Advertising Law - January 2015 #2

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In This Issue:

  • Safeway Must Pay Customers for Higher Online Prices
  • Former NFL Players Score Again
  • FTC’s Ramirez: Internet of Things Raises Privacy, Security Concerns
  • Dish Network to Pay $2M Over Deceptive Pricing
  • Noted and Quoted . . . Mobile Marketer Turns to Goldstein to Explore the Wide-Reaching Impact of Social Currency on Brands

Safeway Must Pay Customers for Higher Online Prices

A California federal court judge has ruled in a breach of contract suit that Safeway is liable to customers who paid more for items online than in the store.

The dispute arose in the context of Safeway’s grocery delivery service. On behalf of a putative class, Michael Rodman alleged that the defendant marked up online items about 10 percent, despite advertising that the cost was the same as what the company was charging in-store that day.

In its motion for summary judgment, Safeway relied upon the following clause in its Terms and Agreements – a phrase that customers were required to accept as part of the registration process: “The prices quoted on our web site at the time of your order are estimated prices only. You will be charged the prices quoted for Products you have selected for purchase at the time your order is processed at checkout. The actual order value cannot be determined until the day of delivery because the prices quoted on the web site are likely to vary either above or below the prices in the store on the date your order is filled and delivered.”

Safeway told the court that the phrase “the prices in the store” meant the prices in the online store. The plaintiff, however, argued the section meant that the customer would be charged for the prices in the physical store where the groceries are selected on the date of purchase.

Although U.S. District Court Judge Jon S. Tigar said the contract language was “reasonably susceptible” to both parties’ interpretations, he found Rodman’s reading more likely. The terms of the delivery registration agreement repeatedly referenced a physical Safeway store, the court said, and nowhere is the word “store” used to mean “online store.”

“The main problem with Safeway’s interpretation is that it argues that very different words in the same sentence mean the same thing,” the court wrote. “Safeway argues that ‘on the web site’ means ‘on the web site’ and that ‘in the store’ also means ‘on the web site.’ This is not a very compelling explanation of the objective meaning of these words.”

Finding the plaintiff’s reading “the more faithful interpretation of what a reasonable contracting party would have understood the terms to promise,” Judge Tigar granted Rodman and the class summary judgment.

The court also held that the class was entitled to recovery, even after Safeway instituted a new pricing model. Although the defendant claimed to have updated its terms to specifically provide that the Web site was not offering the same prices offered in the physical stores, the judge said class members were not provided with conspicuous notice of the change.

“Therefore, those changes represent an offer to which the class members never expressed assent, and class members were therefore not bound by those changes,” the court wrote, even with their continued use of the service.

To read the order in Rodman v. Safeway, Inc., click here.

Why it matters: In addition to highlighting the importance of issues arising from the online and retail store pricing differences, the court made a strong statement about the power of companies to modify online contracts. Judge Tigar emphasized that courts are reluctant to apply browsewrap agreements against consumers who were not provided with sufficient notice that their use of the Web site would be construed as their consent to the agreement’s terms. When Safeway attempted to update its pricing policy, customers were never presented with a subsequent agreement asking them to consent, the court said, nor were they notified by e-mail to ensure they were aware of the changes. The bad news for Safeway: the court extended the recovery period for the class an additional three years.

Former NFL Players Score Again

Affirming a district court decision, the Ninth U.S. Circuit Court of Appeals found that a video game company violated the publicity rights of former National Football League players by depicting them in its video games.

Electronic Arts has faced a host of cases over its sports-themed video games in which college and professional players have sought compensation for the use of their images in the popular games. In the latest court opinion, three retired NFL players sued EA for violating their publicity rights in the Madden NFL game series.

The Madden series features all current players from all 32 NFL teams, for which EA paid annual licensing fees in the millions of dollars. Over an eight-year period, the series also included certain particularly successful or popular “historic teams,” such as the 1979 Super Bowl runner-up Los Angeles Rams.

