Ad Law Access : Washington D.C. Advertising Lawyer & Attorney : Kelley Drye & Warren Law Firm : New York, Chicago, Connecticut, New Jersey, Brussels

This post was written by Christopher M. Loeffler and Alysa Z. Hutnik.

On Tuesday, April 26, 2010, the Federal Trade Commission (FTC) announced that it intends to develop Internet privacy guidelines. The guidelines will examine social networking sites' data handling practices and create a framework to guide social networks and others going forward. Given the FTC's recently concluded Privacy Roundtables (see our posts here, here and here) and pending action items from the roundtables, the guidelines for social networks may provide a foundation for further FTC privacy guidance for businesses down the road.

The FTC's recent announcement follows complaints by US and international lawmakers and regulators regarding the privacy practices of several online companies. Senators Schumer (D-NY), Franken (D-MN), Bennet (D-CO), and Begich (D-AK) sent a letter to Facebook, expressing concern about the changes Facebook made to its privacy policy that make more user information publicly available, permit third parties to store users' information indefinitely, and allow for Facebook technology to be integrated with other websites. The Senators also called on the FTC to issue rules or guidance in this area. As noted previously, international regulators also recently sent a letter to Google expressing concern about its privacy practices.

While privacy laws have been in flux for some time, these events underscore how rapidly the regulatory environment for online businesses is changing, and a close watch on the FTC's actions and guidance will be critical to navigate the compliance road ahead.

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The Federal Trade Commission has launched a multi-media campaign through the website www.admongo.gov to educate children and teens, ages 8 to 12, about advertising. With “tweens” becoming a larger and more important part of the marketplace, the initiative seeks to raise kids’ awareness about advertising so they can make more informed decisions when they shop or play a role in family buying decisions.

The goal of the campaign is to boost advertising literacy by:

• Raising awareness of advertising and marketing messages
• Teaching critical thinking skills that will allow tweens to better analyze and interpret advertisements
• Demonstrating the benefits of being an informed consumer

In addition to an online game featured on Admongo.gov, other elements of the campaign include in-school curricula, sample ads that can be used at home and in the classroom, and teacher training videos. The FTC partnered with Scholastic in creating resources which have been distributed to elementary and middle school teachers nationwide.

In an interview on NBC's Today Show, Bureau of Consumer Protection Director David Vladeck explained that the program is designed to teach kids how to think critically about advertising messaging. He explained that while the FTC is not taking a position of whether ads are good or bad, the campaign gives kids the tools they need to "navigate through this very intensely commercial environment they live in."

As the tweens market is estimated at $200 billion in sales, advertisers should take note of these efforts to educate young consumers about how to distinguish between advertising and content, and consider how best to both inform and engage tweens with innovative messaging and product promotions.

For additional background on Director Vladeck's enforcement agenda, reference The Antitrust Source article, "Interview with David Vladeck, Director, FTC Bureau of Consumer Protection."
 

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This week, the Mobile Marketing Association released the latest version of its U.S. Consumer Best Practices Guidelines for Cross-Carrier Mobile Content Services. The guidelines are the industry standard for cross-carrier mobile content services such as text messaging (SMS), multimedia messaging (MMS), shortcode programs, Interactive Voice Response (IVR), and mobile Web.

Major updates and additions include: (a) new guidelines for affiliate marketing for premium rate programs, with examples; (b) new guidelines to ensure STOP and HELP keywords work in each program’s native language; and (c) updated guidelines to ensure clarity for all members of the mobile marketing ecosystem. According to the MMA's press release, the new version of the Guidelines also features a new format for faster navigation, using tiered sections such as General Guidelines, Standard Rate, Premium Rate, and Free to End User Programs. 

As we've advised in previous posts (click here, for example), mobile marketers should consult the MMA's Guidelines when developing and executing their mobile campaigns. Failure to follow the Guidelines can lead to regulatory investigations and lawsuits.

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Last week, Best Buy filed a lawsuit against Ultimate Electronics over ads that compare Best Buy’s prices to Ultimate’s prices. According to the complaint filed in a Minnesota federal court, Ultimate’s ads make statements such as: “Every day, we shop . . . Best Buy, then adjust our prices to beat theirs, so you know we have the lowest electronics prices.” Best Buy alleges that Ultimate’s prices are frequently higher than Best Buy’s and, therefore, that consumers do need to comparison shop to obtain the lowest prices. Best Buy is seeking a permanent injunction, monetary damages, and that the court order Ultimate to run corrective advertisements.

