Advertising Law - February 2016

by Manatt, Phelps & Phillips, LLP
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In This Issue:

  • Tensions Mount Prior to Contract Renewal Between Industry, SAG-AFTRA
  • Online Accountability Program Takes Action for Lack of Notice, Opt-Out
  • Consumer Groups Urge FCC to Adopt Broadband Privacy Rules
  • Challenge to Handmade Vodka Moves Forward in New York
  • Noted and Quoted . . . Bloomberg BNA Consults Manatt's Brody, Aronson and Shah on the FTC Native Ad Guide

Tensions Mount Prior to Contract Renewal Between Industry, SAG-AFTRA

The ad industry and the Screen Actors Guild-American Federation of Television and Radio Artists plan to negotiate successor agreements to the current Commercials Contract and Radio Recorded Commercials Contract, when talks begin in February on a new deal.

In the meantime, the union has taken an aggressive stance against the ad agency Droga5 in posts and tweets on Instagram and Twitter and ads in publications such as Variety and The Hollywood Reporter in which it alleges that the agency hires nonunion workers with union performers and pays them both nonunion wages. For example, one of the ads features the headline "Actors Wanted" along with the text "Must be cool with unfair pay, no benefits, exploitation. Contact Droga5 if interested." SAG-AFTRA also delivered a petition with about 8,000 signatures to the agency's headquarters requesting that it "stop undermining the industry standards that ensure commercial performers can earn a middle-class living."

The issue for the union: As a nonsignatory to the existing contracts, Droga5 allegedly pays union members nonunion wages when shooting nonunion work. In a statement to Ad Age, the agency denied the accusation that it exploits talent and stated: "Droga5 remains a non-signatory to the SAG commercials contract, enabling us to engage in non-union shoots when it is deemed appropriate. ... However, when managing SAG productions, we always use SAG performers, which include any commercials for SAG-signatory clients or featuring any SAG celebrity talent. In those instances, we abide by SAG rules and pay SAG wages across the board. We do not engage SAG performers in non-union productions."

SAG-AFTRA hasn't indicated whether its ad campaign will expand to include other nonsignatory agencies.

Why it matters: Tensions leading into negotiations are high and not just because of the ad campaign. The increasing use of digital content has led to disputes about whether a video on YouTube, for example, constitutes a commercial as defined by the union, thereby requiring the use of SAG-AFTRA actors and other requirements. The ad industry has taken its own steps to prepare, with the Joint Policy Committee of the Association of National Advertisers-American Association of Advertising Agencies sending out a survey to industry stakeholders to get a better sense of their issues and concerns.

Online Accountability Program Takes Action for Lack of Notice, Opt-Out

The Online Interest-Based Advertising Accountability Program announced its latest actions against a pair of companies that failed to offer consumers a method to decline behavioral targeting.

The Digital Advertising Alliance's Self-Regulatory Principles, which govern the AdChoices program, require that all interest-based ads use the AdChoices icon as an alert to notify consumers that an ad is based on their prior web browsing. When a consumer clicks on the icon, he or she should be taken to a short description of interest-based advertising (IBA) and an opt-out link, which the Accountability Program refers to as enhanced notice.

In addition, every web page where companies collect consumer data for IBA must alert consumers to the collection by typically using the enhanced notice. Again, when consumers click on the link they should be provided with a short explanation of IBA and an opt-out.

In the first action, Varick Media Management correctly displayed the AdChoices icon, the Accountability Program said, but the site's opt-out links were broken. "Varick's vendor-provided enhanced notice and opt-out solutions were inaccurate or outdated, resulting in non-functional disclosure links," the Accountability Program explained in a press release about the action. "Therefore, Varick's written notices of its IBA practices—both as a third party engaged in IBA on other websites and as a first party allowing non-affiliates to collect data on its own website—were not readily accessible."

Unlike the Varick action, which was triggered by a consumer complaint, the case against The Hollywood Reporter arose from the Accountability Program's work on native advertising. The company's website featured an IBA-based content recommendation widget, but neither The Hollywood Reporter nor the third party serving the IBA provided an enhanced notice link.

"Consumers therefore had no enhanced notice to alert them that the sponsored content recommendations were based on their prior web browsing and link them from the text of the notice to an opt-out mechanism," according to the press release. Further, consumers were not provided with enhanced notice that other third parties were collecting data across The Hollywood Reporter website as required by the Accountability Program.

Both entities have now complied with the Accountability Program rules. Varick has rectified the broken and missing links and The Hollywood Reporter has provided notice and choice about the IBA activity on its website.

To read the Accountability Program's press release about the actions, click here.

