The FTC, in a recent advisory opinion, highlighted the possibility that a seller’s failure to disclose the connection with an endorser could result in a violation of the FTC Act. This opinion has legal implications for blogging by employees, even on personal time and even if the company is unaware of the employee’s activities. Employees should be advised to strictly abide by their employer’s blogging policy, and if they blog about a product, they must identify their employment status. What? You don’t have an employee blogging policy? Shame on you. Come get one. Come to Rimon. Need to know more? Read our Labor & Employment e-flash bulletin “According to the FTC, Employee Blogging May Subject Employers to Liability” and contact the authors, Angela M. Washelesky in our Chicago office or Sara A. Begley in our Philadelphia office.
COPPA – Xanga Settles
Based on a complaint that Xanga knew it was collecting (and sharing) personal information from children under the age of 13 (they asked for and were given the birth dates from registrants), the FTC reached a settlement agreement in which Xanga.com agreed to pay a civil penalty of $1 million. The complaint also alleged that Xanga didn’t notify children’s parents, nor did they give parents access to or control over their children’s information.
The Children’s Online Privacy Protection Act (“COPPA”) mandates that commercial web sites give parents notice and get consent before collecting personal information from children they know to be younger than 13 years old. The order which is part of the settlement with the FTC forces Xanga to erase any personal information collected and stored that violates the Act. Xanga also will have to put up hypertext links for the next five years to FTC-designated consumer educational materials.
Social networking has been in the news recently for many reasons. Recently, Facebook was faced with controversy when it started serving automated alerts about users’ friends and classmates. Facebook has less than 10 million users, compared with MySpace—which is now owned by News Corp.—which has in excess of 100 million users.
Brands & Entertainment
Those name brands appearing in hit shows. Those logos on the motion picture screen. The characters at the breakfast table with a favorite cereal. The star driving around in a particular automobile. The airline shown flying the lead character off to an exotic destination. Reality? Coincidence? Hardly. They are the result of contracts between the entertainment company or producers and the advertisers, and they represent a growing and important trend in marketing to consumers, along with the Internet, as reaching market segments through traditional radio and television advertising becomes increasingly difficult in our on-demand, fast-forward world.
In some cases, such “branded” entertainment is subtle—inserting itself into a scene or a sequence quite seamlessly and, not necessarily inconsistent with, reality. In other cases—“Harold and Khumar Go to White Castle”—yes, this really was the name of a movie, as was “Akeelah and the Bee,” which Starbucks helped finance and promote. In case you didn’t know, the FCC (and the FTC) regulate advertising on television—the FCC’s regulations concerning disclosure arose primarily from the quiz show scandals in the 1950s. When does creative control over programming yield to paid sponsorship and financing dollars or Euros (or British Pound Sterling). At what point does a program or movie become an infomercial or advercast? Are there vulnerable groups (e.g., children) that might not distinguish so readily between advertising and programming and at what point is that deceptive? What does SAG say about their actors being de facto appearing to endorse a product or brand inserted into their scenes and programs? If an actress is under contract with a cosmetic brand exclusively and a movie scene requires her to use a different brand—actionable? When the trailer with that clip airs on broadcast television—problem? Witness the following quote from Jonathan Adelstein, FCC Commissioner: “Now, products have even seeped into plot lines. Soap operas have woven cosmetic lines into their tales of who-did-what-with-who, while “The Apprentice” sounds more and more like an hour-long infomercial for the latest corporate sponsors.”
Trademark issues, endorsement and competitive/ambush marketing issues, free speech, freedom of expression, adequacy of disclosures, misleading or deceptive advertising—the list of potential issues is growing as the balance between creative control and commercial reality infect the entertainment industry. At one extreme is the traditional product placement in which an advertiser pays a fee for the hopes that the scene with its product doesn’t get cut and wind up on the editing room floor. At the other extreme is a placement fee and promotional campaign that is so integrally tied with the plot and the program that the two are indistinguishable—think “The Apprentice” or “Home Makeover.”