Earlier this year, Best Buy had filed a complaint against Ultimate at the NAD, but Ultimate failed to respond to the inquiry. As a result, the NAD announced that it would refer the advertisements to the FTC for review.

Advertisers need to be careful when they make price comparisons against competitors. The NAD and NARB have both opined that generalized claims that an advertiser always offers the lowest prices are “difficult, if not impossible, to substantiate,” especially given how quickly prices can change. As this case demonstrates, if a competitor thinks that an advertiser’s price comparisons are not substantiated, the advertiser can find itself challenged in court, at the NAD, or by the FTC.

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In previous posts, we noted that the FTC's new Guides Concerning the Use of Endorsements and Testimonials in Advertising contain numerous provisions that apply to messages in social media, such as blogs, word-of-mouth marketing, and other promotions in which companies encourage consumers to speak on their behalf. Among other things, the Guides require bloggers to disclose if they have received a gift from, or have any other material connection to, a company whose products they write about. Although the companies themselves may be liable if bloggers fail to make the required disclosures, the FTC has suggested that the Commission would not hold a company liable if the company instructs bloggers about their requirements and takes steps to ensure the bloggers comply.

Earlier this week, the FTC announced that it was closing an investigation into whether Ann Taylor Stores violated Section 5 of the FTC Act in connection with a promotion in which the company provided gifts to bloggers who the company expected would blog about the company's LOFT division. According to the FTC's letter, some of the bloggers failed to disclose that they had received free gifts from LOFT, as required by law. After conducting an investigation, the FTC ultimately determined not to recommend enforcement action because, in part, "LOFT adopted a written policy . . . stating that LOFT will not issue any gift to any blogger without first telling the blogger that the blogger must disclose the gift in his or her blog." The FTC also noted that they expect the company to "monitor bloggers' compliance with the obligation to disclose gifts they receive from LOFT."

The FTC's investigation holds a number of important lessons for marketers. First, it is clear that the FTC is paying attention to whether bloggers and companies comply with the new Guides. Second, companies would be well-advised to establish written policies designed to ensure that their employees, bloggers, and other agents comply with the Guides. And, third, companies should closely monitor bloggers and take actions against those that do not comply with their policies. If companies fail to take these steps, they are more likely to be held liable for the actions of bloggers.

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 This post was written by Christopher M. Loeffler and Alysa Zeltzer Hutnik.

On April 19, 2010, data protection authorities from Canada, France, Germany, Ireland, Israel, Italy, Netherlands, New Zealand, Spain, and the United Kingdom sent a letter to Google indicating their disappointment and concern related to Google's privacy practices.  The letter called out the Google Buzz social networking application stating that it "violated the fundamental principle that individuals should be able to control the use of their personal information," and noted that privacy concerns were previously raised with the launch of Google Street View.

The groups commented: "Privacy cannot be sidelined in the rush to introduce new technologies to online audiences around the world."  Lastly, the groups urged Google to incorporate fundamental privacy principles into the design of its online services including:

• Collect and process only the minimum amount of personal information necessary to achieve the identified purpose of the product or service;
• Provide clear and unambiguous information about how personal information will be used to allow users to provide informed consent;
• Create and apply default settings that are privacy-protective;
• Ensure that privacy control settings are prominent and easy to use;
• Ensure that all personal data is adequately protected, and
• Provide simple procedures to delete accounts and honor these requests in a timely manner.

Members from Canada, France, Israel, Netherlands, and Spain will hold a press conference in Washington, D.C. today to address the initiative.   As a practical matter, businesses should consider these concerns and recommendations when launching new online services and applications.

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In the past month, we've posted two entries (here and here) regarding court decisions interpreting the Telephone Consumer Protection Act (the "TCPA") in the context of mobile marketing campaigns. This morning, our colleagues at the Telecom Law Monitor posted an entry about an FCC decision interpreting the TCPA in the context of a telemarketing case. In that case, a consumer had argued that companies made unsolicited calls to him in violation of the TCPA. The FCC's decision turned on whether the calls were "telephone solicitations" under the TCPA. The FCC held that unsolicited calls to a consumer were not TCPA violations because the messages were intended for current customers, not as solicitations to obtain new customers. Moreover, the telemarketer’s mistake in directing the calls to a non-customer did not make the calls actionable. This decision will make it harder for a consumer to prove a violation when communications are intended for current customers. A more detailed analysis of the decision is available here.

