In This Issue

Marc Roth Invited to Present on Privacy Issues in Marketing at NYC Bar CLE Program

On May 3, 2013, the New York City Bar Center for CLE and the Brand Activation Association (formerly the Promotion Marketing Association) will jointly host a Sweepstakes, Promotions & Marketing Laws: Comprehension & Compliance seminar at which Manatt partner Marc Roth will lead a session titled "Privacy Issues in Marketing - A New Colossus."

Additional topics to be addressed throughout the program include the laws governing sweepstakes and contests, social media, mobile marketing, use of intellectual property and gift cards and coupons.

For more information or to register for the event, click here.

Big Companies, Big Privacy Violations, Big Settlements

Two major corporations recently reached settlements over allegations of privacy violations. Google agreed to pay $7 million after the company’s Street View vehicles collected consumers’ personal information and Netflix finalized a $9 million deal in a consumer class action alleging violations of the Video Privacy Protection Act.

Google sent vehicles equipped with cameras around the country to collect images of addresses for its search feature. Unfortunately, the vehicles also gathered e-mails, passwords, and other sensitive information from wireless networks.

Thirty-eight state attorneys general launched a collaborative investigation that ended in March. While the company did not admit liability, it agreed to pay $7 million. In addition to the payment, Google will establish a privacy program within six months and provide privacy-related training for employees, including an annual privacy week event, periodic refresher courses, and the option to take privacy certification programs.

The company must also undertake an effort to educate consumers about privacy issues by placing ads in the largest newspapers in the participating states and creating a YouTube video explaining how individuals can protect themselves from a similar data grab by encrypting their data.

“We work hard to get privacy right at Google,” the company said in a statement about the deal. “But in this case we didn’t which is why we quickly tightened up our systems to address the issue.”

In a second high-profile settlement, Netflix received final judicial approval for a $9 million settlement to end a suit brought by a class of plaintiffs who alleged the company violated the Video Privacy Protection Act by storing their viewing history and financial information after they canceled their accounts.

Prior to a recent amendment backed by the company, the VPPA required video service providers to delete information about former users after one year. But Netflix maintained a “veritable digital dossier” of former subscribers, according to the suit, that included credit card numbers, billing and contact information, and a highly detailed account of their programming viewing history.

U.S. District Court Judge Edward J. Davila approved the settlement, which also requires Netflix to “decouple” rental history from former subscribers’ identification data within one year after the cancellation of service.

The company will pay approximately $6.5 million to 20 nonprofit groups and $2.2 million to the plaintiffs’ lawyers. Recipients of the settlement money are “not-for-profit organizations, institutions, and programs for the purpose of educating ‘users, regulators, and enterprises regarding issues relating to protection of privacy, identity, and personal information through user control, and to protect users from online threats,’” including the Electronic Frontier Foundation and the International Association of Privacy Professionals.

To read Google’s Assurance of Voluntary Compliance, click here.

To read the order granting approval to the Netflix settlement, click here.

Why it matters: Judge Davila granted approval to the settlement over objections from some users, who complained that they wanted Netflix to keep their data on file, while others expressed concern about class members not receiving any money. Given the estimated class of 62 million current and former Netflix subscribers, Judge Davila ruled that the settlement terms were “fair, adequate, and reasonable” because monetary distribution to the class would not be feasible. As for Google, the company settled with the Federal Trade Commission in 2011 over allegations that it abused users’ privacy when it launched the Buzz social networking feature. Last year Google paid a record $22.5 million to the FTC after the agency said the company breached the consent order by circumventing browser settings to track users’ browsing habits.

9th Circuit: This Case Is “Why Fair Use Exists”

Finding that a seven-second clip of The Ed Sullivan Show played during the Jersey Boys musical “a good example of why fair use exists,” the U.S. Court of Appeals for the Ninth Circuit dismissed a copyright infringement suit brought by SOFA Entertainment, which owns the rights to the television program.

The company sued Dodger Productions, the group behind the hit Broadway musical Jersey Boys, a historical dramatization about the Four Seasons and its members. The clip at issue is played at the end of the first act. One of the actors stands to the side of the stage and describes how the Four Seasons battled the “British invasion” on the airwaves before the clip plays on a screen hanging over the center stage. As Sullivan introduces the band on the Jan. 2, 1966, episode, the clip ends and the musical’s actors then perform a song.

Dodger claimed the clip constituted fair use under 17 U.S.C. §107 of the Copyright Act.

The 9th Circuit agreed, emphasizing that the clip was used as a “biographical anchor” in the musical and not for its own entertainment value, as SOFA alleged. Because the use of the clip is transformative, the fact that the musical is a commercial production “is of little significance,” the court added.

“By using the clip for its biographical significance, Dodger has imbued it with new meaning and did so without usurping whatever demand there is for the original clip,” Judge Stephen S. Trott wrote for the panel. Further, the “clip conveys mainly factual information – who was about to perform.”