The deals are becoming more complex, and more fraught with potential legal and regulatory issues, and the stakes are higher. Need help? Contact Doug Wood or me—we would be happy to help.
The FTC Gets Into the Patent Act
The FTC recently held that Rambus, a developer of computer memory technology, violated Section 5 of the FTC Act, engaging in monopolistic practices—abusing the process for setting industry standards for memory chips (DRAM). Rambus participated in the standard setting, but didn’t reveal it applied for and obtained patents that included technology incorporated into the very standards Rambus helped to craft. The FTC held that as a result of Rambus’ deceptive conduct, it engaged in anticompetitive conduct. The FTC found Rambus had intentionally and willfully engaged in deceptive conduct and misled others in the standards-setting organization—clearly to its detriment.
The Commission determined that Rambus’ conduct enabled it to acquire patent monopoly power in a number of relevant and related markets, while its deceptive behavior within the standards-setting organization led to the adoption of standards by the industry group that unwittingly incorporated Rambus’ patent rights. At least one FTC Commissioner went even farther and wrote that the abuse and deception within the standards-setting process was not only in violation of antitrust laws, but also constituted an unfair method of competition in violation of the broad scope of the FTC Act.
Truth in Video Gaming?
A proposed new “Truth in Video Game Rating Act” (H.R. 5912), would require the Federal Trade Commission to promulgate rules prohibiting unfair and deceptive acts or practices by video game marketers, and would require ratings to be based on video or computer game content as a whole. It would also be a violation if any producer or maker of these games hid or grossly mischaracterized the content of the game. Joysticks ready?
The Medium May Be the Message, but Content is Still King — Sex, Lies and Videotape
The Mobile Marketing Association has promulgated guidelines, now adopted by many leading wireless carriers and programming networks, to deal with the growing use of email, SMS (text messaging) and similar mechanisms in advertising and marketing. As you will recall, legal and regulatory actions have arisen based on the fact that some companies’ marketing practices fail to adequately disclose the charges, whether subscription or imposed by the wireless carriers, that apply to some of their services and, in some cases, to the advertisements and marketing messages themselves.
Wireless carriers are beginning to adopt content guidelines for what they will or will not transmit from content partners—regulating such things as sexually explicit, graphic violence, profanity, hate speech and other topics, words and images—in some cases including lengthy lists of “forbidden words.” CTIA, the wireless industry trade association, issued fairly broad content guidelines last November, but left the specific implementation to the individual carriers. Some carriers have carried this implementation to a level of detail that covers everything from games, music, images and video, and in some cases even governs the file names of anything downloaded or transmitted.
Wait until you wake up to the issues raised by transmission and posting of “user generated content.” As you may know, in addition to the FTC regulating advertising and certain content in the U.S., and on top of state laws, the Federal Communications Commission (“FCC”) having authority to regulate indecent content on television and radio and the mobile phone as a media and entertainment device is no longer fiction, but fact in many cases. Did you know that our Advertising, Technology & Media Law group has significant experience in all these areas (Judith Harris for FCC and communications; Doug Wood for advertising and marketing; and, of course, any of us or me, if you simply can’t figure out where your need fits).
Look, Up on Your PC: It’s a Bird; It’s a Plane — No, It’s Buzz Marketing
In November 2005, Legal Bytes told you about how branded entertainment and product placement was one of the forces shaking up the world of advertising and marketing. We add to these forces even more creative innovations that are challenging the advertising and marketing world, as well as the legal and regulatory experts. “Buzz” or “viral” marketing is word-of-mouth advertising that promotes a product without disclosing any direct connection between the advertiser and the message. If you are a marketing professional, of course you want to identify people who will be interested in a particular message, and deliver the message in a way that makes it enjoyable and encourages them to share it with more people—you remember the hair color commercial on TV that ends with something like “she tells two friends and they tell two more friends and so on and so on….”
