davis & gilbert llp >> 2014 lessons learned; 2015 practical tips

Davis & Gilbert LLP 1740 Broadway, New York, NY 10019 212.468.4800 www.dglaw.com

ADVERTISING, MARKETING & PROMOTIONS

2014 Lessons Learned

2015PracticalAdvice

AD TECH • ALCOHOL • CHILDREN’S ADVERTISING

EMERGING HARDWARE – ROBOTS, DRONES AND CONNECTED DEVICES

ENTERTAINMENT / SPORTS • ENVIRONMENTAL • FDA

FTC – REGULATORY AND STATE • FIRST AMENDMENT • MOBILE

NAD • NATIVE ADVERTISING • PRIVACY AND DATA SECURITY

SOCIAL MEDIA • SWEEPSTAKES AND GAMBLING

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Introduction

2014 marked a year of significant change in the

marketing communications industry.

Regulators remained active, with newly released

reports and enforcement actions serving as important

reminders for marketers and their agencies. At the

same time, the introduction of new and innovative

technologies continued to change the landscape,

creating both challenges and opportunities.

With unmatched depth and breadth of experience

in all issues facing the industry, no firm is better

equipped to deal with these developments than

Davis & Gilbert LLP.

In the 2014 Lessons Learned/2015 Practical

Advice, our lawyers highlight major developments

in the marketing communications industry, and

offer tips and best practices for marketers and

their agencies in 2015.


2015PracticalAdvice

Inside Page

Ad Tech 2

Alcohol 3

Children’s Advertising 4

Emerging Hardware – 5 Robots, Drones and Connected Devices

Entertainment / Sports 6

Environmental 7

FDA 8

FTC – Regulatory and State 9

First Amendment 10

Mobile 11

NAD 12

Native Advertising 13

Privacy and Data Security 14

Social Media 15

Sweepstakes and Gambling 16


2015PracticalAdvice

AD TECH

SIGNIFICANT GROWTH, AND SOME UNCERTAINTY, FOR NEW TECHNOLOGIESAlthough 2014 saw tremendous gains for programmatic (i.e., automated/computer aided) buying, it also saw more uncertainty in this area. The ongoing debate about opacity and fraud in the programmatic ecosystem has attracted considerable attention recently and has led major marketers and their agencies to exercise caution in this area. Some solutions that have been proposed include imposition of transparency through contractual terms – e.g., to ensure that marketers gain more transparency through buying platforms – or more direct technological measures to ensure some greater control, such as direct licensing of programmatic technology, customized “private marketplaces” and a variety of verification technologies.

Marketers opting to work directly with publishers instead of engaging in programmatic buying have been seeking novel ways to add value to their buys. One solution that has been developed and that no doubt will continue to grow is the creation by publishers of native advertising opportunities (videos, articles, collected user-generated content and more) that complements more traditional advertising placed on the publisher’s site. Unfortunately, this type of content often carries legal risks that are not adequately handled under traditional digital insertion orders, which may not contain terms applicable to native content or even to content creation at all. Marketers and their agencies have to think carefully about the terms associated with these projects and whether the AAAA/IAB terms or other standard digital buying language provides appropriate coverage in each instance.

In further pursuit of their goal of reaching customers on all their devices, marketers also have continued the trend toward cross-platform user tracking, often using non-cookie based technologies such as device fingerprinting to tie together behavior patterns in the personal computing and mobile environments. The complexities and the disclosure and security issues raised by these activities, however, increase the need to watch out for legal pitfalls in relation to privacy and data collection and usage and to avoid creating a “creep factor” that could raise public relations issues and turn off consumers.

Looking Ahead to 2015New technologies and techniques present marketers with exciting opportunities to reach consumers, but should be examined from various angles prior to implementation to assess the ways in which unexpected operation or imperfectly applicable laws and terms can raise risk.

Companies that engage with new technologies – programmatic buying, device fingerprinting, and others – should do so with an eye towards transparency and data flow and ownership.

Companies should carefully examine privacy issues associated with cross-device tracking.

It is important to be mindful of buys that mix content types or activities and that may require additional legal terms to care for issues not addressed by standard buying terms.

AuthorRichard S. Eisert, Partner 212.468.4863 [email protected]


2015PracticalAdvice

ALCOHOL

FOR ALCOHOL BRANDS, MODERN CANNOT MEAN YOUNGAlcohol advertising was closely scrutinized in 2014, especially for its impact on underage consumers. A study released by Johns Hopkins University found that the alcohol brands chosen most often by underage drinkers were the ones for which they saw the most advertising. The Federal Trade Commission (FTC) released its fourth major study on alcoholic beverage advertising, which primarily concerned the industry’s efforts through self-regulation to limit the access of underage consumers to alcohol marketing.

