Advertising Law -- Oct 04, 2012

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In This Issue:

Manatt Partners Invited to Speak at 34th Annual PMA Marketing Law Conference

In the fast-changing world of promotions and advertising, it is crucial for marketers to stay on top of the latest developments on hot-button issues, including social media, sweepstakes and contests, mobile marketing, environmental marketing, financial services marketing, food marketing, sponsorships and endorsements.  The Promotion Marketing Association’s Annual Marketing Law Conference will address these topic and more on November 13-14, 2012 in Chicago, Illinois.

Linda Goldstein, Chair of Manatt’s Advertising, Marketing & Media Division, will explore cutting-edge legal issues involving multiplatform sweepstakes and contests as well as offer practical guidance for structuring innovative promotional campaigns in her presentation, “Panopticon – The All-Seeing View from All Sides.”   

Partner Marc Roth will participate in a panel discussion concerning the risks and opportunities in advanced consent, negative option and affiliate marketing (“On and On and On”), with other speakers to include C. Steven Baker (Regional Director, Midwest Region, FTC) and Albert Norman Shelden (Deputy Attorney General, Department of Justice, California, Retired Annuitant). 

Partner Chris Cole will explore tried-and-true tactics for defending class actions and governmental investigations in a presentation titled “Class Warfare.” 

Additionally, Chuck Washburn, Co-Chair of Manatt’s Consumer Financial Services practice, will participate in a special spotlight session focused on the Consumer Financial Protection Bureau and its impact on the financial, marketing and advertising sectors.

PLEASE NOTE: As a friend of Manatt, Phelps & Phillips, LLP, we are pleased to extend an offer of discounted registration which amounts to a $100 reduction in overall fees.  Please visit the PMA Web site to take advantage of this discount by entering the following priority code at registration: mpplawguest2012.

MySpace, FTC Finalize Settlement – Despite Objection

The Federal Trade Commission finalized a settlement with MySpace over charges that the social networking site violated the privacy of its users.

According to the agency, MySpace misrepresented how user personal information would be protected. Although its privacy policy asserted that it would not share “personally identifiable information” with third parties, the site allowed advertisers access to users' unique persistent identifier. Each user is assigned a unique persistent identifier, or “Friend ID,” which gave the advertisers access to the personal information of individual users like age, gender, profile picture, full name, and in some cases, the names of friends and their hobbies, interests, and pictures.

The transfer of the information constituted a deceptive practice in violation of Section 5 of the FTC Act, according to the agency’s complaint, filed this past May.

MySpace also certified that it complied with the U.S.-EU Safe Harbor Framework (allowing the legal transfer of personal data to the United States from the European Union) and the accompanying Safe Harbor Principles. But the FTC said that MySpace failed to comply, as it did not give its users notice of how their information would be used and the choice to opt out.

Pursuant to the settlement, MySpace is barred from future privacy misrepresentations and must institute a comprehensive privacy program that is subject to biennial assessments by independent third-party auditors for the next 20 years.

Not everyone was happy with the deal, however. During the public comment period prior to final approval of the settlement, the Electronic Privacy Information Center (EPIC) complained the terms did not go far enough. The group argued that the FTC should have emphasized the necessity of privacy safeguards for the site’s data rather than prohibiting MySpace from future deception. Specifically, the settlement should have mandated that MySpace obtain affirmative, opt-in consent, the group argued, similar to the terms of Facebook’s recent privacy settlement with the FTC.

To read the complaint and the settlement agreement in In the Matter of MySpace, click here.

To read EPIC’s comments about the settlement, click here.

Why it matters: The settlement marks the second time the agency has mandated the institution of a comprehensive privacy policy for a defendant following last year’s settlement with Google. With the agency continuing its focus on privacy-related issues, companies should ensure that they have a privacy policy from which they do not deviate.

New Bill Would Set Mobile Privacy Standards

Rep. Ed Markey (D-Mass.) has introduced the Mobile Device Privacy Act, which would require wireless phone manufacturers, carriers, and app developers to provide information to consumers about monitoring software that may be present on their devices.

Companies would be obliged to inform consumers about the existence of monitoring software, as well as what type of data is collected, who will receive the data, and how it will be used.  These disclosures would be required prior to the purchase of a device or installation of an app.