Now clearly, if an individual makes deceptive or misleading statements that weren’t induced, authorized or controlled by the advertiser, it’s hard to hold that advertiser responsible. But now advertisers are paying buzz “agents” to relay messages and encourage further word-of-mouth advertising. Thus, if the advertiser pays, it is hard to argue the advertiser is not liable for the truthfulness of authorized statements. But what happens if the buzzer’s unscripted message (i.e., their own message in their own words) is deceptive? Are their words similar to testimonials, regulated by the Federal Trade Commission, or a form of social spam, requiring disclosure like that mandated in the CAN SPAM Act? False testimonials have been the subject of state and federal actions for years. In some cases, actors in commercials looked so real, some Attorneys General required them to superimpose the words “dramatization” as a disclaimer on the TV screen. Years ago, a motion picture studio had billboards and commercials praising their movies. Unfortunately, the quotes and the purported journalist were invented by marketing staff at the studio.
These cases clearly establish that an advertiser is responsible for deceptive or misleading net impressions created by its advertising. Similarly, the FTC’s Guides Concerning Use of Endorsements and Testimonials in Advertising provides that, “When there exists a connection between the endorser and the seller of the advertised product which might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience) such connection must be fully disclosed.” There is no reason to believe these same standards do not apply to buzz marketing.
If an otherwise ordinary consumer becomes a buzz agent and is paid or given free products or other consideration in exchange for creating “buzz,” appropriate disclosure is likely to be required. Keep in mind, that to prevail in an action alleging a violation, the FTC must still show the activity was deceptive or misleading under Section 5 of the FTC Act—recall from November’s issue, that to make advertising actionable under Section 5 of the FTC Act depends on whether there is a representation or omission likely to mislead the consumer, viewed from the perspective of a reasonable consumer in the situation involved, and the representation or omission must be “material.” As noted in that issue, “if the consumer knew or was told the truth, is it likely to affect a consumer’s behavior in connection with the product.”
The FTC has proposed rules under the CAN-SPAM Act, in which an advertiser is not subject to the Act’s technical requirements if the “send this to a friend” forwarding or sending feature on the website or in the e-mail is not “procured” by the advertiser. In other words, the advertiser hasn’t paid or provided other consideration or induced anyone to initiate the message on behalf of the advertiser—otherwise, the advertiser must comply with all of the CAN-SPAM Act requirements, including disclosing that the message is an advertisement.
While traditional advertising law principles apply, in fact there has been very little actual regulation of viral or buzz marketing. Don’t feel complacent. We should expect the lack of enforcement activity to change reasonably quickly as more advertisers turn to non-traditional avenues to get their message across. New approaches to buzz or viral marketing and, as mentioned in prior issues, product placement, serve to only increase legislative concerns and pressure from consumer advocacy, protection and other groups. As these marketing techniques become more sophisticated and advertisers become more involved in the creative surrounding the medium and the message, the risks increase. Are consumers deceived by information that appears to reflect independent views, when the relayers are actually being compensated for delivering an advertiser’s message? The law appears quite clear that lack of disclosure could violate state and federal law, depending upon the materiality of the statement to a reasonable consumer and corresponding consumer harm.
Psssssst—pass it on.
Product Placement–Time-Shifting Causes Ad Shifting
Product placement is an advertising activity which has grown for decades in the motion picture industry, going virtually unnoticed by legislators. When television began aggressively using product placement for advertising, concerns (and regulation) began increasing. Unlike motion pictures, television is legally required to distinguish between advertising and programming.
First, “infomercials” that looked and felt like programming were targeted by regulators, because they believed the infomercials were deceiving. After a number of cases, the industry developed and implemented disclosures to allay fears of regulators at the FCC and the FTC. Enter reality TV. Suddenly programs were using affiliations with sponsors as part of the content or story line, prompting fresh concerns. As cable television, pay-per-view and video-on-demand services, time-shifting and digital recording devices, and fast-forward buttons have become commonplace, advertisers have struggled to capture viewers’ attention with product placement. In 2004, product placement advertising rose to about $4.25 billion.
