Advertising Law -- Oct 24, 2012

by Manatt, Phelps & Phillips, LLP

In This Issue:

Linda Goldstein Invited to Speak at ad tech New York 2012

On November 7-8, 2012, digital marketers from across the nation will convene at ad tech New York 2012 to learn how to harness digital and social media marketing innovations and drive new opportunities for business. 

Linda Goldstein, Chair of Manatt’s Advertising, Marketing & Media Division, will participate in a panel discussion titled “Follow the Money: Investors Place Their Bets on the Future of Advertising” that will offer predictions about the new products, services and technologies that are expected to change the advertising business going forward, as well as explore how the post-IPO financial performances of companies like Facebook and Zynga have shifted thinking.  She will be joined by Jeff Crowe (General Partner, Norwest Venture Partners), Vik Kathuria (Managing Partner, MediaCom Interaction) and David Liu (Managing Director, Co-Head of Digital Media and Internet Investment Banking, Jefferies & Company, Inc.).

The conference will be held at the Javits Center in New York, NY. 

For more information or to register for this event, click here

What Happened to Do Not Track?

Originally endorsed by the Federal Trade Commission and consumer groups as the answer to online privacy concerns, the implementation of Do Not Track (DNT) now appears to have stalled.

The concept of Do Not Track – modeled on the Do Not Call registry – gained traction in December 2010 when the FTC released its draft privacy report, in which it recommended the idea, but problems have arisen regarding its implementation. 

A working group created by the World Wide Web Consortium (W3C) to address the issue has struggled to reach an agreement about how DNT should be defined and exactly what features it should include. Due to a lack of consensus, the group recently released a statement that its new goal was simply to reach a standard that “raises the least number of objections.”

Several legislators have also recently expressed their concern about the viability of DNT and the FTC’s involvement with the W3C. In response, FTC Chairman Jon Leibowitz said the agency will continue to work towards implementation of a DNT standard and will support the W3C’s process. “The standard-setting work of the W3C . . . is another important means for giving consumers greater control over the tracking of their online activities,” he wrote.

Jumping to the defense of the FTC – and DNT – Sen. John Rockefeller (D-W.V.) sent a letter to the agency encouraging it to continue working with the W3C and pushing for the DNT Registry. Sen. Rockefeller, who introduced federal DNT legislation in May 2011, also called the industry’s self-regulatory program a “failure.” Rockefeller wrote, “I have long expressed skepticism that private companies are capable of collectively producing and abiding by meaningful standards that protect consumers. If the advertising industry cannot be coaxed into living up to its commitment and adopting robust voluntary DNT standards, I believe it will only highlight the need for Congress to act.”

The DNT debate has gained attention in the private sector as well. Several Internet browser providers – including Apple, Google, Microsoft, and Mozilla – jumped on the FTC’s report by creating Do Not Track mechanisms. Microsoft, in particular, ignited a firestorm earlier this year when it announced that it would make DNT the default option for the next version of its Internet Explorer browser, IE 10. Since that time, however, criticism against Microsoft has mounted, culminating in a recent letter from the Association of National Advertisers that was signed by the chief marketing officers of more than 30 companies, including General Electric, Ford, Kraft, Procter & Gamble and  Unilever. “Microsoft’s action is wrong. The entire media ecosystem has condemned this action,” the authors wrote. “In the face of this opposition and the reality of the harm that your actions could create, it is time to realign with the broader business community by providing choice through a default of ‘off’ on your browser’s ‘do not track’ setting.”

The Digital Advertising Alliance (DAA) also released guidelines that notified members that they could ignore the DNT signal on the Internet Explorer browser. Because the default setting is “machine-driven,” the DAA reasoned, members need not treat a default as a choice made by a consumer not to receive targeted ads. “The DAA does not require companies to honor DNT signals fixed by the browser manufacturers and set by them in browsers. A ‘default on’ do-not-track mechanism offers consumers and businesses inconsistencies and confusion instead of comfort and security.”

