Advertising Law

Marc Roth to Present PLI's Webinar Briefing on TCPA Compliance Challenges, Sept. 21

This summer, the FCC issued its long-awaited Declaratory Ruling and Order on the Telephone Consumer Protection Act which went into effect immediately. The Ruling impacts how companies in all business sectors may communicate with customers and prospects via telephone and text message. In a PLI event on September 21, Manatt's Marc Roth, co-chair of the firm's TCPA Compliance and Class Action Defense practice, will address a host of issues covered by the new Ruling and the significant risks associated with non-compliance.

To register for "New FCC TCPA Ruling—Significant Compliance Challenges for Companies," click here.

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Third Circuit Affirms FTC's Power to Regulate Data Security Practices

Affirming the power of the Federal Trade Commission to regulate corporate cybersecurity, the Third Circuit Court of Appeals held that the agency may proceed with a lawsuit against the Wyndham hotel chain for allegedly violating the terms of its own privacy policy and for failing to maintain reasonable and appropriate data security measures.

The dispute arose when the agency filed suit asserting that Wyndham violated Section 5 of the Federal Trade Commission Act by misrepresenting the strength of its data security protection, as demonstrated by three cyberattacks between 2008 and 2010 that led to over $10.6 million in fraudulent charges. Wyndham fired back with a direct challenge to the agency's authority to make an unfair practices claim in the data security context.

A federal court judge sided with the agency by declining to "carve out a data security exception" to the FTC's authority. Wyndham appealed, arguing that the FTC lacked authority to regulate cybersecurity under the unfairness prong of the Federal Trade Commission Act and that the company did not have fair notice that its specific cybersecurity practices could fall short of that provision.

The federal appellate panel affirmed.

The court was not persuaded by Wyndham's position that recognizing the FTC's authority in this realm was akin to suing supermarkets that are "sloppy about sweeping up banana peels." "The argument is alarmist to say the least," the panel wrote. "And it invites the tart retort that, were Wyndham a supermarket, leaving so many banana peels all over the place that 619,000 customers fall hardly suggests it should be immune from liability under [the FTC Act]."

Multiple statutes establishing data security authority for other agencies in particular areas—such as the Children's Online Privacy Protection Act, the Fair Credit Reporting Act, and the Gramm-Leach-Bliley Act—did not mean that the Commission lacked general substantive authority over the field of cybersecurity, the panel wrote. The privacy laws are compatible with reading corporate cybersecurity into Section 5's powers to regulate unfair conduct, the court said, and the new laws require the FTC to take specific actions (issuing regulations, for example) that go above and beyond the requirements of Section 5.

As a demonstration that the agency lacked such authority, Wyndham pointed to earlier statements from FTC Commissioners who sought the power to regulate cybersecurity practices. The court disagreed. "Our conclusion is this: that the FTC later brought unfairness actions against companies whose inadequate cybersecurity resulted in consumer harm is not inconsistent with the agency's earlier position," the panel wrote.

Having rejected the hotel chain's arguments that the FTC lacked the authority to regulate unfair conduct in the cybersecurity context, the court turned to whether Wyndham had fair notice of the agency's standards pursuant to Section 5.

Wyndham was not entitled to "ascertainable certainty" as to what specific cybersecurity practices are required, the panel explained, because the court was required to interpret Section 5 in the first instance to decide whether Wyndham's conduct was unfair. "The relevant question is not whether Wyndham had fair notice of the FTC's interpretation of the statute, but whether Wyndham had fair notice of what the statute itself requires," the court said.

Answering its own question, the panel found that Wyndham had fair notice because the company could reasonably foresee that a court could construe its conduct as falling within the statutory coverage. In 2007 the FTC issued a guidebook that included a checklist of practices that form a "sound data security plan," and the agency began bringing administrative actions against companies with allegedly deficient cybersecurity in 2005, several years prior to the cyberattacks against Wyndham.

