Advertising Law

Linda Goldstein Invited to Speak at ERA’s 2013 D2C Convention

On September 24-26, 2013, the Electronic Retailing Association will host over 3,400 of the nation’s leading direct response industry professionals at its annual D2C Convention in Las Vegas.

Linda Goldstein, Chair of Manatt’s Advertising, Marketing & Media practice, has been asked to participate in a panel discussion titled “Continuity, Retail, or Hybrid for a Robust ROI.” She will join copresenters Fern Lee (CEO, THOR Associates), Andy Khubani (President & CEO, ideaVillage Product Corp.), Tim Pearson (Senior Vice President, Household Marketing, Time-Life, Inc.), and Katie Williams (Cofounder and President, Ideal Living) to shed light on strategies for “brand response” multichannel initiatives. The presenters will delve into recent legal and regulatory developments and offer best practices to create relationship marketing with robust ROI.

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FTC Updates COPPA Guidance

As promised, the Federal Trade Commission has provided additional updates to its Frequently Asked Questions guidance regarding the new Children’s Online Privacy Protection Rule which took effect July 1.

The agency addressed three issues: the use of share buttons, when an ad network has “actual knowledge” that it has collected personal information from child users, and what to do with information collected from child-directed sites without parental consent.

Share buttons – where an app contains a plug-in that allows content to be posted to a social networking page or e-mailed in a message – require verifiable parental consent, even if the app doesn’t otherwise collect personal information.

The question of whether a site has “actual knowledge” that it is collecting personal information from users covered by COPPA is very fact-specific, the agency said. The FAQs offer two situations where the Commission believes actual knowledge exists: “where a child-directed content provider (which is strictly liable for any collection) directly communicates the child-directed nature of its content to you, the ad network; or where a representative of your ad network recognizes the child-directed nature of the content.” To reduce the likelihood of the second scenario, the FAQs suggest that businesses prominently disclose an appropriate method of contact with COPPA information, such as a phone number for a designated individual.

The updated guidance also includes an important hypothetical: What happens if an ad network finds out after July 1 that personal information has been collected from a child-directed site? First, immediately stop the collection. Then it should get verifiable parental consent before collecting any additional personal information, or disclosing or using the collected information that the operator knows came from a child-directed site. And as a best practice, the ad network should delete the personal information known to have come from the child-directed site.

However, if the operator doesn’t know the origin of the information (having converted the data into interest categories such as “sports enthusiast”), it could permissibly use the data without obtaining parental consent.

The FTC also tweaked the format of the FAQs by dividing questions by topic (for example, Photos, Videos, and Audio Recordings or Geolocation Data) to make them easier to find, and then renumbered each of the questions in the new category.

To read the FTC’s FAQs, click here.

Why it matters: Although the updated COPPA Rule took effect July 1, businesses are still expressing concern about compliance with the new requirements and the cost of trying not to violate the Rule. The FTC has attempted to calm Web site and app developers and members of the ad industry by providing continued guidance and new additions to the FAQs, but many remain anxious as they await the agency’s enforcement efforts.

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Starbucks Brews Mixed Decision From NAD

Starbucks received a mixed result from the National Advertising Division recently. The self-regulatory body found support for the claim that “your favorite Starbucks beverages come together at the touch of the button” with the Verismo single-serve coffee system.

However, other claims comparing the system to “coffeehouse quality lattes” or “lattes…made to café standard” should be discontinued, the NAD recommended.

Kraft Foods, Inc., the maker of a competitive single serving home coffee system, argued that Starbucks’ advertising misled consumers to believe that the Verismo machine can produce lattes and other drinks that taste the same as those sold in Starbucks stores. It also maintained that the advertising deceived consumers about the content of the pods used to make drinks, which contained powdered milk, not liquid milk as used by baristas.

Starbucks disagreed. In support of its claims, it argued that the Verismo drinks met the company’s quality standards and taste profile, not that the drinks are identical. To bolster its position, the coffee chain pointed to the results of a two-week in-home consumer trial of the Verismo machine with consumers and the testing by “sensory experts” who evaluated lattes based on color, aroma, coffee flavor, milk flavor, texture, and tasting notes.

The NAD said that it was not troubled by claims such as “Your favorite Starbucks beverages. All at home. All from one machine,” which it deemed to be a characterization of what the Verismo machine offers consumers.

However, the NAD found that “coffeehouse quality lattes” and “made to café standard” resulted in a different takeaway for consumers, “that the lattes made at home using the Verismo machine are of the same quality as those served in the coffeehouse.”