Consumer consent must be obtained before the monitoring software begins collecting and transmitting information, and the party receiving the personal information must have policies in place to keep it secure.

The bill would establish a private right of action for violations of the law and establish an enforcement regime for the FTC, the Federal Communications Commission, and state attorneys general.

“Just because a mobile device is handheld doesn’t mean it should hand over personal information to third parties without permission,” Rep. Markey said in a statement. “Consumers should know and have the choice to say no to software on their mobile devices that is transmitting their personal and sensitive information. . . . This legislation will provide greater transparency into the transmission of consumers’ personal information and empower consumers to say no to such transmission.”

Rep. Markey said the legislation was inspired by last year’s Carrier IQ scandal, when news reports revealed that the company’s software – installed on millions of smartphones and mobile devices – tracked keystrokes and relayed the information without the user’s knowledge or consent.

Groups such as Free Press are backing the bill, while the Software & Information Industry Association said the legislation is “the wrong way to go.” “It would impose rigid privacy rules on the mobile industry that can only lead to stagnation and a loss of innovative dynamism,” Mark MacCarthy, the group’s vice president for public policy, wrote in a blog post.

To read the Mobile Device Privacy Act, click here.

Why it matters:  The intersection of mobile devices and privacy has caught the attention of regulators and lawmakers like Rep. Markey. California Attorney General Kamala Harris recently reached an agreement with the operators of six mobile app platforms – including Apple and Google – under which the companies agreed to improve privacy protections for consumers. In addition, multiple federal agencies, including the Federal Trade Commission, the Federal Communications Commission, and the Commerce Department, are currently addressing the issue.

Google, Apple to Add Do Not Track Browser Options

On the heels of Microsoft’s decision to make Do Not Track the default setting for its forthcoming Internet Explorer 10, both Apple and Google have implemented the option for their browsers.

Apple’s recently released iOS 6 will replace unique device identifiers with a new type of tracking mechanism, the company said. The new mechanism – called “advertising identifiers” – will not be permanent, making it more difficult to transfer personal information. In addition, Apple will offer users a setting choice called “limited ad tracking” that will prohibit advertisers from collecting data used to serve behavioral advertising.

Google announced that it will also offer a Do Not Track setting for the latest iteration of its Chrome browser that was released on Sept. 13. The request header will feature “DNT:1” whenever a user moves to a new Web site. The company said it was fulfilling a promise it made to the White House earlier this year to enact Do Not Track by the end of 2012.

The concept of Do Not Track gained traction in December 2010 when the Federal Trade Commission released its draft privacy report that endorsed the idea. Mozilla was the first to implement the concept into its Firefox browser, followed by Microsoft for its Internet Explorer. Earlier this year Microsoft went one step further, announcing, to the dismay of the online advertising industry, that the next iteration of its browser would make Do Not Track the default setting.

After experiencing a negative reaction both from the industry and some consumer advocates – who noted that the default setting actually inhibited consumer choice – Microsoft said it would offer users two choices. Those who browse with IE 10 may choose “express settings” that will include the Do Not Track default, as well as “customized settings” that will allow users to opt out of Do Not Track.

Why it matters: Privacy advocates hailed the moves by Apple and Google as an increase in consumer protection. However, the fervor for Do Not Track seems to have cooled in recent months, as parties continue to disagree over exactly what the term means. The World Wide Web Consortium has created a working group to attempt to standardize the term, but consensus has yet to be reached on issues like whether Do Not Track means companies should not collect information from consumers at all, or whether it is acceptable to gather data but not display ads based on that information.

FDA, NAD Caution Advertisers About Anti-Aging Claims

Both the Food and Drug Administration and the National Advertising Division recently cracked down on advertising claims for anti-aging products.

In a warning letter to Lancôme, the FDA cautioned the company about claims that its Genifique and Absolue skincare products can “reconstruct skin to denser quality” and “stimulate cell generation” to create a younger look around the eyes. 

Such claims promote medical benefits that have not been established or approved by the agency, according to the letter.