Fortunately for the industry and for proponents of self-regulation, the FTC found that the industry not only was complying with its self-regulatory program, but also that the program was achieving its intended results. The study found that over 93 percent compliance with the industry’s advertising placement standards (that 71.6 percent or more of the audience viewing the ads be 21 or older) for traditional media and 99.5 percent for digital media. In addition, it found broad compliance with the “age-gating” requirement for all interactive advertising, including websites and social media pages, meaning that a consumer either must enter his or her date of birth or otherwise certify to being 21 or older (although the report recommended that going forward entry of a birthdate, and not certification, be used).

In the United States, much of the alcoholic beverage regulations remain largely unchanged from the post-Prohibition era in which they were established, and the state-specific three-tier regulatory structure can seem to many as not well-suited to modern markets. The fact that the FTC focused so heavily on digital marketing and seemed to be satisfied with what it found should be of great comfort to an industry that is desperately trying to modernize its approach to marketing.

In July, California enacted new rules that prohibit the use of instant redeemable coupons on beer. Coupons for wine and distilled spirits continue to be lawful, although they no longer can include any advertisement for beer or cider as part of the coupon promotion. Mail-in rebate offers for beer continue to be lawful in the states.

Looking Ahead to 2015Although alcohol companies can invite user-generated content, they will have to devote resources to reviewing and monitoring the content and using available technologies (including blocking technologies) to reduce violations and facilitate compliance with their voluntary advertising codes.

There will be a continued push by alcohol companies to modernize their marketing, with an increase in mobile and app-based marketing efforts.

The focus on youth appeal will continue to be high, especially as more companies try to differentiate themselves by creating new and more appealing flavored products.

AuthorMatthew E. Smith, Partner 212.468.4804 [email protected]


2015PracticalAdvice

CHILDREN’S ADVERTISING

THE FTC, STATES AND CARU CONTINUE TO FOCUS ON COPPAIn 2014, the industry’s biggest challenge was complying with the Children’s Online Privacy Protection Act (COPPA), particularly the July 2013 COPPA amendments, as regulators began to increase their COPPA enforcement.

In September, the Federal Trade Commission (FTC) announced separate settlements against Yelp, Inc. and TinyCo, Inc. resolving allegations that their apps collected personal information from children without parental consent in violation of COPPA. The FTC’s action against Yelp serves as a reminder that COPPA is not limited to child-directed sites, but also covers general audience sites that have actual knowledge that they are collecting personal information from children under 13. The states – notably, Maryland and New Jersey – exercised their COPPA jurisdiction by bringing actions against both general audience and children-directed apps that collected personal information from children without parental consent.

The FTC also brought actions against Amazon, Apple, and Google alleging that they unfairly billed parents for in-app purchases incurred by their children without parental consent. Apple and Google agreed to provide full refunds to customers, as well as modify their billing practices to obtain express consent before billing customers.

The Children’s Advertising Review Unit (CARU), the self-regulatory arm of children’s advertising, continued its enforcement of the COPPA provisions of its Self-Regulatory Guidelines for Children’s Advertising (the CARU Guidelines). Most notably, CARU brought an inquiry against a website directed towards children under 13 that allegedly failed to effectively age-gate, failed to disclose the website’s privacy policy to parents, collected and permitted third parties to collect children’s personal information without verifiable parental consent, and included violent and otherwise not age-appropriate advertising.

CARU also brought inquiries against sweepstakes advertisements that allegedly failed to clearly disclose the odds of winning – which is particularly important in children’s advertising as children have unrealistic expectations about the chances of winning – and advertisements that allegedly misled children about a toy’s performance through special effects and slow motion photography.

Looking Ahead to 2015As the popularity of social media platforms (e.g., Facebook, Twitter, Instagram, and Vine) continues to grow, more children under 13 will be joining these platforms. Consequently, these platforms will begin to develop services specifically directed to children under 13, which will provide ample opportunities for the FTC to flex its enforcement muscles. Notably, Google has already announced that it will be launching child-directed services in 2015, which means that the other major platforms will likely follow.

Children’s marketers and their agencies should review their privacy practices to ensure compliance with COPPA. In addition to child-directed sites, general audience websites can also be subject to COPPA, and these sites need to evaluate their data collection policies to ensure that their age screening mechanisms are functioning properly and that they are not collecting personal information from children.

Apps that allow children to make in-app purchases should clearly disclose the applicable charges and obtain parental consent prior to payment.

Prior to advertising to children, marketers and their agencies should review the CARU Guidelines to ensure compliance. In particular, marketers should make sure that their advertisements clearly disclose material information (e.g., the odds of winning in a sweepstakes advertisement) and do not mislead children about a product’s performance.

AuthorsAllison Fitzpatrick, Partner 212.468.4866 [email protected]

Kathleen C. Perell, Associate 212.468.4850 [email protected]


2015PracticalAdvice

EMERGING HARDWARE – ROBOTS, DRONES AND CONNECTED DEVICES

EMERGING LAW FOR DISRUPTIVE HARDWARE: ROBOTS, DRONES AND CONNECTED DEVICESRobots, drones, and other connected devices seem like the latest buzz words. But these devices have been brewing for decades and are no longer solely for university research and development labs; they are quickly impacting every industry.

