Advertising Law - May 2015

Manatt, Phelps & Phillips, LLP

In This Issue:

  • Amazon Sues Over Fake Reviews
  • ICANN Seeks FTC Assistance With “.sucks” Domain Name
  • ASME Updates Editorial Guidelines: Don’t Deceive Readers
  • Rough Life: to Pay $1M and Face Injunction

Amazon Sues Over Fake Reviews

In a new lawsuit, Amazon targeted one individual and four companies that allegedly wrote and posted fake reviews on the e-commerce giant’s site. Amazon’s Conditions of Use expressly prohibit paid reviews, as the site’s 250 million active customers often rely upon customer feedback.

In its complaint, Amazon contended that “,” “,” “,” and “” offered to write five-star reviews for between $19 and $22 and “slow drip” them onto so as not to arouse suspicion.

In one example, Amazon quoted a fake review for a USB cable titled “This has lit up my life.” Calling the product “rad,” the reviewer wrote, “Let’s just say we’re really impressed and are going to order a few more….”

For a premium charge, the defendants also offer fake “verified purchase reviews” where purchasers of the reviews send an empty box to the reviewer in an effort to fool Amazon into believing that the reviewer actually purchased the item.

According to Amazon, the defendants attempt to gain an unfair competitive advantage violated the Lanham Act, the Anticybersquatting Consumer Protection Act, the Washington Consumer Protection Act, and Washington state law.

The complaint demanded that the defendants cease and desist using Amazon’s trademarks, that they cease accessing the site’s services, and that they refrain from offering the sale of fake reviews. It also demands that the defendants provide sufficient information to identify each fake review sold, along with the account information about the Amazon “reviewer” and the persons who paid for it.

Additionally, Amazon seeks restitution for the amount defendants have been unjustly enriched and actual and statutory damages, trebled where appropriate, and an order transferring the infringing domain names to Amazon.

To read the complaint in v. Gentile, click here.

Why it matters: As more consumers turn to online reviews before making a purchase decision, there is a great interest in ensuring their authenticity. In 2013 the New York Attorney General announced a settlement with 19 companies, which were ordered to stop writing fake reviews and pay hundreds of thousands of dollars in fines. Now Amazon joins the ranks of other Web sites that rely on customer reviews, such as Yelp, and have resorted to litigation over fake reviews.

ICANN Seeks FTC Assistance With “.sucks” Domain Name

The controversy over the expansion of generic top-level domain names (gTLDs) continues.

Last year The Internet Corporation for Assigned Names and Numbers (ICAAN) began rolling out new gTLDs such as .bike, .plumbing, .singles, and .ventures. From the start, trademark holders expressed concern about the creation of the new domain names, as the cost of protecting a brand against cybersquatting or the misuse of terms was $185,000 for an application, with annual renewal rates of $25,000.

Then-Sen. John Rockefeller even wrote to ICANN to ask for a halt on one particular domain: “.sucks.” The gTLD “has little or no socially redeeming value” and poses a costly threat to businesses, the lawmaker wrote. He characterized the potential top domain as “little more than a predatory shakedown scheme.”

“The business model behind this gTLD seems to be the following: forcing large corporations, small businesses, non-profits, and even individuals, to pay ongoing fees to prevent seeing the phrase ‘sucks’ appended to their names on the Internet,” Sen. Rockefeller cautioned.

Although ICANN took no action at the time, the organization recently sent a letter to Edith Ramirez, the Chairwoman of the Federal Trade Commission, and John Knubley, the Deputy Minister of Canada’s Office of Consumer Affairs, concerning the .sucks gTLD.

The letter notes that the Vox Populi Registry was selected by ICANN to operate the .sucks domain. The Canadian company had already signed a registry agreement and initiated the process of selling second-level domain name registrations.

As the process began, ICANN’s Intellectual Property Constituency reiterated many of the same concerns expressed by Sen. Rockefeller. It described Vox Populi’s business practices as “illicit” by encouraging third parties to register for brand names in order to nudge trademark holders into paying an annual $2,500 fee to register defensively.

“We believe that the registry operator’s actions in establishing this predatory scheme are complicit in, and encourage bad faith registrations by third parties at the second level of the .sucks gTLD, and thus drastically increase the likelihood of trademark infringement, all for commercial gain,” the IP Constituency wrote.

John Jeffrey, ICANN’s general counsel, then asked the regulators for help.

“ICANN is concerned about the contentions of illicit actions being expressed, but notes that ICANN has limited expertise or authority to determine the legality of Vox Populi’s positions, which we believe would fall within your respective regulatory regimes.”

The group formally requested that both the Canadian and U.S. authorities “consider assessing and determining whether Vox Populi is violating any laws or regulations enforced by your respective offices.” ICANN is already evaluating remedies available under its registry agreement to act consistently with public interest goals and consumer and business protections.

“We are very concerned about any possible illegality resulting from the alleged actions of the registry and accordingly reach out to you to see if you can offer guidance on this matter,” Jeffrey added.

Time is of the essence, as the early registration period—during which only trademark holders and celebrities can register with the gTLD—ends May 29. In June anyone will be allowed to register a “.sucks” domain for as little as $10.

To read ICANN’s letter to the FTC and Canadian Office of Consumer Affairs, click here.