The letter cited several claims on the company’s Web site in August 2012 for the Absolue and Genifique lines. Questionable claims included that the Genifique Youth Activating Concentrate “boosts the activity of genes” and “stimulates production of youth proteins,” and claims that the Absolue Eye Precious Cells Advanced Regenerating and Reconstructing Eye Cream “has been shown to improve the condition around the stem cells and stimulate cell regeneration to reconstruct skin to a denser quality.”

The L’Oreal subsidiary should halt the claims unless the company plans to submit a new drug application to the FDA, the agency cautioned. Failure to correct the violations could result in enforcement action as well as an injunction against further distribution and the seizure of the products currently on the shelves. 

In a separate action, the NAD recommended that Origins Natural Resources, Inc., modify and/or discontinue anti-aging claims for its Plantscription Serum and Plantscription Eye Treatment.

“Nature’s Plantscription rivals an anti-wrinkle prescription” and “Two dabs a day helps keep the surgeon away” were two of the claims about which the self-regulatory body expressed concern.

Such claims impermissibly imply that the products produce a benefit similar to prescription anti-aging treatments and other cosmetic procedures, the NAD said. Despite a disclaimer that the product is “Not the same as a prescription and doesn’t operate anything like surgery,” the context of the advertisements “convey[s] the unsupported message that the Plantscription products provide results comparable to cosmetic procedures (hence, keeping the surgeon away).”

Origins lacked head-to-head testing to substantiate performance claims to comparative prescription products, the NAD said, and claims using the term “repair” (such as “help visibly repair 4 major signs of aging”) should be discontinued for lack of supporting evidence.

References to the “natural” products should also be halted, the NAD determined. “The product name, the plant imagery surrounding the product(s) and the repeated references to ‘nature’ (‘naturally youthful look’ and ‘amazing new lift from nature’) could overstate the extent to which the products are actually ‘natural.’ ” Advertisements should be modified “to avoid any potential overstatement of the extent to which its products are, in fact, natural.”

Origins said it plans to appeal the decision to the National Advertising Review Board.

To read the NAD’s press release about the decision, click here.

To read the FDA’s warning letter to Lancôme, click here.

Why it matters: While the two matters address separate issues, they serve to remind advertisers that sufficient evidence is necessary to support anti-aging claims.

NARB Rules on Trade Seals

Analyzing the use of “fair trade” products seals, the National Advertising Review Board held that because the seal conveyed “a message of significance to consumers,” its language should be qualified to provide consumers with more information about the relative percentage of fair trade-sourced ingredients by weight.

Last year, in a case of first impression, the National Advertising Division reviewed the requirements under which the TransFair “trade seals” can be displayed.

TransFair issues two types of symbols: a “whole product” seal for products that are 100 percent fair trade-sourced and an “ingredient” seal for cosmetic and personal care products that have a combination of fair trade-sourced and non-fair trade-sourced ingredients. TransFair requires that these composite products contain at least 2-5 percent of fair trade-sourced ingredients by total weight.

The seals are identical except for a statement on the bottom of the ingredient seal that states that certain specific ingredients are either fair trade-sourced or contain “Fair Trade Certified Ingredients.” Composite products also include a front panel “made with” or “contains” statement identifying all the fair trade-sourced ingredients and asterisks on the ingredient panel indicating the fair trade-sourced ingredients.

The challenger in the case, Dr. Bronner, appealed to the NARB, arguing that the ingredient seal falsely implies that fair trade-sourced ingredients constitute a substantial part of the product.

After examining the context of the entire product packaging, the panel agreed.

“One message reasonably conveyed by the TransFair ‘Fair Trade Certified’ ingredient seal for composite products . . . is that fair trade sourced ingredients represent a significant percentage of the product’s ingredients.” The location of the seal on the front of the package – required by TransFair – “communicates to consumers the message that the information is significant and relevant to the consumer’s buying decision.”

Although “the ‘made with’ or ‘contains’ list reduced the likelihood that consumers would take away an erroneous message that a significant percentage of the ingredients were fair trade sourced, the panel believes that prominently featuring the name of fair trade sourced ingredients on the front of the packaging does just the opposite – it implies significance of the listed ingredients with respect to overall product composition.”