In 2014, the use of drones soared, especially for production advertising, despite the legal uncertainty surrounding the Federal Aviation Administration’s (FAA) ban on the commercial use of drones. Legal battles between the FAA and small drone operators added to that uncertainty, but by year-end the FAA allowed six entertainment companies to use drones, albeit under restrictive circumstances, including a “sterile” setting absent of people. As a result, the FAA received a flurry of similar FAA-ban exemption requests from other companies that want to use drones for commercial purposes.

There also were several high profile false advertising lawsuits challenging claims made about disruptive hardware devices. One was a class action lawsuit filed against Nest Labs, the startup company that makes a connected thermostat and that was purchased by Google in 2014 for $3.2 billion. The complaint alleged that Nest’s connected thermostat fell short of providing consumers with the cost savings that it claimed in its advertising.

Other lawsuits forced marketers to clarify or withdraw prior claims about their disruptive devices. PharMEDium brought a false advertising action against Health Robotics, challenging the cost savings claimed in Health Robotics’ press release about its medical solutions robot. After defending that lawsuit for most of 2014, Health Robotics retracted its press release in several major media outlets, and days later the parties filed a stipulation dismissing the lawsuit.

Marketers also introduced new robots as a way to sell traditional products, including Lowe’s OSHbot, a sales robot to help consumers find and select products, and Starwood Hotel’s A.L.O. room service robot. The use of robots to interact with consumers is not only increasing, but being touted as an advantage. It is important to recognize, however, that robots’ direct interactions with consumers may alter the point-of-sale (POS) information provided to consumers.

Looking Ahead to 2015Marketers and agencies will continue to balance the legal risks associated with using drones against the cost and quality benefits, and some will pursue relationships with one of the few FAA licensed drone operators. And, although marketers and agencies unwilling to outsource this work will continue to file FAA-ban exemption requests and closely track legal developments, most will continue in 2015 to reduce risk by engaging vendor-drone operators to perform production work under MSAs or SOWs that include terms insulating them from liability.

Sophisticated hardware devices will continue to be released with claimed performance capabilities that consumers would have thought impossible at the beginning of 2014. Many devices will be the result of research and development over decades, and marketers will continue to wrangle with the heavy burden of ensuring that limitations on the final product’s performance or capabilities were not lost in translation when going from the engineering team to the manufacturing team to the marketing team.

There also will be new devices that change the POS experience, as well as devices that change where POS occurs. Identifying when these new devices raise civil or regulatory risks will continue to be one of the biggest challenges, but reducing risks also will require creative solutions given the complexity of certain connect devices combined with the uncertain legal landscape for these devices in multiple areas of law.

AuthorsRonald R. Urbach, Chairman 212.468.4824 [email protected]

C. Andrew Keisner, Litigation Associate 212.468.4845 [email protected]


2015PracticalAdvice

ENTERTAINMENT / SPORTS

ONE KEY CASE PRESERVES TELEVISION TRADITION WHILE OTHERS SHATTER SPORTS TRADITIONS2014 began with the traditional television industry under assault. In markets along the U.S. East Coast, Aereo, Inc. had launched a service using dime-sized digital antennas to allow users to stream and record the signals of broadcast stations and networks to their computers, tablets and connected devices, including televisions. Although users paid Aereo for the service, Aereo did not pay broadcasters, arguing that it was merely enabling consumers to do what they had done since the inception of television: receive an over-the-air broadcast with an antenna.

After a legal battle lasting over two years, the U.S. Supreme Court ruled in June that Aereo (and, by extension, similar services launched around the country) publicly performed or transmitted the signals of the copyright owners without permission in violation of the copyright owners’ exclusive rights. Broadcasters hailed the decision as essential to preserving the economic model for broadcast television, where billions of dollars in retransmission fees are used for high quality entertainment programming, premiere sports events and global news coverage. This victory may be short-lived, however, as technological advances and changing viewing habits will continue to put pressure on traditional broadcasters.

Two other cases threatened to alter collegiate sports forever. In March, the regional director of the National Labor Relations Board for Region 13 found that scholarship football players at Northwestern University were employees under the National Labor Relations Act and authorized a vote to unionize the players. Then, in August, a federal district court in California ruled in favor of athletes in an antitrust class action lawsuit led by former college basketball player Ed O’Bannon, paving the way for college athletes to receive a share of the revenues generated from the use of their names, images and likenesses (whether in video games, on apparel or otherwise).

If these two rulings are upheld, the core relationship between universities and athletes will be fundamentally changed. These changes likely will impact the economic models of revenue and non-revenue sports and the relationships between universities and their sponsors and licensees.