Why the fuss? Because product placement is advertising, subject to the same laws and regulations that govern commercials. On television, both the FTC and the FCC can regulate advertising, mandate disclosures and determine if something is deceptive or misleading. Where the line between harmless product placement and deceptive practices is drawn is increasingly blurred.
Whether a product placement is deceptive or misleading—sufficient to make it actionable under Section 5 of the FTC Act—depends on whether there is some representation or omission likely to mislead the consumer. The depiction of the product must be viewed from the perspective of a reasonable consumer in the situation and the representation or omission must be “material.” In other words, if the consumer knew or was told the truth, the consumer’s behavior would likely be affected in connection with the product.
The FCC also regulates deceptive product placements: viewers may not realize they are advertisements, hence the FCC requires disclosure. Failure to properly disclose the commercial nature of a product placement could amount to “payola” and would be illegal. Again, where the line is drawn between harmless inclusion of products in programming versus commercialization which misleads consumers is hardly clear.
The FTC and FCC regulations puts advertisers between a rock and a hard place. The FCC requires disclosure for a paid placement—which makes the product placement commercial speech. If it is commercial speech, is the placement then also subject to FTC disclosure rules? What if the advertiser has no control over the creative content and no approval over scripts or editing or even the extent of the product placement itself? Under those circumstances, how could the advertiser be responsible for the depiction of its product; the director, producer, actors, even the editorial staff, have ultimate creative control of what shows up on the screen. The advertiser could pay a substantial sum of money to watch its product wind up on the cutting room floor in post-production. Ouch.
Continue reading “Product Placement–Time-Shifting Causes Ad Shifting”
100% Legal = 100% Deceptive
What if you offer a tutorial service that teaches how to use peer-to-peer file-sharing programs and refers members to P2P networks but doesn’t actually license file-sharing programs, and doesn’t operate a file-sharing network itself? Sounds like it would be tough to prove copyright infringement—the Grokster case notwithstanding.
But what if you advertise that by becoming a member, subscribing and paying a fee, your P2P file-sharing is legal. “PEOPLE ARE NOT GETTING SUED FOR USING OUR SOFTWARE. YES! IT IS 100% LEGAL,” or “Rest assured that File-Sharing is 100% legal.” What if customers are deceived into thinking that by becoming a member, P2P file-sharing is legal? Remember, when anyone uses a P2P file-sharing program to download copyrighted material, or to make that material available to others without the copyright owner’s permission, it’s copyright infringement. Well the FTC has charged Cashier Myricks Jr., doing business as MP3downloadcity.com, with deceptive advertising by falsely claiming that membership in the service makes P2P file-sharing legal; and acting on the FTC’s action, a U.S. District Court judge has stopped the deceptive ads. The FTC is seeking to make the ban permanent.
Want to know more? The FTC has published “P2P File Sharing: Evaluating the Risks.” Oh, and you should also probably call Rimon…after all, we know advertising, marketing and promotion like nobody else.
Big Brother Has Indeed Been Watching
The FTC has been checking compliance with its e-mail opt-out requirements promulgated under CAN-SPAM, and recently announced the results of a compliance survey it undertook with e-Tailers. The survey indicates that 89 percent of those online merchants who participated in the survey were complying with consumer requests to opt-out of future commercial e-mail. The FTC essentially selected 100 merchants that are big users of the Internet in retail sales and then visited their websites, created test e-mail accounts and registrations, and signed up for promotions—using the retailers systems to prompt both an initial message and their ability to reply with an “opt-out” request. All of the merchants selected did provide clear notice to consumers of their opt-out rights and a relatively easy means to do so. After six weeks of monitoring, about 89 percent of the merchants honored all opt-out requests, with 93 percent honoring some. In case you were thinking the FTC doesn’t take CAN-SPAM enforcement seriously or can’t possibly monitor and track your compliance efforts, think again. Use e-mail/e-Tail advertising and marketing? Need to understand your obligations? Need to develop policies and practices for compliance? How quickly and with what level of accuracy do you honor the requests? Need help in understanding when and to what CAN-SPAM applies? Contact either Joe Rosenbaum or Doug Wood at Rimon. We can help.