In This Issue:

Child-Directed Sweepstakes Ran Afoul of COPPA

A sweepstakes conducted by a magazine for tween girls raised concerns under the Children's Online Privacy Protection Act, the Children's Advertising Review Unit determined.

Discovery Girls magazine, which offers "advice, fashion and other fun stuff" for children aged 8 and up, ran a sweepstakes for a free iPod. Advertisements in the magazine and on the company's Web site made statements like "Tell Us About You! Go to DiscoveryGirls.com/survey" and "Answer all the questions to be automatically entered for a chance to win an iPod."

The first question stated, "Please enter your name, state, country and e-mail address so you can be entered for a chance to win an iPod Nano (you may skip this question if you do not want to be entered)." Of the more than 50 questions in the survey, many were personal in nature and some allowed users to type in their own response.

None of the ads included a disclosure with the odds of winning the iPod.

CARU expressed three concerns about Discovery's sweepstakes. First, the survey collected personally identifiable information (PII) from children under the age of 13 without obtaining prior, verifiable parental consent. In addition, the self-regulatory body questioned whether children would believe they needed to answer all 50 questions in order to be entered in the sweepstakes and, also noted that the odds of winning were not disclosed.

In its defense, Discovery explained it believed the collection of children's e-mail addresses for the sole purpose of contacting the winner's parents was permissible under COPPA. The advertiser also said it simply wanted to encourage girls to answer all the survey questions, which was not required for entry. And the official sweepstakes rules included a statement about the chances of winning, which Discovery thought was sufficient.

But Discovery's sweepstakes failed to comply with both CARU's Self-Regulatory Program Guidelines as well as the requirements of COPPA, the decision found. Both the Guidelines and COPPA require that if a Web site operator desires to collect PII from children under the age of 13, a parent must first be notified and consent must be obtained.

COPPA contains an exception to prior parental consent, where an operator collects the online contact information from a child for the sole purpose of responding directly on a one-time basis to a specific request from the child, the information is not used to recontact the child, and it is deleted by the operator from its records.

But that one-time exception was not available to Discovery because it applies only to the collection of a child's online contact information, CARU said. In contrast, Discovery also collected the child's name, state, and country, while other survey questions allowed for open-ended answers, where a child could provide even more personal information.

CARU also determined that one reasonable takeaway from the advertising was that children had to answer all of the questions before being entered in the giveaway. "The advertisement's use and emphasis on the word 'all' in combination with the phrase 'Take our survey and fill out all the answers! Then get a chance to win a brand new iPod!' could be misinterpreted by a reasonable child to mean that you must complete the survey in order to be eligible to win the iPod, when in fact all you needed to do was to answer the first question."

Finally, CARU's Guidelines recommend that advertising for sweepstakes directed to children include the likelihood of winning. The statement in Discovery's official rules was insufficient, the self-regulatory body found, as no disclosures were made on the print or online advertisements.

"CARU has consistently held that material disclosures in print and online advertising should be approximately equal in size and tone to those statements creating an interest in the sweepstakes and not buried in official rules or in fine print at the bottom of the page," according to the decision.

In its advertiser's statement, Discovery said it would modify advertising and sweepstakes procedures accordingly to comply with COPPA and CARU's recommendations.

To read CARU's press release about the decision, click here.

Why it matters: CARU's decision provides a valuable refresher course for advertisers considering a child-directed sweepstakes, with the reminder that advertisers must comply with both the self-regulatory guidelines and COPPA. Advertisers should clearly disclose the likelihood of winning in language that is readily understandable to the child audience and take a close read of the advertisement as a whole to evaluate all reasonable interpretations of the claims – not just the message intended to be conveyed, like encouraging entrants to answer all the questions. Most importantly, remember that verifiable parental consent is required before any collection, use, and/or disclosure of personal information from children.

Facebook Settlement Stands, But U.S. Supreme Court Expresses Interest in Cy Pres Deals

Ending years of litigation, the U.S. Supreme Court denied certiorari to a class member objecting to the $9.5 million deal in a suit alleging Facebook violated users' privacy rights with its Beacon program.

Launched in 2007, Beacon tracked the activity of Facebook users and then shared the information with their friends, from an online purchase at Amazon to a movie rental at Netflix. Users were automatically enrolled in the program and had to affirmatively opt out to avoid having their data broadcast. After one month – and a public outcry – the site changed the settings to require users to affirmatively opt in to Beacon. The program was eventually terminated in 2009. 