“While comparisons of ‘quality’ may, in certain contexts be vague and nonspecific and therefore, constitute puffery, here the claim of ‘perfectly crafted Starbucks coffeehouse quality lattes’ is juxtaposed with references to specific product attributes (‘lattes are made to café standard with natural 2% milk’). Accordingly, NAD determined that the advertisement could reasonably be understood to mean that Verismo lattes are comparable to coffeehouse lattes in attributes or qualities that are material to consumers.”

Although the Starbucks ads did not expressly promise that Verismo provides “everything” offered in the store, “the message communicated by ‘perfectly crafted Starbucks coffeehouse quality lattes’ is very similar and suggests a specific comparison in quality between the lattes made with Verismo and those sold in cafes,” the NAD concluded, recommending that the claim be modified or discontinued.

The product testing offered by Starbucks failed to substantiate its “no material difference” claims, the self-regulatory body added. The home study was not sufficient because the test itself was not designed to support the message that the NAD found was reasonably communicated. And while the sensory experts were highly trained and experienced, the NAD distinguished “between a claim that the beverage product meets Starbucks’ standard for quality and taste profile and a claim that the products are the same or that consumers will discern no material difference between beverages made with the Verismo system and those made in the coffeehouse.”

In dismissing Kraft’s claims concerning powdered milk (that Verismo lattes were made “with rich espresso, high-quality Arabica coffee and the creamy foam of pure 2% milk”), the NAD concluded that the claim was truthful and adequately supported. “Although NAD appreciates that the use of milk pods with powdered milk represents a relevant distinction between Verismo lattes and those served in cafes, it does not follow that the advertisements imply that the milk in the milk pods is liquid milk.”

To read the NAD’s press release about the decision, click here.

Why it matters: Perhaps the NAD’s decision will result in a truce in what the self-regulatory body noted was a growing and aggressive market of single-serve beverage systems. Starbucks brought its own challenge to Kraft’s ads for the Gevalia Kaffe line earlier this year. In that case, the NAD recommended that Kraft discontinue claims that the Kaffe lines of single-serve coffees taste similar to those sold by Starbucks (like “NEW! If you like Starbucks Breakfast Blend try this!”), which the decision found to be an unsupported message of taste similarity.

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Score Tied After Ninth Circuit Refs Dispute Between Football Players, Video Games

In the continuing battle by athletes against video game manufacturer Electronic Arts, football players went 1-1 in results from the Ninth Circuit U.S. Court of Appeals.

On behalf of a class of college athletes featured in EA’s NCAA Football video game (the court noted the decision applied with equal force to the basketball players featured in a separate game), Samuel Keller got the game ball with his argument that the plaintiffs’ right of publicity trumped the First Amendment.

Keller – a starting quarterback for Nebraska and Arizona State – argued that by featuring an avatar at his position, wearing his jersey and number, with the same height, weight, skin tone, hair color, hair style, handedness, home state, play style (pocket passer), visor preference, facial features, and school year, EA illegally used his likeness without his permission in violation of California state law.

EA responded with an anti-SLAPP counterclaim, arguing that Keller’s suit was a strategic lawsuit against public participation and that the company had a First Amendment right to make use of publicly available information for the game.

The Ninth Circuit called a flag on the play.

Reviewing four affirmative defenses raised by EA – the “transformative use” test, the Rogers test, the “public interest” test, and the “public affairs” exemption – the court said each one failed to reach the end zone.

Under the “transformative use” test, the three-judge appellate panel said Keller’s likeness did not “contain significant transformative elements” to satisfy the standard, as “Keller is represented as ‘what he was: the starting quarterback for Arizona State’ and Nebraska, and ‘the game’s setting is identical to where the public found [Keller] during his collegiate career: on the football field.” EA argued that the focus should be on the transformative elements of the game as a whole and not just Keller’s likeness, and pointed to the ability of users to alter the characteristics of the avatars. But the court noted that the company “elected to use avatars that mimic real college football players for a reason. If EA did not think there was value in having an avatar designed to mimic each individual player, it would not go to the lengths it does to achieve realism in this regard. Having chosen to use the players’ likenesses, EA cannot now hide behind the numerosity of its potential offenses or the alleged unimportance of any one individual player.”

