In This Issue:
Introducing TCPA Connect
On October 16, the FCC's updated Telephone Consumer Protection Act (TCPA) regulations finally took effect. The new rules pose significant challenges for companies seeking to communicate with consumers by mobile phone, text, and pre-recorded calls. Specifically, marketers must obtain and possess a consumer's "express written consent" prior to sending any of the foregoing communications. To help you stay ahead of the curve, Manatt created two new resources:
TCPA Connect: Our new monthly online news publication which will highlight TCPA-related cases and developments.
TCPA Compliance and Class Action Defense: We've formed a new practice group to help our clients understand and comply with the new regulations and defend against regulatory and class actions brought under the Act. Manatt's dedicated team is uniquely equipped to advise on the TCPA's varied and complex challenges. Our 360-degree view is the result of decades of experience counseling major B2C and B2B companies, as well as the call centers and telemarketing solutions providers that serve them. For more information about our capabilities, click here.
To test your knowledge of the TCPA, take our online quiz and see how you rate! Click here. And feel free to share this with friends and colleagues.
Industry Petitions FCC to Forbear Enforcement of New Rule
On October 17, the Direct Marketing Association petitioned the Federal Communications Commission in regards to enforcement of the new rule's express written consent requirements as it relates to consumers who have previously provided consent to receive telemarketing calls or text messages. Specifically, the DMA asks the agency to forbear enforcement of requiring consumers' written agreement to state that their consent is not conditioned on a purchase or sale and that such messages will be made using an autodialer. In its petition, the DMA notes that requiring such disclosures would likely confuse consumers who have previously provided their consent to receive such communications and that the new requirements exceed the FCC's stated objective in revising its rules to conform to a similar FTC regulation.
Particularly, the petitions note that the FTC rule only prohibits a person from conditioning agreement to receive these messages on a purchase or sale, whereas the FCC rules go beyond that by requiring that this language be included in the agreement itself. On the autodialer disclosure, the DMA's petition states that "[t]he disclosure that the marketer will use an "autodialer" has no counterpart in the FTC rule and similarly serves no practical purpose: if an autodialer is not [emphasis in original] used, neither the rule nor the statute applies."
To read the petitions, click here.
Why it matters: In its petition, the DMA notes that it does not seek forbearance from the enforcement of the general requirement that marketers seek prior express written consent for telemarketing calls and messages, as most marketers already obtain some form of written consent from consumers to send such messages. But, as the new rule relates to existing opt-ins, the DMA requests that "the FCC forbear from enforcing, in regards to existing written agreements, that portion of the new rule that requires a disclosure that sales are not conditioned on executing the written agreement and that the seller will use an autodialer." It is unclear whether the FCC will ultimately acknowledge and rectify the inconsistencies and industry challenges raised by the DMA's petitions. But, until and unless the FCC responds to these petitions, the new FCC rule remains in effect and marketers are advised to comply with those requirements so as to avoid an allegation or challenge to its marketing practices.
Scanning Gmail Messages May Leave Google Liable
A California federal court denied in part Google's motion to dismiss a wiretap law case that stemmed from Google's scanning of Gmail users' messages to create user profiles and serve targeted advertising.
The consolidated multidistrict litigation involves several classes of plaintiffs who alleged that since 2008 Google intercepted, read, and acquired the content of e-mails sent or received by Gmail users. Google then used the information to send targeted ads and to create user profiles, according to the suit.
Plaintiffs argue that such actions stand in opposition to Google's own privacy policies and terms of service and violate the federal Wiretap Act, as amended by the Electronic Communications Privacy Act, the California Invasion of Privacy Act (CIPA), and the laws in Florida, Maryland, and Pennsylvania.
Google raised various arguments in support of its motion to dismiss. Addressing the federal statute, the company argued that the reading of messages fell within the "ordinary course of business" exception and that Gmail users consented to the review.
U.S. District Court Judge for the Northern District of California Lucy H. Koh disagreed. The "ordinary course of business" exception is narrow, she explained, and applies only when "an electronic communication service provider's actions are 'necessary for the routing, termination, or management of the message.'" Intercepting data for the purpose of creating user profiles or providing targeted advertising is a purpose "separate and apart" from the operation of the email service, the court said. The court also cited the fact that Gmail always had separate processes in place for spam and virus filtering.
"There must be some nexus between the need to engage in the alleged interception and the subscriber's ultimate business, that is, the ability to provide the underlying service or good," Judge Koh wrote. Because the plaintiffs alleged that Google's interceptions are for the company's own benefit unrelated to the service of e-mail or the particular user, she said the company did not fall within the protection of the exception.