One of the challenged seals appeared on soap packaging and read “Made with Fair Trade Certified ingredients: Shea Butter, Cocoa Butter, White Tea Extract.” On the ingredients panel, located on the back of the packaging, the ingredients – 5th, 7th, and 8th on the list – included an asterisk to indicate they were fair trade-sourced.

But the NARB said such identification was not enough to overcome or qualify the implied message of significance on the front of the package.

“Putting an asterisk after each fair trade sourced ingredient does not show the relative proportion of fair trade sourced ingredients in the product and does not provide enough information for consumers to determine whether fair trade sourced ingredients represent a significant percentage of the product’s ingredients, which is the message reasonably conveyed by use of the ‘Fair Trade Certified’ ingredient seal on the front of the package,” the panel wrote.

Therefore, the NARB recommended that TransFair modify the requirements under which its “Fair Trade Certified” ingredient seal may be used. Composite products should provide sufficient information for consumers to determine the relative percentage of fair trade-sourced ingredients by weight.

To read the NARB’s press release about the decision, click here.

Why it matters: Given the rise in environmental and social impact advertising claims, the self-regulatory body noted that it plays an important role in helping purchasers make informed decisions. “While it is not the panel’s role to determine acceptable thresholds or standards used by certifying organizations, it is the panel’s role to recommend changes it believes are necessary to ensure that fair trade certification seals convey an accurate message to consumers. The fact that there are not generally accepted or legally required thresholds for the amount of fair trade sourced ingredients in composite products that can display a fair trade certified seal makes it even more important that consumers receive an accurate message as to the fair trade content in products displaying the seal.”

Nokia Promises Review of Allegedly Misleading Ad

After releasing a promotional video for a new smartphone that revealed it was shot by a video crew that did not use the device itself, Nokia promised that it will have an ethics officer review the situation.

During a presentation of the new Lumia 920 smartphone at a news conference by the company’s CEO, a video ad was played for the product that showed a woman riding a bicycle.  The ad ostensibly showed the difference between other smartphone video footage and the Lumia’s new optical image stabilization, which Nokia touted as a reason for consumers to choose the device. As the biker rode past a parked trailer, however, a reflection in the window revealed a van with lighting equipment and a cameraman filming the scene.

Just hours later, a blog questioned how the video was shot. Nokia was quick to apologize.  The video “simulates what we will be able to deliver with [optical image stabilization]. Of course, hindsight is 20/20, but we should have posted a disclaimer stating this was a representation of [optical image stabilization] only. This was not shot with a Lumia 920. At least, not yet. We apologize for the confusion we created,” the company wrote in a blog post “An apology is due.” The post also included a video shot using a Lumia 920.

The company said an ethics and compliance officer conduct an independent report. “What we understand to date is that it was nobody’s intention to mislead, but there was poor judgment in the decision not to use a disclaimer,” a company spokesperson told Bloomberg Businessweek.

To view the commercial, click here.

To read Nokia’s blog post, click here.

Why it matters:  Nokia learned the hard way that a company’s marketing error can quickly become a news story, thanks to blogs and other forms of social media.  The company is attempting to stay ahead of the potential controversy by quickly apologizing and conducting an ethics review.  However, while its swift response will likely limit or eliminate any potential legal actions that might have resulted from consumers being misled as to the smartphone’s capabilities, the experience nevertheless serves as a reminder of how such an event can create a public relations headache.

Sixth Circuit: Radio Station Calls Meet TCPA Exception

A radio station that made prerecorded telephone calls to consumers did not violate the Telephone Consumer Protection Act, the Sixth Circuit has ruled.

A consumer filed a putative class action suit after receiving a prerecorded telemarketing call from a Clear Channel radio station that delivered the following message:

“Hi, this is Al ‘Bernie’ Bernstein from 106.7 Lite FM. In case your favorite station went away, I want to take just a minute to remind you about the best variety of yesterday and today at 106.7. Motown, classic 70s from James Taylor, Elton, and Carole King; it’s all here. Each weekday, we kick off the workday with an hour of continuous, commercial-free music. This week, when the music stops at 9:20, be the tenth caller at 1-800-222-1067. Tell us the name of the Motown song we played during that hour, and you’ll win one thousand dollars. Easy money. And the best variety from 106.7 Lite FM.”

