Advertising Law -- May 09, 2013

by Manatt, Phelps & Phillips, LLP

In This Issue

Marc Roth and Lindsay Conner to Serve as Faculty for PLI Information Technology Law Institute 2013

The Practising Law Institute is offering a second opportunity to attend its annual Information Technology Law Institute on May 16-17, 2013 in San Francisco or by webcast. The focus of this year’s seminar – which was also held in New York on April 11-12 – is Privacy and Cybersecurity, Mobile Advertising, Digital Distribution, Social Media and the Third Industrial Revolution, among many other issues impacting this rapidly evolving landscape.

Manatt partner Marc Roth is co-chair of this year’s conference and will kick off the day with introductory remarks. He will also participate in a session titled, “Advertising Beyond the Web: Opportunities and Challenges for Mobile Devices, Tablets and Other Technology” along with co-presenter Lesley Fair of the FTC’s Bureau of Consumer Protection. They will discuss how traditional advertising rules apply to wireless devices; outline issues presented by consumers interacting with ads; and highlight top regulatory concerns in this area.

Manatt partner Lindsay Conner will deliver a presentation on “The Innovative Influence of Digital Distribution for Books, Music, Films, Television, Videos and Other Content,” in which he will discuss how digital distribution is transforming intellectual property distribution; economic benefits from digital distribution; and the critical content issues behind Viacom v. YouTube, among other topics.

Registrants can attend the program in San Francisco or watch a webcast of the live event which starts at 9:00 am Pacific. For more information or to register for this event, click here.

Harsh Criticism for Ad Industry Over DNT

The advertising industry faced harsh criticism at a hearing held by Sen. Jay Rockefeller (D-W.V.). He addressed the implementation of a federal Do Not Track program and asked, “What exactly is the holdup?”

Hosted by the Senate Committee on Commerce, Science, and Transportation, the hearing was intended to ascertain the status of DNT standards. Lou Mastria of the Digital Advertising Alliance explained to the assembled legislators that despite no formal DNT system, the industry’s self-regulatory program has provided consumers with meaningful information and the ability to opt out of behavioral advertising.

Mastria also suggested that Microsoft and Mozilla have stalled the DNT process by making changes to their browsers without discussions with the ad industry. Last year Microsoft announced that the tenth version of Internet Explorer would default to DNT, while earlier this year Mozilla said it would begin automatically blocking third-party cookies.

But Sen. Rockefeller – who reintroduced a DNT bill earlier this year – was not convinced. “I do not want to hear assertions that the current self-regulatory scheme fulfills Do Not Track requests,” he told Mastria. “Advertising folks are continuing to ignore Do-Not-Track headers,” Sen. Rockefeller added. “There’s a broad feeling that the advertisers and data brokers are just dragging their feet. I believe that they are. And I believe they’re doing it purposely.”

Even the World Wide Web Consortium (W3C) received some of the lawmaker’s wrath. A working group created by the organization reached an impasse last fall in its efforts to define DNT and what features the program should include. While both the Federal Trade Commission and the White House have indicated that the W3C is an appropriate forum to determine such matters, Sen. Rockefeller said the group “has no authority whatsoever.”

The answer, at least according to Sen. Rockefeller, is federal legislation. “I do not believe that companies with business models based on the collection and monetization of personal information will voluntarily stop those practices if it negatively impacts their profit margins.”

Why it matters: While the hearing reiterated Sen. Rockefeller’s support for federal regulation of DNT, whether his bill has enough backing for passage remains uncertain. One person in Sen. Rockefeller’s corner is new FTC Chairperson Edith Ramirez, who in a recent speech before the American Advertising Foundation praised Microsoft’s and Mozilla’s browser moves and said a functional DNT system is “long overdue.”

FTC Releases FAQs for COPPA

To help Web site operators, mobile app developers, plug-ins, and advertising networks prepare for the forthcoming changes to the Children’s Online Privacy Protection Act Rule, the Federal Trade Commission has released an FAQ guide.

The new Rule is set to take effect July 1.

Finalized amendments to the COPPA Rule were issued in December 2012 in an attempt to keep up with current technology, particularly in light of the rise of social media and mobile devices. The final amended Rule broadened several definitions, including “personal information” and “operator,” as well as updated the requirements for notice, parental consent, confidentiality, security and data retention and deletion.

“Complying with COPPA: Frequently Asked Questions” includes answers to general questions like “What is personal information?” as well as those specific to the upcoming changes, including “What should I do about information I collected from children prior to the effective date that was not considered personal under the original Rule but now is considered personal information under the amended Rule?” The answer: it depends.

Photos need not be destroyed, but companies should stop using the images or obtain parental consent to do so. Children’s screen names and information stored in cookies may be retained but cannot be associated with new data absent parental consent. Geolocation data, however, cannot be used unless the company obtains retroactive parental consent, and going forward “operators are required to obtain parental consent prior to collection [of] geolocation information,” the FAQs explain.