The company's challenge "is even weaker given it was hacked not one or two, but three times," the panel added. "We merely note that certainly after the second time Wyndham was hacked, it was on notice of the possibility that a court could find that its practices fail the cost-benefit analysis."

To read the opinion in FTC v. Wyndham Worldwide Corp., click here.

Why it matters: Businesses across the country have closely followed the Wyndham litigation, and the message from the court is clear: the FTC has the authority to regulate unfair or deceptive practices in the cybersecurity context. Or as FTC Chairwoman Edith Ramirez said in a statement released by the agency, the "decision reaffirms the FTC's authority to hold companies accountable for failing to safeguard consumer data. It is not only appropriate, but critical, that the FTC has the ability to take action on behalf of consumers when companies fail to take reasonable steps to secure sensitive consumer information."

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Different Court, but Jordan Wins Again: $8.9M Award in Publicity Rights Suit

He may have retired from professional basketball, but Michael Jordan scored a big win when an Illinois jury awarded him $8.9 million in a publicity rights suit against a local grocery chain.

When Jordan was inducted into the Naismith Memorial Basketball Hall of Fame in 2009, Sports Illustrated released a commemorative issue and invited companies to include congratulatory ads. Dominick's accepted with an advertisement featuring Jordan's name and jersey number with an image of a man dunking a basketball and text reading "You are a cut above." At the bottom of the page was a coupon good for $2 off steak.

The basketball legend sued for violations of Illinois's Right of Publicity Act. Over the course of several years of legal wrangling, a federal court judge determined that the advertisement violated Jordan's right of publicity and the jury was tasked simply with awarding damages.

Jordan's team presented evidence that despite his 2003 retirement, he still earns about $100 million per year in endorsement income and that he recently turned down an $80 million offer to hawk headphones. The fair market value of the ad featuring his name and jersey number was roughly $10 million, Jordan told the jury.

Dominick's countered that Jordan was owed just $126,900.

Jurors deliberated about six hours—and requested a calculator—before awarding Jordan $8.9 million.

Although less than requested, the verdict was a slam dunk for Jordan, who released a statement that he was pleased with the award. "No one—whether or not they're a public figure—should have to worry about their identity being used without their permission," he said. "The case was not about the money, as I plan to donate the proceeds to charity. It was about honesty and integrity. I hope this case sends a clear message, both here in the United States and around the world that I will continue to be vigilant about protecting my name and identity. I also hope the size of the monetary reward will deter others from using someone else's identity and believing they will only pay a small penalty."

Why it matters: The verdict in the case against Dominick's—and Jordan's cautionary words in his statement—provide a valuable reminder for advertisers about the importance of obtaining permission when using celebrity images. And the $8.9 million verdict may be only the beginning. Jordan sued another grocery store over a different ad in the commemorative issue that depicted a pair of basketball shoes with the number 23 and text reading "Jewel-Osco salutes #23 on his many accomplishments as we honor a fellow Chicagoan who was 'just around the corner' for so many years." A federal district court initially dismissed the suit on Jewel-Osco's argument that the ad was noncommercial speech entitled to full constitutional protection, but the Seventh Circuit Court of Appeals reversed last year. Trial is set for December.

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Subway Learns Tough Lesson With Jared Debacle

What lesson should advertisers take from the downfall of Subway's spokesperson Jared Fogle in the wake of his plea deal on charges related to child pornography?

For starters, there is the importance of including a morals clause in an endorsement deal.

Jared Fogle was a Subway success story, rising to fame after eating the sandwich chain's products and losing more than 200 pounds while a college student. National media picked up a story in the college paper and Fogle became a household name as a Subway endorser. For 15 years he was the face of the company—he appeared in over 300 commercials, he was featured on the website, and he made public appearances on the company's behalf.

But that changed in July when federal authorities raided Fogle's home. The government did not specify why the endorser was being investigated, but less than two months earlier the president of the Fogle Foundation, a charitable organization established to teach children healthy lifestyle habits, had been arrested on charges related to child pornography.