Looking Ahead to 2015New opportunities and challenges for marketers will be created as the content distribution model continues to evolve. Moves by Netflix and Amazon beyond original television-style programming into feature film-style programming are just two examples of this continuing evolution.

The importance of sports and live event programming likely will continue its acceleration, and the increased availability of live sports programming on mobile devices will offer new platforms to reach sports fans in real time.

AuthorJames L. Johnston, Partner 212.468.4867 [email protected]


2015PracticalAdvice

ENVIRONMENTAL

ENVIRONMENTAL MARKETING NEEDS TO GET REAL2014 was another active year for environmental marketing claims, as consumers showed an increasing willingness to change their purchasing behavior based on environmental impact, and regulators made good on their promise to ramp up enforcement. Although the Federal Trade Commission (FTC) sent a strong message to marketers that it takes environmental marketing claims seriously, its principal focus continued to be on the same green claims it addressed in 2013: biodegradability claims and recycling claims.

Previous enforcement actions in the biodegradability area typically focused on the fact that many marketers failed to account for “customary disposal” (i.e., landfills) when making degradability claims. In 2014, the FTC focused its attention on products – especially those made of plastic – containing special additives intended to cause them to degrade in garbage disposal conditions. According to the FTC, when it came to typical U.S. landfills, even special additives were unlikely to result in the products degrading within the necessary one year timeframe. What now should be clear to all marketers is that the FTC strongly disfavors any type of degradability claim for products likely to end up in the trash.

Companies that make plastic lumber products also came under scrutiny for allegedly overstating the amount of recycled content with which their products were made. Additionally, claims that their products were 100 percent recyclable were challenged as being misleading even though technically true, because many of the recycling centers accessible to consumers would not accept the products and the “recycling return” programs created by marketers to account for this were not “a financially reasonable option” for most consumers.

The FTC also proposed changes to its Energy Labeling Rule, which governs labels for many household appliances. The changes would expand the kinds of products covered by the rule and also would modernize the program by establishing an easy-to-reference online label database.

Looking Ahead to 2015Marketers must carefully consider how their products will be used by consumers in “real world” conditions when making any green product claims.

Because the FTC has spent the past two years focusing on the same kinds of environmental claims, 2015 should be the year that it shifts its attention to the other green claims covered under the Green Guides.


Matthew E. Smith, Partner 212.468.4804 [email protected]


2015PracticalAdvice

FDA

FDA CONTINUES TO SCRUTINIZE IMPORTS AND ISSUES LONG-AWAITED SOCIAL MEDIA GUIDELINES2014 proved to be a challenging year for companies marketing products regulated by the Food and Drug Administration (FDA) as the FDA continued to follow its increasingly conservative approach. Actions related to imports and social media highlighted the FDA’s agenda.

The FDA demonstrated its increased willingness to detain goods that it believed were not in compliance with the law particularly containing exaggerated “anti-aging” claims. The FDA continued to detain products that made claims that using the product would “rejuvenate,” “repair” or “restructure” the skin or would affect a structure or function of the body to make a person’s appearance more youthful. The FDA also continued to examine products that it believes may contain illegal color additives that are unsafe for use in cosmetics. Companies have reacted to the FDA’s actions by reviewing packaging claims and product formulations to ensure FDA compliance.

The FDA also issued long-awaited draft guidance documents related to promoting products in space-constrained social media posts and correcting online misinformation about products. The draft guidance on space-constrained social media posts makes it clear that companies are required to follow all promotional labeling rules in social media posts, even where the space constraints would make compliance difficult, if not impossible. The FDA itself recognized that meeting all of the promotional labeling requirements in social media posts “may pose challenges” and advised companies to reconsider using social media platforms for certain types of promotional messages.

The FDA’s draft guidance on the correction of third-party misinformation applies to misinformation on a company’s own forum, independent third-party forums and websites. Companies are allowed to choose to provide appropriate truthful, non-misleading and non-promotional corrective information or may provide a reputable source from which to obtain corrective information, such as the company’s contact information. Importantly, companies that correct one or more occurrences of misinformation are not expected to correct misinformation throughout the forum.

Looking Ahead to 2015Companies marketing and importing FDA-regulated products should expect the FDA to continue its enhanced scrutiny over imports.

Companies using social media to promote FDA-regulated products should continue complying with the Federal Trade Commission and the FDA’s regulation and guidance on social media posts.

Companies should continue reviewing their product packaging, advertising and websites to ensure compliance with FDA regulations.

AuthorsStuart Lee Friedel, Partner 212.468.4818 [email protected]

Brooke Erdos Singer, Partner 212.468.4940 [email protected]

Rohini C. Gokhale, Associate 212.468.4978 [email protected]


2015PracticalAdvice

FTC – REGULATORY AND STATE

REGULATORS CONTINUE THEIR FOCUS ON DISCLOSURES The regulatory landscape in 2014 was marked by a continued focus on the importance of clear, conspicuous and transparent disclosures, whether relating to sweepstakes and promotions, endorsements and testimonials, advertising claims or privacy practices, with a particular emphasis on making appropriate disclosures in social media and across mobile applications and platforms.