Other tips from the agency: although persistent cookies may be used to personalize content (like remembering “game scores, or character choices in virtual worlds,” the FTC said), they may not be used to knowingly send behaviorally targeted advertising to children. Privacy policies should also be examined to comply with the Rule changes (informing users if any data collected is performed by third parties, for example) and links to the policy should be “clear and prominent,” not hidden among several other links or buried in small print at the bottom of a page.

To read the FTC’s FAQs, click here.

Why it matters: Advertisers should note that the guidance, while helpful, is not officially binding on the Commission. Given the short time frame between the issuance of the FAQs and the beginning of enforcement of the new Rule – approximately 10 weeks – groups like the Interactive Advertising Bureau and the Motion Picture Association of America had requested that the FTC push back the effective date from July 1 to January 1, 2014. However, earlier this week, the FTC voted unanimously in favor of retaining the July 1 implementation date.

Should the FCC Update Its Indecency Policies?

After years of high-profile incidents and multiple legal challenges, the Federal Communications Commission is considering an update to the agency’s broadcast indecency policies.

The FCC Enforcement Bureau and the Office of General Counsel are seeking public comment on whether to keep the current rules in effect or to make changes to the policy on isolated expletives and fleeting instances of nonsexual nudity.

The agency’s authority to regulate indecency was upheld by the U.S. Supreme Court in the infamous 1978 case FCC v. Pacifica Foundation, which involved George Carlin’s “Seven Words You Can Never Say On Television.” While enforcement of the FCC’s policy has waxed and waned over the years, the agency addressed several high-profile incidents during the terms of President George W. Bush, most notably the Super Bowl “wardrobe malfunction” involving Janet Jackson (and Justin Timberlake), for which the agency fined CBS $550,000.

The agency also warned a broadcast network when Cher and Nicole Richie uttered expletives at the Golden Globes ceremony, and it warned and later fined ABC more than $1 million over a seven-second image of nudity on NYPD Blue. The broadcasters challenged the FCC’s rules, calling them “arbitrary and capricious,” in litigation that twice went all the way up to the U.S. Supreme Court. In 2009 the justices upheld the agency’s ban on fleeting indecency and declined to address the broadcasters’ First Amendment challenge to the policy.

On remand, the U.S. Court of Appeals for the Second Circuit held that the agency’s rules are “unconstitutionally vague, creating a chilling effect that goes far beyond the fleeting expletives at issue.” But when the case returned to the Supreme Court last year, the justices again sidestepped the issue and found that the agency’s enforcement policy was “vague” and failed to satisfy the due process rights of broadcasters.

In light of the Court’s decision, FCC Chairman Julius Genachowski (who resigned and will be leaving in the near future) instructed Commission staff “to commence a review of the Commission’s broadcast indecency policies and enforcement to ensure they are fully consistent with vital First Amendment principles.”

In a statement, the FCC said it is seeking “comment on whether the full Commission should make changes to its current broadcast indecency policies or maintain them as they are. For example, should the Commission treat isolated expletives in a manner consistent with its decision in Pacifica Foundation or instead maintain the approach to isolated expletives set forth in its decision in Complaints Against Various Broadcast Licensees Regarding Their Airing of the ‘Golden Globe Awards’ Program? As another example, should the Commission treat isolated (non-sexual) nudity the same as or differently than isolated expletives? Commenters are invited to address these issues as well as any other aspect of the Commission’s substantive indecency policies.”

Comments will be accepted until May 20.

To read the FCC’s press release, click here.

Why it matters: The agency noted that as a result of the Court’s decision, it stepped up enforcement actions and closed more than 1 million complaints since September 2012, “principally by closing pending complaints that were beyond the statute of limitations or too stale to pursue, that involved cases outside FCC jurisdiction, that contained insufficient information, or that were foreclosed by settled precedent.” If the agency chooses to update the broadcast indecency policy – a move that will likely be welcomed by broadcasters – we will continue to follow the story.

Senate to Vote on the Marketplace Fairness Act

New proposed Senate legislation that would allow state governments to require out-of-state retailers with $1 million or more in sales revenue to collect tax from consumers is proceeding quickly through the legislature despite opposition from the advertising industry.

The Marketplace Fairness Act, S.743, was introduced in early April. The proposed law modifies a 1992 U.S. Supreme Court decision that held that state governments cannot require retailers to collect state tax unless they have a physical presence in the state, which has been interpreted to mean a brick-and-mortar store.

Supporters argue that the so-called “Amazon Tax” levels the playing field between online companies and brick-and-mortar stores that collect tax on their sales. Although consumers are required to self-report taxes for online purchases, few consumers honor the law.

“The Marketplace Fairness Act is a bill whose time has come in Congress and one that is long overdue for states, local governments and small businesses,” Sen. Dick Durbin (D-Ill.), a sponsor of the legislation, said about the bill.

