Ready Tech Settles Privacy Shield Case with FTC

Late last year, the Federal Trade Commission (“FTC”) settled another enforcement action over false claims under the EU-U.S. Privacy Shield framework (the “Privacy Shield”). The FTC alleges that Ready Tech Corporation, a provider of online and instructor led training (“Ready-Tech”), falsely claimed in its privacy policy on its website that it was in the process of certifying its compliance under the Privacy Shield. Although Ready-Tech initiated an application in October 2016, it did not complete the steps necessary to participate in the Privacy Shield framework. As part of the settlement, Ready-Tech is prohibited from misrepresenting its participation in any privacy or security program sponsored by the government or any self-regulatory or standard-setting organization, including but not limited to, the Privacy Shield.

TAKEAWAY: Advertisers who wish to tout compliance with the Privacy Shield must ensure that in addition to applying for self-certification, they must also undertake steps including: (i) developing a compliant privacy policy statement consistent with Privacy Shield principles, (ii) designating a contact for the handling of questions, complaints, access requests and other issues arising under the Privacy Shield, and (iii) identifying an independent recourse mechanism to investigate unresolved consumer complaints at no cost to the consumer. Annual re-certification with the U.S. Department of Commerce is also required.

New Year, New Vermont Law for Data Brokers

Effective January 1, 2019, a new Vermont law imposes data security and annual disclosure obligations on data brokerage companies (e.g., Acxiom, Experian, Epsilon). The law requires data brokers to register annually with the Vermont Attorney General and pay an annual registration fee. Data brokers must disclose annually to the State Attorney General, among other things, information regarding practices related to the collection, storage and sale of personal information, applicable opt-out practices (if any), and the number of data breaches experienced during the prior year along with the the total number of consumers affected by such breaches (if known). The law further requires data brokers to develop, implement, and maintain a written comprehensive information security program.  Importantly, the law does not require data brokers to offer consumers the ability to opt out. However, there are additional requirements if the data broker knowingly possesses personal information of minors. Failure to comply with the new law could be considered an unfair and deceptive act in commerce in violation of Vermont’s consumer protection law.

TAKEAWAY: Advertisers should routinely review their agreements with data brokers in order to ensure they are complying with this new Vermont law, including the registration and disclosure requirements.

“As Seen on TV” Means Exactly That, Court Finds

In a recent false advertising case, the court reminded everyone again that if you say something about your product, you had better mean it.

Emson, which sells cookware products largely through direct response television spots, brought a false advertising claim against Masterpan and Smart & Eazy Corp. (“S&E”). According to Emson, both defendants made false claims about their “Original Copper Pan” product, including that the product is the first-of-its-kind because certain versions of the product are made of (as opposed to coated with) copper. However, Emson had been selling its copper-coated “Gotham Steel” pots and pans since 2016 – before the “Original Copper Pan” product was introduced. Also, based on the testing it performed, Emson found that the defendants’ “Original Copper Pan” product in fact contained “undetectable levels” of copper, and that the inner coating lacked copper entirely.

Except for the motion to dismiss claims against S&E for failure to state a claim, the District Court for the Southern District of New York denied the defendants’ motions to dismiss. According to the court, it was plausible that Masterpan’s advertisements for its “Original Copper Pan” product were false and in violation of the Lanham Act. For example, the court found it plausible that Masterpan attempted to falsely and deceptively convey to consumers that its product was the first-of-its-kind pan when other copper pots and pans preceded it on the market.

Another interesting aspect of this case was Emson’s argument that the defendants misrepresented the product as having been “As Seen on TV” when, according to Emson, the product was never advertised on television. Website, print and promotional advertising for the “Original Copper Pan” included the “As Seen on TV” logo, but Emson claimed that the defendants never actually advertised the product on television. While the court felt that this claim was a bit tenuous, it decided that discovery might determine whether or not the claim is actually false.

TAKEAWAY: The case illustrates the need to support all claims made about a product, even through the use of logos. Calling a product “original” when that is not the case, or using the “As Seen on TV” logo when that’s not actually true, will be factored into a false advertising analysis, so advertisers need to be ready to support such claims.

Today’s Hot Topic: Public Service Announcements

From time to time it’s good to keep in mind specific network guidelines when producing public service announcements.

According to network standards, public service announcements (PSAs) are meant to inform the public of the work of charitable, governmental, and non-profit organizations and other services available to the public. Such announcements must reflect the true nature of the organization identified with the announcement, and all claims must be substantiated. Discussions of controversial issues of public importance and religious doctrine are not permitted in public service announcements.

Guidelines

I.  Appropriateness of Submitting Organization

A.  Organizations requesting PSA scheduling must be non-profit or governmental. Requesting organizations are reviewed to determine their non-profit status, objectives, activities, and financial policies.