Facebook users also filed a class action suit in California federal court, which alleged the social media site violated both federal and state privacy laws. Settlement negotiations resulted in a deal totaling $9.5 million. Of that, $6.5 million would be spent to create and fund a foundation to promote online privacy and security, the Digital Trust Foundation, with a representative from Facebook as one of three members of the Foundation's board.

More than $2.3 million was set aside for class counsel. The plaintiffs also agreed to expand the class to include not just those whose information was shared during the initial one-month period when all users were automatically included in Beacon, but also those who were involved with the program after Facebook changed the default setting to opt in.

Some class members objected to the settlement, but a federal court judge granted approval and a panel of the Ninth U.S. Circuit Court of Appeals affirmed that the deal was "fair, adequate, and reasonable." Class member Megan Marek then took her challenge to the U.S. Supreme Court.

She focused on several features of the new foundation as the most troubling aspect of the settlement, specifically, that a senior Facebook employee would serve on its board, which would enjoy broad discretion in choosing recipients to fund. Marek also noted that the foundation lacked any kind of track record of supporting the causes at issue. The total settlement amount was also too low, she said.

The justices denied certiorari.

In an atypical twist, Chief Justice John Roberts added a statement. The Chief Justice said he agreed with the decision to deny the petition for review because Marek's challenge was focused on the particular features of the specific cy pres settlement at issue.

"Granting review of this case might not have afforded the Court an opportunity to address more fundamental concerns surrounding the use of such remedies in class action litigation, including when, if ever, such relief should be considered; how to assess its fairness as a general matter; whether new entities may be established as part of such relief; if not, how existing entities should be selected; what the respective roles of the judge and parties are in shaping a cy pres remedy; how closely the goals of any enlisted organization must correspond to the interests of the class; and so on," Chief Justice Roberts explained.

Cy pres remedies "are a growing feature of class action settlements," he added, and the Court has not previously addressed the issues presented by such deals.

"In a suitable case, this Court may need to clarify the limits on the use of such remedies," the Chief Justice wrote.

To read the Chief Justice's statement, click here.

Why it matters: The denial of certiorari allows for the new privacy foundation to begin its work and for Facebook to finally close the door on the Beacon litigation. For other parties involved in class action litigation featuring a cy pres remedy, however, the Chief Justice’s accompanying statement serves as a warning shot. He provided objecting class members a road map of potential concerns for members of the Court to consider in a future case, such as when cy pres relief is appropriate and how, as a general matter, to consider its fairness.

Have Class Action Suits Put an End to "All Natural" Food Claims?

Are foods and beverages labeled "all natural" disappearing from supermarket shelves?

According to a story from The Wall Street Journal, food and beverage manufacturers are ditching the "natural" language, in part due to the seemingly never-ending class action lawsuits challenging the claims as deceptive advertising.

The article cites examples like "All Natural" Goldfish, "All Natural" Naked juice, and "All Naked" Puffins cereal all removing the "all natural" language. Although products labeled "natural" made more than $40 billion in retail sales over the last 12 months, the article estimated that at least 100 lawsuits have been filed over the last two years over "natural" advertising, including suits against Ben & Jerry's, ConAgra, and Kashi.

Some cases have been dismissed, but others have reached multimillion-dollar settlements. The maker of Puffins cereal, for example, agreed this summer to pay $4 million to settle a suit.  It also changed its logo from "All Natural Since 1971" to "Since 1971."

"There's a boatload of litigation and that is going to continue until companies stop conning people," Stephen Gardner, litigation director at the Center for Science in the Public Interest, told TheWSJ. Gardner's organization has been involved in multiple cases challenging "all natural" advertising claims.

Another obstacle for the food industry: a lack of guidance from the Food and Drug Administration. The agency has not issued a definition of "natural." Instead, the FDA follows a "long-standing policy," a spokesperson told TheWSJ, considering "natural" to mean that "nothing artificial or synthetic (including all color additives regardless of source) has been included in, or has been added to, a food that would not normally be expected to be in the food."

The volume of litigation coupled with the lack of guidance from the FDA has led companies to drop the terminology. In 2009, 30.4 percent of food products and 45.5 percent of beverage products claimed to be "all natural." By the first half of 2013, those numbers had dropped to 22.1 percent for food and 34 percent for beverages.

Why it matters: Considering the high numbers of class action lawsuits challenging "all natural" claims, along with the volume of litigation, the cost to defend the suits, a lack of guidance from the FDA, and the multimillion-dollar payout in some cases, a food and beverage manufacturer's should proceed very cautiously should it decide to make or continue making an "all natural" claim.