Next, the court declined to take EA’s suggestion to adopt the test used for false endorsement claims under the Lanham Act from a Second U.S. Circuit Court of Appeals decision, Rogers v. Grimaldi. The panel said the test was more appropriate in the context of Lanham Act suits, not right of publicity disputes. “The right of publicity protects the celebrity, not the consumer,” the court wrote.

EA’s other two defenses – the “public interest” test and the “public affairs” exemption – both are aimed at protecting the reporting of factual information, the Ninth Circuit explained. One problem, the court said: “EA is not publishing or reporting factual data. EA’s video game is a means by which users can play their own virtual football games, not a means for obtaining information about real-world football games.”

Finding none of the defenses applicable, the court affirmed the denial of EA’s motion to strike Keller’s complaint. A dissenting judge contended that the majority engaged in “excessive deconstruction” and should have focused on a “more holistic examination” of the transformative work instead of confining its inquiry to a single athlete’s likeness.

In a second decision released the same day, the same three-judge panel evaluated a Lanham Act claim brought by retired professional football player Jim Brown against EA over the use of his likeness in the Madden NFL video game series.

Given the setting of an alleged Lanham Act violation, the court applied the Rogers test and found that “Brown’s likeness was artistically relevant to the games” and “that there were no alleged facts to support the claim that Electronic Arts explicitly misled consumers as to Brown’s involvement with the games.” Therefore, public interest in free expression outweighed public interest in avoiding consumer confusion, the court concluded.

Under the first prong of the Rogers test, the court found Brown’s likeness artistically relevant to the Madden NFL games. “EA prides itself on the extreme realism of the games,” the panel noted, and given the importance of including Brown’s likeness to realistically re-create the Cleveland Browns teams he played on, “it is obvious that Brown’s likeness has at least some artistic relevance to EA’s work.”

But the unanimous panel said Brown failed to present evidence that EA “explicitly misled” consumers as required by the second half of the Rogers test. A consumer survey demonstrating that a majority of the public believes that identifying marks cannot be included in products without permission didn’t help his argument as the use of a mark alone does not satisfy the requirement, the court said.

Brown also pointed to written materials accompanying the game highlighting the inclusion of “Fifty of the NFL’s greatest players and every All-Madden team.” But “nothing in EA’s promotion suggest that the fifty NFL players who are members of the All Madden, All Millennium team endorse EA’s game. EA’s statement is true and not misleading.” Changes made to the game and comments made by EA officials also failed to meet the evidentiary standard. “The factual support Brown offers is simply of the wrong type,” the court wrote.

“As expressive works, the Madden NFL video games are entitled to the same First Amendment protection as literature, plays, or books. Brown’s Lanham Act claim is thus subject to the Rogers test, and we agree with the district court that Brown has failed to allege sufficient facts to make out a plausible claim that survives that test,” the panel concluded.

However, the court emphasized that its findings only related to the Lanham Act claim and noted that its ruling may have been different had it evaluated state causes of action, such as Brown’s right to publicity.

To read the decision in Keller v. Electronic Arts, click here.

To read the decision in Brown v. Electronic Arts, click here.

Why it matters: The publicity rights of athletes are a hot topic this summer, with the Third U.S. Circuit Court of Appeals reaching a similar decision under facts nearly identical to those in Keller. It held that EA did not satisfy the transformative use test in a suit brought by a former college quarterback alleging violation of his right of publicity. With the courts reaching parallel outcomes, the battle between the First Amendment and publicity rights doesn’t seem destined for the U.S. Supreme Court – yet. However, as demonstrated by the results of the Brown case, a court’s determination on these types of matters will hinge critically on the nature of the plaintiff’s claims and the facts to support them.

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Overruling of Ban on “Giant Soda” Upheld by New York Appellate Court

Affirming a trial court judge’s ruling, a unanimous panel of the New York appellate division agreed with industry groups that the “giant soda” ban passed by the New York City Board of Health “overstepped the boundaries of its lawfully delegated authority.” The ban – which was originally set to take effect on March 13 – will remain on hold.

Last fall, the nine-person Board of Health passed a controversial proposal introduced by Mayor Michael Bloomberg that banned the sale of 16-ounce or larger beverages “sweetened with sugar or another caloric sweetener that contain more than 25 calories per 8 fluid ounces.” Exempt from the ban are drinks sold in grocery and convenience stores and drinks that contain alcohol, fruit, juice or 51% milk.

Industry and interest groups, including the American Beverage Association and the National Restaurant Association, challenged the law, and just days before it was set to take effect, Judge Milton A. Tingling granted an injunction, ruling that the Board “impermissibly trespassed on legislative jurisdiction.”