B.  Non-profit organizations should be in compliance with the guidelines of the Council of Better Business Bureaus’ Wise Giving Alliance (See www.give.org).

C.  As a general matter, to qualify for use on the networks, the organization and its message must be national in scope and serve the needs of an extensive part of the United States.

D.  As a general rule, material from trade or professional associations is not acceptable as public service announcements. Such material is often self-serving and frequently repetitive of other public service messages.

II.  Content of Message

A.  PSAs must be consistent with the objectives of the sponsoring organization and must be in the public interest.

B.  PSAs must fully comply with all applicable network policies and government regulations.

C.  PSAs must be tastefully presented and of appropriate production value.

D.  No commercial products, services, or corporate names may be shown or referenced in PSAs.

E.  PSAs in which funds are requested will be reviewed on a case-by-case basis, but, absent special public interest considerations, are generally not acceptable. Direct solicitation of funds is not acceptable in PSAs where the airtime is being donated by the networks.

III.  Sale of Commercial Time for Public Service Announcements

A.  In addition to the acceptance and scheduling of PSAs without charge, paid commercials for, or on behalf of, non-profit and not-for-profit organizations are permitted on a case-by-case basis.

B.  Organizations must meet the same standards that otherwise apply to PSAs.

C.  The identity of the sponsor must be clearly set forth in the commercial as well as the fact that the message was “paid for” or “sponsored by” such sponsor.

IV.  Union Obligations and Public Service Announcements

PSAs featuring SAG-AFTRA members or produced by a signatory to the SAG-AFTRA Commercials Contract must be produced in accordance with the terms of the PSA waiver provisions in Section 18 of the SAG-AFTRA Commercials Contract. If the requirements of the waiver are met, residuals (i.e., use fees) otherwise typically due to performers will be waived. The requirements of the waiver are set forth below:

A.  The commercial/PSA must be produced by or on behalf of a government agency, charity, public service organization or museum;

B.  You must receive SAG-AFTRA’s consent before seeking a performer’s consent to use the PSA waiver (and only celebrities can waive the session fee);

C.  Media time to broadcast the PSA must be donated time; and

D.  PSA cannot contain any sponsor logos.

The networks and SAG-AFTRA have strict policies regarding public service announcements. So, if you have plans to create PSAs, make sure the advertising complies with the network guidelines and SAG-AFTRA requirements, where applicable. And remember, when it doubt, ask questions.

Marilyn Colaninno is Director of Rights and Clearances for Reed Smith and is responsible for clearing commercials for the firm’s many clients in the advertising industry. If you have specific questions, please contact Marilyn directly at 212-549-0347 or at mcolaninno@reedsmith.com.

Michael Isselin is an associate in the Entertainment and Media Industry Group.  If you have specific questions, please contact Michael directly at 212-549-0359 or at misselin@reedsmith.com.

Stacy Marcus is a partner in the Entertainment and Media Industry Group.  Stacy is also the chief negotiator for the Joint Policy Committee on Broadcast Talent Union Relations, the multi-employer bargaining unit for the advertising industry that negotiates the multi-billion dollar commercials collective bargaining agreements with SAG-AFTRA and the American Federation of Musicians.  If you have specific questions, please contact Stacy directly at 212-549-0446 or at smarcus@reedsmith.com.

 

FTC Eyes Contact Lens Trademark Settlement Agreements

Over a spirited dissent, and in a 3-1 decision issued on November 14, the FTC Commissioners held that 1-800 Contacts violated Section 5 of the FTC Action by entering into settlement agreements with competitors that (1) harmed consumers in the online sale of contact lenses and (2) harmed search engines by artificially reducing the prices paid for online advertisements.

The settlement agreements at issue resolved allegations by 1-800 Contacts that its competitors were infringing upon its trademark by bidding on paid search advertising with 1-800 Contacts’ trademark as keywords.  Search engines hold auctions for ads placed as results of certain search terms, and the settlement agreements prohibited competitors from bidding on keywords containing 1-800 Contacts’ trademark and also required competitors, when applicable, to employ 1-800 Contacts’ trademark as a “negative keyword” (which prevents competitors’ ads from populating the results of a keyword search for 1-800 Contacts’ trademark).  From 2004 to 2013, 1-800 Contacts entered into thirteen such agreements with competitors, and the FTC challenged this practice, reasoning that the agreements were inhibiting competition  in a “very important” channel of advertising that “effectively eliminat[ed] an entire channel of competitive advertising at the key moment when the consumer is considering a purchase.”