Turning to the issue of consent, the court concluded that Gmail users or non-Gmail subscribers who received messages from Gmail users did not grant consent for Google to compile user profiles to use their emails to created targeted ads.
The terms of service reserved Google the right to "pre-screen" content, but implied that Google would only do so to filter objectionable material, the judge wrote.
A separate section notifying users they would be subject to targeted ads based on "stored" information was similarly unclear. "The language suggests only that Google's advertisements were based on information 'stored on the Services' – not information in transit via e-mail," the court said. The "policies did not explicitly notify plaintiffs that Google would intercept users' e-mails for the purposes of creating user profiles or providing targeted advertising."
Even Google's 2012 policy update failed to provide enough clarity, Judge Koh wrote. "The new policies are no clearer than their predecessors in establishing consent," she said. "A reasonable Gmail user who read the privacy policies would not have necessarily understood that her emails were being intercepted to create user profiles or to provide targeted advertisements."
The majority of the class claims based on the CIPA also survived Google's motion. Although the court was faced with an issue of first impression, it adopted a broad reading of the statute to encompass email messages.
Judge Koh granted dismissal on two issues: one of the causes of action under CIPA and claims pursuant to Pennsylvania state law, which protects only the sender of a communication from wiretapping (not the recipient). "In an abundance of caution," however, she granted the plaintiffs leave to amend their complaint.
To read the decision in In re: Google, Inc., click here.
Why it matters: Responding to the ruling, Google issued a statement that it was "disappointed" in the decision and will consider its options. "Automated scanning lets us provide Gmail users with security and spam protection, as well as great features," the company said. Privacy advocates hailed the decision as a consumer-friendly interpretation of the law – friendly enough, apparently, that two consumers took note and filed a similar suit against Yahoo just days later. In their complaint, the two California residents argue that Yahoo "intentionally intercepts and reviews the content of their electronic communications for financial gain." The plaintiffs argue that they did not consent to the scanning because they do not have Yahoo accounts and therefore did not agree to the company's terms of service.
Collegiate Athletes Reach $40M Deal with EA, CLC
In precedent-setting publicity rights litigation, video game maker Electronic Arts (EA) has reached a settlement agreement on claims brought by former collegiate student athletes who were featured in games such as NCAA Football and NCAA Basketball.
The plaintiffs – EA, and the licensing arm for college sports programs, the Collegiate Licensing Company (CLC) – told the court that "the terms of the settlement are confidential until presented . . . for approval."
Notably, the deal – reportedly worth $40 million – does not include the National Collegiate Athletic Association (NCAA), also named as a defendant in the suit.
Several former student athletes, including UCLA basketball player Ed O'Bannon and Nebraska quarterback Sam Keller, claimed that EA violated their right of publicity by creating avatars that mimicked their personal characteristics, both personal (height, weight, skin tone, hair color, home state), and their athletic style of play, which included their statistics and jersey numbers. Current athletes and legends like Oscar Robertson and Bill Russell also signed on to the putative class action.
In a series of pretrial motions, EA sought to dismiss the suit on First Amendment grounds. The video game company said the avatars were based on publicly available information and constituted a transformative use. Both the 3rd and 9th Circuit Courts had rejected the video game maker's contentions earlier this year.
In late September, EA and the plaintiffs announced they had reached a deal. U.S. District Court Judge Claudia Wilken granted the parties' motion to stay the litigation and vacate any deadlines, pending the filing of the settlement agreement terms. While the court filings do not indicate a dollar amount, one of the plaintiffs' attorneys, Michael Hausfeld, told The New York Times that EA and the CLC will pay $40 million. How that amount will be divided remains undecided. "We have to come up with a plan of distribution, and that's what we are working on now," Hausfeld said.
To read the order in In re NCAA Student-Athlete Name & Likeness Licensing Litigation, click here.
Why it matters: How the remaining claims against the NCAA will play out remains to be seen. Steve Berman, lead attorney on the Keller case, told the AP that the settlement allows the plaintiffs to focus on their claims against the NCAA, which he said "intentionally looked the other way while EA commercialized the likenesses of students, and it did so because it knew that EA's financial success meant a bigger royalty check to the NCAA." But in a statement to USA Today, the chief legal officer for the NCAA, Donald Remy, said the organization is prepared to "take this all the way to the Supreme Court if we have to" and is "not prepared to compromise on the case." That case could have far-reaching implications as to whether third parties are liable for right of publicity violations when they do not create content, a hot issue in the social media arena.
Native Advertising Catches NAD's Eye
Wading into the hot topic of native advertising, the National Advertising Division (NAD) recently reviewed Qualcomm's sponsorship of a series of tech-related articles featured on Mashable.com.