Why it matters: The decisions "provide a roadmap of how the advertising industry's AdChoices program works to put consumers in control of interest-based advertising," the Accountability Program noted in its press release, adding that the cases brought the tally of public actions taken by the Accountability Program up to 63. "IBA involves a complex supply chain," Director of the Accountability Program Genie Barton noted in the release. The Digital Advertising Alliance's Self-Regulatory Principles "cover all companies in this supply chain and place responsibility on them to ensure that consumers receive notice and choice, however complex the ad serving chain may be."

Consumer Groups Urge FCC to Adopt Broadband Privacy Rules

If consumer groups have their way, the Federal Communications Commission could wade into the privacy waters in the broadband area—and soon.

Dozens of advocacy groups petitioned the agency to adopt privacy rules regulating the use of consumer information by broadband providers. "Providers of broadband Internet access service, including fixed and mobile telephone, cable, and satellite television providers, have a unique role in the online ecosystem," a total of 59 organizations wrote in a letter to FCC Chairman Tom Wheeler. "Their position as Internet gatekeepers gives them a comprehensive view of consumer behavior and until now privacy protections for consumers using those services have been unclear."

As the role of the Internet has continued to grow in the lives of consumers, this potential for increased surveillance could "create a chilling effect on speech and increase the potential for discriminatory practices derived from data use," the groups argued. "By contrast, commonsense protections may lead to a broader adoption and use of the Internet, as individuals gain confidence in conducting everyday business and exploring new services online."

The organizations—including the American Civil Liberties Union, Campaign for a Commercial-Free Childhood, Electronic Frontier Foundation, and Public Citizen—noted that the recently signed Memorandum of Understanding between the FCC and the Federal Trade Commission positioned the FCC to take on the role as the "brawnier cop on the beat" with regard to broadband providers.

What kind of rules would the groups like to see? The letter included a wish list, with requests that broadband providers must notify consumers of data breaches, that broadband providers be held accountable for any failure to take suitable precautions to protect personal data collected from users, and that their data collection practices be clearly disclosed to subscribers so they can ascertain to whom their data is disclosed.

Further, the organizations called on the FCC to require that broadband providers obtain affirmative consent before collecting and sharing the personal data of subscribers for purposes other than providing Internet access service. It "strongly urged the FCC to move forward as quickly as possible on a Notice of Proposed Rulemaking proposing strong rules to protect consumers."

To read the letter to the FCC, click here.

Why it matters: The FCC's controversial decision to attempt another go-around at net neutrality regulations included the authority to regulate broadband providers with regard to consumer privacy. Chairman Wheeler has indicated that the Commission intends to address the privacy practices of broadband providers in the coming months. Not everyone is in agreement on the need for new privacy rules, however, with the telecom industry taking the position that existing privacy requirements are sufficient.

Challenge to Handmade Vodka Moves Forward in New York

A reasonable consumer could be misled by the label on Tito's Handmade Vodka, a New York federal court judge has ruled in denying the manufacturer's motion to dismiss a putative class action suit alleging false advertising.

New York resident Trevor Singleton accused the company of deceiving consumers with label claims that its vodka is "Handmade" and "Crafted in an Old Fashioned Pot Still by America's Original Microdistillery." In addition, according to the complaint, the company's website repeatedly used the term "handcrafted" and explained the vodka is "made in small batches in an old fashioned pot still" and uses a "time honored method of distillation [that] requires more skill and effort than modern stills."

Singleton alleges, however, that Tito's vodka is actually manufactured and produced in "massive buildings containing ten floor-to-ceiling stills and bottling 500 cases per hour," and that the company misled consumers in an effort to capitalize on their preference for higher-quality vodka by charging a premium for its products. Singleton also alleged that the Distilled Spirits Council of the United States defines "craft spirits" as spirits produced in quantities under 40,000 cases a year—far fewer than Tito's allegedly produces.

Tito's countered with a motion to dismiss, arguing that federal and state regulatory approval of the Tito's Handmade Vodka label created a safe harbor that barred all of the plaintiff's claims. Failing that, the defendant told the court the plaintiff failed to state a claim under New York's prohibition on deceptive acts or practices.

New York General Business Law Section 349(d) states: "In any such action it shall be a complete defense that the act or practice is, or if in interstate commerce would be, subject to and complies with the rules and regulations of, and the statutes administered by, the federal trade commission or any official department, division, commission or agency of the United States as such rules, regulations or statutes are interpreted by the federal trade commission or such department, division, commission or agency or the federal courts."

Because the United States Alcohol and Tobacco Tax and Trade Bureau approved Tito's label, the company was safe from suit, it said.