The Federal Trade Commission (FTC) has been closely monitoring the use of endorsements and testimonials in advertising. Home security company ADT settled FTC claims that the company misrepresented paid endorsements from safety and technology experts as independent reviews. As part of the settlement, ADT agreed to clearly and prominently disclose any paid endorser’s “material connections” to the brand in its future advertising.

As part of “Operation Steer Clear” – a nationwide crackdown on deceptive automobile advertising – the FTC entered into settlement agreements with ten automobile dealerships. According to the FTC’s complaints, the dealerships made a variety of misrepresentations in their advertisements with respect to material terms such as automobile purchase prices, monthly financing requirements, up-front lease payments and credit-related terms. The settlement agreements reiterated the requirement that all automobile advertisements must include the federally mandated lease and financing advertising disclosures.

The FTC has also been keeping a close eye on digital and mobile media companies’ disclosure and privacy practices. For instance, the FTC recently settled a case with a mobile application development company over allegations that the company misled consumers by providing a privacy policy that did not accurately reflect its app’s use of personal data and geolocation data. Similarly, the Attorney General of Maryland entered into a settlement agreement with Snapchat, Inc., over allegations that Snapchat misled consumers by representing that messages sent through its app were temporary when Snapchat users actually could save and take screenshots of the messages they received, which had not been disclosed to consumers.

Looking Ahead to 2015As online and digital technologies continue to expand and diversify, agencies, brands and publishers will need to be cognizant of the FTC’s guidance regarding disclosures and the agency’s recent enforcement history.

Marketers and their agencies should ensure that social media influencers and contest entrants disclose material connections when endorsing company products. Moreover, companies should make certain that clear and prominent disclosures accompany all paid endorsements.

Companies also should ensure that their data security promises are backed up by strong data security practices – especially across mobile platforms – and that applications have privacy policies in place that clearly describe how they collect, use and share consumer data.


Aaron Taylor, Associate 212.468.4984 [email protected]

Paavana L. Kumar, Associate 212.468.4988 [email protected]


2015PracticalAdvice

FIRST AMENDMENT

CHALLENGING SEARCH ENGINE RANKINGS AND NEGATIVE ONLINE REVIEWS BECOMES MORE DIFFICULT, BUT UNMASKING NEGATIVE REVIEWERS BECOMES EASIER

In 2014, court cases and legislation from around the United States demonstrated that the protection available to online commercial speech varies widely by jurisdiction, making choice of law an important issue in disputes and contract drafting.

California and New York courts each held that Internet search results are First Amendment-protected editorial speech. In the California case, a tourism website alleged that Google unfairly ranked it low in favor of Google’s own travel websites and paid marketers, but the court upheld Google’s ordering of its search results as protected editorial opinion. In the New York case, U.S. writers and video producers alleged that the Chinese search engine Baidu wrongfully had blocked their pro-democracy content from its search results, but the court upheld Baidu’s censorship of political speech as protected editorial judgment.

California passed a law colloquially called “the Yelp Bill,” which invalidates the non-disparagement clauses that businesses increasingly have been inserting into their consumer contracts to block customers from posting negative online reviews of their goods and services, and fines businesses that use these clauses up to $15,000 per violation.

A Virginia court upheld a Virginia law that enabled a local business to compel Yelp to reveal the identities of Yelp users who anonymously posted negative reviews of its business. The Virginia law was unusually lenient in allowing a plaintiff to subpoena a website for the identities of its users upon a showing that the users’ posts might be tortious, or that it has an honest belief that the users’ posts were tortious. (Other states’ unmasking laws require rigorous proof that the speakers’ posts were tortious.) Yelp argued that the subpoena violated its users’ First Amendment right to speak anonymously, but the court reasoned that users held that right only if they were actual customers of the plaintiff business; otherwise their reviews were not protected opinion and instead were unprotected libel. Based on the plaintiff’s assertion that the Yelp reviews did not match any customers in its database, the court permitted issuance of the subpoena. The court also held that Yelp, a California company, was subject to a Virginia subpoena because it had a registered agent in Virginia.

Looking Ahead to 2015Although the United States has been giving search engines discretion over search results, the European Union (EU) likely will increase its intervention in search results, as evidenced by the EU Court of Justice’s 2014 Right-to-Be-Forgotten ruling, allowing EU citizens to compel search engines to remove links to websites displaying their personal information.

State and federal legislation similar to the California “Yelp Bill” may be enacted, prohibiting businesses from controlling or retaliating against unhappy consumers’ truthful online reviews.

Businesses with a presence in Virginia that have received anonymous negative online reviews may file “John Doe” libel lawsuits in Virginia and issue subpoenas against the websites that host those reviews in an attempt to unmask the “John Doe” reviewers.

