Advertising Law

CARU: Sponsored Videos Need Clear, Prominent Audio Disclosures

Taking a stand on social media influencers and the “unboxing” video trend, the Children’s Advertising Review Unit (CARU) recommended that popular YouTube channels starring a ten-year-old and his family add a prominent audio disclosure before each new sponsored video.

Evan and his family members (including younger sister Jillian and occasionally his parents) star in videos on three YouTube channels: EvanTubeHD, EvanTubeRAW, and EvanTubeGaming. The videos feature the family doing various activities of interest to children such as playing video games, performing science experiments, and unboxing toys. Evan’s channels have millions of subscribers.

CARU expressed concern about these new media platforms, which “have heightened the possibility for confusion between advertising and editorial content, especially when it is viewed by children.” Particularly problematic are “ostensibly user-generated online videos, which contain undisclosed or inadequately disclosed advertising or endorsements in the content of the videos themselves.”

Roughly 85 percent of the videos posted on the Evan channels are made without any consideration from the manufacturers, the family told the self-regulatory body, and about 85 percent of the total revenue generated by the channels comes from pre-roll advertising. When Evan does make a video featuring a free product or payment, he will sometimes make statements such as “When we came home from school we found a surprise from [Company],” or state that the video was “brought to you by [brand],” or use a text disclosure, e.g., “sponsored by [Company]” below the video.

CARU, however, determined that the sponsored videos amount not only to paid commercial advertising whose purpose is to induce the sale of a product and/or persuade the audience of the value of a product or brand, they are a form of native advertising.

But were those facts clear to the children watching the videos?

Not necessarily, CARU said, as “children would reasonably assume that all Channel posts, including sponsored ones, were independent unless there was a clear disclosure indicating otherwise” and the existing attempts at disclosure were insufficient.

Evan’s use of a text disclosure was not helpful for young children who do not know how to read, his comments in sponsored videos did not make clear that the products had been paid for, and the pre-roll ads at the beginning of the videos added to the confusion. “Because children may easily recognize these commercials as ads they may be even less likely to suspect that further advertisements are contained within the videos,” the self-regulatory body wrote.

CARU was also not persuaded that the use of phrases such as “brought to you by [brand]” or “sponsored by [brand]” were sufficient to put children on notice that they were viewing an ad.

“EvanTube should modify and standardize the way it provides disclosures,” CARU recommended. Disclosures on the channels should be enhanced in accordance with Federal Trade Commission guidance and CARU’s own guidelines in order to adequately inform children that the sponsored videos are advertisements.

“An effective disclosure informing consumers of the sponsored video’s commercial nature at the start is necessary to prevent consumer deception,” CARU said, adding that the channels should “place a clear and prominent audio disclosure stating that the videos are advertisements at the outset of the video before any such sponsored video begins.”

EvanTube agreed that, going forward, newly created sponsored videos will include an oral disclosure that the video is an “ad” or “advertising.”

To read CARU’s press release, click here.

Why it matters: CARU noted that as the legal landscape continues to evolve and develop, the case presents novel and important issues for online advertisers and content creators that double as social media influencers. “The question of how to inform consumers that native ads are advertising, and not content, is a complex one, even for adults,” the self-regulatory body wrote. CARU emphasized that, since the FTC has made it clear that ads must be clearly disclosed and that the impact of the ad’s format on consumers will be considered, “it is imperative to adequately disclose the presence of advertising to children who are less sophisticated than adults.”

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Ransomware Threat May Yield Enforcement Acts, FTC Cautions

Chairwoman Edith Ramirez made clear at the agency’s Fall Technology Series event that businesses should expect Federal Trade Commission enforcement actions for their failure to protect personal data from ransomware attacks.

At the first of the agency’s workshops to examine new and evolving technologies that raise critical consumer protection issues, academics, business and industry representatives, government experts, and consumer advocates gathered to discuss ransomware.

To begin the conversation, Chairwoman Ramirez set the stage for attendees by explaining that ransomware is the most profitable type of malware scam in history and that no one is immune from danger as scammers target individual consumers, government agencies, and entities of all types and sizes. “This type of malware infiltrates a computer system and uses tools like encryption to hold valuable data ‘hostage’ in exchange for a ransom,” she explained. “By charging victims for the return of their data,” she added, “criminals have created a new market for personal information.”

Ransomware attacks are on the rise, Ramirez added, averaging 4,000 attacks a day, with the typical payment requested ranging from $500 to $1,000, but occasionally up to $30,000. As the number of attacks has increased, so has the harm, she said.

To fight back, the FTC is working to raise awareness of the problem by hosting the workshop, issuing warnings to businesses about specific threats, and by stressing the importance of good cyber hygiene and network security.

“We have brought approximately 60 enforcement actions against companies that have failed to reasonably secure consumer data on their networks,” Ramirez said. “Through our enforcement, we aim to ensure that companies make truthful representations about their privacy and security practices and that they provide reasonable security for consumer information.”

Examples include a case against device manufacturer ASUS, where the FTC alleged that “pervasive security bugs” left the company’s routers vulnerable to malware and that attackers exploited these vulnerabilities to reconfigure consumers’ security settings and take control of consumers’ web activity and the agency’s action against Wyndham Worldwide over the company’s allegedly lax security practices.

Ramirez added that businesses should expect more enforcement actions.

“A company’s unreasonable failure to patch vulnerabilities known to be exploited by ransomware might violate the FTC Act,” she said. “As these cases illustrate, businesses play a critical role in ensuring that they adequately protect consumers’ information, particularly as security threats like ransomware escalate.”

