Advertising Law

Marc Roth to Speak at Conference, Jan. 20

Marc Roth, partner in Manatt's Advertising, Marketing and Media practice and co-chair of the TCPA Compliance and Class Action Defense practice, will present on the challenges facing call centers under the TCPA in a session titled "Living with TCPA: They Are Going to Sue" at the Conference on Wednesday, January 20, 2016, in San Francisco, CA., a new conference series serving the lead generation industry, brings together an ecosystem of marketers, brands, founders, and innovators to help companies drive more calls and for increased revenue. To register and learn more about, click here.

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Ending Challenge to FTC's Data Security Authority, Wyndham Settles

In a significant development, Wyndham Hotels and Resorts reached a deal with the Federal Trade Commission in the high-profile litigation that began with allegations that the hotel chain breached its privacy promises to customers and expanded into a frontal challenge to the Commission's authority to regulate data security.

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 FTC'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 Commission lacked authority to regulate cybersecurity under the unfairness prong of the FTC Act and that the company did not have fair notice that its specific cybersecurity practices could fall short of that provision.

In September, the Third Circuit Court of Appeals affirmed the district court.To end the closely watched legal battle, the parties announced a settlement agreement in December.

Pursuant to the deal, Wyndham will establish a comprehensive information security program to protect cardholder data, such as payment card numbers, names, and expiration dates.

The program's annual information security audits (conducted by a qualified, independent auditor) of its information security program must include a certification that it conforms to the Payment Card Industry Data Security Standard, that it contains a formal risk assessment process to analyze possible data security risks, and that it ensures the "untrusted" status of franchisee networks (a preventative measure to avoid a data breach using the same method from prior breaches). If the audit demonstrates compliance, then the security program will be deemed satisfactory.

Obligations under the settlement will be in place for 20 years. In the event Wyndham suffers another data breach affecting more than 10,000 payment card numbers, the company agreed to obtain an assessment of the breach and provide it to the FTC within 10 days.

To read the stipulated order in FTC v. Wyndham Worldwide Corporation, click here.

Why it matters: "This settlement marks the end of a significant case in the FTC's efforts to protect consumers from the harm caused by unreasonable data security," FTC Chairwoman Edith Ramirez said in a statement. "Not only will it provide important protection to consumers, but the court rulings in the case have affirmed the vital role the FTC plays in this important area." In a statement of its own, Wyndham said it was pleased with the settlement, particularly as the hotel chain was not held liable for any violations or required to pay any monetary relief. The groundbreaking case provides many lessons for companies: that the FTC has authority to bring enforcement actions relating to data breaches, that data security practices can be deceptive or unfair trade practices, and that the terms of the settlement agreement imply that compliance with PCI standards will satisfy the agency in the event of a data breach.

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Survey Seeks Information in Advance of SAG-AFTRA Negotiations

Advertisers and agencies that are signatories to the Screen Actors Guild and American Federation of Television and Radio Artists take note: the Joint Policy Committee of the Association of National Advertisers-American Association of Advertising Agencies is conducting a survey among industry stakeholders as it begins negotiations with SAG-AFTRA for successor agreements to the current JPC-SAG-AFTRA Commercials Contract and Radio Recorded Commercials Contract.

The survey begins with general questions about the importance of performer exclusivity and whether the respondent would be willing to pay a premium for exclusivity in exchange for a better deal on rates where exclusivity was not as important. It also inquired as to the difficulty in employing stunt and vehicle drivers.

The JPC also wonders whether an expansion of the waiver to film or record company employees for commercials beyond "executive officers" would be welcomed and if respondents ever digitally add people to give the idea of a crowd when using less than 45 extras.

Turning to music and footage, the survey seeks data about whether union or nonunion wages are paid to principal performers and how often singers are "multi-tracked" or "sweetened" in music created for commercials.

A series of questions asks for information about two types of audits: those by the union itself to determine if the signatory is properly producing and reporting under the agreement and audits conducted by the pension and health plans to determine if the appropriate amount of pension and health fund payments have been made, for example. The survey seeks responses about the amount of time spent on audits, how long the response time lasts, and how many active audits the respondent currently has on its plate.

Turning to broadcast and TV use of commercials, the JPC inquires about tagging commercials, whether ads appear on digital or unwired networks, and the use of Internet commercials (how long they run, whether a benefit exists to a cycle shorter than eight weeks, and what percentage of Internet commercials are pulled down by the expiration date).

The survey seeks information about all types of commercials produced under the Experimental Waiver, such as live events, man on the street, or hidden camera, as well as if the respondent would be interested in expanding the waiver and whether the union has denied a waiver request and why.