AuthorAshima A. Dayal, Partner 212.468.4912 [email protected]


2015PracticalAdvice

MOBILE

MOBILE TECHNOLOGY UNDER THE FTC SPOTLIGHTIn 2014, the Federal Trade Commission (FTC) released two notable reports for marketers and mobile carriers.

“Mobile Cramming: An FTC Staff Report” focused on the unlawful practice of billing consumers for unauthorized third-party charges on their mobile phone accounts. It also provided steps for mobile carriers and other companies to make it easy for consumers to see what they are being charged for and to allow them to decide if they want to opt-in for these charges. The recommendations included:

>>>> ensuring that third party advertising and opt-in policies are not deceptive,

>>>> making clear and conspicuous disclosures of all charges for third party services, and

>>>> obtaining consumers’ express informed consent to charges.

“What’s the Deal? An FTC Study on Mobile Shopping Apps” examined how mobile shopping apps handled payment disputes and consumer data. The report found that the apps failed to provide important pre-download information and disclosures. To improve transparency, the report recommended that companies clearly disclose to consumers how consumer data is collected, used and shared and, prior to download, clearly disclose consumers’ rights and liability limits for unauthorized, fraudulent or erroneous transactions. Strong data security promises should not be just promises – they should translate into strong security practices. Consumers should be able to make informed decisions about the apps they install, and these recommendations were just the start to providing that transparency to consumers.

Looking Ahead to 2015As mobile technology permeates consumers lives, including what they wear (such as smart watches), more and more data about users will be collected and stored. Regulators will become increasingly more interested in how and what types of data will be collected, what it is used for, and how long it is kept. App developers and device manufactures must take “privacy by design” into account when developing their products and services.

Now that the FTC has issued reports on mobile cramming and mobile shopping apps, including recommendations to ensure transparency to consumers, companies should begin to implement these recommendations as the FTC may seek to take action against companies that do not follow these guidelines.

AuthorJoseph J. Lewczak, Partner 212.468.4909 [email protected]


2015PracticalAdvice

NAD

A BANNER YEAR FOR NAD CHALLENGESDespite recent news reports implying that marketers are taking disputes to federal court with greater frequency, 2014 proved to be another banner year for the National Advertising Division of the Council of the Better Business Bureaus (NAD). Eighty-eight competitor challenges were filed with the NAD in 2014 – a considerable increase from 2013. Challenges involving dietary supplements, drugs and health aids, and telecommunication products and services were the most common.

While the vast majority of NAD challenges are either brought by competitors or by the NAD itself, 2014 served as a reminder that consumers and advocacy groups may also bring NAD challenges. The Animal Legal Defense Fund challenged a tuna company’s claims that its products were “dolphin safe” and sustainably caught. The marketer refused to participate in the process and the NAD referred the matter to the Federal Trade Commission (FTC), the California Department of Consumer Affairs and the California Office of the Attorney General. The NAD also reviewed a consumer challenge asserting that the U.S. Postal Service had failed to properly disclose the numerous limitations associated with its claim that “$50 insurance [is] included in Priority Mail service.” In its decision, the NAD instructed the marketer to clearly and conspicuously disclose the restrictions associated with its insurance offer and, in so doing, provide consumers with examples of what constitutes payable and non-payable insurance claims.

NAD challenges involving product disparagement were particularly common. In one decision, the NAD determined that knocking over a box of NyQuil Cold & Flu was not disparaging because it simply reinforced the commercial’s truthful message that NyQuil, unlike the marketer’s competing product, cannot relieve a stuffy nose. In another, the NAD concluded that a marketer’s claim that “we peel our tomatoes with steam, not lye” conveyed the unsupported and inaccurate message that lye-peeled canned tomatoes are unsafe or unhealthful. Accordingly, the NAD recommended that the marketer discontinue the claim or make clear that lye-peeled tomatoes are neither unsafe nor unhealthy.

Looking Ahead to 2015Marketers and their agencies should recognize that complaints from consumers and advocacy groups ultimately can result in a full-fledged NAD proceeding.

Disclosures must be clear and conspicuous and presented in a manner that is readily understandable to the audience to whom the advertising is directed.

While marketers may distinguish their products from their competitors by touting certain benefits and/or innovations, these claims cannot falsely imply that a competitor’s product is ineffective, unsafe and/or unhealthy.


Aaron Taylor, Associate 212.468.4984 [email protected]


2015PracticalAdvice

NATIVE ADVERTISING

NATIVE ADVERTISING CONTENT CONTINUES TO PERMEATE AS DISCLOSURE STANDARDS EVOLVEDigital native content has risen to the limelight, with heated industry and regulatory discussion around how traditional advertising law principles apply to native advertising. The buzz is for good reason: Native advertising spending has risen from $4.7 billion in 2013 to $7.9 billion in 2014 and is projected to skyrocket to over $20 billion by 2018, according to data reported by Business Insider.