However, EA did not obtain a license to use the likenesses of the former players on those historic teams. Although the players were not identified by name or photograph, each was accurately described by position, years in the league, height, weight, skin tone, and relative skill level.

The defendant responded with an anti-SLAPP statute case and raised five defenses under the First Amendment. Relying heavily on an August 2013 decision in a similar case brought by college athletes challenging the NCAA Football game series, the federal appellate panel made quick work of four of EA’s arguments.

EA’s use of the images did not satisfy the requirements for a “transformative use,” the court wrote, as “Madden NFL replicates players’ physical characteristics and allows users to manipulate them in the performance of the same activity for which they are known in real life – playing for an NFL team.”

The public interest defense and public affairs exemption under California state law also failed. While the games contain some factual data, it is a game, not a reference source or publication of facts about professional football, the court said. The panel further rejected the defendants’ attempt to extend the right of publicity test adopted by the Second Circuit in Rogers v. Grimaldi.

Finally, the panel turned to the video game maker’s final contention: that its use of former players’ likenesses was protected under the First Amendment as an “incidental use.” Considering a number of factors, the Ninth Circuit was again unmoved by EA’s argument.

“[T]he former players’ likenesses have unique value and contribute to the commercial value of Madden NFL. EA goes to substantial lengths to incorporate accurate likenesses of current and former players, including paying millions of dollars to license the likenesses of current players,” the panel wrote. “Having acknowledged the likenesses of current NFL players carry substantial commercial value, EA does not offer a persuasive reason to conclude otherwise as to the former players.”

In addition, “the former players’ likenesses are featured prominently in a manner that is substantially related to the main purpose and subject of Madden NFL – to create an accurate virtual simulation of an NFL game,” the court said. “EA has stated publicly it is dedicated to ‘creating the most true-to-life NFL simulation experience as possible . . . . We want to accurately deliver an amazing NFL experience in our game.’ Accurate depictions of the players on the field are central to the creation of an accurate virtual simulation of an NFL game.”

To read the opinion in Davis v. Electronic Arts, click here.

Why it matters: While a blow to EA, the loss could not have been a surprise for the video game maker. In addition to the California federal court’s ruling in the NCAA litigation, the Third Circuit in another NCAA case reached a similar outcome, holding that EA did not satisfy the transformative use test in a suit brought by a former college quarterback. However, the company issued a statement indicating that it intends to continue the legal fight. “We believe in the First Amendment right to create expressive works – in any form – that relate to real-life people and events, and will seek further court review to protect it,” the company said.

FTC’s Ramirez: Internet of Things Raises Privacy, Security Concerns

The Internet of Things presents “significant privacy and security implications,” Federal Trade Commission Chairwoman Edith Ramirez told attendees of the Consumer Electronics Show earlier this month.

“Connected devices that provide increased convenience and improved health services are also collecting, transmitting, storing, and often sharing vast amounts of consumer data, some of it highly personal, thereby creating a number of privacy risks,” Ramirez said at the annual CES event.

Ramirez, who led an agency-sponsored workshop on the issue, focused on three “key challenges” at the intersection of the Internet of Things and consumer privacy: ubiquitous data collection, unexpected uses of consumer data, and heightened security risks.

With sensors and devices everywhere we turn – from our homes to our cars, and even our bodies – the everyday lives of consumers leave an increasingly robust digital trail, Ramirez said. This “ubiquitous data collection,” when coupled with an unexpected use, could have adverse consequences, she explained.

“Your smart TV and tablet may track whether you watch the history channel or reality television, but will your TV-viewing habits be shared with prospective employers or universities? Will they be shared with data brokers, who will put those nuggets together with information collected by your parking lot security gate, your heart monitor, and your smart phone?” she asked. “And will this information be used to paint a picture of you that you will not see but that others will – people who might make decisions about whether you are shown ads for organic food or junk food, where your call to customer service is routed, and what offers of credit and other products you receive?”

Going further, she noted the possibility that “as businesses use the vast troves of data generated by connected devices to segment consumers to determine what products are marketed to them, the prices they are charged, and the level of customer service they receive, will it exacerbate existing socio-economic disparities?”

