Digital Copyright Ruling Creates New Vulnerabilities for Moderated Online Platforms

A recent federal appeals court decision may lead online platforms that post user-generated content filtered by moderators to think twice before posting copyrighted material. In Mavrix Photographs, LLC v. LiveJournal, Inc., the Ninth Circuit Court of Appeals recently held that the Digital Millennium Copyright Act’s (“DMCA”) safe harbor for “infringement of copyright by reason of the storage [of material] at the direction of a user” may not protect moderated online platforms.

This suit arose out of allegations of copyright infringement by Mavrix Photographs, LLC (“Mavrix”), “a celebrity photography company specializing in candid photographs of celebrities in tropical locations,” against LiveJournal, Inc. (“LiveJournal”), a curated social media platform.  Mavrix alleged that “Oh No They Didn’t!” (“ONTD”), a popular LiveJournal community dedicated to celebrity news, posted twenty Mavrix-copyrighted photographs between 2010 and 2014, in violation of the DMCA.  ONTD generates content by posting by submissions from its users.  When a user submission is received, ONTD’s team of volunteer moderators, who are overseen by a full-time LiveJournal employee, reviews the submission and decide whether it should be publicly posted on ONTD.

In this case, the Ninth Circuit considered whether the district court properly granted summary judgment to LiveJournal on the basis that DMCA’s safe harbor for posting infringing material “at the direction of a user” applied to ONTD.  The Ninth Circuit reversed the district court, holding that the court’s analysis of whether ONTD’s content was generated “at the direction of a user” improperly focused on the submission of infringing material, rather than on the process for posting the material.  The court further held that the district court improperly rejected Mavrix’s argument that LiveJournal was responsible for the acts of its moderators under the common law of agency.  Because of this, the court found that – as a threshold matter – genuine issues of material fact existed regarding whether the LiveJournal moderators acted as agents of LiveJournal.

Should the district court find that LiveJournal’s moderators are its agents, which would open the possibility of LiveJournal being liable for the posting of infringing material on ONTD, the court explained that a fact-finder must then determine “whether Mavrix’s photographs were indeed posted at the direction of the users in light of the moderators’ role in screening and posting the photographs.” If the moderators’ conduction related to screening ONTD user submissions for public posting is found to be more than “merely accessibility-enhancing activities,” the “at the direction of a user” safe harbor cannot apply.

Despite finding two issues of material fact – the agency status of ONTD moderators and whether ONTD’s content is posted “at the direction of a user” – the court went on to discuss the legal standards governing the remaining elements of the safe harbor. If the threshold requirement that the infringing content is posted “at the direction of a user” is met, LiveJournal will still need to show that: (1) it lacked actual and “red flag” knowledge of the infringements and (2) “did not financially benefit from infringements that it had the right and ability to control.”  Regarding the element of knowledge, the court noted that showing a lack of “red flag” knowledge requires LiveJournal to demonstrate that “it would [not] be objectively obvious to a reasonable person that material bearing a generic watermark or a watermark referring to a service provider’s website was infringing.”

Takeaways: This decision presents two potentially serious threats to online platforms that depend upon user submissions to generate content, including sponsors of user-generated content contests. First, the Ninth Circuit’s determination that LiveJournal may be liable for the posting of infringing user-submitted content because its moderators may be deemed agents of LiveJournal presents risks to online platforms (and advertisers) that thrive on moderated user-submitted content.

Second – and more importantly – the Ninth Circuit’s guidance on the “at the direction of a user” DMCA safe harbor narrows the previously understood scope of this provision and should lead moderated platforms to think seriously about the level of oversight currently exercised by its moderators, or reconsider whether to use moderators at all. In particular, this decision suggests that moderation of user-submitted content that goes beyond performing “accessibility-enhancing activities,” such as manually reviewing submissions or conducting a substantive review of the submissions, may take a platform outside the DMCA safe harbor and expose the platform to liability for posting copyrighted material submitted by users.  This narrow reading of the DMCA safe harbor may also pose risks for advertisers who sponsor contests and marketing promotions that involve producing a moderated selection of user-generated content.


