Advertising Law

Yahoo's Deal on E-Mail Scanning: More Warnings, No Cash

A California federal court judge granted preliminary approval of a settlement agreement in a lawsuit accusing Yahoo of reading e-mail messages for ad-targeting purposes.

Several plaintiffs filed class actions against the company, alleging that Yahoo violated the Stored Communications Act and the California Information Privacy Act.

Yahoo successfully narrowed its potential liability by pointing to its terms of service which notified users that the company analyzes e-mails for advertising purposes. The court certified two classes of the remaining plaintiffs (a national class under the SCA and a California class pursuing the CIPA claim), all of whom received messages from Yahoo users and argued they had no knowledge of Yahoo's terms of service because they were not Yahoo users themselves.

The parties then reached a deal.

Pursuant to the agreement, Yahoo will not pay any money to consumers (although the company may pay up to $4 million to class counsel). Instead, the company agreed to make technical changes to the way it scans e-mails for a three-year period, possibly longer, and henceforth only read the messages once they are no longer in transit.

In addition, the company will add language that provides additional warnings. For example, on its Privacy Center page, Yahoo will post the following statement: "Yahoo analyzes and sorts all communications content, including email content from incoming and outgoing mail." The company's Mail page will incorporate new language stating, "Yahoo may share keywords, package tracking and product identification numbers with third parties in order to enhance your user experience and provide targeted ads."

U.S. District Court Judge Lucy H. Koh noted that the nature of the claims in the consolidated complaints would have only allowed the class to obtain injunctive relief and not monetary damages. She also noted that the deal did not involve the release of any claims for monetary damages against Yahoo, leaving class members with that opportunity to separately pursue.

"The Settlement Agreement provides Plaintiffs the relief that Plaintiffs seek under both the SCA and CIPA: Yahoo will now only analyze emails for content when these emails are no longer in transit and after these emails reach a Yahoo user's inbox or outbox," Judge Koh wrote.

A hearing to consider final approval of the settlement agreement was scheduled for August.

To read the settlement agreement in In Re Yahoo Mail Litigation, click here.

To read the order granting preliminary approval, click here.

Why it matters: The settlement ends more than two years of litigation over charges that Yahoo illegally scanned e-mails for ad-targeting purposes. The company managed to avoid paying any award to class members agreeing to add language about its scanning practices and waiting to scan messages until they are no longer in transit.

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Game Over: DFS Sites Halt Operations in New York

In the latest twist in the saga of daily fantasy sports (DFS), industry leaders DraftKings and FanDuel announced that they will halt operations in New York as part of a deal with state Attorney General Eric Schneiderman.

The AG filed suit last year, alleging that DFS constitute illegal gambling under state law. A state court judge granted Schneiderman's request for an injunction banning the sites from the state, but an appellate panel granted a stay. The AG continued to push back by filing an amended complaint requesting that the sites return all of the money they earned in New York and pay a $5,000 civil penalty for each violation of law.

Now the parties have reached an agreement with the sites agreeing to stop operations in the state. "While it is disheartening for us to restrict access to paid contests in our home state, we believe this is in the best interest of our company," FanDuel said in a statement.

In return, Schneiderman promised to stay litigation until the appeals hearing scheduled for September. "As I've said from the start, my job is to enforce the law, and starting today, DraftKings and FanDuel will abide by it," Schneiderman said in a statement. "Regardless, our key claims against the companies for false advertising and consumer fraud are not affected by the agreement and will continue."

Pursuant to the deal, if any legislation is passed that "expressly legalizes" DFS contests with "a statutory framework to protect consumers" by June 30, the AG will drop his suit against the sites, with the exception of his false advertising claims. If the appellate court sides with Schneiderman, the companies will cease operations in the state and the AG will limit his remedies by no longer seeking restitution, disgorgement, and other civil fines and penalties.

Just a few days after the deal was reached, Yahoo followed suit, announcing that it also ceased operation of its DFS in New York "[d]ue to recent developments." The company—which also imposed new "fair play" rules that cap entries at 10 per user where its DFS sites continue to operate—said it "believes that its contests are lawful and … will continue to assess the legal environment for DFS while providing a compelling fantasy sports experience for all of our users."

Controversy involving the DFS sites continues in other states, including Illinois and Texas, where DraftKings filed suit after Texas Attorney General Ken Paxton issued an advisory opinion that the fantasy sites are likely illegal in that state (FanDuel reached an agreement with the AG similar to that in New York).

To read the provisional settlement agreement with DraftKings, click here.

To read the provisional settlement agreement with FanDuel, click here.

Why it matters: The deal in New York signals a shift in strategy. Instead of battling over the legality of DFS, DraftKings and FanDuel will angle for legislative approval of the industry. In its statement announcing the settlement with the AG, DraftKings said the company intends to "continue to work with state lawmakers to enact fantasy sports legislation so that New Yorkers can play the fantasy games they love." Several bills have already been introduced in the state legislature, some similar to the law recently enacted in Virginia. In that state, DFS is now legal, with established regulatory oversight (such as a $50,000 registration fee and the company's submission to annual audits) as well as certain limits (players must be over the age of 18 and fantasy site employees are barred from participation).

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FTC Down Two Commissioners With Brill's Early Departure

After six years as a Commissioner for the Federal Trade Commission, Julie Brill announced her plans to leave federal service and join a firm in Washington, D.C. as of April 1.

Brill was a fierce advocate for consumer privacy during her time with the Commission. In January she spoke at the AdExchanger Industry Preview, urging attendees "to explore the creation of innovative and usable tools to address consumer concerns about privacy," and "[n]ot to find ways to work-around consumer choice, but to provide consumers with something they clearly want: to see advertising that respects their privacy and that they can trust."

