Advertising Law

Manatt's Linda Goldstein Inducted Into the Direct Response Hall of Fame

Linda Goldstein, chair of Manatt's Advertising, Marketing and Media practice, has been named to the 2016 class of Response magazine's Direct Response Hall of Fame. In 2013, Response and its Advisory Board created the Direct Response Hall of Fame in order to honor those individuals whose careers in the marketing business stand as a beacon of success. The honorees will be recognized during the Response Expo taking place in San Diego, California, on April 28, 2016.

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

Exhorting advertisers to provide consumers with greater notice and control—particularly with regard to native advertising and cross-device tracking—Commissioner Julie Brill of the Federal Trade Commission explained that traditional truth in advertising principles apply to 21st century technology.

Speaking at the AdExchanger Industry Preview, Brill said it is clear that advertising is one of the most technologically advanced and data-driven industries in the economy today. "More than ever, advertisers leverage data to reach customers, personalize experiences, and predict consumer behavior," she noted. While the use of such data certainly has its benefits, Brill expressed concerns about consumer privacy and autonomy.

Despite the 21st century context, "the principles the FTC employs to protect consumer privacy and choice date back over 100 years," Brill told attendees, and the agency "has long believed that consumers must be given reasonable notice and control over how their personal data is collected and used—and that applies regardless of how many zettabytes of data we are talking about."

The Commissioner focused her remarks on two specific topics: the tracking of consumers, including cross-device tracking, and native advertising.

With regard to tracking—using sensors to follow mobile phone signals to detect individualized or aggregated traffic patterns as a consumer moves through a store or mall, for example—the bare minimum required of businesses is to give "relevant information about retail mobile location tracking when it is happening," and permit consumers "to exercise some control over its use," she said.

Brill referenced the FTC's enforcement action against Nomi Technologies to add that the choices provided to consumers must also be truthful. In that case, the company's privacy policy stated that it would "always allow consumers to opt-out of Nomi's service on its website as well as at any retailer using Nomi's technology," but the promised in-store opt-out mechanism was not available for nine months, the agency alleged.

Cross-device tracking magnifies privacy concerns, Commissioner Brill said, and it "is not clear that consumers are meaningfully informed about the cross-device tracking that's happening even today." She discussed the "troubling" findings of a recent agency look into cross-device tracking, where the FTC examined the top 20 websites in five different content categories. Although cross-device tracking mechanisms were employed at many of the sites, only a few provided an opt-out for consumers.

Lacking options and control, consumers will take matters into their own hands, as demonstrated by the rising popularity of ad-blocking technologies, she said. "It has surprised me that, so far, few advertisers seem willing to take up the offer to limit data retention, or to otherwise ensure consumers that they are treating their data properly," Brill said. "It's hard for me to believe that serving an ad while limiting data retention isn't better than serving no ad at all."

Turning to native advertising, the Commissioner reminded advertisers about the FTC's recent policy statement on the topic. She emphasized that advertising messages should be easily identifiable to consumers as advertising and that "consumers should be able to recognize that content is sponsored before actually interacting with the content."

The policy statement "has roots in our past enforcement and policy efforts," where we address the tactics of door-to-door encyclopedia salesmen who misled consumers to think they had won a prize to get in the door or unsolicited e-mails with misleading header information designed to get consumers to open the message, Brill explained. "We will look at the entire ad to evaluate the net impression that the ad conveys to reasonable consumers," she said. "We also look to whether the consumer is misled to believe that a party other than the sponsoring advertiser is the source of the advertising."

In conclusion, Commissioner Brill noted that despite the explosion in technological sophistication in the advertising industry—and the agency's own technological capabilities—the principles of truth in advertising (consumers' choice over their data and privacy protection) still apply.

To read Commissioner Brill's prepared remarks, click here.

Why it matters: "I urge you to continue to explore the creation of innovative and usable tools to address consumer concerns about privacy," Brill told her audience. "Not 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."

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Carrier IQ's $9M Deal Over Privacy Violations Faces Questions From Court

The high-profile case against Carrier IQ that was initiated after it was revealed that the software developer provided a system that allowed mobile phone manufacturers to log users' keystrokes—has reached a potential deal, with the defendants agreeing to pay $9 million to an estimated class of 79 million consumers.

More than 70 consumer class actions were filed against Carrier IQ after concerns arose that the content of consumers' private electronic communications was being captured and transmitted from their devices to unintended third-party recipients. The suits were consolidated into multidistrict litigation in California and after various motions were filed by both sides, the parties reached a proposed settlement.

Pursuant to the motion in support of the deal filed by the plaintiffs, Carrier IQ would provide $9 million for a class settlement fund. Class members would be required to affirmatively file a claim. If all of the estimated 79 million class members submitted claims, individual payments would amount to just 11 cents.