But U.S. District Court Judge Brenda K. Sannes disagreed.

To receive a certificate of label approval (COLA), an entity must satisfy regulations that include a prohibition on using misleading brand names, or using labels that contain any false or untrue statements. Although Tito's argued that by approving its label the TTB determined it had complied with federal regulations and found the term "handmade" to be neither false nor misleading, the plaintiff said the TTB simply took the term at face value.

No New York court has applied a COLA from the TTB to a false advertising suit, the court said, and a review of cases from other jurisdictions involving similar safe harbor provisions and TTB approval of labels for alcoholic beverages yielded mixed results. Courts in California and Florida agreed with defendants, while different California courts (including in a case with nearly identical facts) and another in Illinois have sided with plaintiffs.

"In this case, based on the COLAs before the Court, it is not clear whether the TTB has determined that each representation on Tito's labels complies with the relevant regulations, as required to apply the safe harbor," the court said. "The record does not reflect whether the TTB investigated or ruled upon the representations that Tito's vodka is 'handmade' and 'crafted in an old-fashioned pot still.' The COLAs filled out by Defendant and certified by Defendant to be true and correct are simply market approved by the TTB."

In contrast, when Tito's added the term "Gluten-Free" to its labels, the COLAs approved the label based on a specific TTB ruling, pending rulemaking on gluten-free references by the Food and Drug Administration, the court noted.

"Although Defendant claims that the TTB specifically investigated and approved the 'Handmade' representation on the Tito's label, those facts are not properly before the Court," Judge Sannes wrote. "Moreover, the COLA application form states that the issuance of a certificate does not relieve Defendant from liability for violations of the Federal Alcohol Administrative Act, which itself prohibits false and misleading labeling, suggesting that TTB approval is not intended to carry preemptive weight."

As for the sufficiency of the plaintiff's claims, the court found Singleton had met his burden to survive a motion to dismiss. Applying an objective standard, and using the plaintiff's definition of handmade to encompass a product made with "certain basic tools … without complex automated machinery," the judge found that a reasonable consumer could be misled by the "handmade" language.

In particular, the court noted that together with language about use of an "old-fashioned pot still," the "handmade" claim "may suggest a hands-on, small-batch process that is not automated," when it is allegedly mass-produced in a highly automated one. "At this stage of the case, Plaintiff has plausibly alleged that Defendant's labels are deceptive or misleading in a material way because Tito's vodka is not made in a hands-on, small-batch process," Judge Sannes said. The plaintiff had stated an actual injury, she added, by alleging he paid a premium for the vodka.

The court did throw out Singleton's claims for breach of express warranty and negligent misrepresentation but allowed a claim for intentional misrepresentation to move forward.

To read the decision in Singleton v. Fifth Generation, click here.

Why it matters: The court determined that TTB approval does not create a safe harbor. Just because the federal agency reviewed the label, it did not conclusively determine that every claim that appeared on it complied with state law, the court found. The court allowed the false advertising suit to move forward, as the record failed to reveal that the TTB evaluated the merits of Tito's use of the term "handmade." However, Singleton conflicts with other recent orders regarding the use of the term "handmade" in spirits advertising. For example, in Nowrouzi v. Maker's Mark Distillery, Inc., California Judge John A. Houston determined that the "handmade" claim was not a specific and measurable claim that could reasonably be understood to mean that "no equipment or automated process was used to manufacture the whiskey." Similarly, in September 2015, Florida Judge Robert Hinkle largely dismissed Shalinus Pye et al. v. Fifth Generation, Inc., case number 4:14-cv-00493 (N.D. Fla.), a proposed class action against Tito's after finding that the Oxford English Dictionary definition of "handmade" could not be used to literally describe vodka. Judge Hinkle also tossed a similar class action against Maker's Mark Distillery with similar allegations (Salters et al. v. Beam Suntory Inc. et al., case no 4:14-cv-00659 (N.D. Fla.)).

Noted and Quoted . . . Bloomberg BNA Consults Manatt's Brody, Aronson and Shah on the FTC Native Ad Guide

The Federal Trade Commission published its long-awaited guidance on native advertising just before the new year. In "Navigating Native: A Checklist of Compliance Steps for Ensuring Proper Disclosures for Native Ads" published in Bloomberg BNA's Electronic Commerce & Law Report on January 13, 2016, Manatt advertising attorneys Jesse Brody, Lauren Aronson and Suemyra Shah provided background on issues that have surrounded native advertising disclosure practices up until now, detailed the FTC's new disclosure requirements and outlined strategies to help advertisers comply with their new disclosure obligations.

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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