NFL, Retired Players Reach $42M Deal Over Publicity Rights

Former professional football players reached a $42 million agreement with the National Football League over use of their publicity rights, with a Minnesota judge signing off on the deal.

The settlement faced vociferous objections from a handful of class members, who argued that not a single athlete would see a guaranteed dime from the millions. U.S. District Court Judge Paul A. Magnuson had harsh words for the objectors in his order, calling them out for their "baser instincts, namely the lure of what their attorneys promise is lucrative financial payouts from the NFL."

The roughly 25,000 class members alleged that the NFL illegally used the likenesses of former players, particularly in NFL Films productions. Pursuant to the settlement, the NFL will create a $42 million Common Good Fund for the benefit of all retired professional players, with some money set aside to establish a licensing agency for the former players. When the licensing agency strikes a deal with an entity, 75 percent of the fees generated will be paid directly to the players whose rights were licensed, with the remaining 25 percent being paid to the Common Good Fund for the benefit of the class as a whole.

"The vast majority of class members see the settlement at issue here for what it is: a boon to those thousands upon thousands of former NFL players who can now reap the collective benefit of a large financial payout to a fund organized solely for their benefit, overseen by their comrades-in-arms," the court said. "That former players will also finally have an avenue to pursue commercial interests in their own images and in their images as part of their former teams, for the first time in conjunction with the NFL's copyrights and trademarks, is icing on the cake for those players and indeed for all former players."

Judge Magnuson found the settlement "fair, reasonable, and adequate" in large part because the chances that the lawsuit "will succeed are slim at best." Further litigation would be both complex and extraordinarily expensive, the court said, and the plaintiffs" case faced serious obstacles from the statute of limitations (at best, six years, which would eliminate a majority of the class) to the choice of law analysis.

With the "law" of more than 20 states referenced in the class's amended complaint – some of which contains law on the right of publicity, while others do not – a serious conflict between applicable state laws weighs heavily against the ultimate certification of the class, the judge explained. Damages for the tens of thousands of class members pose a similar problem, with just a handful of players entitled to substantial amounts and a review of each player's contract required. Football is a team sport, Judge Magnuson added, making valuation of publicity rights damages "a Herculean task."

"Each individual appearing in a game clip has publicity rights in his or her image. But the value of those rights must be divided among all those appearing in some way. Would a court apportion more value to a team's quarterback, because he stands above the line of scrimmage and is more visible in any game clip? Or perhaps a player with a distinctive hairdo, such as current Pittsburgh Steeler Troy Polamalu, deserves more compensation because his image is readily identifiable?" he wrote. 

"Magnify these individual issues times 53 players on each of 32 teams' active rosters each year, and it is easy to see that determining damages on either an individual or a class-wide basis would be nearly impossible."

Alternatively, the benefits of settlement are "numerous and far-reaching," Judge Magnuson concluded.

"The settlement provides benefits to the class far beyond direct economic benefits arising out of the alleged infringement of players' publicity rights, which for the vast majority of class members could be meager, at best," the court said. The court also noted that The Common Good Fund and the licensing agency are independent of the NFL and the players' union, which will protect the rights and interests of all class members.

To read the final approval order in Dryer v. National Football League, click here.

Why it matters: The court's decision demonstrates how the complexity of a class action suit ultimately impacts the value of the settlement accepted by the court in lieu of litigation.  Judge Magnuson did not mince words when evaluating the plaintiffs' suit, explaining the potentially insurmountable obstacles of the choice of law analysis and determination of damages. (In a detailed footnote, he broke down what a hypothetical retired Minnesota Vikings player might be entitled to from an NFL film about the history of the franchise, estimating that even if 200,000 DVDs of the film were sold, the potential damages for a single player were roughly $200.) Facing an expensive, protracted, complex battle against a defendant with deep pockets, the court found the $42 million to be "the best solution.

Noted and Quoted . . . Advertising Age Turns to Linda Goldstein on FDA Trans Fat Ruling

On November 8, 2013, Advertising Age published commentary by Manatt's Advertising, Marketing & Media Division Chair Linda Goldstein regarding the effect of the Food and Drug Administration's preliminary ruling on trans fat for packaged food marketers and fast-food companies.

The ruling sets in motion a process for brands to eliminate most trans fat from their food products, and it could potentially spur class action activity. According to Linda, "The real issue would likely be what, if anything, did the brands know. If there was evidence that the brands knew this was not safe, there could potentially be litigation. However, unlike the tobacco cases, I believe that is unlikely."

To read the full article, click here.