Crabby Outcome for Seafood Restaurant in Trademark Lawsuit Against Steakhouse

Phelan Holding, Inc. did not have its day in the sun when the Eleventh Circuit granted RARE Hospital Management, Inc.’s motion for summary judgment. Phelan and RARE are owners of casual dining restaurants, and the court found this was the only trait they had in common.

Phelan’s Pinchers Crab Shack extensively used its tagline “YOU CAN’T FAKE FRESH” since 2004 in advertising, and holds a United States trademark registration. It sued RARE for trademark infringement and cancellation of RARE’s federal trademark “YOU CAN’T FAKE STEAK.”  Phelan claimed that RARE’s trademark created consumer confusion with Phelan’s “YOU CAN’T FAKE FRESH” in that consumers would believe that Phelan was associated with RARE.

The court found that no trademark infringement existed, because of the differences in restaurant themes, décor, colors, and the fact that there was no evidence of actual confusion by customers in the 4 years that both parties used their marks.

Takeaway: Even with strong trademark rights, advertisers may need to show evidence of actual confusion to proceed with a successful claim against competitors.



Annotations to Georgia’s Legal Code Are Protected By Copyright

The state of Georgia and the Code Revision Commission achieved a victory when a federal court granted their motion for summary judgment, holding that Georgia’s “Official Code of Georgia Annotated” (OCGA) was protected by copyright and Public.Resource.Org, Inc.’s duplication of the statutes online were not fair use.

The lawsuit was filed after Public.Resource.Org allegedly scanned a copy of the OCGA and uploaded it online for the public. Public.Resource.Org asserted that denying the public’s access to the OCGA would prevent Georgia citizens from fully understanding their rights or obeying the law.

The court held that the annotations, which included “judicial decision summaries, editor’s notes, research references, notes on law review articles” were original creative works entitled to copyright protection. It also held that Public.Resource.Org’s actions are not excused under the fair use doctrine, since Public.Resource.Org acted in its own interest and not for educational or nonprofit purposes, it copied every single word, and it created substantial economic harm to Georgia since consumers would use the free resource instead of purchasing the OCGA.

The court also pointed out the Copyright Act already specifically states that annotated works are protected by copyright.

TAKEAWAY:  Although statutes themselves are not copyrightable subject matter, annotations and commentary may be viewed as protectable.

FTC Extension of Robocalling Rules Is Approved By Federal Court

Last week, a D.C. District Court declined to find the Federal Trade Commission’s decision to extend robocalling restrictions to telemarketing calls that use “soundboard” technology unconstitutional or in violation of any procedural rules. The Soundboard Association, a telecommunications interest group, argued that the FTC rule was unconstitutional because the FTC bypassed the notice-and-comment requirements typically necessitated by such a rule change.  The court instead considered the decision to be a final agency action that is subject to review but also noted that the extension is an interpretative rule not subject to the notice-and-comment requirements.  Additionally, the court found the FTC letter constitutional, amounting to no more than a valid time, place and manner restriction on soundboard calls.

The FTC’s extension of the robocalling restrictions would apply to calls in which telemarketers play pre-recorded sound files that respond to consumer statements made during a phone call. The rule change went into effect on May 12 of last year and marks a notably different position than that taken by the FTC in a 2009 informal opinion letter that exempted calls using soundboard technology from regulations requiring consumers’ written consent.

TAKEAWAY: Marketers who use soundboard technology in their telemarketing campaigns are advised to take notice of this decision and FTC rule change, as they broaden the scope of the potential liability associated with such campaigns.





Khloe Kardashian Sued By Photographer Over Instagram Photo

Xposure Photos Ltd., a U.K. photography company, filed suit in the Central District of California last week against Khloe Kardashian, alleging that she infringed its copyright when she posted a photo of herself and her sister, Kourtney Kardashian, to her Instagram without authorization or appropriate copyright notice. Xposure is seeking an injunction against Kardashian for damages, costs and fees, among other relief.