Qualcomm advertised its Snapdragon processors (microprocessors used to power the functions in portable electronic devices, particularly cell phones and tablets) with a series of 20 articles titled "What's Inside?" on the Mashable site. According to Qualcomm, the series was designed to explore the components inside technology like Tesla cars, electric guitars, and the Mars Curiosity Rover.
The articles included a yellow bar indicating that the content was sponsored and an indication on the index page for the series that it was "supported by Snapdragon." When the sponsorship ended, those notices disappeared, piquing the interest of the NAD.
The self-regulatory body indicated its concern that advertising should be distinguished from content. "Advertising in non-traditional formats, including sponsoring a series of articles in an online news source, poses some new challenges, including when and how an advertiser has to identify a sponsored article or series of articles as advertising," the NAD wrote.
Advertisers should be guided by the general principles that differentiate content and advertising, as it "is a well-accepted principle that advertising must identify itself as such . . . Advertisers must identify a message as advertising even when the content does not mention a specific product or service."
To avoid misleading consumers, advertisers must disclose their sponsorship, even if the content simply conveys information about an issue with which the advertiser wants to be associated, the NAD said. Because consumers attach different significance to sponsored material, the failure to disclose such a sponsorship could therefore be considered deceptive.
According to the decision, "the article series, 'What's Inside?' stirs consumer interest in the technology that powers electronic devices, an interest which potentially could benefit Snapdragon. Although the articles in the series never discuss devices powered by Snapdragon processors, the article series may inspire curiosity in the technology that powers cell phones, and provide an opportunity to market Snapdragon processors."
Nonetheless Qualcomm ads appropriately disclosed itself as the sponsor of the article series because of its commercial purpose.
However, Qualcomm was not involved in the planning, creation, or posting of any of the articles in the series, none of which discussed Snapdragon or devices that contain the microprocessors. And the company only removed its name from the articles when its sponsorship ended. Because of these facts, the sponsorship was "more like an advertisement that ran with the article for a period of time, rather than content written with a commercial purpose for the advertiser," the self-regulatory body wrote.
The removal of Qualcomm's identification when the sponsorship ended was also acceptable, "as the content was independently created before the sponsorship began and controlled by the publisher," making it unnecessary for the advertiser to continue to identify itself as the sponsor.
To read the NAD's press release about the decision, click here.
Why it matters: Advertisers should be on notice that the NAD is monitoring the native advertising issue. "These are issues of concern for us," Laura Brett, a staff attorney at the NAD, told Ad Age about the decision. "We want to make sure the industry is doing what it's supposed to do." The action also serves as a reminder that the general principles that distinguish content from advertising remain in play, even in nontraditional formats. "Advertisers may be required to identify a message as advertising even when the content does not mention a specific product or service as consumers can be misled when an advertiser conveys a commercial message without disclosing that it is the author of the message," the NAD cautioned. Native advertising is on the Federal Trade Commission's radar as well. Earlier this year, the FTC warned search engines that ads and sponsored listings must be distinguished from "natural" results. The FTC plans to host a workshop on native advertising on December 4, 2013.
What's on Tap for the FTC?
As the keynote speaker on September 30 at the Advertising Self-Regulatory Council's annual conference, Jessica Rich, the new Director of the Federal Trade Commission's consumer protection bureau, shared her agenda for the agency.
Rich, who has been with the agency for 20 years, said the FTC "has long had a focus on national advertising. We're by no means finished." Specifically, that means keeping an eye on issues such as deceptive health and safety claims, hidden fees or "drip" pricing, and the marketing of food to children.
New areas of attention include privacy, which Rich characterized as "a huge priority" because "consumers should be able to expect basic privacy and security protections." A recent case against a company selling video monitoring systems – the agency's first action taken in the "Internet of Things" ecosystem – signals what is to come, she said, with other investigations under way.
Deceptive environmental claims will also be considered by the FTC. "A growing number of consumers are looking to buy green products and companies respond with green marketing. But sometimes what companies think green claims mean and what consumers think they mean are two different things," Rich said.
Digital marketing, including concerns about native advertising and the sufficiency of disclosures on mobile platforms, is also on Rich's enforcement radar. "This will be an area of increased law enforcement activity in the coming year," she said. She noted that the agency has released several pieces of guidance in the area, including instructions to search engines that they must distinguish natural search from paid search results and the updated Dot Com Disclosures.
Echoing a recent theme from other officials at the FTC, Rich also said the practices of data brokers will remain under close scrutiny, with the agency set to release a report by the end of the year.
Why it matters: Privacy and the rise of big data remain key issues for the Commission, along with environmental claims and digital advertising. Although this should come as no surprise to the industry in light of comments by other members of the FTC and the agency's recent enforcement actions, their comments serve as a road map for enforcement activity in the near future.