Apr 24, 2014
Manatt senior partner L. Lee Phillips was presented the “Entertainment Lawyer of the Year” award by the Entertainment Section of the Beverly Hills Bar Association, on April 16, 2014. A gala was held in Phillips’ honor at the Beverly Hills Hotel, where celebrity clients and industry executives came together to celebrate.
One of the industry's most prestigious recognitions, the Entertainment Lawyer of the Year award honors leaders of the entertainment law field for their contributions to the profession. It has been presented annually since 1989 by the BHBA.
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In a closely watched dispute over the Federal Trade Commission’s (FTC’s) power to regulate data security, a New Jersey federal court judge agreed with the agency that it can pursue its case against the Wyndham Hotel chain for lax security.
Businesses across the country have followed Wyndham’s challenge to the FTC’s authority as the primary regulator of issues related to consumer data security and privacy in the United States. U.S. District Court Judge Esther Salas’s decision confirms that the agency can use its powers under Section 5 of the Federal Trade Commission Act to bring actions alleging that defendants engaged in unfair practices by failing to live up to its data security promises.
Wyndham responded with a motion to dismiss with three arguments: a direct challenge to the FTC’s authority to assert an unfairness claim in the data security context; an assertion that the agency violated fair notice principles by not first promulgating regulations before bringing such a claim; and finally, that the FTC’s allegations were not sufficiently pleaded.
In an opinion that emphasized the “rapidly evolving” digital age “in which maintaining privacy, is, perhaps, an ongoing struggle,” the court refused “to carve out a data security exception” to the FTC’s authority.
Wyndham unsuccessfully argued that since several statutes specify the agencies with data security authority with regard to particular areas – like the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act, and the Children’s Online Privacy Protection Act – a grant of authority to the FTC by the court would render these superfluous. Wyndham also noted that legislation was pending in which specific jurisdiction over data security would be granted to the agency. But Judge Salas disagreed and ruled that Congress conferred broad authority upon the FTC under Section 5 of the FTC Act and the subsequent data security legislation “seems to complement – not preclude – the FTC’s authority.” The identified statutes “each set forth different standards for injury in certain delineated circumstances, granting the FTC additional enforcement tools.”
Comments made by various members of the FTC seeking additional regulatory powers in the data security ecosystem (e.g., a statement that “the Commission lacks authority to require firms to adopt information practice policies or to abide by the fair information practice principles on their websites, or portions of their websites, not directed to children”) did not convince Judge Salas that the agency had explicitly disclaimed data security authority.
The court also rejected Wyndham’s argument that the agency was required to first promulgate regulations before bringing enforcement actions or companies would have no guidance as to what could be actionable in the data security context. Because the FTC needs flexibility to adjust its actions to a range of industries and constantly changing technology, the court said formally published rules were not required.
It noted that agencies in other circumstances bring enforcement actions without guidance, including the National Labor Relations Board and the Occupational Safety and Health Administration: “[T]he contour of an unfairness claim in the data security context, like any other, is necessarily ‘flexible’ such that the FTC can apply Section 5 ‘to the facts of particular cases rising out of unprecedented situations’. . . . Moreover, the court must consider the untenable consequence of accepting [Wyndham’s] proposal: the FTC would have to cease bringing all unfairness actions without first proscribing particularized prohibitions – a result that is in direct contradiction with the flexibility necessarily inherent in Section 5 of the FTC Act.”
Accepting Wyndham’s position would otherwise lead “to the following incongruous result: [Wyndham] can explicitly represent to the public that it ‘safeguard[s]…personally identifiable information by using industry standard practices’ and makes ‘commercially reasonably efforts’ to make collection of data ‘consistent with all applicable laws and regulations’ – but that, as a matter of law, the FTC cannot even file a complaint in federal court challenging such representations without first issuing regulations,” Judge Salas said.
In denying Wyndham’s motion to dismiss, the court concluded that the FTC’s complaint otherwise satisfied pleading requirements.
The court added that it was not rendering a decision on liability and “this decision does not give the FTC a blank check to sustain a lawsuit against every business that has been hacked.” Although the court’s ruling confirms that the FTC has the authority to assert an “unfair” or “deceptive” claim in the data-security context, the case will move forward on the issue of whether Wyndham’s data security practices constituted a violation of Section 5 of the FTC Act.
To read the opinion in FTC v. Wyndham Worldwide Corporation, click here.
Why it matters: Judge Salas’s decision puts businesses on notice that their privacy policies and procedures are fair game for FTC oversight. Some uncertainty does remain, however, as pointed out by Wyndham. Without existing guidance from the FTC as to what constitutes unfair and deceptive practices, companies must maintain reasonable security to avoid an agency action. Unless and until Congress enacts comprehensive general legislation which sets forth a more specific standard of compliance, companies can help protect themselves by reviewing their information collection and security practices, by carefully evaluating the type of information collected from customers or users of its Web sites, by confirming that all data collected is transmitted and stored securely, and by ensuring that all privacy and data-security representations accurately describe the practices.
