AD-ttorneys@law – April 2021 #3

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Digitally Generated Storm Clouds Gather Over Artists’ Rights

NFTs open exciting new legal questions for experienced IP lawyers

Thomas Kinkade This Ain’t

It’s a beautiful house.

Open and sparse, it’s bordered by clear, illuminated walls, ceilings and floors made of hi-tech materials that slowly shift with color. The furniture takes its design cues from the house—simple, functional pieces made of translucent materials bound by precise, gentle curves. The walls provide stunning views of a stark landscape, unspoiled by another structure for as far as the eye can see. Featured in Architectural Digest, the whole structure was designed by the moment’s hot young architect.

The cost? $500,000.

How can a gem like this be available for so little?

Big Reveal

It’s cheap because it isn’t real. Which, we guess, means it’s quite expensive, right?

Let’s back up a second.

We’re describing “Mars House,” a virtual home designed by artist Krista Kim, situated on an imaginary plot of Martian land. Kim, the founder of Techism (yes, there’s a manifesto), just sold the design in the form of an uploaded digital file. Kim’s studio calls it “the first iconic ‘NFT digital home’ for sale in history”; prior to its sale, it was available for upload on digital art marketplace SuperRare. (An anonymous buyer going by the handle “artoninternet” laid out the half-million.)

Half a million dollars.

But Where Do I HANG It?

What’s an “NFT digital home”? Well, putting aside Kim’s obvious talents as a designer, the Mars House is nothing more technically sophisticated than a design turned out on an autoCAD app—with one exception.

“NFT” stands for “non-fungible token.” Backed by blockchain technology, NFTs are digital assets—from artwork to designs to music—that can be certified as unique or numbered for limited sale. And the market for them is exploding.

If the price tag seems crazy to you, consider that Mars House is somewhat similar to a standard IRL design from an architect. “Beyond the promise of buying into the lucrative NFT market,” Architectural Digest reports, “the home and all of the furniture in it can be built in real life by glass-furniture makers in Italy, as well as through MicroLED screen technology.”

The Takeaway

Has this newsletter transformed, overnight, into a digital art journal? Of course not.

Canny readers know that where there’s a design that sells for more than a few nickels, legal trouble is bound to follow.

Just such a tiff is beginning to brew between Kim and Mateo Sanz Pedemonte, an Argentinian artist who worked on the project. He claims that Kim “never owned this project fully,” and that he possessed “the full intellectual property.” Kim, on the other hand, claimed that while Pedemonte worked on the project creating “visualizations,” he was paid for his work and signed away any rights to it in an agreement executed last year. As far as she’s concerned, he does not share a stake in the NFT.

It’s the birth of a whole new set of intellectual property questions. We can’t wait to report on what develops in this case, or in any of the countless others that are bound to follow.

For interesting commentary on the terms of the Mars House sale and how virtual designs interact with rights ownership issues, see this article in The Fashion Law.

COVID-19 Protection Claims Undermined by Endorser Diagnosis

Bollywood leading man and Indian megacompany take flack for positive test results

Big in Japan

While the advent of the influencer has spurred an uptick in celebrity endorsements in the United States, they are still comparatively rare when measured against the average number of endorsements a foreign movie star racks up in his or her home market.

Pundits have no doubt speculated as to why this is the case, but it seems likely that the difference is in the perception of credibility. We emphasize perception, of course; on the Internet, there are endless clips of famous Hollywood stars picking up easy cash in foreign-market commercials, some of which are completely nuts in the best possible sense.

(Wait, you say you haven’t seen them? Well, buckle up and check out these gems. We promise you’ll be looking at these clips all day instead of doing actual work. And … you’re welcome.)

Eat Your Heart Out, Clooney

Foreign markets are a whole other matter. Take India, for example, if it’s even possible to “take” in such a sprawling, multifarious, dynamic, diverse entertainment industry at one glance.

If there’s a common thread running through India’s kaleidoscopic entertainment market, it’s the ubiquity of celebrity endorsements—as a few hours watching Indian television or taking a drive through any Indian city will demonstrate.

The highest-paid, most recognizable Indian movie stars like Shah Rukh Khan and Amitabh Bachchan endorse a baffling array of products. And their pitches don’t affect their public profile at all. Endorsements have helped install Khan and Bachchan at comfortable spots in the list of the top 10 richest actors in the world; Khan, valued at $700 million, only cedes first place among that august company to Merv Griffin.

Wait, what?

We’ll let you puzzle out the Merv Griffin thing on your own, and move along to the case of Akshay Kumar, another one of India’s top leading men (one source lists his 2018 income at $58 million, putting him ahead income-wise of most Hollywood actors).

The Takeaway

Kumar is an endorsement machine; The Economic Times estimates that he appears in 17 hours of commercials each day across Indian television channels. His endorsement portfolio encompasses teas, motorcycles, clothing, batteries, footwear, soft drinks and more. But there is, perhaps, one endorsement he regrets—print ads he appeared in for Dabur, the Indian consumer goods giant, itself a ubiquitous brand.

Dabur produces its own version of Chyawanprash—a sugary dietary supplement that boasts an ayurvedic pedigree. Today, there’s a market of $4 billion for the ancient health tonic; celebrities, including Kumar, endorse it regularly.