Why it matters: The recent announcement by W3C highlights the uncertainty surrounding the future of DNT and behavioral advertising. Privacy advocates have accused the advertising industry of stalling, while industry members have countered that self-regulation of behavioral advertising has proved effective to date. “It’s working very well,” Mike Zaneis, general counsel for the Interactive Advertising Bureau, recently told The New York Times. “Why don’t we give that a chance to succeed?”

FTC Declines to Take Action for Violation of Endorsement Guides

The Federal Trade Commission has declined to take action against a company and its public relations firm for alleged violations of the Endorsement Guides that arose from a recent advertising campaign where gifts were provided to bloggers in exchange for product coverage. 

In late 2009, the FTC updated its Guides Concerning the Use of Endorsements and Testimonials in Advertising that are applicable to social media, word-of-mouth marketing, and other promotions and advertising in which consumers or celebrities are given inducements to provide endorsements of products and services.

Pursuant to the Guides, the endorser must disclose any material connection between an advertiser and the endorser when the relationship is not otherwise apparent from the context of the endorsement. Thus, the Guides require bloggers to disclose whether they receive gifts from a company, or have any other “material connection.” Both companies and endorsers can be held liable for failure to make the required disclosures.

In a letter from Mary K. Engle, the FTC’s Associate Director of the Division of Advertising Practices, the agency said it closed its investigation into the Hewlett-Packard Company and its public relations firm, Porter Novelli, Inc.

According to the letter, the companies provided gifts to bloggers who encouraged consumers to use original HP printer ink and other HP printer products. Bloggers received two $50 gift certificates – one for the blogger and one to give away to readers – as well as printable items, the agency said.

“We were concerned that most of the bloggers who posted after receiving the gift pack said that HP gave them a $50 gift card to give away and/or that HP gave them a holiday gift pack with printables, but failed to disclose that they received the $50 gift cards to keep for posting blog content about HP Inkology,” the FTC wrote.

According to the letter, the agency decided not to initiate an enforcement action for several reasons. First, only “a relatively small number” of bloggers actually posted content about HP Inkology after they received the gift pack. And a few of those bloggers actually did adequately disclose their material connections. The agency cited one example of a blogger who kept both gift cards and called herself “a compensated brand ambassador” and another example of a blogger who described the “goodies” she received from HP.

The agency also abandoned enforcement action against HP and its PR firm because both companies revised their social media policies “to adequately address our concerns,” Engle wrote. Nevertheless, the agency made clear that it expected the companies to “take reasonable steps to monitor bloggers’ compliance with the obligation to disclose gifts they receive.”

The HP investigation is factually very similar to the FTC’s aborted 2010 Ann Taylor investigation, where the agency sent the company a letter after it provided gifts to bloggers who attended a runway show in the hopes that they would blog favorably about the brand.  

To read the FTC’s letter closing the investigation, click here.

Why it matters: The FTC’s decision not to pursue an enforcement action does not necessarily mean that no violation occurred. Like the Ann Taylor investigation, the minimal number of non-compliant bloggers and the fact that the companies revised their social media policies appear to have played a significant role in this decision. Companies cannot underestimate the importance of implementing a social media policy that comports with the FTC’s guidelines. The policy should be closely monitored to ensure compliance with the Guidelines.

Take Two: Facebook Tries to Settle Ad Suit Again

A revised proposed settlement was submitted to federal court in California in the Facebook “Sponsored Stories” litigation. Under the terms of the revised settlement, among other things, Facebook would pay class members up to $10 each.

The suit, filed last year, alleged that Facebook violated the privacy and publicity rights of its users by failing to provide an option that would prevent Facebook from using their names and images in ads which share their Facebook interactions involving a company (e.g., Joan Smith likes UNICEF).

An outcry of criticism followed Facebook’s original proposed settlement, under which the social media site agreed to pay more than $20 million to privacy-related groups and class counsel but no compensation was provided to class members (other than payments to class representatives). Judge Richard Seeborg of the U.S. District Court for the Northern District of California denied preliminary approval of the deal and expressed his  concern about the cy pres-only settlement and the size of the $10 million counsel fee.