Mark Leyse alleged that the call violated the TCPA.

Clear Channel moved to dismiss the suit, arguing that the call was exempt under a Federal Communications Commission provision for “hybrid” calls that both announced a contest and generally promoted the station. Leyse contended that the exemption was limited to calls promoting only a specific broadcast, but the Sixth Circuit said it included calls promoting a broadcast and the radio station generally, such as the call at issue.

“Although a promotion for a broadcast is distinguishable from a promotion for a station, this distinction is trivial. Broadcasts appear on stations and by promoting a broadcast, the promoters are also impliedly promoting the station on which that broadcast appears. But even if the distinction Leyse draws were meaningful, the key principle underlying the exemption extends to calls promoting specific broadcasts or a radio station generally or both,” the panel wrote.

The court also determined that the FCC regulation was not arbitrary and capricious and therefore subject to deference. Congress directed the agency to issue regulations governing exemptions under the TCPA, and the agency promulgated its rules through notice-and-comment rulemaking.

“Despite Leyse’s many attempts to show that the FCC’s decision is arbitrary and capricious, the record here does not support that finding. In reaching its exemption decision, the FCC considered the impact on privacy rights,” the court explained.

“For example, the FCC noted that ‘Few commenters in this proceeding described either receiving such messages or that they were particularly problematic.’ And the fact that [the plaintiff] and other commenters disagree with the result the FCC reached does not detract from the deference accorded to the agency because the FCC considered and rejected these perspectives during its rulemaking.”

To read the Sixth Circuit’s opinion in Leyse v. Clear Channel, click here.

Why it matters: With potential damages of $500 per violation, class actions alleging violations of the Telephone Consumer Protection Act are increasingly common.  Unless covered by one of the FCC’s exemptions under the Act, marketers should use care to ensure they are in compliance with the statute.

Text Message Scam: Find Your “Secret Crush,” Enroll in Monthly Service

The New York Attorney General recently settled allegations with Game Theory LLC that the company was sending fraudulent text messages to consumers about a “secret crush.”

According to AG Eric T. Schneiderman’s office, the California-based company sent text messages claiming that the recipient had a “secret crush” and needed to respond “yes” to the text to find out the person’s identity. But by responding, the recipient also agreed to sign up for a text messaging service to receive dating tips at a cost of $9.99 per month, a charge that was difficult to detect on a wireless bill.

Between May and July 2011 more than 150,000 text messages were sent to New York wireless phones in the scam, sometimes with “secret crush” messages and others like “Someone thinks your [sic] hot!” and “You have 1 unread message,” the AG alleged.

In addition to the fraudulent text message scam, the company also offered an app that allowed users to “morph” or manipulate their personal photos. But the app tricked consumers into joining the monthly service plan when they installed the software, according to the AG’s office.

The company’s schemes constituted deceptive practices in violation of New York State law, the AG said. To settle the charges, Game Theory agreed to exit the text messaging business and pay $500,000 in civil penalties.

“There is no legitimate purpose for scams that deceive New Yorkers, and we will continue the fight to protect people’s privacy and their hard earned money,” AG Schneiderman said in a statement. “As a result of this settlement, Game Theory is out of the texting business for good, and this corporation will be held accountable for its conduct.”

Why it matters: In addition to enforcement actions by the FTC, text message scams are also facing increased legal scrutiny from state lawmakers like the New York AG’s office.  Marketers should be mindful that they are subject to both state and federal laws that govern the use of text messages.

FTC Takes Action Against Debt-Relief Defendants

The Federal Trade Commission brought an enforcement action against a debt-relief organization that allegedly violated telemarketing law and made false advertising claims.

The defendants, Nelson Gamble & Associates, Jackson Hunter Morris & Knight, BlackRock Professional Corp., and Mekhia Capital, as well as the man who controlled them, Jeremy Nelson, falsely claimed they could reduce consumers’ unsecured debt by 50 percent or more, the agency said.