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The American Bar Association’s The Antitrust Source published an article, “Interview with David Vladeck, Director, FTC Bureau of Consumer Protection.” The in-depth interview examines Mr. Vladeck’s career as a litigator and professor and how his accomplishments and challenges are shaping his tenure at the Federal Trade Commission. The interview probes Mr. Vladeck’s views on topics including the commercial speech doctrine, social media, alternative remedies for data breaches, and a proposed Consumer Financial Protection Agency, among other subjects.

Click here to read a PDF of the article.
 

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This week, Twitter unveiled “Promoted Tweets,” a platform that will allow advertisers to purchase key words that will link to their ads. Not only does the platform promise to be a significant source of revenue for Twitter, it will also give advertisers a lot more flexibility to promote their brands.

One of the frustrations advertisers have had on Twitter is that their Tweets can quickly get lost in the flow of real-time conversation. Promoted Tweets will allow advertisers to stand apart from that flow. For example, when a Twitter user searches for a word that an advertiser has purchased, the promoted message will appear at the top of the results, even though it had been written earlier. As the following example on Twitter’s blog demonstrates, the Tweet will disclose that it is promoted by the advertiser.

Twitter notes that one significant difference between a Promoted Tweet and a regular Tweet is that Promoted Tweets must resonate with users to stay on the system. “That means if users don't interact with a Promoted Tweet to allow us to know that the Promoted Tweet is resonating with them, such as replying to it, favoriting it, or Retweeting it, the Promoted Tweet will disappear.” The possibility that ads will disappear is built into the platform’s pricing model.

Promoted Tweets will offer companies more flexibility to advertiser on Twitter than ever before. As with most new advertising platforms, though, Promoted Tweets will also offer some challenges. For example, advertisers must be vigilant to ensure that their competitors don’t purchase the advertiser’s trademarks as search terms. Moreover, as we’ve described in other posts (click here, for example), ads that appear in social media platforms like Twitter will be subject traditional advertising laws. Complying with those laws can often be challenging, especially given Twitter’s 140 character limit.
 

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Florida Attorney General Bill McCollum recently sued a company and its affiliates over allegations the companies enrolled consumers in a monthly subscription program without the consumers' knowledge or consent. The AG alleges that the company advertised a “free trial” of their products and claimed that only a payment for shipping and handling was required. However, an investigation by the AG’s office revealed that after consumers made this payment, they were automatically enrolled in a subscription program in which their credit cards were charged every month. Some consumers also reported that they were charged the full price of the products, even after canceling.

Companies that use trial offers to promote their products must clearly and conspicuously disclose the terms of the offers to consumers before consumers sign up and incur any costs. Among other things, a company must disclose whether there are any costs associated with the offers and whether a consumer has to cancel to avoid incurring future charges. Failure to clearly disclose this information is certain to lead to complaints from consumers and challenges from regulators. These challenges can often result in costly settlements. For example, last year the FTC imposed a $7.8 million penalty on a company that failed to adequately disclose the terms of its free trial.
 

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In a post last month, we wrote that a Maine legislative committee had voted to repeal a recently-enacted online marketing law and predicted that the full legislature would soon repeal the law. Since then, Maine Governor John Baldacci signed an emergency measure to repeal the law.

Among other things, the Act To Prevent Predatory Marketing Practices Against Minors had prohibited companies from knowingly collecting personal information information from minors under 18 without parental consent. Although the Maine Attorney General had opined that the law might be unconstitutional and committed not to enforce the law, there had been a threat that private plaintiffs would use the law to challenge companies. Now that the law has been repealed, however, that threat is no longer present.

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This post was written by Christopher M. Loeffler and Alysa Zeltzer Hutnik.

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In a post last month, we noted that a Chicago court had held that SMS messages that are sent to a consumer without the consumer’s consent could violate the Telephone Consumer Protection Act (the “TCPA”). Since then, another court has come to the same conclusion. In the most recent case, Twentieth Century Fox sent text messages to various consumers to advertising the release of its Robots movie on DVD. A consumer who received the text messages without having signed up for them filed a lawsuit alleging that that text message campaign was unlawful.

The TCPA applies to certain types of “calls.” Although the term “call” is not defined, the FCC has opined that the statue covers both voice calls and “text calls” using SMS. The court found this interpretation to be reasonable and, therefore, held that the text message campaign was subject to the TCPA. The court also rejected the notion that the TCPA only prohibits calls that result in a charge to the recipient.