Last October she cautioned advertisers at the National Advertising Division's annual conference that rapid technological advancement and "the swirling cyber-atmosphere" did not change the FTC's mission or eliminate their obligation to protect consumer privacy.

"Yes, the explosion of social media, connected devices, mobile apps, data, and methods of data analyses have wrought benefits and threats to consumers unimaginable even three years ago," she said in prepared remarks. "But the principles of truth in advertising, consumer control over their data, and privacy protection behind which the FTC has always stood can and do still apply. In these times, hanging on to what has served us so well in the past is perhaps the best way to ensure we can adequately protect consumers in what will certainly continue to be a challenging future."

Prior to joining the FTC, Brill served as Senior Deputy Attorney General and Chief of Consumer Protection and Antitrust for the North Carolina Department of Justice and spent 20 years as an Assistant Attorney General for Consumer Protection and Antitrust for the State of Vermont. Brill was appointed by President Barack Obama and sworn in as a Commissioner on April 6, 2010.

"Commissioner Brill has been an unwavering advocate for consumers and competition during her six-year tenure at the Federal Trade Commission," FTC Chairwoman Edith Ramirez said in a statement. "Commissioner Brill's expertise in consumer protection, privacy, and antitrust has been an asset to the agency, and we are sorry to see her leave. We wish her well on her next steps."

During her time on the Commission, Brill also took on the data broker industry, voicing her support for the Reclaim Your Name movement, a program that would allow consumers access to their information stored by data brokers and provide them the ability to control how such data is shared and the power to make corrections.

Data brokers are "taking advantage of us without our permission," she said, suggesting that Congress should legislate regulation of the industry that would require data brokers to "provide notice, access, and correction rights to consumers scaled to the sensitivity and use of the data at issue."

She also pushed for the enactment of a Do Not Track mechanism for online behavioral advertising.

Why it matters: Brill's departure—six months prior to the end of her term—will leave the Commission with just three members in an election year. Given the short time frame, it seems unlikely that President Obama will name replacements for either Brill or Joshua Wright (who departed the agency last year) prior to leaving office.

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Still Thirsty? New Suit Claims Starbucks Lattes Are Underfilled

Starbucks shortchanged customers on drinks, according to a new putative class action filed in California federal court.

Siera Strumlauf and Benjamin Robles alleged that lattes made pursuant to a standardized recipe that calls for cups to be filled a quarter inch short of the brim leave the drinks "uniformly underfilled." Starbucks sells its drinks in three sizes: tall, or 12 fluid ounces, grande, which is 16 fluid ounces, and venti, or 20 fluid ounces.

But the chain's lattes—including Pumpkin Spice Lattes, Egg Nog Lattes, and Vanilla Lattes, among others—never meet the size representation on the menu, the plaintiffs said. Baristas are instructed to make the drinks from a standardized recipe instituted in 2009. To create a latte, the recipe requires the barista to fill a pitcher with steamed milk up to an etched "fill to" line that corresponds to the size of the customer's order. Shots of espresso are poured into a separate serving cup, followed by the steamed milk from the pitcher, topped with ¼ inch of milk foam, leaving ¼ inch of free space in the cup. "However, Starbucks' standardized recipes for Lattes result in beverages that are plainly underfilled," according to the complaint, as "the etched 'fill to' lines in the pitchers are too low, by several ounces."

The serving cups used by Starbucks are also too small to accommodate the fluid ounces listed on the menu when used in conjunction with its standardized recipes, the plaintiffs added. The grande beverage cup holds exactly 16 fluid ounces, but the standardized recipe requires the cup to be filled up to "¼ inch below the cup rim," meaning the cups do not permit 12-, 16-, or 20-ounce lattes, Strumlauf and Robles claimed.

The company adopted the standardized recipes and "fill to" lines in 2009 in an effort to eliminate barista discretion and cut back on costs, particularly the amount of money spent on milk, an expensive ingredient, the plaintiffs alleged. However, according to the plaintiffs, the "fill to" lines and standardization resulted in Starbucks cutting too much milk. "By underfilling its lattes, thereby shortchanging its customers, Starbucks has saved countless millions of dollars in the cost of goods sold and was unjustly enriched by taking payment for more product than it delivers," the complaint argued.

The suit requests compensatory and punitive damages for violations of California's false advertising law, unfair competition law, the Consumers Legal Remedies Act, fraudulent advertising, breach of warranty, unjust enrichment, and negligent misrepresentation.

To read the complaint in Strumlauf v. Starbucks Corp., click here.

Why it matters: Starbucks released a statement that the claims are without merit. "We are proud to serve our customers high-quality, handcrafted and customized beverages, and we inform customers of the likelihood of variations," the company said.

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Most Read Stories

In case you missed any, here are our top 10 most widely read stories in February:

1. "New TCPA Suit Focuses on Texts Sent After Opt-Out, Extra Messages"

2. "Challenge to Handmade Vodka Moves Forward in New York"

3. "Ninth Circuit Affirms TCPA Dismissal Based on Express Consent"

4. "FTC's Brill to Advertisers: Enhance Consumer Notice, Control"

5. "Court Tosses Comparative Pricing Suit for Lack of Injury"

6. "FCC Confirms Different TCPA Liability Analysis for Text, Fax Broadcasters"

7. "EU, U.S. Reach Data Deal—Not a Harbor, but a Shield"

8. "Feeling the Love, California Appellate Panel Affirms 'Twibel' Verdict"

9. "Tensions Mount Prior to Contract Renewal Between Industry, SAG-AFTRA"

10. "A Sticky Situation: Glue Company Faces Suit From FTC"

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