The court also disagreed with SOFA’s argument that the clip capitalized on Sullivan’s “distinctive style” of introducing guests. “Certainly movement and intonation are elements in an original performance, but SOFA’s argument is not limited to Sullivan’s performance in the clip,” Judge Trott wrote. “It is Sullivan’s charismatic personality that SOFA seeks to protect. Charisma, however, is not copyrightable.”

Finally, the court analyzed the market effect of the musical’s use of the clip and determined that Jersey Boys is not a substitute for The Ed Sullivan Show. “Dodger’s use of the clip advances its own original creation without any reasonable threat to SOFA’s business model,” the court said. “This case is a good example of why the ‘fair use’ doctrine exists.”

The 9th Circuit also affirmed an award of $155,000 in attorneys’ fees and costs for Dodger.

To read the decision in SOFA Entertainment, Inc. v. Dodger Productions, click here.

Why it matters: After weighing the four factors to be considered pursuant to §107 of the Copyright Act – the purpose and character of the use, the nature of the copyrighted work, the amount and substantiality of the portion used, and the market effect – the court found they balanced heavily in favor of Dodger. When examining the issue of market effect, however, the court did note that while the clip is only seven seconds long and appears just once in the play, a reproduction of Jersey Boys – on videotape or DVD – would allow for repeated viewing of the clip. Since Dodger does not currently reproduce the musical in such a format, that issue was not before the court and it declined to decide whether or how that would affect the balance of the factors.

“Repeat Offender” Subject of FTC Action

A federal court in Nevada has issued an injunction at the request of the Federal Trade Commission that halted an allegedly bogus prize-promotion scheme being run by defendant Glen E. Burke.

The agency characterized Burke as a “repeat offender” who was enjoined from making deceptive telemarketing pitches 15 years ago. In his latest efforts, Burke and his company, American Health Associates, reportedly used deceptive telemarketing to contact consumers and tell them they won a valuable prize worth thousands of dollars.

To receive the prize, consumers had to purchase vitamins – paying between $300 and $500 – and in some cases, make additional payments, the agency said. But consumers either did not receive a prize at all or got “cheap costume jewelry or a lithograph print,” according to the FTC’s complaint.

In 1996 the FTC obtained an order against Burke based on his business opportunity scam. Two years later, after Burke violated that order, a U.S. District Court judge entered a second order permanently banning him from telemarketing and from making material misrepresentations about any product or service. Burke has also been the subject of enforcement actions by other federal agencies, the FTC said.

According to the complaint, Burke’s latest scheme has been operating in violation of the 1998 order for the last two years and that he was also engaged in a direct mail sweepstakes scheme in which consumers were promised prizes they never received after they completed a form and returned it with a small “processing fee.”

U.S. District Court Judge Philip M. Pro froze the assets of the defendants and appointed a receiver for the company, pending the outcome of a contempt action against Burke for violating the 1998 order. The agency said it is also seeking compensation for the consumers harmed by Burke’s multiple violations.

To read the FTC’s motions and the court’s preliminary injunction order, click here

Why it matters: Burke faces multiple allegations of violating a consent order with the FTC that arose from his telemarketing scheme and his direct mail sweepstakes scam.

NYC Mayor Bloomberg Targets Tobacco

First soda, now cigarettes: New York City Mayor Michael Bloomberg has proposed legislation that would require tobacco products and cigarettes to be stored where they cannot be seen by customers.

If passed, the bill would be the first in the country. Similar display prohibitions have been enacted in other countries, like Canada and England. Tobacco products would have to be hidden – behind a curtain, under the counter, or in cabinets, for example – if the Tobacco Products Display Restriction law passed. The measure includes an exemption for stores devoted primarily to the sale of tobacco products.

Under the legislation, tobacco products would remain out of sight except during a purchase by an adult consumer or during restocking. Stores would be allowed to advertise and communicate tobacco product and price information, however, the Mayor said.

Bloomberg said the bill is intended to reduce youth smoking rates. “Such displays suggest that smoking is a normal activity,” he said at a press conference about the bill. “And they invite young people to experiment with tobacco.”

Criticism of the proposed law was fast and furious. A spokesperson for Philip Morris said the proposed law “goes too far.” A similar measure was introduced in upstate New York last year but was immediately challenged by the tobacco companies as a violation of their First Amendment rights and was quickly withdrawn.

Jim Calvin, president of the New York Association of Convenience Stores, a group that represents an estimated 1,600 stores, told CNN that the bill “arises from a wild theory that the mere sight of packs of cigarettes on a wall behind the store counter compels kids to start smoking.” “The notion of forcing licensed, tax-collecting, law-abiding retailers to hide their tobacco inventory is patently absurd,” he added.

Speaking with NBC news, Tom Briant, executive director of the National Association of Tobacco Outlets, predicted that if the law passed, it would be ruled unconstitutional in a legal challenge. “Retailers are responsible businesspeople that go to great lengths to prevent sales to minors, and there are First Amendment protections that extend to advertising,” he said.