Via telemarketing and on Web sites, the defendants made claims like, “Nelson Gamble works with the utmost diligence to obtain the best possible outcome for our clients, with over $90 million of debt settled in the past 12 months – and over $800 million since our inception,” according to the complaint. Further, the defendants said they used “proven tactical methods to settle debt by 50% to 80% of your total outstanding balances.”

Although the defendants claimed that “Our team of Legal Professionals will work with you every step of the way,” and utilized corporate names to mimic law firms, they were not lawyers, the FTC said. Few, if any, debts were settled for consumers, and some consumers had their bank accounts debited even after choosing not to use the defendants’ services.

In addition, the defendants contacted consumers using illegal robocalls, made calls to numbers listed on the national Do Not Call Registry, called consumers who had instructed them not to call, made calls to consumers several times each day for days or weeks at a time, and failed to transmit caller identification to consumers’ caller ID.

The defendants violated the FTC Act, the Telemarketing Sales Rule, and the Electronic Fund Transfer Act, the agency said, by debiting accounts without express, informed consent.

A California federal court judge issued an injunction to halt the defendants’ activities and froze their assets.

To read the complaint in FTC v. Nelson Gamble, click here.

Why it matters: In a press release about the enforcement action, the FTC touted its efforts to crack down on robocalls. Eighty-eight enforcement actions have been brought against 250 corporate defendants and 194 individual defendants alleging Do Not Call violations and illegal robocalls, resulting in more than $69 million in civil penalties and equitable money relief. As part of the announcement about the enforcement action, the agency said it plans to host a summit on the issue of robocalls that would focus on “exploring innovations that could potentially be used to trace robocalls, prevent wrongdoers from faking caller ID data, and stop illegal calls.” The summit is scheduled for Oct. 18.

Drink Up: NYC Giant Soda Ban Takes Effect March 2013

Enacting a first-of-its-kind law, the New York City Board of Health approved a ban on the sale of sugary drinks sold in containers larger than 16 ounces.

The controversial proposal by Mayor Michael Bloomberg is intended to combat rising obesity rates and covers the city’s restaurants, street carts, theaters, delis, and sporting venues.

The law defines covered drinks as beverages “sweetened with sugar or another caloric sweetener that contain more than 25 calories per 8 fluid ounces” and applies to drinks sold in containers larger than 16 ounces. Exempt from the ban are drinks sold in grocery and convenience stores. Drinks that contain at least 51 percent milk as well as alcohol, fruit, and juice drinks are not covered by the law.

The nine-person Board of Health voted almost unanimously in favor of the proposal, with eight “yes” votes and one abstention. The law will take effect March 12, 2013. It will be enforced by the city’s restaurant inspection team, with the possibility of a $200 fine per violation.

Despite its passage, however, the law faces continued criticism and a potential legal challenge.

“What we need in New York are sensible solutions to the obesity issue that focus on a comprehensive approach to tackle an extremely complex problem,” Eliot Hoff, a spokesman for a beverage industry-sponsored group called New Yorkers for Beverage Choices, told CNN.com. “New Yorkers are smart enough to decide for themselves what to eat and drink.” The group said it has gathered more than 250,000 signatures on petitions that oppose the soda ban and is considering various options to challenge the law.

Why it matters: Mayor Bloomberg’s office has been a trendsetter in health-related legislation. Among other things, it has mandated that chain restaurants post calorie information on their menus and has instituted a ban on artificial trans fats in restaurant food. The passage of the soda ban could lead other jurisdictions to enact similar laws.

Noted and Quoted. . . The New York Times Turns to Linda Goldstein on Digital Promotional Campaigns

On September 30, 2012, The New York Times sought commentary from Linda Goldstein, Chair of Manatt’s Advertising, Marketing & Media Division, on the legal and reputational challenges that may confront companies as they structure and execute digital promotional campaigns, particularly on social platforms.  The article focused on a contest sponsored by Gold Peak Tea where the original winner was disqualified after using an online contest forum to garner additional votes in favor of his entry, which the company said was in violation of the official campaign rules. 

According to Goldstein, “There’s a broad discretion for the sponsor to disqualify an entrant.  The precedent in the courts for upholding the rules in the sponsor’s favor is quite strong.” 

To read the full article, click here.

Published In: Communications & Media Updates, Consumer Protection Updates, Privacy Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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