Before being referred to a committee or marked up, Senators voted 63 to 30 to end debate on the bill and advance it for a full Senate vote on May 6. The bill passed the Senate by a 69 to 27 vote, sending it the House.

With limited time remaining, opponents are speaking out about problems with the bill. Senators from states that do not impose a sales tax – like Montana, New Hampshire and Oregon – have expressed concern about the administrative burdens on their constituents, while e-tailers and members of the advertising industry have decried the procedural problems for covered online sellers.

The Act would “hinder economic growth and job creation,” the Direct Marketing Association wrote in a letter to the Senate. It cited the need to discuss complex issues that include the possibility that companies could be subject to dozens of different tax laws and the variance of state sales tax holidays.

“The bill makes complex changes to the economy while leaving many important questions unanswered – putting both businesses and consumers in harm’s way,” the DMA wrote. “The Senate should hold states accountable before granting them expansive new tax powers and we respectfully request that you vote against any Internet sales tax proposal that does not include reasonable simplification requirements.”

To read the Marketplace Fairness Act, S.743, click here

To read the DMA’s letter, click here

Why it matters: Multiple states have attempted to pass similar laws, with varying results. Colorado’s law was ruled invalid in 2011, while New York’s law was recently upheld. Observers have predicted that the proposed law will face more of a challenge from the House, where Rep. Bob Goodlatte (R-Va.) expressed his intent to “scrutinize” the legislation.

Supreme Court Denies Cert in Cigarette Labeling Case

The U.S. Supreme Court denied a writ of certiorari filed by the tobacco companies challenging the advertising regulations promulgated pursuant to the Family Smoking Prevention and Tobacco Act.

Pursuant to the 2009 Act, the Food and Drug Administration issued new rules that required at least 50 percent of all cigarette packaging to be covered by a warning label that included both a color image and a written message such as “Smoking can kill you” or “Cigarettes are addictive.” The agency selected the images to be used, like a picture of a post-autopsy body and a man blowing smoke out of a tracheotomy hole.

The tobacco companies made two separate challenges to the rules. In the U.S. District Court for the District of Columbia, R.J. Reynolds, Lorillard, and Liggett Group, among others, sought an injunction against the enforcement of the new requirements. U.S. District Court Judge Richard J. Leon agreed that the “mandatory graphic images unconstitutionally compel speech” and that the tobacco companies would “suffer irreparable harm absent injunctive relief pending a judicial review of the constitutionality of the FDA’s rules.” The FDA appealed, but the D.C. Circuit Court of Appeals affirmed.

At the same time, another group of tobacco companies filed a facial First Amendment challenge to the rules in their entirety – and got an entirely different result. A federal court judge in Kentucky upheld the rules, and the U.S. Court of Appeals for the Sixth Circuit affirmed, holding that “the Act’s warnings are reasonably related to the government’s interest in preventing consumer deception and are therefore constitutional.”

The panel upheld the restriction on the marketing of modified-risk tobacco products (like “light” cigarettes); the bans on event sponsorship, branding of nontobacco merchandise, and free sampling; and the requirement that tobacco manufacturers reserve significant space for textual health warnings.

The defendants then filed cert with the U.S. Supreme Court, which the justices denied in late April.

While the Court’s cert denial allows the 6th Circuit to stand, the contested rules may never be enforced. The Solicitor General declined to file a writ of certiorari in the D.C. Circuit case and in a letter from U.S. Attorney General Eric H. Holder Jr. noted that the FDA plans to engage in “new rulemaking consistent with the Tobacco Control Act.”

Why it matters: The Supreme Court’s cert denial may leave the 6th Circuit decision intact, but because the FDA has indicated that it plans to engage in new rulemaking, the tobacco companies have effectively avoided compliance with the stringent new rules.

Noted and Quoted . . . Linda Goldstein Outlines FTC’s Anticipated Enforcement Priorities for InsideCounsel Magazine

On April 24, 2013, Linda Goldstein, Chair of Manatt’s Advertising, Marketing & Media Division, penned a column for InsideCounsel highlighting six areas in which the Federal Trade Commission is likely to focus its enforcement efforts in the coming months.

The article is part of a series authored by Linda that InsideCounsel has featured over the past few months, and this final installment looks to the FTC’s Annual Highlights Report, which was recently issued by the newly appointed Chairwoman Edith Ramirez, for cues as to the agency’s key enforcement priorities and trends. Among them are privacy and data security – which will undoubtedly be a top concern for the FTC – and activities involving marketing to children – which continue to be highly scrutinized following the FTC’s release of revised COPPA guidelines and its report on mobile apps directed to kids.

According to Linda, “The world of compliance has suddenly become far more complex. . . . To truly understand the FTC’s current thinking and how your own company’s marketing practices are likely to fare in the eyes of the FTC it is important to stay abreast of all of these developments as important sources of guidance.”

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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