Finally, the JPC asks for feedback about radio commercials, from any potential issues that respondents would like to see addressed to changes in the usage of such commercials and whether they are streamed online.

To take the survey, click here.

Why it matters: The JPC estimated that the survey takes approximately 20 minutes and noted that negotiations—set to begin in February—will impact "the entire advertising industry ecosystem." Respondents are also encouraged to describe any additional concerns, questions, or problems they would like to see addressed in the 2016 negotiations in order of priority.

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Postal Service Harshes the Buzz for Newspaper Pot Ads

Although the legalization of both medical and recreational use of marijuana continues to grow at the state level, the U.S. Postal Service has cautioned that ads promoting the drug or a dispensary that appear in a publication sent through the mail may violate federal law.

In late November, the Portland, OR, district of the USPS sent a memorandum to newspapers and periodicals in the Northwest region stating that mail pieces containing advertisements about marijuana are "nonmailable." The agency's Domestic Mail Manual restricts "any advertising, promotional, or sales matter that solicits or induces the mailing of any article described as hazardous, restricted, or perishable." Marijuana is classified as a Schedule I controlled substance under federal law, making it restricted.

Therefore, both the mailing of marijuana and the mailing of an advertisement that "advocates the purchase of clinical marijuana through a Medical Marijuana Dispensary" are unlawful, the Service wrote.

When multiple newspapers made the memo public, Oregon lawmakers responded with their own missive to the Postmaster General, requesting "a detailed explanation" of the Postal Service's policy.

"Small businesses and community newspapers rely on advertising to be successful," Sens. Jeff Merkley and Ron Wyden and Reps. Earl Blumenauer and Suzanne Bonamici wrote, noting that four states (including Oregon) have legalized the adult use and sale of marijuana, with 23 states, the District of Columbia, and Guam permitting full medical marijuana programs and an additional 17 states authorizing more limited medical marijuana programs.

"What is the specific statutory authority that gives the USPS the ability to restrict the types of advertising that newspapers or periodicals that are mailed contain," the legislators asked, also wondering if the policy laid out in the memo is applied across the country or if individual districts create their own policies. "What discretion does a regional postmaster have in enforcing or implementing these policies, specifically in states where marijuana is legal?"

The lawmakers also queried how the policy would be enforced. Pursuant to a provision in the federal government spending bill, the Department of Justice is currently barred from spending any funds to prevent medical marijuana states from implementing their own state laws with regard to such programs. "Therefore, [the Drug Enforcement Administration] would arguably not be able to enforce policies regarding the in-state mailing of advertisements for state-legal medical marijuana products. If this is a policy with legal effect in all 50 states, then why is the USPS helping to uphold laws in medical marijuana states that cannot be enforced by the DEA per the appropriations language? Did the USPS cooperate with anyone at DEA or DOJ in establishing this policy?" the legislators wrote.

To read the Postal Service memorandum, click here.

To read the letter from lawmakers to the Postmaster General, click here.

Why it matters: As the number of states legalizing recreational and/or medical marijuana use continues to grow, problems have increasingly arisen with regard to the application of federal law. The issue recently made headlines in the context of broadcast advertisements when a commercial for a Colorado dispensary was pulled at the last minute after the network elected to play it safe and avoid any potential violation of federal law.

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California Supreme Court Lets State Lawsuit Over Organic Labeling Move Forward

A plaintiff's putative class action against a farm for falsely labeling its herbs "organic" is not preempted by federal law, the California Supreme Court has concluded, reversing a dismissal of the suit in a unanimous opinion.

Michelle Quesada sued Herb Thyme Farms, Inc., challenging the company's marketing of its herbs as organic. According to her complaint, the company sometimes processed its organic and conventionally grown herbs together and sold them using the same "Fresh Organic" label and packaging. She also claimed Herb Thyme passed conventionally grown herbs off as organic.

Relying on the Organic Foods Production Act of 1990, Herb Thyme Farms sought to toss the lawsuit. Both a trial court judge and an appellate panel agreed that Quesada's claims were preempted.

But the state's highest court reversed, ruling that despite the regulatory scheme put in place by the federal statute, consumers can still file suit over the veracity of an organic label.

"When Congress entered the field in 1990, it confined the areas of state law expressly preempted to matters related to certifying production as organic, leaving untouched enforcement against abuse of the label 'organic,'" the court explained. "Moreover, a central purpose behind adopting a clear national definition of organic production was to permit consumers to rely on organic labels and curtail fraud. Accordingly, state lawsuits alleging intentional organic mislabeling promote, rather than hinder, Congress' purposes and objectives."