To read Chairwoman Ramirez’s prepared remarks, click here.

Why it matters: Ransomware was the topic for the first of the FTC’s three-part series of seminars, with events scheduled for drones and smart TV later this fall. During the ransomware workshop, Federal Bureau of Investigation representative Will Bales was asked whether companies should pay the requested ransom. “The FBI’s position is we do not condone payment,” he told attendees. “Success breeds success.”

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House Passes Bill Protecting Consumer Reviews

The House of Representatives has passed the Consumer Review Fairness Act, a bill that would prohibit businesses from including a provision in consumer contracts restricting the ability to post reviews.

The bill, H.R. 5111, which has the backing of entities like Angie’s List and Yelp, also precludes a company from asserting a copyright interest in a review.

The legislation was spurred by the exponential growth of online reviews and the ways companies have struggled to manage negative commentary. Some businesses tried to foreclose the possibility of bad reviews by including a non-disparagement clause in their terms of service.

In one high profile example, KlearGear made headlines when it elected to act on the provision and sent a bill for $3,500 to a couple after they posted a poor review. The couple refused to pay and filed suit alleging their credit was damaged as a result of the bill. A California federal court judge ordered KlearGear to pay the couple $306,750 as a result.

The federal legislation, which is modeled on a similar law passed in California in 2014, authorizes the Federal Trade Commission to bring enforcement actions and does not preempt state law. Exceptions are included for defamation, libel and slander, as well as agreements where the parties had a “meaningful opportunity” to negotiate the terms.

To read the Consumer Review Fairness Act, click here.

Why it matters: In December 2015, the Senate unanimously passed a similar bill—the Consumer Review Freedom Act. Because of minor differences in the proposed legislation, the Senate must consider and pass H.R. 5111 before the measure can be sent to President Barack Obama for a signature.

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Defendant Scores TCCWNA Win in Suit Over Coupon

A business scored a victory when a New Jersey appellate court recently dismissed a consumer claim under the state’s Truth-in-Consumer Contract, Warranty and Notice Act (TCCWNA).

Companies across the country are becoming familiar with the statute as plaintiffs have filed dozens of suits under the formerly unknown law, which states that a seller may not enter into a written contract that “includes any provision that violates any clearly established legal right of a consumer or responsibility of a seller … as established by [s]tate or [f]ederal law at the time the offer is made or the consumer contract is signed or the warranty, notice or sign is given or displayed.”

A plaintiff-friendly interpretation of the TCCWNA from a state appellate panel triggered a rash of suits under the law, but a recent decision from a state appellate court could prove beneficial to companies.

Debra Smerling received a coupon in the mail from Harrah’s Casino titled “$15 Birthday Cash.” The coupon detailed the dates, times, and locations to redeem the coupon. When Smerling attempted to claim her birthday cash after midnight and was informed she had to wait until the stated business hours, she sued.

A trial court judge certified a damages class and granted summary judgment in favor of Smerling on her statutory claims, ordering judgment in the amount of $100 per person for each class member, plus counsel fees and expenses. The parties entered into a stipulation and the casino appealed.

Harrah’s argued that the TCCWNA did not apply because Smerling was not a “consumer” as defined by the law, nor was the promotion offer a “consumer contract” under the statute. Reversing the trial court, the appellate panel agreed.

The law defines a “consumer” as “any individual who buys, leases, borrows, or bails any money, property or service which is primarily for personal, family or household purposes.” The trial court determined that Smerling “bought” the coupon by traveling to Harrah’s to redeem it but the appellate court rejected this position.

“This expansive interpretation of ‘buy’ would render the Act’s conditions for applications, i.e., that the individual must ‘buy[], lease[], borrow[], or bail[] any money, property or service,’ virtually meaningless,” the panel wrote. Simply stating that the TCCWNA is a remedial statute that should be interpreted liberally in favor of consumers was insufficient. “[T]he remedial nature of the Act is not threatened by applying the plain language of the statute to the threshold determination of whether a party is a consumer under the Act.”

For further support, the court turned to the definition of “consumer contract” in the TCCWNA. The statute defines the term as “a written agreement in which an individual: [p]urchases real or personal property; … for cash or on credit and the … property … [is] obtained for personal, family or household purposes.”

In reversing the damages award and summary judgment order in favor of Smerling, the court concluded that, “The Birthday Cash offer did not require the payment of any cash and plaintiff did not ‘buy’ the offer with cash or on credit” “Because plaintiff is not a ‘consumer’ and the offer is not a ‘consumer contract’ under the TCCWNA, that Act did not apply to the claims based upon the Birthday Cash offer.”

To read the decision in Smerling v. Harrah’s Entertainment, Inc., click here.

Why it matters: While unpublished, the Smerling decision provides some peace of mind for businesses operating in New Jersey by making it clear that the TCCWNA does not apply to coupons and that a consumer must actually “buy, lease, borrow, or bail a product or service” to bring suit.

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Lawson and Thorpe Present Webinar on Social Media for Healthcare, Oct. 4

In an in-depth webinar, Richard Lawson, partner in Manatt's consumer protection practice, teams up with Manatt Health partner Jill Thorpe to examine the legal risks surrounding the rise of new healthcare-centric social media platforms. The Manatt panelists will outline the latest social media breakthroughs in the context of the Health Information Portability and Accountability Act (HIPAA) and other consumer protection standards. "Social Media for Healthcare: Optimizing Opportunities, Overcoming Legal Risks" will discuss the implications of recent decisions such as Spokeo, Practice Fusion and LabMD. To register for the live webinar on Tuesday, October 4, 2016, or for more information on how to access the presentation on demand, click here.

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