The TCPA generally prohibits the use of an automatic telephone dialing system (“ATDS”) to place calls to a mobile number without the “prior express consent” of the recipient. An ATDS is equipment that has “the capacity to store or produce telephone numbers to be called, using a random or sequential number generator and to dial such numbers.” The court held that it is not necessary to prove that the sender actually used the equipment’s automatic capacity, only that the equipment had that capacity.

Once again, the lesson is clear: mobile marketers must get consent before sending text messages to consumers. Without consent, lawsuits are sure to follow and, as the recent decisions suggest, an argument that text messages aren't subject to the TCPA is likely to fail.

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This post was written by Megan L. Olsen and Christie L. Grymes.

On March 31, 2010, the U.S. Consumer Product Safety Commission (CPSC) announced a Final Rule that identifies and interprets factors the CPSC will consider when seeking civil penalties for knowing violations of the Consumer Product Safety Act (CPSA), Federal Hazardous Substances Act (FHSA), and Flammable Fabrics Act (FFA). As required by section 217(b)(2) of the U.S. Consumer Product Safety Improvement Act (CPSIA), this rule “provides the Commission’s interpretation of the civil penalty factors found in” section 20(b) of the CPSA, section 5(c)(3) of the FHSA, and section 5(e)(2) of the FFA. The Commission voted 4-1 to approve the Final Rule as amended. Chairman Tenenbaum and Commissioners Nord, Adler, and Moore voted to approve the Final Rule as amended, and Commissioner Northup voted not to approve the Final Rule.

This Final Rule has particular significance because the CPSIA expanded the actions subject to civil penalties, and increased the maximum civil penalty amounts from $8,000 to $100,000 for each “knowing” violation and from $1.825 million to $15 million for any related series of violations. The statutory factors the Commission must consider include: the nature, circumstances, extent and gravity of the violation, including the nature of the product defect or of the substance; the severity of the risk of injury; the occurrence or absence of injury; the number of defective products distributed or the amount of substance distributed; the appropriateness of the penalty in relation to the size of the business, including how to mitigate undue adverse economic impacts on small businesses; and such other factors as appropriate. The Final Rule provides the Commission’s interpretation of those statutory factors and identifies four additional factors: (1) safety/compliance program and/or system relating to a violation; (2) history of noncompliance; (3) economic gain from noncompliance; and (4) failure to respond in a timely and complete fashion to the Commission’s requests for information or remedial action. The Commission declined to consider the relative complexity of identifying and confirming the presence of a defect in a product.

In light of this Final Rule and the new civil penalty cap of $15 million, a company should take the opportunity now to review all aspects of its current product safety practices, including product development, vendor requirements, compliance with the conformity certificate and other technical requirements of the CPSIA, and how the company interfaces with the Commission. Such proactive steps now could drastically improve the company’s position in the event of a civil penalty investigation later. More information on the Final Rule and civil penalty factors can be found in Kelley Drye & Warren’s April 1, 2010 client advisory.

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This post was written by Kristi L. Wolff and Sarah Roller.

Despite all the publicity over the recently-passed health care legislation, one provision that was “tacked on” received little note but will clearly affect the vast majority of franchise restaurants and many other food retailers across the country.

Section 4205 of the Patient Protection and Affordable Care Act amends the Federal Food Drug and Cosmetic Act (FDCA) by adding to the existing nutritional requirements for restaurants. The new provision requires restaurants and similar retail food establishments with at least 20 or more locations to provide clear and conspicuous information to consumers, including:

• declaring the number of calories each standard menu item provides as it is typically prepared, and
• presenting the required calorie information in terms of suggested caloric intake in the context of an overall diet.

The caloric information must be adjacent to the name of the standard menu item as it is usually prepared and placed on the actual menu or menu board, including a drive-through menu board, as well as in written form available on premises upon consumer request. Food sold at a salad bar, buffet line, cafeteria line, or similar self-service facility, and for self-service beverages or food that is on display and that is visible to customers and some vending machines are also explicitly covered by this provision.

Affected companies can prepare to participate in the FDA rulemaking process that will define compliance standards by determining the calorie content of their affected food products and evaluating the options available for disclosing the required calorie information.

For more information, please reference the Kelley Drye client advisory.
 

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