However, the parties agreed that if enough class members file claims that would result in an individual payment of less than $4 each, no money would be distributed to class members. Instead, the fund would be divided among three organizations: the Electronic Frontier Foundation, the Center for Democracy and Technology, and CyLab Usable Privacy and Security Laboratory at Carnegie Mellon University.

The proposed fund would also provide for the cost of notice and administration, $5,000 awards for 17 named class representatives (totaling $85,000) and approximately $2.25 million for class counsel, as well as costs and expenses.

Carrier IQ also agreed to policy changes, such as the alteration of its software.

Not surprisingly, U.S. District Court Judge Edward M. Chen had some reservations about the proposed settlement. Opting not to immediately sign off on the deal, he instead directed the parties to file supplemental briefs on a host of issues from the definition of the class (the proposed language only included the named user of a wireless provider account, which could exclude other authorized users, the court noted) to the adequacy of the proposed notice program.

The court expressed concern about the proposed notice program, which does not contemplate individual notice, but instead calls for Internet notice via banner ads, search-related advertising, and at a settlement website. Class counsel stated that individualized notice was not possible since he could not get addresses for class members from wireless providers. Nonetheless, the court asked for more details and a sense of how effective the proposed notice plan would likely be.

In addition, Judge Chen sought a greater explanation of how the attorney's fees were computed, a more robust analysis as to the merits of the plaintiffs' case, and the authority for the proposition that a named plaintiff is entitled to a $5,000 incentive award where each class member will likely obtain minimal monetary damages.

To read the plaintiffs' motion for preliminary approval of the settlement in In re Carrier IQ Consumer Privacy Litigation, click here.

To read the court's order requesting supplemental briefing, click here.

Why it matters: While settlements in privacy litigation often face the question of how to value a breach with an appropriate award for class members, Judge Chen left the parties with serious obstacles to getting the court's approval of the proposed settlement. He expressed a host of concerns with the Carrier IQ deal. He even had problems with the press release and notice forms provided by the plaintiffs, but paid particular attention to the issues presented by the notice because Carrier IQ does not have access to contact information for the class members.

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ANA Joins the Fight Against San Francisco's Soda Warning

The Association of National Advertisers has joined the fight by filing an amicus brief with the federal court in San Francisco in a challenge to the City of San Francisco ordinance that mandates warnings for sugar-sweetened drinks.

Last year, the San Francisco Board of Supervisors adopted new health code provisions with regard to sugar-sweetened beverages, including a law requiring the addition of a warning label to the advertising for covered drinks. The law requires that the label cover at least 20 percent of the ad for beverages that have 25 calories or more of sugar per 12 ounces (with an exception for alcoholic beverages, certain juices, and milk products, and ads on television, the Internet, or other electronic media) with a statement that "Drinking beverages with added sugar(s) contributes to obesity, diabetes, and tooth decay. This is a message from the City and County of San Francisco."

The American Beverage Association, California Retailers Association, and California State Outdoor Advertising Association filed suit to halt enforcement of the law, and in advance of a hearing on the request for an injunction, the ANA jumped into the fray.

San Francisco's Board of Supervisors "predicated their highly restrictive action on the dangerous theory that local officials may constitutionally commandeer space on certain types of advertisements whenever they feel like sending a government message," the ANA wrote, and the measure "conflicts with decades of judicial decisions holding it is 'incompatible with the First Amendment' to censor or otherwise burden speech based on fear that people will make bad decisions or to promote 'what the government perceives to be their own good.' "

If the court were to approve the requirement "there is no reason the San Francisco Board of Supervisors could not do so for a multitude of other products, as could every one of the some 30,000 city, town, and county governments in the United States," the group told the court.

"[T]he Board flaunted Supreme Court decisions that stress how 'speech regulation cannot unduly impinge on the speaker's ability to propose a commercial transaction and the … listener's opportunity to obtain information about products,' " according to the amicus brief. "There is no justification for the Warning Mandate in which the government commandeers space on private parties' ads in order to control public debate and alter individual behavior—purposes foreign to the First Amendment."

The ANA questioned not only the constitutional basis for the warning label but the strength of the science behind the message. The Board relied upon the U.S. Department of Agriculture's dietary guidelines, which are currently in the process of being revised, the group noted, as well as other research that has been the subject of reversals and revisions. "The San Francisco Board of Supervisors, of course, is not itself expert in science in nutrition, and should receive no more deference than the national health organizations on which they rely," the brief added.

The ANA argued that the warning label law was not narrowly tailored and lacks a rational basis as a means to address the Board's purported concerns in enacting the law. For example, "there are many alternatives at its disposal, besides burdening ads with compelled speech," the group wrote. They suggested that the city design its own messages to educate consumers or persuade them to change their consumption patterns or to adopt a so-called "soda tax."

"The City of San Francisco's imposition of the Warning Mandate in reaction to potential over-consumption of sugar-sweetened beverages by its citizens, whatever the merits of that concern, takes regulatory Nannyism to new levels and is wholly incompatible with First Amendment protections afforded to commercial speech," the ANA concluded.