Kardashian’s unauthorized posting of the photo, according to Xposure, denies the company of its ability to exploit it for commercial purposes, including licensing the image to The Daily Mail as originally intended. Interestingly, Xposure argues that Kardashian’s use of the photo was commercial in nature, given that Kardashian uses her Instagram for promotional purposes, and, as a result, harmed Xposure’s ability to capture the market and audience for the original photo, namely entertainment news consumers including Kardashian’s 67 million Instagram followers.

Takeaway:  This case serves as a reminder that the unauthorized use of photos on social media may result in copyright infringement claims.  It will be interesting to see whether this court further concludes that a celebrity’s non-commercial use of a social media account is nonetheless commercial, by virtue of the celebrity’s use of the account for commercial purposes from time to time.


Federal Court Enters FTC Settlement in Fake Prize Mail Scheme

Recently, a California federal court has entered into a stipulated order reflecting a settlement between the Federal Trade Commission (“FTC”) and a defendant charged with operating a mail fraud scheme. In September 2016, the FTC filed charges against Defendant Ian Gamberg and two other individuals, alleging that the group conspired to print and mail false prize notifications to hundreds of thousands of mostly elderly individuals, leading these individuals to believe that they had won a cash prize of $1 million or more.  These mailers included a request that the individuals return an approximately $25 “fee” to collect their cash prize.

Gamberg, who was allegedly responsible for executing the printing and mailing of the false prize notices, settled with the FTC and has been ordered to pay $1,400 of a deferred $800,000 judgment entered against him.  The FTC’s agreement to defer the majority of the judgment is contingent on the truthfulness of Gamberg’s financial disclosures.

Takeaway: Companies engaged in marketing and promotions involving contests and prizes should take care to ensure that print materials truthfully represent the nature of the promotion.  The FTC has undertaken an international effort to combat mass-mail fraud and companies should take proper steps to comply with FTC truth-in-advertising regulations.


Influencers and Advertisers Warned By FTC Over Instagram Posts

The Federal Trade Commission (FTC) announced this week that it sent more than 90 letters to social media influencers and advertisers, reiterating the need for influencers to “clearly and conspicuously” disclose their relationships with brands in social media posts that promote or endorse branded products. The FTC reviewed the Instagram posts of various unnamed celebrities, athletes and other influencers and sent the letters in response to petitions filed by public interest groups concerned with the lack of disclosures about such endorsement relationships.  Notably though, the staff did not predetermine in every instance whether the brand mention was in fact sponsored, as opposed to an organic mention – thus there may not have been a legal obligation by the influencer to make a disclosure at all.

The FTC’s Guides Concerning the Use of Endorsements and Testimonials in Advertising (Endorsement Guides), while not law, provide guidelines as to when endorsers and advertisers should disclose material connections. The FTC’s letters reminded the recipients about the concepts set forth in the Endorsement Guides and also provided the following insights into the FTC’s views about disclosures:

  • Consumers viewing posts in their Instagram streams on mobile devices typically see only the first three lines of a longer post unless they click “more,” and many consumers may not click “more.” Therefore, hashtags and links appearing at the end of a post may not be a “conspicuous” disclaimer.
  • Where there are multiple tags, hashtags, or links, readers may just skip over them, especially where they appear at the end of a long post. Therefore, influencers and advertisers should consider having disclosures at the beginning of posts or avoid burying them at the end of a post among a list of other hashtags or links.
  • Hashtags such as “#sp,” “Thanks [Brand],” or “#partner” may be confusing or unclear. Therefore, influencers and advertisers should carefully consider whether the intended audience of the post would understand the meaning of the hashtag or other disclosure used.

TAKEAWAY: The FTC and public interest groups are continuing to scrutinize influencer marketing and are paying special attention to disclosures in the mobile context. The FTC’s letters are a reminder that, regardless of the platform, both advertisers and their influencers are responsible, and may be liable, for making adequate disclosures about their material connections, unless the connection is already clear from the context of the communication. As we’ve noted before, the standard for “clear and conspicuous” disclosure is a performance standard, so if a substantial number of people are confused, the disclosure is not effective.