The last few years saw the National Advertising Division of the Council of Better Business Bureaus (the NAD) continue to decide a series of challenges as to the sufficiency of disclosures in native advertising that content was advertiser-sponsored. The NAD recommended that eSalon, an online marketer of hair dyes, disclose that it maintained the blog www.haircolorforwomen.com and make clearer disclosures of its connection to the blog in social media posts. The NAD told Shape magazine, which promoted its SHAPE Water Boosters product in editorial pieces, to clearly and conspicuously designate this content as advertising. And the NAD found Mashable.com and its marketer Qualcomm not to have violated disclosure principles when disclosure of Qualcomm’s sponsorship of certain articles was removed from the articles after the sponsorship period had ended. In several cases involving Taboola, a provider of ad unit widgets that directs readers to additional content they may like, the NAD held that to cultivate transparency in informing consumers of a relationship between content appearing on a publisher’s site or platform and the marketer, disclosure must be made prominently in terms of font size, color, boldness, and placement on the page.

The NAD also recently brought a challenge against American Express over its use of Taboola ad units that appeared as thumbnail images with text and a “You May Like” label that, when clicked, directed consumers to the marketer’s OPEN Forum website for small business owners. Because the NAD found that consumers might not realize OPEN Forum was an American Express-sponsored site, it required that the content be labeled more clearly with the marketer’s brand, i.e., “Presented by American Express OPEN.”

Looking Ahead to 2015Marketers and their agencies should ensure that any native advertising includes proper disclosures in accordance with the NAD’s recent decisions as well as traditional Federal Trade Commission (FTC) regulations, including the Dot Com Disclosure guides, and the FTC’s history of enforcement.

Marketers and their agencies should also continue to watch for coming regulatory developments. The FTC may bring investigations and issue its own guidance on native advertising and sponsored content disclosures in the near future.

Native advertising content may need to be reviewed as traditional advertising would need to be, including ensuring that content does not infringe third party intellectual property or other rights and that false and deceptive product claims are not being made. Marketers and their agencies typically bear the responsibility when they have had a hand in the creation or editorial direction of the content, but this otherwise may be the task of the media publisher or platform.

AuthorVejay G. Lalla, Partner 212.468.4975 [email protected]


2015PracticalAdvice

PRIVACY AND DATA SECURITY

A YEAR OF BREACHES AND MORE BREACHES2014 was a year of breaches, data brokers, breaches, the Internet of Things, breaches, cloud computing and a few more breaches.

Technology continues to move forward at a breakneck speed, accompanied by an exponential increase in the amount of data generated by technology services. Data is both a tremendous asset and a potential liability. The so called “data broker” industry continues to develop new ways to exploit data for targeted advertising, market research, location-based products and service optimization purposes. Although acknowledging the potential benefits of “big data,” the Federal Trade Commission has criticized this industry’s lack of transparency to consumers whose data is being collected and sold.

New connected products and services such as thermostats, watches and even cars have entered the privacy and data security debate as part of “the Internet of Things.” Providers need to carefully evaluate how legally sufficient privacy disclosures can be made on devices without a traditional screen, and regulators have expressed concern about pervasive, and sometimes unanticipated, data collection through these products and services.

Storing all of this new data is a costly task, which is why cloud computing services continue to grow in popularity. The cloud allows companies to greatly reduce internal information technology costs and gain access to sophisticated services, but requires a company to rely on a vendor’s security systems to protect its most valuable and sensitive data. Many are taking that risk.

Security breaches, always an issue in the privacy world, continue to grow in number and scope, with companies such as Target, Home Depot, JPMorgan Chase and of course Sony affected in recent months. These incidents have highlighted the need for organizations to have sound information security policies, vendor management procedures and incident response plans. The legal liability for failure to do so is very significant.

Looking Ahead to 2015Although privacy and data security legislation, whether comprehensive or focused on particular industries or practices, continues to elude the U.S. Congress, more legislation on the state level is likely.

Without new legislation, regulators will grapple with how to apply aging privacy laws to new technologies.

The arms race between technology providers and bad actors will continue, likely leading to larger and more sophisticated security exploits.

AuthorGary A. Kibel, Partner 212.468.4918 [email protected]


2015PracticalAdvice

SOCIAL MEDIA

NAVIGATING A CHANGING SOCIAL MEDIA LANDSCAPEIn 2014, companies continued to face challenges on social media, particularly in response to litigious celebrities, platform policy changes and regulatory actions against social media campaigns.

After Arby’s posted its now-famous tweet to Pharrell Williams at last year’s Grammy awards, many companies began to question whether different advertising laws applied to social media. That was until Duane Reade re-tweeted a photo of actress Katherine Heigl exiting a Duane Reade with the caption “Even @KatieHeigl can’t resist shopping #NYC’s favorite drugstore.” Heigl filed a $6 million lawsuit against the drugstore claiming that the social media posts violated her right of publicity by using her name and image without her consent. Although the suit ultimately settled for an undisclosed sum, it serves as a reminder to the industry about the risks of using celebrities’ names, images, social media handles and quotations for a commercial purpose without their permission.