To read the ANA's amicus brief in The American Beverage Association v. The City and County of San Francisco, click here.

Why it matters: The ANA pointed out that similar efforts in other jurisdictions—notably, New York City's attempt to ban "giant soda"—have failed judicial review. "If this Court were to uphold the Board of Supervisors' conscription of sugar-sweetened beverage ads to convey government views on health issues there would be virtually no limit to similar efforts targeting other products, at any level of government," the group cautioned. "Advertisers would face that risk tens of thousands of times over, from any city, town, county, or other municipal authority with a particular health-related hobby horse." A hearing in the case is scheduled for April.

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Lawmakers Express Concern Over SmartLabel Program

A group of lawmakers—including Presidential candidate Sen. Bernie Sanders (I-Vt.)—expressed concerns about the new SmartLabel program intended to provide consumers with more information about the ingredients in the food they purchase.

Recently, the Grocery Manufacturers Association launched the initiative in conjunction with more than 30 food, beverage, and consumer product companies. Participants place a bar code or QR code on their products that, when scanned by a consumer's smartphone, provide a link to a landing page with information on ingredients and other attributes of the product.

While agreeing that consumers "have a right to easy access of basic information about their food" in order to make informed decisions, the senators—including Richard Blumenthal (D-Conn.), Edward J. Markey (D-Mass.), Patrick Leahy (D-Vt.), Jon Tester (D-Mt.), and Christopher Murphy (D-Conn.)—wondered about "anti-consumer loopholes" in the program.

"We worry that this initiative will instead make it more difficult for consumers to learn basic information about the food products they are buying, such as whether a product contains a specific allergen or whether the product uses genetically engineered ingredients," the legislators wrote. "Specifically, we have concerns with respect to the implementation of this program and how GMA intends to address issues that deal with consumer privacy, discrimination, and technical feasibility."

With respect to discrimination, a large segment of the population does not own a smartphone and many consumers do not subscribe to mobile broadband, the senators said. "How will GMA ensure that consumers who don't have smartphones—typically lower income, less educated, or elderly individuals—are able to access important food labeling information while they are shopping in the grocery store aisles?" the letter asked. "How will GMA make these shoppers aware of the SmartLabel initiative? How will you measure the efficacy or consumer use of this initiative and will such reporting be made publicly available?"

Consumer privacy concerns also prompted questions from the lawmakers. "Eating habits and preferences are personal, and consumers deserve to be able to scrutinize labels without worrying about food manufacturers gathering their information, creating profiles about them, and possibly sharing or selling this information," the senators wrote. "What promises will manufacturers participating in the SmartLabel initiative make to consumers to assure their privacy and that their information will not be used or sold?"

Technological hurdles may impact consumer access, the legislators noted, since different smartphone models greatly vary in their ability to scan QR codes, since not all grocery stores provide free Wi-Fi or even decent cellphone service, and that crinkly packages add additional complications. "What steps will your members take to resolve these numerous technological considerations?" the legislators asked. "What commitments do you have with food retailers to ensure that these issues, among others, are addressed?"

The lawmakers requested a response from the GMA by February 17.

To read the letter from lawmakers, click here.

Why it matters: "Consumers have the right to clear, truthful and concise food labels regarding key information about the food products they are purchasing," the senators told the GMA. While pleased with the industry's attempt to supply consumers with information about their purchases, the lawmakers are looking for answers about discrimination, privacy, and technological concerns.

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Noted and Quoted . . . Law360 and Goldstein Discuss Daily Fantasy's Multidistrict Litigation, Bloomberg Highlights Roth's Take on Big Data and Big Law

The U.S. Judicial Panel on Multidistrict Litigation recently decided to centralize the wave of 80 lawsuits targeting the daily fantasy sports, or DFS, industry in the U.S. District Court for the District of Massachusetts, a venue supported by both DraftKings Inc. and FanDuel Inc. Linda Goldstein, chair of Manatt's Advertising, Marketing and Media practice, explained to Law360 that the court will now have to deal with nuanced and specific language of the different states' gambling laws, yet the court may be able to parcel some states' laws together. "Although every state has its own gambling law, we don't have 50 different state gambling laws—there are some common elements." To read "Daily Fantasy Suits Enter MDL Quagmire," click here.

Bloomberg BNA published an article, "Big Law and Big Data: On What's Legal and What's Creepy," outlining the highlights from the New York State Bar's Annual Meeting held on January 28, 2016. During a privacy panel Marc Roth—partner and co-chair of Manatt's TCPA Compliance and Class Action Defense practice—said "When companies ask me, 'Can we do this?' sometimes I give two answers: it's not illegal, but it's kind of creepy. And you might not want to do it for that reason." To read the full article and other highlights, click here.

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