The four-judge appellate panel agreed.

Relying on a 1989 decision, Boreali v. Axelrod, the court analyzed the line between administrative rulemaking and legislative policymaking using four factors. First, the Board failed to act “solely with a view toward public health considerations” when it passed the law. Noting the multiple exemptions as well as comments made by the Commissioner that the ban would help ameliorate obesity-related health care expenditures in the state, the court said consideration of such non-health factors demonstrated the Board made a policy decision.

“Since a basic premise of the ban is that New Yorkers consume excessive quantities of sugary drinks, the Board’s decision to regulate only [certain] drinks requires that any health concerns be weighed against consumer preferences for such drinks,” the court wrote. “Instead of offering information and letting the consumer decide, the Board’s decision effectively relies upon the behavioral economics concept that consumers are pushed into better behavior when certain choices are made less convenient.”

Secondly, the Board did not fill a gap in an existing regulatory scheme but “wrote on a clean slate,” the court explained. “Soda consumption cannot be classified as a health hazard per se, [so] the Board of Health’s action in curtailing its consumption was not the kind of interstitial rule making intended by the legislature.”

The Board triggered the third factor by passing a law on an issue that both the city and state legislatures have remained unsure of how best to approach: the issue of excessive sugary beverage consumption. Finally, the panel determined that the law did not require any special expertise or technical competence on the part of the Board. The rule was “drafted, written and proposed” by the Mayor’s Office and enacted with minimal changes.

Under all four factors of Boreali, “the Board of Health overstepped the boundaries of its lawfully delegated authority” when it promulgated the ban and “therefore violated the state principle of separation of powers,” the court concluded.

To read the decision in In re New York Statewide Coalition of Hispanic Chambers of Commerce v. The New York City Department of Health and Mental Hygiene, click here.

Why it matters: Despite the second resounding courtroom loss, Mayor Bloomberg called the appellate court’s decision “a temporary setback,” adding that “we plan to appeal this decision as we continue to fight against the obesity epidemic.” How the law will fare before the state’s highest court remains to be seen.

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Sen. Schumer to Retail Stores: Stop Following Me

Expressing concern about the tracking of retail shoppers at physical locations, Sen. Charles Schumer (D-N.Y.) requested that the Federal Trade Commission take action.

Writing to FTC Chairwoman Edith Ramirez, Sen. Schumer said that major national retailers – such as American Apparel, Benetton, and Family Dollar – rely upon technology to track consumers’ movements through their stores using the Wi-Fi on cell phones. Stores collect data about how a shopper navigates through the aisles and how much time is spent looking at specific merchandise.

“Geophysical location data about a person is obviously highly sensitive; however, retailers are collecting this information anonymously without consent,” Sen. Schumer wrote. “As these technologies become more widespread, it is imperative that we protect our consumers from unknowingly giving out information they do not desire to.”

Some retailers save the data “in perpetuity,” Sen. Schumer said in a statement, adding that even children can be tracked. Consumers can halt the tracking only by turning off the Wi-Fi on a smartphone or leaving a phone outside the store. But many consumers are unaware they even need to make such a choice, he said. Stores are “treating the consumers as the products” and are able to combine the in-store data with other information found online to create “an incredibly detailed profile of each shopper.”

“I would ask that the Federal Trade Commission investigate this practice, and clarify that it is an unfair or deceptive trade practice to fail to notify shoppers that their movements are being tracked in a store or to give them an opportunity to opt out of this type of tracking before it begins,” he wrote.

To give consumers the opportunity to opt out of being tracked, Sen. Schumer suggested that retailers send electronic notices to a consumer’s phone before the software begins to work.

To read Sen. Schumer’s letter to the FTC, click here.

Why it matters: The use of the tracking technology has been on Sen. Schumer’s radar for years. In 2011, he objected when he learned that tests of the software were being conducted in U.S. malls. The malls stopped their use of the software after Sen. Schumer spoke out. And earlier this year, Sen. Al Franken (D-Minn.) responded to news reports about shopper tracking by sending a letter to the CEO of Euclid Analytics, a developer of tracking software. Responding to Sen. Franken’s questions about the “troubling” technology, Euclid said sensors scramble the device information for consumers so that the company cannot collect such information as names, addresses, and phone numbers from shoppers. Despite the assurances, lawmakers continue to push for oversight.

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