Why it matters: The .sucks domain has always been controversial. Trademark owners have tried litigating against individuals and companies that have used their marks in such domains. Now the gTLD is attracting regulatory attention. Many brands and well-known individuals are not waiting on the government to act. Companies such as Apple and Home Depot and celebrities including Oprah and Taylor Swift have made sure to register during the current period to protect their names from being used in this nefarious manner. In response to the letter, Vox Populi maintained that the company has “colored well within the lines both of ICANN’s rules and national laws,” and company CEO John Berard told Law360 that he was “surprised” by the letter.

ASME Updates Editorial Guidelines: Don’t Deceive Readers

The American Society of Magazine Editors (ASME) recently updated its editorial guidelines for editors and publishers to reflect the growing use of native advertising and offered tips on how to maintain ethical standards while taking advantage of the trend.

One sentence can sum up the guidelines, ASME explained: “Don’t deceive the reader.”

“The true value of a print or digital magazine brand lies in its relationship with its readers,” the guidelines state. “The unique relationship between magazine media and media consumers is founded on the reader’s trust in the magazine’s editorial integrity and independence.”

To keep that independence alive, editors should take care to remember that their primary responsibility is to serve the interests of the reader and “not permit advertiser influence to compromise editorial integrity.” In practical terms, this means that the “difference between editorial content and marketing messages, including native advertising, must be transparent.”

The difference between editorial content and marketing messages should be clear to the average reader, regardless of platform or format, the guidelines stress. Editors should take care—particularly on Web sites populated by multiple sources of content (e.g., UGC, aggregated, and marketer-provided)—to distinguish between the two categories. “Advertisements that mimic the ‘look and feel’ of the print or digital publication in which they appear may deceive readers and should be avoided,” ASME advised.

Both the FTC and the United States Postal Service require that editorial-like advertisements, whether in print or digital, must be identified as an ad. To ensure that the required labeling is clear and conspicuous, ASME recommended “the use of terms such as ‘Advertisement,’ ‘Advertising,’ and ‘Special Advertising Section’” for print advertising, with the terms printed horizontally and centered at the top of each ad unit in readable type.

On Web sites and in social media, native advertising “should be clearly labeled as advertising by the use of terms such as ‘Sponsor Content’ or ‘Paid Post’ and visually distinguished from editorial content,” ASME said, and “collections of sponsored links should be clearly labeled as advertising and visually separated from the editorial content.”

The guidelines also recommend that editors and publishers avoid conflicts of interest by not trading editorial coverage for advertising, by not submitting editorial content to advertisers for approval, and by always disclosing e-commerce partnerships to the reader.

To read ASME’s editorial guidelines, click here.

Why it matters: Native advertising continues to be a hot-button issue and various groups have weighed in on best practices. ASME’s guidance for magazine editors and publishers is extremely prescriptive, and ASME noted it will tweak its guidance with some frequency in the “rapidly changing media marketplace.” However, because of the nature of the continually evolving medium, the guidelines emphasize that when questions arise, editors should return to a simple principle: “Don’t deceive the reader.”

Rough Life: to Pay $1M and Face Injunction

In what the government called the first major prosecution of an online business for violations of California’s automatic renewal law, has agreed to pay more than $1 million to the Santa Monica City Attorney.

The social media site tricked consumers into providing their personal identifying information by falsely advertising that other site users were searching for them in the “Who’s Searching for You” feature, according to the City Attorney. MyLife promised that by sharing information consumers could learn who was searching for them at no cost. In reality, the consumer had to pay for the service, the government said. To better entice consumers, the site made use of blurry photos of people who were allegedly searching for consumers when they were not.

MyLife also advertised a low monthly rate for joining the site, but charged consumers for an entire year of membership and then continued to charge users’ credit cards each year automatically without notice and without getting affirmative consent as required by law.

Pursuant to the settlement agreement, MyLife is prohibited from falsely advertising its services and from making unauthorized credit card charges. The site must provide consumers with clear notice and receive explicit consent prior to charging consumers’ cards under an automatic renewal program. MyLife can accept payment only for membership lasting longer than one month if all terms of the deal are displayed clearly and conspicuously in close proximity to the payment button.

MyLife is also prohibited from promising any free service and then charging consumers money, and from ignoring consumer requests to cancel their memberships. Additionally, the social media site is permitted to show pictures of people to entice consumers into signing up only if the photos actually depict the people who are pictured.

Finally, the company must pay $800,000 in penalties to the Santa Monica City Attorney’s Office, and $250,000 for consumer refunds.

Why it matters: This is not the first time that MyLife has gotten into trouble for its misleading advertising tactics. The company originally came under scrutiny for its content scraping (i.e., sending automated emails to address book contacts of anyone who signed up for the service). More importantly, this case also serves as a reminder that states (as well as the FTC) do not hesitate to enforce automatic renewal laws. California’s automatic renewal law mandates that all companies clearly and conspicuously disclose all terms of any auto renewal program and obtain explicit consent from consumers before they can automatically renew credit card payments. “Consumers online should be extremely careful with two things: their personal information and their credit cards,” Santa Monica’s Chief Deputy of Consumer Protection Adam Radinsky said in a statement about the MyLife action. “Consumers should be especially alert to automatic renewals whenever they make an online payment for any service or membership.”

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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