In addressing Judge Seeborg’s concerns, the new proposed settlement provides a chance for class members to receive a direct monetary payout. Under the revised deal, taxes, class counsel fees, and court costs will be paid first from the $20 million fund, and unlike the original settlement, Facebook can contest the amount of class counsel fees.

Consumers can then submit claims for $10 each. If enough class members file claims that preclude a $10 payment for each person, Facebook will provide compensation on a pro rata basis, unless the payment drops to less than $5. In that case, Judge Seeborg would decide whether each user should receive the cash or whether the money should go to the various cy pres organizations. Alternatively, if the $10 per-person award does not completely drain the settlement fund, the rest will be distributed as a cy pres payment to the privacy rights organizations.

The parties also tweaked other terms in the settlement agreement. The revised agreement clarifies that Facebook will provide users with an “easily accessible mechanism” to view how their “likes” and other content on Facebook have been displayed. Facebook will also revise its terms and conditions to clearly state that users grant Facebook permission to use their names, pictures, content, and information in connection with commercial or sponsored content. If a user is under the age of 18, at least one parent or legal guardian must agree to the terms on his or her behalf. Additionally, new parental controls will enable parents to prevent the names and likenesses of their minor children from appearing in sponsored stories ads.

In its motion in support of the settlement, Facebook wrote, “The revised settlement delivers substantial, immediate relief for the nearly 125 million users in the class. It provides improved disclosure, new and powerful user controls relating to sponsored content, and potentially millions in direct monetary payments.”

To read the amended settlement agreement in Fraley v. Facebook, click here.

Why it matters: California courts appear more reluctant to approve cy pres settlements. This is the second time in recent months that a potential cy pres settlement has come under attack, as a California federal judge took issue with the $75,000 cy pres award and declined to approve Groupon’s $8.5 million settlement with plaintiffs in a class action that accused the company of selling gift certificates with illegal expiration dates. The judge found the cy pres award inappropriate as there are class members who could potentially claim those funds. By contrast, the revised Facebook settlement provides direct monetary relief for class members and, according to Facebook, provides users with greater transparency and control about how their activity on the site can be used in a commercial or sponsored context.

Ben & Jerry’s and Campbell Soup Co. Face “All Natural” Suits

Claims of “natural” products continue to prompt litigation, with two new consumer class actions recently filed.

According to a suit filed in federal court in New Jersey, Ben & Jerry’s and Unilever falsely advertised Ben & Jerry’s ice cream as “All Natural” when it contained chemicals, hydrogenated oils and Genetically Modified Organisms (GMOs). The suit seeks $5 million in damages on behalf of a proposed nationwide class of ice cream purchasers dating back to September 2006.

The named plaintiff in the suit, Colleen Tobin, actually objected to an earlier class action settlement in which Ben & Jerry’s had attempted to settle its “All Natural” claims, and when a court denied approval of that settlement on September 12, 2012, Tobin filed her complaint just days later. 

The Tobin complaint cites a 2010 study from the Center for Science in the Public Interest that found that at least 48 out of the 53 “All Natural” Ben & Jerry’s flavors contained nonnatural or chemically modified products like corn syrup and partially hydrogenated soybean oil.

The complaint also alleges that Ben & Jerry’s “All Natural” label was false because the food likely included products made with GMO food ingredients. As support for this claim, the complaint cites a statement on the company’s Web site that it “is virtually impossible to secure GMO-free assurances from our suppliers.”

Despite the fact that the ice cream maker removed the term “All Natural” from its labels, the suit seeks to recover disgorgement of profits and damages for the prior, allegedly false labels.

A second class action suit filed against Campbell Soup Co. in the Northern District of California under California’s Unfair Competition Laws is premised on similar allegations. Here, plaintiff argues that Campbell deceptively advertises and labels some of its soups as “100% Natural” even though they contain GMOs like soy, corn, and derivatives of the same. 