Initially, Subway "suspended" its relationship with Fogle following the raid. References to Fogle were removed from the website, including a game on its children's site called "Jared's Pants Dance." The company had already stated that it had severed all ties with the Fogle Foundation's president.

In August Fogle reached a plea deal with federal authorities that included admissions of sex with minors and the possession of child pornography, with some images of children as young as six years old. Fogle will pay $100,000 in restitution to each of 14 minor victims, register as a sex offender, and undergo treatment for sexual disorders. Prosecutors agreed not to seek a sentence higher than 12 ½ years in prison and Fogle will not ask for fewer than 5 years.

Subway then officially cut ties with its former spokesperson in a tweet, stating, "We no longer have a relationship with Jared and have no further comment."

Why it matters: Subway may face an uphill battle regaining the trust of consumers, given its lengthy relationship with Fogle and the disturbing nature of the crimes committed. For other companies, the high-profile downfall of a celebrity endorser reiterates the importance of including a morals clause in endorsement deals, and providing a means to terminate an agreement or at least reduce the money owed when an endorser commits an act that falls within the provision. While the issue of whether particular acts fall within the scope of a given morals clause can be a point of intense negotiation and later disagreement, Fogle's guilty plea should make Subway's exit from the deal easy.

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(Virtually All) Made in the USA

Bringing the state into line with the rest of the country as well as with federal regulations, California Governor Jerry Brown signed a bill into law relaxing the labeling requirements for products carrying the "Made in America" or "Made in USA" labels in the state.

Previously, state regulations mandated 100 percent American production for manufacturers to use the "country of" designation on their labels, a standard that resulted in a wave of class action litigation challenging companies over slight percentages of non-American ingredients.

Senate Bill 633 was introduced in response and was passed by the Senate in May and the Assembly in July. The measure amends the Business and Professions Code Section 17533.7 to state: "It is unlawful for any person, firm, corporation, or association to sell or offer for sale in this state any merchandise on which merchandise or on its container there appears the words 'Made in U.S.A.,' 'Made in America,' 'U.S.A.,' or similar words if the merchandise or any article, unit, or part thereof, has been entirely or substantially made, manufactured, or produced outside of the United States."

The new law "shall not apply to merchandise made, manufactured, or produced in the United States that has one or more articles, units, or parts from outside of the United States, if all of the articles, units, or parts of the merchandise obtained from outside the United States constitute not more than 5 percent of the final wholesale value of the manufactured product."

In addition, the label prohibition will not apply if the manufacturer "shows that it can neither produce the article, unit, or part within the United States nor obtain the article, unit, or part of the merchandise from a domestic source," and "[a]ll of the articles, units, or parts of the merchandise obtained from outside the United States constitute not more than 10 percent of the final wholesale value of the manufactured product."

The new law aligns California with the rest of the country as well as the Federal Trade Commission standard that "all, or virtually all" of a product must be made in the country for a "Made in" label to be lawfully used.

To read SB 633, click here.

Why it matters: Lawmakers pushed for the bill by arguing that California needed the regulatory tweak to compete with other states and help businesses thrive in a global economy. A potential decrease in consumer class actions certainly didn't hurt the legislation's passage, either. Whatever the motivation, the new law will ease the burden on California manufacturers seeking to use a "Made in the USA" label.

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Noted and Quoted . . . Wasserman Tells NPR Why Chipotle Isn't G-M-Over Their GMO-Free Statement

NPR reports that Chipotle Mexican Grill launched a campaign called "G-M-Over It" in April touting its GMO-free stance. However, a new class action lawsuit against the chain alleges that the campaign's marketing claims don't hold up, saying Chipotle's meat products come from animals fed GMOs. NPR interviewed Manatt's Ivan Wasserman, a partner in the firm's Advertising, Marketing and Media practice, to see if the lawsuit has legs. "Lawsuits like this ... based on allegedly deceptive claims for food products have become very common in California, including many based on claims that foods are 'natural' and 'GMO free,'" said Wasserman. To read "Class-Action Suit Alleges Chipotle's GMO-Free Campaign Is Deceptive," click here.

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