Advertising Law - December 2014 #3

by Manatt, Phelps & Phillips, LLP

In This Issue:

  • FCC Proposes Online Disclosures for Broadcast Contests
  • FTC Brings Privacy Charges Against Health Billing Company
  • VPPA Suit Fails for Lack of PII
  • Buy Gas, Get Lift Ticket Ad Created Contract, Court Rules

FCC Proposes Online Disclosures for Broadcast Contests

The Federal Communications Commission has proposed a rule change that would allow broadcast stations to disclose on the Internet the material terms for contests that they sponsor.

As currently written, Section 73.1216 requires that a “licensee that broadcasts or advertises information about a contest it conducts, shall fully and accurately disclose the material terms of the contest, and shall conduct the contest substantially as announced or advertised. No contest description shall be false, misleading or deceptive with respect to any material term.”

In response to a petition from Entercom Communications Corp. seeking a rule change in recognition of modern technology – as well as the fact the Commission has fined several broadcasters under the existing requirements – the FCC published a Notice of Proposed Rulemaking in which it suggested a change to allow online disclosures.

The FCC noted that Section 73.1216 describes “material terms” as the factors that “define the operation of the contest and which affect participation therein.” Although the material terms may vary widely depending on the exact nature of the contest, they will generally include “how to enter or participate; eligibility restrictions; entry deadline dates; whether prizes can be won; when prizes can be won; the extent, nature and value of prizes; basis for valuation of prizes; time and means of selection of winners; and/or tie-breaking procedures,” the Notice stated.

Entercom told the agency that by placing the material terms on a Web site, listener confusion could be eradicated. Listeners unsure about the contest requirements could simply read the terms at the Web site at their leisure or check back to see whether the contest was conducted as promised.

The Commission opened for public comment the proposal that would create the online posting as an option, while still retaining the current on-air disclosure method.

For example, the agency asked whether the full URL for the online disclosures should be referenced each time the contest is mentioned on the air. “[W]e believe that requiring licensees to broadcast the website address where contest terms are available each time they mention or advertise a contest will better inform the public of material contest information and is not unduly burdensome,” according to the Notice. “We believe that such a requirement is less burdensome than requiring a licensee to periodically broadcast material contest terms in full.”

The Commission also proposed that if the material terms change after the contest is first announced, the station would be required to announce on air that the contest rules have changed and to direct participants to the Web site to review the changes. How frequently stations must issue this statement and for what length of time remain open questions.

As for the “material terms” themselves, the Commission queried whether the broadcaster can satisfy the posting requirement by listing the full set of contest rules or whether it must also provide an additional list of the “material terms” to highlight the important requirements.

How can stations ensure the material terms are easy for listeners to find, the FCC asked? Would the rules need to be indexed on the station site’s principal landing page? What about stations that do not have a Web site? The Commission wondered whether such a station could post its contest terms on the site of a third-party organization to comply with the rule, such as a state broadcast association or other company.

The agency also noted that the on-air disclosures must match the Internet disclosure.

To read the FCC’s Notice of Proposed Rulemaking, click here.

Why it matters: Section 73.1216 has proved challenging for broadcasters, who have faced $4,000 fines from the Commission over the last few years for failing to broadcast the material rules often enough to satisfy the rule and inform the listening public. In a statement accompanying the Notice, Chairman Tom Wheeler said the proposal “advanced the ball in a significant way,” as the agency took “an important step to modernize the way Americans receive and understand information – specifically contest rules – in the digital age.” The proposal is currently open for public comment.

FTC Brings Privacy Charges Against Health Billing Company

Turning its privacy focus to medical information, the Federal Trade Commission brought suit against a health billing company and its former CEO, charging that the defendants deceived consumers to get their hands on sensitive medical data.

In 2012 the company collaborated with a third party to develop a new service, the “Patient Health Record,” which would provide consumers with their comprehensive medical records online. One obstacle: the companies needed access to medical records for the service to function.

According to the FTC, PaymentsMD came up with a solution. The defendants tweaked the registration process so that when consumers signed up for the Patient Portal, they were presented with check-boxes to authorize the defendants to access and collect their sensitive health information. The consumer could check one box at a time or click just one box to agree to all authorizations at once. This sign-up process created a means for the defendants to collect information about customers’ medical information from pharmacies, medical labs, and insurance companies, the agency said.

As a result, thousands of consumers were not adequately informed that their data would be gathered by PaymentsMD. They simply believed they were consenting to authorization for the billing service and nothing else, according to the agency.

The FTC said that when some healthcare companies contacted by the defendants for data regarding, for example, prescriptions records, medical diagnoses and lab tests, they refused to provide the information. In addition, once PaymentsMD informed consumers about its collection process, they began to complain.

To settle the charges, the defendants agreed to destroy any information collected that was related to the Patient Health Record service. They also promised to obtain affirmative, express consent before collecting health information about a consumer from a third party and they are prohibited from deceiving consumers about the way they collect and use information.

To read the complaint and proposed consent order in In the Matter of PaymentsMD, click here.