Last October, as we have previously reported, ALJ D. Michael Chappell issued an Initial Decision upholding the FTC’s complaint.  Judge Chappell concluded that, per the Supreme Court’s ruling in FTC v. Actavis, 570 U.S. 136 (2013), parties entering into trademark settlements are not immune from antitrust liability.  Upon de novo review, the Commissioners, in an opinion authored by Chairman Simons, agreed with Judge Chappell and engaged in an analysis of the conduct under the burden-shifting framework of the Rule of Reason.  The Commissioners first found that there was prima facie evidence that the settlement agreements resulted in anticompetitive effects: (1) that this specific type of restriction on advertising is “inherently suspect” and therefore does not require an elaborate analysis to show anticompetitive effects and (2) that the settlement agreements resulted in direct evidence of consumer harm, in the form of higher prices and a restriction of truthful advertising.  And, while the Commissioners found that 1-800 Contacts had two legitimate, plausible justifications for entering into the settlement agreements—the avoidance of litigation costs through settlement and trademark protection—the Commissioners ultimately reasoned that these justifications were not valid in the face of a showing that competition would likely be harmed by the settlement agreements.

In dissent, Commissioner Phillips criticized the majority’s finding of an anticompetitive effect, arguing that the settlement agreements were not “inherently suspect” because the likelihood of anticompetitive effects of such agreements could not easily be ascertained, especially when considering the competing federal policy of trademarks.  Further, Commissioner Phillips, like the majority, engaged in an extensive review of the factual record.  But, he concluded that there did not exist evidence of direct price effects.

Key Takeaways:  By categorizing these settlement agreements as “inherently suspect” under the antitrust laws, the FTC Commissioners are identifying conduct of this type as a “close neighbor” of a per se violation, the most serious violation of the antitrust laws.  And, even though the majority is careful to limit its holding to a specific fact-pattern, marketers and advertisers should be wary of any agreement among competitors to restrict advertising, even when entered into as part of a legitimate settlement agreement.  Indeed, this is an increasingly hot issue, and not just with antitrust enforcers.  Earlier this year, a proposed class action was filed against a group of companies in the hospitality industry asserting violations of Sherman Act Section 1 for alleged agreements to limit the use of branded keyword searches on prominent search engines.  Thus, marketers should be aware that agreements to restrict or limit advertising terms –particularly when entered by competitors—could very well face antitrust or other scrutiny, whether by antitrust enforcers or even private plaintiffs.

Zika Repellent Could Not Keep Away FTC

PR firm Creaxion Corporation and Inside Publications, LLC settled with the Federal Trade Commission (FTC) this week regarding promotional practices for Creaxion’s mosquito repellent. In its complaint, the FTC alleged that Creaxion planned a media campaign around its launch of the mosquito repellent during the Zika virus outbreak tied to the 2016 Summer Olympics. They engaged Inside Publications, which publishes Inside Gymnastics magazine, to help advertise the product – including the use of athlete endorsers.

Creaxion worked with two gold medalists to endorse their product (example is set forth below). Although each posted on social media endorsing the repellent, both failed to disclose their material connection to the advertiser. Inside Publications reposted the athlete endorsements but also failed to include any disclosures.

Based on this activity, the FTC argued that Creaxion and Inside Publications violated the FTC Act by (i) misrepresenting endorsements as independent opinions of impartial consumers, (ii) failing to disclose that the endorsers were paid or reimbursed, and (iii) misrepresenting that paid ads in Inside Publications were impartial opinions and statements.

The FTC’s order, in part, prohibits both companies from misrepresenting endorsers as impartial consumers and includes steps regarding compliance with online endorsers. Specifically, the companies must notify endorsers of their disclosure responsibilities, create a monitoring system and ensure compliance, and terminate any business relationship with a non-compliant endorser.

TAKEAWAY: This matter reinforces the FTC’s position regarding compliance requirements for endorsers – advertisers must ensure that endorsers are aware of their requirements, must monitor endorsers to ensure compliance, and ask endorsers to take down or fix non-compliant posts. Advertisers cannot get around these requirements simply by mischaracterizing an endorsement as an impartial review.

 

A License to Kill a License? SCOTUS to Resolve Trademark Bankruptcy Split

Trademark licensing is a driving force in business relationships. One common example is where one business owns a trademark, which it licenses out to other companies who manufacture and sell the products bearing the mark. But, what happens if the trademark owner goes bankrupt? Bankruptcy law gives a debtor the right to “reject” contracts to free itself of obligations, but if a trademark owner/licensor “rejects” a trademark license agreement, how does that affect the trademark licensee?

Currently, there are two countervailing schools of thought on this situation. One approach, articulated most famously by the Seventh Circuit, is that “rejection” of a trademark license through bankruptcy merely constitutes a breach of the contract, but not the termination of the agreement. The licensee retains the right to continue using the licensed mark and its obligation to continue complying with the terms of license. The other approach, advanced by the Fourth Circuit, is that “rejection” of trademark license through bankruptcy means rescission of the agreement in toto. That is, after bankruptcy of the licensor, the licensee retains no right to continue using the mark.