Diet-Pill Marketers Settle With FTC Over Email Marketing and Weight Loss Claims

Colby Fox and his companies Tachht, Inc. and Teqqi, LLC recently settled a case with the Federal Trade Commission over an email marketing scheme and claims regarding the companies’ diet pills.

According to the FTC, which filed the proposed order in the U.S. District Court for the Middle District of Florida, Tampa Division, the defendants paid affiliate marketers to illegally send millions of spam emails to consumers from hacked email accounts, masquerading as notes from the consumers’ family and friends.  Those emails contained links which directed consumers to websites for the defendants’ weight-loss products.  On those websites, the FTC alleged that the defendants made certain unsubstantiated claims, including that the products could cause weight loss of 17 pounds in four weeks, and that the products were featured or endorsed by Oprah Winfrey and the hosts of the television show “The Doctors.”  The defendants are required to pay a judgment of $500,000, which could be increased to as high as $1.3 million if it is determined that they understated their financial condition.  Additionally, the defendants are barred from making false and unproven weight-loss claims, must have competent and reliable scientific evidence to support any such claims in the future, and must not misrepresent celebrity endorsements.  In connection with the email marketing campaign, the FTC requires the defendants to monitor their affiliate marketers.

TAKEAWAY: Advertisers should be reminded that they can be liable for the actions of their affiliate marketers.  Additionally, this case serves as a reminder that both claims and endorsements by celebrities must be substantiated.

Upromise Penalized for Violating FTC Privacy Order Over Rewards Program

Upromise found itself in front of the Federal Trade Commission answering very tough questions earlier this month. The inquiry was related to a 2012 order requiring that Upromise include disclosures about data collection practices and conduct third-party assessments about Upromise’s data security safeguards.

The FTC alleged that Upromise failed to comply with the terms of the 2012 order while targeting consumers saving for college with a new toolbar called “RewardU.”  In 2012, the FTC alleged that Upromise’s TurboSaver toolbar collected information about users, including search terms, passwords, and credit card information, without disclosing the full extent of what was being collected.  The current order alleges that Upromise continued to engage in these practices.

Accordingly, the FTC assessed a $500,000 civil penalty, and also requires Upromise to permanently expire any RewardU-related cookies and tell users who downloaded the RewardU toolbar how they can uninstall the toolbar and delete associated cookies, along with obtaining third-party assessments of its security settings.

TAKEAWAY: Advertisers should be aware that many FTC orders include strict compliance and reporting requirements, which in this case extended for 20 years after the date of the original order.  The FTC can assess further penalties or obligations on advertisers for failure to comply with orders years after an original consent order was put in place.



For Media Transparency, The Stars Are Starting to Align in the United Kingdom

UK-based media agency, the7stars, recently announced it would adopt the Incorporated Society of British Advertisers’ (ISBA) template agency agreement—an arrangement designed to foster a transparent relationship between advertisers and media buying agencies.

Since K2 Intelligence released its report on the U.S. media buying industry in June—a report which detailed non-transparent business practices employed by media buying agencies to obtain and retain rebates and incentives—transparency has become the advertising industry’s buzzword.  What followed were revelations about media buying agencies that suggest transparency must become something more than a buzz word:  substantial overcharging for advertising inventory, secret settlements to avoid disclosure, and online ads placed with extremist propaganda videos.  the7stars commitment to transparency comes at a time when agencies in this industry desperately need to win back their clients’ trust and confidence.

ISBA, the UK trade association representing 450 UK advertisers, welcomed the move by the7stars to adopt its industry standard template, noting that such a move is vital for mending increasingly frosty  advertiser-agency relations, and serves as “a hugely important first step in providing UK advertisers with the tools to enable the clean and transparent media supply chain.”

Going forward, the question is whether other UK (and US) agencies will follow suit. Some of them will, quite understandably, resist change, but increasing pressure to focus on practices, procedures and tools to detect and eradicate advertising fraud may push all stakeholders to ISBA’s middle-ground agreement.  Change is in the air and we would expect more and more agencies to become receptive to the idea of adopting the ISBA standard or a variation thereof. Those who lead the way will undoubtedly be looked upon favorably by advertisers nervous about the current regime.