Data security – already challenging – presents unique concerns in the Internet of Things context, she added.

How should we deal with these problems?

To enhance consumer privacy and security, the Chairwoman suggested that developers take three steps. First, adopt “security by design” by conducting a risk assessment as part of the design process, by testing security measures prior to launch, and by monitoring products throughout their life cycle.

Second, engage in data minimization. “[C]ompanies should collect only the data needed for a specific purpose and then safely dispose of it afterwards,” Ramirez said. “Data that has not been collected or that has already been destroyed cannot fall into the wrong hands. Collecting and retaining large amounts of data greatly increases the potential harm that could result from a data breach.” De-identification, where possible, will also help, she added.

Finally, Ramirez stressed the need for transparency and for providing consumers with notice and a choice to prevent any unexpected data uses. Although consumers know that a fitness brand is collecting data about their physical activity, “would they expect this information to be shared with data brokers or marketing firms?” she wondered. Answering “probably not,” she said consumers in this hypothetical “should be given clear and simple notice of the proposed uses of their data and a way to consent. This means notice and choice outside of lengthy privacy policies and terms of use.”

To read Chairwoman Ramirez’s prepared remarks, click here.

Why it matters: Chairwoman Ramirez did recognize the “immense” potential benefits of connected devices – such as smart glucose meters that can make glucose readings accessible to those with diabetes and their doctors – but emphasized the need to protect consumer privacy as the industry develops. “We are on the cusp of a new technological revolution,” she told attendees. “I believe we have an important opportunity to ensure that new technologies with the potential to provide enormous benefits develop in a way that also protects consumer information.”

Dish Network to Pay $2M Over Deceptive Pricing

Dish Network must pay the Colorado Attorney General $2 million over what the state authority said were misrepresentations about the company’s pricing.

According to AG John W. Suthers, Dish removed a provision from sales scripts in 2010 stating that the company reserved the right to increase the prices of its monthly programming packages. Consumers believed that their prices were “locked in,” “frozen,” or “guaranteed” for an initial two-year contract period, the AG said.

But in reality, customers were subject to price fluctuations about which they were notified only after they agreed to their contracts. Making matters worse, Dish “buried” the notice in an e-mail message that was filled with other information, leaving most consumers surprised and confused when their monthly bills were increased, the AG alleged. The numerous consumer complaints to the AG’s office triggered an investigation and the lawsuit.

While reviewing transcripts of Dish sales calls, investigators uncovered misleading promises from sales representatives that consumers were “safe” from price increases because they were under contract, that the monthly fee was a “set price” as long as the consumer didn’t change their programming, and that the “prices are guaranteed during that twenty-four-month agreement.”

However, Dish increased its prices on an annual basis by an average of $5, the AG said.

To settle charges that Dish violated the state’s false advertising and consumer protection laws, it agreed to pay a fine of $2 million and to revise its sales disclosures. Going forward, the company will include a statement that Dish reserves the right to raise its prices at any time. The company did not admit liability in the consent judgment.

To read the complaint and consent judgment in Colorado v. Dish Network, click here.

Why it matters: Allegedly deceptive pricing raises red flags for regulators, particularly state AGs. The same week Dish reached its deal in Colorado, Massachusetts Attorney General Martha Coakley settled charges that a retail electricity supplier engaged in deceptive marketing by luring customers into signing contracts with low introductory rates and then jacking up costs. The company agreed to pay $4 million, almost all of which constitutes consumer restitution.

Noted and Quoted . . . Mobile Marketer Turns to Goldstein to Explore the Wide-Reaching Impact of Social Currency on Brands

Mobile Marketer recently published an article by Linda Goldstein, Chair of Manatt’s Advertising, Marketing and Media Division, which highlights the variety of tactics marketers are using to build brand awareness through social currency. According to Linda, this new consumer dynamic has several implications for marketers, as well as consequences for the legal landscape.

To read the full article, click here.

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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