A single tweet could be costly for pharmacy chain Duane Reade.
The company is facing a $6 million suit alleging violations of the Lanham Act and right of privacy and publicity as well as unfair competition under New York law brought by actress Katherine Heigl.
Heigl, in New York to film a TV pilot, was captured by paparazzi leaving a Duane Reade store while carrying store-branded bags. Duane Reade grabbed the image and, on March 18, tweeted it to its 2.02 million followers with the caption: “Love a quick #DuaneReade run? Even @KatieHeigl can’t resist shopping #NYC’s favorite drugstore.” A similar post appeared on the store’s Facebook page.
According to her complaint, Heigl immediately objected. When the retailer failed to respond, she filed suit in New York federal court. Heigl “has carefully and deliberately protected her valuable professional name, picture, image, likeness, and persona – that is, her legally-recognized right of privacy and publicity – from exploitation through unauthorized commercial advertising,” she claimed, adding that when she does choose to endorse a product or service, “she is highly selective and well compensated.” Accordingly, “Use of plaintiff’s image under these circumstances improperly exploited plaintiff’s name and likeness, as a celebrity, for defendant’s commercial advertising and purposes of trade, without authorization,” the complaint alleged.
Heigl’s filing noted that any monies recovered in the suit (which requests treble damages for willful conduct and a permanent injunction against the use of her name or image) would be donated to charity.
To read the complaint in Heigl v. Duane Reade, Inc., click here.
Why it matters: Marketing in the age of social media poses new challenges for companies. Duane Reade recognized the value of an image of Heigl visiting the store, but failed to cash in appropriately, at least according to the complaint. The company – which has yet to respond to the suit – will likely argue that the First Amendment protects its communications and the social media posts simply stated the fact that Heigl shopped at Duane Reade.
According to the Federal Trade Commission, the Web site Jerk.com really lived up to its name.
Over a four-year period, Jerk hosted a site with more than 73 million profiles labeled “Jerk” or “not a Jerk.” The Jerk.com profiles appeared in online search results and even included profiles and photos of children. The site allowed users to vote on an individual’s “Jerk” status as well as enter personal information or post comments. The FTC said derisive and abusive comments like “Omg I hate this kid he’s such a loser” were not uncommon. In addition, the company represented that users created the content on Jerk.com when, in reality, the site itself harvested the “vast majority” of its information and images from Facebook, the FTC said. Despite touting the site as a place to “find out what your ‘friends’ are saying about you behind your back to the rest of the world!” many consumers complained that information designated as “private” on Facebook appeared on Jerk.
The agency filed an administrative complaint alleging that the site violated Section 5 of the FTC Act by tricking consumers into believing they could change their “Jerk” status by paying the company $30 for a premium membership which gave them the ability to dispute information on the site. Consumers were told they could “use Jerk to manage [their] reputation[s] and resolve disputes with people who [they] are in conflict with,” according to the complaint.
The complaint seeks a halt to the allegedly deceptive practices (including misrepresentations about membership benefits and the source of content on a Web site) as well as an order to delete any information improperly obtained by the site.
To read the complaint in In the Matter of Jerk LLC, click here.
Why it matters: “In today’s interconnected world, people are especially concerned about their reputation online, and this deceptive scheme was a brazen attempt to exploit those concerns,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a press release about the case.
A seemingly innocuous picture taken by David Ortiz of the Boston Red Sox with President Barack Obama has resulted in a controversy and a cautionary tale for advertisers.
Samsung riled the White House after the company promoted the Ortiz snap taken during a ceremony honoring the 2013 World Series Champions. The picture was initially posted by Ortiz on his Twitter account and then retweeted by Samsung to the company’s 5.26 million followers with the caption, “thrilled to see the special, historic moment David Ortiz captured with his Galaxy Note 3 during his White House visit.”
Although Ortiz acknowledged that he is sponsored by Samsung, Big Papi denied that he was paid specifically for the selfie or instructed by the company to take it (even as teammates yelled out “Cha-ching!” when the image was taken).
Either way, the White House was not pleased. “As a rule the White House objects to attempts to use the president’s likeness for commercial purposes,” press secretary Jay Carney said in a statement. “And we certainly object in this case.” Senior advisor Dan Pfeiffer appeared on Face the Nation and said White House lawyers got on the phone with Samsung over the image. “We’ve had conversations with Samsung about this and expressed our concerns,” he said.
And just days later, when some of the country’s Olympic athletes stopped by to meet the President, they were reportedly instructed to keep their cell phones in their pockets. Although the White House confirmed that the athletes were asked not to take individual pictures with President Obama, Carney said it was a matter of efficiency and not a ban on selfies. At least, not yet.
Why it matters: Did Samsung and/or Ortiz cross ethical lines by essentially using the President in promotional materials for the company? Many in the ad industry would answer in the affirmative, and the headlines serve as a reminder to companies – particularly in the age of social media – to use caution when using a celebrity image without permission.
Linda A. GoldsteinPartnerEmail212.790.4544
Jeffrey S. EdelsteinPartnerEmail212.790.4533
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