Here’s where things went south for Dabur (and Kumar). The print ads in question boast “Protection against COVID-19 with 2 spoons of Chyawanprash daily.” Unfortunately, Kumar tested positive for COVID-19 in early April; and the Internet began to have some fun at his expense.

But what will be the consequence? Things got dire for one of our homegrown COVID-19-cure endorsers last year. And the Federal Trade Commission has sent more than 170 warning letters to COVID-19-claim abusers.

Yes, India’s Central Consumer Protection Authority did issue a blanket warning letter in January of this year; but given that the agency only came into being in 2020, a response is likely to take some time.

Congress Launches Investigation into YouTube Kids

Child-friendly platform is allegedly serving up awful content with no guardrails

Try to Remember …

That time in September? 2019? Too far away now?

Well, that month, Google and YouTube were hit with $170 million in fines by the Federal Trade Commission over accusations that the companies failed to meet Children’s Online Privacy Protection Act (COPPA) parental consent requirements. Both companies had failed to secure consent before gathering information on kids under 13 years old, the Commission said, and they needed to get with the program.

A daunting task for a service whose users watch one billion hours of videos each day.

Like School on a Saturday

And things may have become just a little more difficult for the companies.

The U.S. House Oversight and Reform Subcommittee on Economic and Consumer Policy has launched an investigation into the companies’ kid-friendly app, YouTube Kids.

“YouTube Kids, as the name suggests, serves an audience of children, but it appears to be serving up inappropriate, low-education, highly commercial content,” the Committee writes in a recent letter to the tech giants.

This investigation must come as a blow after the 2019 settlement.

The letter makes explicit reference to that agreement. “Even after its privacy changes,” the Committee notes, “YouTube Kids continues to show ads to children, but is now basing ad selection on the context of the video being watched, rather than web-browsing and online activity data.”

The Takeaway

The service “spends no time or effort determining the appropriateness of content before it becomes available for children to watch,” the authors note. The letter then makes a nod to COVID-19.

“As many parents know, YouTube Kids can be a useful tool to pacify and entertain children—and, we wish, to educate,” the Committee states in an unusually blunt assessment. “However, YouTube appears to be exploiting children by serving them a non-stop stream of low-quality, commercial content.”

And with that assessment, a five-page summary of document requests.

Despite the earlier settlement, YouTube and the government appear to be circling each other, waiting for the other to throw down or back down. How this slow dance will affect the future of online advertising is, for now, anyone’s guess.

Antenna Company Settles with FTC for Fake Cable End-Run

Wellco told consumers they could pluck premium channels out of thin air

The Man Always Wins
Free cable.

For the next-door neighbor of one of our writers, free cable was a 1980s-era obsession, the ultimate way to stick it to the powers that be. He tried to hijack the local cable lines in one way or another several times, all to no avail.

First, late one night, he hauled out a ladder and attempted to split the line coming in from the telephone poles to create a free hookup.

When that failed, he paid for a connection but then tried to split his own coaxial line so that he could enjoy cable in every room. And we mean every room—he even tried to set up cable in his bathroom. That scam ultimately failed as well—the signal progressively weakened each time it was split, so that each television screen he hooked up was filled with an awful soup of white noise.

We’ve heard so many stories of cable hijacking attempts that the next story doesn’t surprise us at all, even though it played out on a much larger scale.

Something for Nothing

Wellco, a New York company that peddled television antenna equipment under a range of brand names, was sued by the Federal Trade Commission for violations of the FTC Act, including false or unsubstantiated efficacy claims and false advertising claims through consumer endorsers. The company was playing off what seems to be an almost universal desire to avoid cable fees by making a series of allegedly false claims regarding its equipment.

“The average home pays over $750 for cable in just one year!” proclaimed one Wellco ad. “Consumers are getting ripped off by the big cable companies and there is nothing they can do about it... until now. A NASA scientist created this antenna so that the little guy could ‘fight back’ and enjoy their favorite TV shows in HD without handing over their hard-earned cash to the cable companies.”

And another: “Never Pay For Cable Or Subscriptions Again! This Device Allows You To Watch Your Favorite Channels For Free With Over 1.5 Million Units Sold Worldwide, Here Is The Best Solution To Watch Your Favorite Channels, Programs And Movies For Free!”

In short, according to the FTC, Wellco promised consumers that they could “stop paying for cable or satellite TV subscriptions and still receive all of their favorite TV channels” and could pick up 100 or more premium channels in high definition.

The Takeaway

As you may expect, the suit was settled in short order, with Wellco subjected to appropriate bans—the company is forbidden from making claims about any “product’s absolute or relative ratings or ranking, or the product’s superiority to other products” and about which channels customers can expect to receive, as well as other efficacy claims, unless they are substantiated. The company is forbidden to make false endorsements as well.

On top of those strictures, Wellco was slapped with a $31 million-plus judgment (reduced to $650,000 based on its inability to pay the full amount).

And that’s it for yet another FTC false advertising case.

If there’s something we can take away from this tale, it’s this: Should your ad, like Wellco’s, contain the phrase “But is it legal?”—you’d best engage in some self-examination.

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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