The White House also made clear that companies should not use the President’s likeness to promote a product, even on social media. While the White House did not institute formal action against Samsung, it had “conversations” with the company after David Ortiz – Boston Red Sox pitcher and Samsung spokesperson – took a selfie with President Obama, and Samsung re-tweeted the photo to millions of its followers.

While social media platforms routinely update their policies, no platform does it as frequently as Facebook. As of November 5th, Facebook barred companies from engaging in “like-gated” promotions. Under the new policy, companies can no longer incentivize consumers to “like” a brand’s Facebook page.

Regulators also increased their oversight of companies’ social media campaigns. Most notably, the Federal Trade Commission (FTC) investigated Cole Haan’s Pinterest promotion and found that contestants’ pinning of the company’s products constituted endorsements and the fact that contestants received an entry into the contest was a material connection that needed to be disclosed. While the FTC decided not to pursue formal action, the investigation serves as reminder that promotions must comply with the FTC’s Endorsement and Testimonial Guides.

The Food and Drug Administration (FDA) also issued long-awaited draft guidelines for pharmaceutical companies using social media platforms. The draft guidelines made clear that pharmaceutical companies are required to follow all of the promotional labeling rules, even where the space constraints of social media might make that an impossible exercise.

Looking Ahead to 2015Marketers should recognize that commercial usage on social media platforms differ significantly from personal usage, particularly when it comes to the use of celebrities’ names and likenesses.

Marketers should actively manage and monitor their social media campaigns and feeds during live events in accordance with moderation guidelines developed by their marketing and legal teams.

Marketers should ensure that their written social media policies require endorsers to make appropriate disclosures in social media posts.

Marketers should expect increased scrutiny from regulatory agencies with respect to endorsement issues on social media platforms.

AuthorsAllison Fitzpatrick, Partner 212.468.4866 [email protected]

Gary A. Kibel, Partner 212.468.4918 [email protected]

Vejay G. Lalla, Partner 212.468.4975 [email protected]

Joseph J. Lewczak, Partner 212.468.4909 [email protected]

Rohini C. Gokhale, Associate 212.468.4978 [email protected]


2015PracticalAdvice

SWEEPSTAKES AND GAMBLING

GOODBYE TO LIKE-GATING, HELLO TO MORE REGULATORY ACTION AND GAMBLING LEGISLATION In 2014, Facebook announced that it would no longer allow “like-gated” promotions and would no longer allow a company to require consumers to “like” its Facebook page to be able to enter a contest, sweepstakes or promotion. Facebook’s message was clear and straightforward: page owners cannot incentivize consumers to like a page, including by offering rewards or by gating apps or app content based on whether the consumer has liked a page. Although “like-gated” promotions no longer are permitted, there still are numerous ways to attract consumers to a brand’s page, including requesting that people “like” a page, provided there is no incentive offered in exchange. Moreover, marketers and page owners can continue to incentivize people to log into an app, check in at a place or enter a promotion on an app’s page.

The Federal Trade Commission (FTC) also weighed in on social media contests. Cole Haan required contestants in a Pinterest contest to pin images of Cole Haan shoes to a board entitled “Wandering Sole,” along with images of entrants’ “favorite places to wander” and the hashtag “#WanderingSole,” for a chance to win a $1,000 shopping spree. The FTC concluded that these pins were endorsements of Cole Haan products and that the contest entries were a material connection that required disclosure under the FTC’s Endorsement Guidelines. Because of the novelty of this issue and the small number of contestants, the FTC declined to pursue enforcement action, but marketers should be aware that if an endorsement of a product is required to enter a contest to receive a prize, this material connection must be disclosed.

While regulatory oversight on social media contests tightened, attempts to loosen gambling regulations continued. New Jersey introduced a number of bills in an attempt to modify existing online gaming laws, Washington reintroduced legislation regarding the reduction of online gambling penalties and Louisiana introduced legislation to study online gaming. Although it is unclear whether these bills will pass and allow broader protections for Internet gambling, this trend shows that states are working to loosen regulations.

Looking Ahead to 2015It is important to know a social media platform’s terms and conditions before running a social media promotion. Facebook’s policy change may be the beginning of other social media platforms following suit. Marketers should be aware of changes to terms and conditions to keep promotions in line with the required policies.

Disclosure of material connections is a hot issue for the FTC, and now that marketers have been put on notice regarding disclosure rules, the FTC may be ready to take formal action against the next company that violates these rules. These types of issues can be avoided by having contestants use hashtags such as #contest or #sweepstakes.

More states will enact online gaming legislation, and marketers will need to keep a lookout.

AuthorJoseph J. Lewczak, Partner 212.468.4909 [email protected]

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2014

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