Why it matters: “Consumers’ health information is as sensitive as it gets,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a press release. “Using deceptive tactics to gain consumers’ ‘permission’ to collect their full health history is contrary to the most basic privacy principles.” The agency noted that while the health information business is burgeoning, marketers must continue to abide by traditional principles that require them to make clear and conspicuous consumer disclosures.

VPPA Suit Fails for Lack of PII

The most recent attempt to apply the Video Privacy Protection Act to 21st-century technology hit a roadblock when a federal court judge tossed the suit.

Chad Eichenberger claimed that when ESPN transmitted his Roku device identifier (he used the device to watch the sports channel’s videos) to Adobe for purpose of data analytics, the company violated the VPPA prohibition on transmitting personally identifiable information (PII) and viewing history.

ESPN moved to dismiss the putative class action and U.S. District Court Judge Thomas S. Zilly agreed, finding the plaintiff’s factual allegations “too speculative.”

“Because the information allegedly disclosed is not PII (i.e., plaintiff’s Roku device serial number and his viewing records), plaintiff’s legal theory fails,” the court wrote. “Although ESPN could be found liable under the VPPA for disclosing both ‘a unique identifier and a correlated look-up table’ by which plaintiff could be identified as a particular person who watched particular videos, plaintiff does not allege sufficient facts to support his theory that Adobe already has a ‘look-up table.’”

“Even if Adobe does ‘possess a wealth of information’ about individual consumers, it is speculative to state that it can, and does, identify specific persons as having watched or requested specific video materials,” the judge added.

Judge Zilly dismissed the suit without prejudice, allowing Eichenberger to file an amended complaint.

To read the order in Eichenberger v. ESPN, Inc., click here.

Why it matters: Plaintiffs have made multiple attempts to apply the statute – enacted in 1988 in response to the release of U.S. Supreme Court nominee Robert Bork’s video rental records – to more recent technology, with varying levels of success. Similar suits are pending against CNN and Dow Jones, although a Georgia federal court recently dismissed comparable claims against Cartoon Network, in which it reached a conclusion similar to Judge Zilly’s ruling that the transmission of a device identifier alone (in that case, Android IDs) is insufficient to trigger liability under the statute.

Buy Gas, Get Lift Ticket Ad Created Contract, Court Rules

Shell Oil Company made an offer for a unilateral contract with its “Buy 10 gallons of fuel, get a voucher for a free lift ticket!” promotion, according to a new decision from an Oregon federal court.

John Martin Kearney alleged that he purchased 10 gallons of gas at a Shell location, but instead of a free lift ticket, he was given a voucher for a “two for one” coupon that required he purchase a lift ticket at full price at a participating ski resort in order to receive the free lift ticket.

Kearney sought to represent a nationwide class claiming breach of contract and multiple subclasses claiming unlawful trade practice as defined in the statutes of California, Colorado, Michigan, Oregon, and Washington.

Shell moved to dismiss the suit in its entirety.

The defendant argued that the “Ski Free” promotion lacked the necessary specificity to constitute a binding contract and the state claims failed to meet the higher pleading standards of Federal Rule of Civil Procedure 9(b) because they sounded in fraud.

While the court agreed that the state law-based claims did not meet the necessary Federal Rule pleadings standards, U.S. District Court Judge Marco A. Hernandez found that the ads fell within an exception to the general rule that advertisements offering a reward do not constitute a binding contract, if the allegations contained in the amended complaint are true. Applying a totality-of-the-circumstances test, the court determined that the advertiser made an offer for a unilateral contract that was accepted by the plaintiff, who provided adequate consideration for the deal.

Shell “in clear and positive terms, promised to render performance in exchange for the purchase of ten gallons of fuel,” the court said. “Namely, if one purchases ten gallons of fuel at a Shell Station participating in the ‘Ski Free’ promotion, then the purchaser is rewarded with a voucher for a free lift ticket. Additionally, plaintiff, as the recipient of the advertisement, ‘reasonably might have concluded that by acting in accordance with the request a contract would be formed.’ The clear offer in the advertisement established a unilateral contract, and plaintiffs accepted the offer through performance by purchasing ten gallons of fuel at a Shell station participating in the ‘Ski Free’ promotion.”

The state law claims fared differently. Judge Hernandez determined that FRCP 9(b) applied because the claims for relief sounded in fraud and Kearney failed to meet the higher pleading standards. The plaintiff “failed to plead with particularity the who, when, and where of [the] state statutory claims,” the court said, by not indicating which of the franchised locations displayed the advertising at issue, where he purchased his gas, and a specific date on which he made his purchase.

The court dismissed the state law claims with leave to amend, but denied Shell’s motion to dismiss the nationwide breach of contract claim.

To read the opinion in Kearney v. Equilon Enterprises, LLC, click here.

Why it matters: The mixed decision for Shell serves as notice to advertisers that an ad can constitute an offer to enter into a unilateral contract under a totality-of-the-circumstances analysis. In the Shell case, the court found that a sign stating “Buy 10 gallons of fuel, get a voucher for a free lift ticket!” was sufficient to survive a motion to dismiss on the breach of contract claim.

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.

© Manatt, Phelps & Phillips, LLP | Attorney Advertising

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