The Supreme Court recently granted certiorari in a First Circuit case called Mission Product Holdings, Inc. v. Tempnology, LLC to resolve this split. The First Circuit, following the Fourth Circuit’s reasoning, held that courts should not force debtors to monitor how their trademarks are being used because those are the very kinds of obligations that bankruptcy law is designed to void. Congress carved out exceptions for a debtor’s right to “reject” contracts involving patents, copyrights, and other forms of intellectual property, but left trademarks off the list. However, two amicus curiae briefs have already been filed, one by the International Trademark Association (“INTA”) and the other by a collection of bankruptcy law professors, that disagree vehemently with the First Circuit’s reasoning. Both favor the Seventh Circuit’s approach instead, arguing that it “enhances the value of trademark licenses and promotes the stability of the trademark system.” They argue that the Fourth Circuit’s original decision was based on a flawed reading of the bankruptcy statute, and that if someone built a business around licensed trademark rights it would be inequitable for them to lose those rights—and their entire business—just because the licensor went bankrupt.

Takeaway: This case will unify a glaring split in authority regarding trademark licenses, which may affect the negotiated value of license agreements and royalties. Trademark licensors and licensees are advised to monitor its resolution.

German State Media Authorities issue new guidance paper on marking adverts on social media

Recently, the German media regulators, the State Media Authorities (Landesmedienanstalten), issued a joint guidance paper on marking adverts on social media. For more information, click here.

 

 

New SCOTUS Case Could Sharpen FCC’s Teeth in the Courtroom

Earlier this month the Supreme Court granted certiorari in PDR Network, LLC v. Carlton & Harris Chiropractic, Inc., the resolution of which will impact the judiciary’s power to interpret agency rules. The facts underlying case appear unremarkable on their face; a health information service and publisher sent a single fax to a chiropractor’s office in December 2013 offering a free copy of its “2014 Physicians’ Desk Reference” e-book. The recipient of the fax, Carlton & Harris Chiropractic, then sued the publisher, PDR Network, in West Virginia federal court in November 2015 for allegedly violating a 2006 Federal Communications Commission (“FCC”) rule that interprets the Telephone Consumer Protection Act (“TCPA”) to prohibit unsolicited faxes even if the faxes only offer free products.

But, the district court dismissed Carlton & Harris’s suit, citing the famous 1984 case Chevron USA Inc. v. NRDC Inc. to hold that the court need not defer to the FCC’s interpretation of the TCPA. Carlton & Harris then appealed the dismissal. Fourth Circuit vacated the decision, holding that the district court had contravened the Administrative Orders Review Act—also known as the Hobbs Act—which “requires a district court to follow FCC interpretations of the TCPA,” according to its February 2018 opinion. PDR Network now argues that the Fourth Circuit went too far, and has upset the balance of power between the branches of government by “elevat[ing] those agencies identified in the Hobbs Act above even the judiciary, empowering agency orders to trump the courts’ fundamental ‘province and duty’ to interpret the law.” No amicus briefs have been filed, and the parties have yet to submit briefs on the merits.

Takeaway: In this case the Supreme Court will examine and resolve tensions between Chevron deference and the Hobbs Act, which may have greater implications beyond merely the FCC and solicitations by fax. Advertisers are advised to monitor its resolution.

Sunkist’s New Candy Packaging Is Forbidden Fruit, Welch’s Infringement Suit Says

Promotion in Motion Inc. (“PIM”) makes the popular Welch’s Fruit Snacks under a licensing deal with Welch’s, and Kervan USA LLC is a rival candymaker that has a similar licensing arrangement with Sunkist Growers Inc. PIM, however, contends that Kervan sought to capitalize on the fruits of PIM’s labors, and sued Kervan in the District of New Jersey for trade dress infringement. According to PIM’s complaint, examining the two fruit candies’ branded packaging is a far cry from comparing apples and oranges. Rather, Kervan “embarked on a concerted plan to knock off” PIM’s packaging and picked the low-hanging fruit that was “carefully calculated to siphon off the goodwill PIM has spent years in cultivating,” PIM alleges.

Kervan, refusing to be second banana, fired back. It answered suit, denied the infringement, and opposed PIM’s gambit for a temporary restraining order to halt Kervan’s use of the allegedly-infringing packaging. Whether PIM’s allegations of trade dress infringement are legitimate or merely sour grapes remains to be seen. The parties have been battling over the propriety of a preliminary injunction in this case since its inception this summer, and the court has not yet issued an order on the subject, though it has held multiple status conferences with the parties.

Takeaway: Trade dress infringement suits in a crowded market space can go pear-shaped rapidly. This is especially true where a product is unreleased. You be the judge; would you be confused as to the origin of the two candies based on a side-by-side comparison of their packaging?

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