According to the complaint, named plaintiff Ryan Barnes “purchased the [soup products] because he believed the products were ‘100% Natural,’ based on his reliance upon Campbell’s material statement . . . on the front labeling of the products.” Plaintiff goes on to claim that he would not have purchased Campbell’s Southwest-Style White Chicken Chili or Mexican-Style Chicken Tortilla Soup if he had known the soups were not 100% natural.

Barnes seeks equitable relief, including a halt to the allegedly false advertising and labeling, as well as restitution and disgorgement of profits and actual, statutory, and punitive damages for a class of California purchasers.

To read the complaint in Tobin v. Conopco, click here.

To read the complaint in Barnes v. Campbell Soup Co., click here.

Why it matters: “Natural” claims are ripe for false advertising lawsuits, particularly in the food industry. Dozens of class actions have been filed this year alone against Kashi, Balance Bar, Trader Joe’s, ConAgra Foods, Frito-Lay, Inc and other ice cream makers.  Because the FDA has not defined the term “natural” or “all natural,” there is considerable uncertainty in this area. Companies cannot underestimate the importance of engaging counsel and making sure that advertising and labeling claims can be adequately supported.

Data Brokers Wrangle with FTC and Sen. Rockefeller

Data brokers are in the hot seat in Washington, D.C., facing scrutiny from the FTC as well as an investigation by Sen. Rockefeller.

One of the country’s largest data brokers, Equifax, agreed to pay $393,000 to the FTC to resolve charges that the company, by illegally selling lists of consumers who were late on their mortgage payments, violated the FTC Act and Fair Credit Reporting Act (FCRA).

According to the complaint, Equifax allegedly sold more than 17,000 prescreened consumer names to Direct Lending Service and its affiliates (named as defendants in a separate FTC complaint), which they resold to third parties who used the information to pitch debt relief and loan modification services to consumers who were late on mortgage payments.

The initial sale to Direct Lending was illegal because the company did not have a “permissible purpose” under the FCRA, the agency said. In addition to the payment, Equifax agreed to establish reasonable procedures to limit the furnishing of prescreened lists to those with a permissible purpose.

In a separate settlement with the FTC, Direct Lending agreed to pay a $1.2 million civil penalty and is prohibited from using or selling prescreened lists without a permissible purpose or in connection with solicitations for debt or mortgage assistance relief.

The same day the FTC settlements were announced, Sen. Rockefeller sent letters to nine data brokers – including Acxiom, Experian, Reed-Elsevier, and Spokeo – seeking information on how they compile and sell consumer data.

In his letter, Sen. Rockefeller noted that answers to basic questions about the data broker industry remain elusive, including data about consumers the industry collects, how specific that data is, how the industry obtains that data, who buys the data, and how the data is used.

“As use of the Internet has grown, the data broker industry has already evolved to take advantage of the increasingly specific pieces of information about consumers that are now available,” he wrote. “While companies like yours engage in these practices, consumers are largely unaware of how your company uses their sensitive information for financial gain.”

To answer his questions about the companies’ practices, Sen. Rockefeller requested a list identifying each entity from which the data brokers have collected or received data about consumers, along with a list of the types of data. He also sought information about the methods used to collect data and the types of products or services the letter recipients have offered to third parties based on their data compilations.

Addressing concerns about consumer control, Sen. Rockefeller asked if consumers are provided with notice about the collection and sharing of their data and whether or not consumers can access, correct, or delete the information the companies maintain about them. 

Sen. Rockefeller requested a response by Nov. 2.

To read the FTC’s complaints, click here.

To read Sen. Rockefeller’s letter, click here.

Why it matters: Data brokers will likely continue to face scrutiny for the foreseeable future. In addition to the FTC and Rockefeller investigations, there have been several recent media profiles of this industry, particularly in the wake of several high-profile data breaches. Lawmakers sent similar letters earlier this year to nine national companies expressing concern that the companies have “developed hidden dossiers on almost every U.S. consumer.” Furthermore, in its final privacy report issued in March, the FTC called for enhanced regulation of data brokers, including greater transparency and the ability of consumers to access their information, noting that efforts to establish self-regulatory rules concerning consumer privacy have fallen short.

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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