The Organic Foods Act does not expressly preempt the claims, the court found. While language of exclusivity can be found in the Act with regard to organic production and certification, no similar language of exclusivity is found with regard to enforcement.

"As a matter of express preemption, we have no reason to conclude Congress intended its federal remedies as not only a floor—ensuring that, whatever else state law might provide for, some teeth would back up the new federal regulation of organic labeling—but also a ceiling, with states prohibited from continuing to augment these limited remedies," the California Supreme Court wrote. "On the subject of state consumer-deception laws of general application, the text of the Organic Foods Act offers only silence."

The regulatory framework established by the Act left room for state laws of general application to target fraud and misrepresentation, the court said, citing a similar conclusion from the Eighth Circuit Court of Appeals.

The regulation of food labeling to protect the public "is quintessentially a matter of longstanding local concern," the court noted, with California beginning its regulation of food mislabeling in the 1860s.

"Substitution fraud, intentionally marketing products as organic that have been grown conventionally, undermines the assurances the USDA Organic label is intended to provide," the court said. "Conversely, the prosecution of such fraud, whether by public prosecutors where resources and state laws permit, or through civil suits by individuals or groups of consumers, can only serve to deter mislabeling and enhance consumer confidence."

Congress "singled out the very practice alleged here, the deliberate mislabeling of conventional produce as organic, as a major reason why national legislation was needed in the first place," the court wrote. "The Organic Foods Act cannot be interpreted, under the guise of obstacle preemption, as shielding from suit the precise misconduct Congress sought to eradicate...

"In sum: the complaint here alleges Herb Thyme has engaged in fraud by intentionally labeling conventionally grown herbs as organic, thereby pocketing the additional premiums organic produce commands. The purposes and objectives underlying the Organic Foods Act do not suggest such suits are an obstacle; to the contrary, a core reason for the Act was to create a clear standard for what production methods qualify as organic so that fraud could be more effectively stamped out and consumer confidence and fair market conditions promoted. Nor does anything in the text or background of the Act and its regulations indicate Congress intended remedial exclusivity for the enforcement mechanisms it provided. Finding no obstacle to congressional purposes and objectives, we conclude the complaint here is not preempted."

To read the opinion in Quesada v. Herb Thyme Farms, Inc., click here.

Why it matters: Citing the seminal decision in Kwikset Corp. v. Superior Court, the unanimous court emphasized that "labels matter" to consumers. "They serve as markers for a host of tangible and intangible qualities consumers may come to associate with a particular source or method of production," the court wrote. "Misrepresentations in labeling undermine this signifying function, preventing consumers from correctly identifying the goods and services that carry the attributes they desire while also hampering honest producers' attempts to differentiate their merchandise from the competition."

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Noted and Quoted . . . Goldstein, Roth and Wasserman Share Insights on Advertising Issues That Closed out 2015 and Are on the Horizon in 2016

Advertising Age once again turned to Linda Goldstein, partner and chair of Manatt's Advertising, Marketing and Media practice, for her insights on marketing challenges in the coming year. She believes advertisers will find it harder to balance key objectives with new legal guidelines. Read "Legal Pitfalls Marketers Should Avoid in 2016" here.

The Wall Street Journal, Advertising Age, and Marketing Dive also asked Goldstein about the Federal Trade Commission's new native advertising guidelines. Her take? "The FTC has put a lot of teeth into the guidelines…they are very specific in nature."

When Nutrition Industry Executive asked Ivan Wasserman, partner in Manatt's Advertising, Marketing and Media practice, what will affect the dietary supplement industry the most in 2016, he responded, "The natural products industry, and dietary supplements in particular, will continue to be the focus of state AGs and other regulators in the coming year, perhaps based more on claims and manufacturing quality than on ingredient identity issues as alleged by New York." Read NIE's "Industry Forecast" here.

Wasserman also checked in with Law360, The Washington Post and FoodNavigator-USA about the FDA's decision to let the eggless-spread 'Just Mayo' keep its name after a warning letter about mislabeling was issued in August. Wasserman said the deal "suggests that FDA is willing to consider creative labeling approaches," but that determinations on other uses of standardized identity terms would depend on the facts specific to the product.

Bloomberg BNA spoke to Manatt's Marc Roth, partner in the firm's Advertising, Marketing and Media practice and co-chair of the TCPA Compliance and Class Action Defense practice, about the likelihood that federal regulators will ramp up their policing of marketing on social media in 2016. Social media marketers must be prepared for heightened federal scrutiny, said Roth. ''The FTC is on the beat, and it is actively looking at every industry,'' he said. "Federal Agencies Train Spotlight on Social Media Ads," was published on January 6.

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