Why it matters: The legislation was announced just days after Bloomberg’s prior health initiative – a ban on “giant soda” – was struck down by a trial court judge, a decision the Mayor vowed to appeal. With just months left in his final term, Bloomberg will now face off against both the soda and the tobacco industries, which are well-known for fighting any and all advertising limitations and restrictions.

FTC Closes Another Investigation into Endorsement Guides Violation

The Federal Trade Commission has closed another investigation into a social media promotion for an alleged violation of the agency’s Endorsement Guides without taking any action.

The updated Guides Concerning the Use of Endorsements and Testimonials in Advertising took effect in December 2009 and apply to social media, word-of-mouth marketing, and other promotions and advertising in which consumers or celebrities speak on behalf of companies. One of the requirements is that bloggers must disclose whether they receive gifts from a company or have any other “material connection.” A company can be held liable if a blogger fails to make the required disclosures.

Since the updated Guides took effect, the agency has conducted multiple investigations, but closed them without taking any action. In April 2010 the FTC declined to recommend an enforcement action against Ann Taylor when the company gifted bloggers who attended a preview of its LOFT Summer 2010 collection but failed to tell the recipients to disclose their gifts.

The agency similarly chose not to take action in November 2011 against Hyundai Motor America in connection with a Super Bowl-related advertising campaign where bloggers were provided gift certificates as an incentive to include links to the car manufacturer’s Web site in their blogs and/or comment about Hyundai’s ads airing during the big game.

Most recently, Hewlett-Packard avoided legal trouble when the FTC closed an investigation against the company and its public relations firm for providing two $50 gift certificates to bloggers and encouraging them to post about HP printer ink and other products.

Now national retailer Nordstrom can be added to the list of companies dodging liability for a violation of the Guides. In this case, Nordstrom provided $50 gift cards to the “influencers” who attended a special preview event for the store opening of Nordstrom Rack Boise. However, the retailer neglected to tell the “TweetUp” attendees to disclose they received a gift when they wrote about the event.

“Depending on the circumstances, an advertiser’s provision of a gift to social media influencers for attending an event could constitute a material connection that is not reasonably expected by readers and followers of the social media influencers who write about the event,” Mary K. Engle, the FTC’s Associate Director for Advertising Practices, wrote in a letter to Nordstrom.

But after investigating the incident, the agency declined to take action based on “a number of factors,” the FTC said, including “the limited nature of the event at issue [and] the fact that several social media influencers who posted content about the preview did disclose that Nordstrom had provided them with gifts.”

In addition, Nordstrom revised its social media policy to address the agency’s concerns, Engle wrote. “The FTC staff expects that Nordstrom will take reasonable steps to monitor social media influencers’ compliance with the obligation to disclose gifts they receive,” she added.

To read the FTC’s letter, click here.

Why it matters: Although the aforementioned blogger campaigns did not result in enforcement actions against the companies, the FTC’s investigations into these “influence programs” should serve as reminder for companies engaging in social media to establish a relevant policy that comports with the Guides, particularly the provision requiring endorsers, bloggers, or other “influencers” to disclose any incentives they receive. As noted by the FTC in its letter to Nordstrom, companies should also monitor compliance on the part of bloggers.

Noted and Quoted . . . Marc Roth Sheds Light on Necessary Components of Privacy Policies for InsideCounsel

On April 10, 2013, Manatt partner Marc Roth authored a column for InsideCounsel titled “Regulatory: Drafting and Reviewing Your Privacy Policy,” the final article in a series of three on this topic. He stressed the need for in-house counsel to involve key company stakeholders in the privacy policy creation process and highlighted key steps in the development process.

Marc noted that it is critical for companies to live by their privacy policies once they have developed them. According to Marc, if companies do not follow their policies, “the legal and reputational consequences that may result from such actions can be extremely damaging, and perhaps irreversible.”

To read the full article, click here.

Most Read Stories

In case you missed any, here are our top 10 most widely read stories in March:

1. “SPECIAL FOCUS: FTC Releases Updated Guidance for Digital Marketers

2. “ ‘Manatt Advertising Litigation Team Twice Defeats Efforts to Enjoin TurboTax Television Commercials

3. “UK Court Finds Google Could be Liable for Blog Comments

4. “Less Dry or Moisturized? NAD Decides

5. “NAD: Price Match Offer by Toys “R” Us Needs a Change

6. “FDA Doesn’t “Like” Dietary Supplement Maker’s Facebook Activity

7. “TCPA Plaintiffs Victorious in Illinois, New Jersey

8. “FTC Issues Lifetime Ban to Telemarketing Defendant

9. “Data Security, Emerging Tech to Be Focus for FTC

10. “FCC Should Update Sponsorship, Product Integration Guidance, GAO Recommends