hear a lawsuit brought by the State of New Jersey arguing that PAPSA’s preemption of state attempts to legalize sports gambling is unconstitutional. The Court recently invited the Acting U.S. Solicitor General to weigh in on the case on behalf of the federal government.

Until the Supreme Court acts, any state action to legalize sports gambling would likely be struck down if challenged based upon the Third Circuit Court of Appeals en banc 10-to-2 decision in the New Jersey case, which held that PAPSA preempts states from legalizing sports gambling.

Takeaway: Although we should not read too deeply into the early days of state legislative sessions, it appears there is momentum among the states to upend the status quo on sports gaming. The introduction of sports gaming beyond Nevada would present new opportunities in the advertising space as states attempt to boost their economic fortunes by cutting into the Nevada monopoly on American sports gaming revenue.

 

 

Cause of Action Joins Defense of Electronics Maker in FTC Privacy Suit

The advocacy group Cause of Action has stepped in to help defend electronics maker D-Link in a suit brought by the Federal Trade Commission over the company’s purportedly insufficient protection of customers’ privacy.

The FTC is targeting D-Link for making representations that its products, including wireless routers and Internet protocol cameras, feature strong security, even claiming “Advanced Network Security.” In reality, the agency alleges, the company did not adequately secure these devices and did not use testing measures, confidentiality steps, and free security software. Cause of Action, which opposes government over-regulation, is getting involved because there have been no reported incidents of hackers taking advantage of any of the alleged security vulnerabilities. Cause of Action representatives have stated that allowing the FTC to target companies based on the potential for a data breach without actual or likely consumer harm would result in limitless liability for companies and would chill innovation in the Internet of Things.

Takeaway: Just because an entity has not yet experienced data compromise does not mean that it is immune from FTC actions alleging deceptive representations about privacy and data security. Companies should follow the D-Link case closely to see whether the agency is at all rebuffed for lack of any concrete harm to consumers.

 

 

 

LexBlog