Advertising Law

SPECIAL FOCUS: FTC Workshop on Native Advertising – The “Blurred Lines” Remain Fuzzy

Author: Holly Melton

The increased prevalence of online native advertising – commercial content designed with the look and feel of editorial comment – has sparked significant debate among regulators, publishers, advertisers and ad agencies as to the necessity and appropriate methods of disclosure to consumers. On Wednesday, December 4, the Federal Trade Commission hosted a public workshop titled “Blurred Lines – Advertising or Content?” at which presenters discussed various legal and business issues surrounding native advertising.

The workshop, which lasted a full day, featured a number of panelists, including regulators, academics, consumer advocates, online publishers, advertisers and agencies. The panelists provided various perspectives on the circumstances in which a disclosure obligation arises, and the types and methods of appropriate disclosure, much of which caused spirited debate. As the day came to a close, however, it was clear that the discussions produced more questions than answers, as was noted by FTC attorney Mary K. Engle, Associate Director of the Division of Advertising Practices.

Native advertising, of course, is not new. As FTC staff attorney Lesley Fair explained, the FTC has been monitoring various forms of it since the early 1900s when a door-to-door salesman could literally get his foot in a consumer’s door by professing to be conducting a survey, when in reality he was selling a vacuum cleaner. Although native advertising has continuously permeated the advertising landscape, primarily in direct mail and print publications, it has certainly morphed over the years.

New questions, however, have arisen as online native advertising, with its capacity for wide and virtually instant dissemination via social media, has become commonplace. The potential for such dramatic amplification of a message, and the ability to reach so many consumers in a way that powerfully resonates, has produced questions that, so far, remain largely unanswered. While the FTC workshop did not result in detailed guidance on how publishers, advertisers and agencies can successfully navigate the minefield of regulatory scrutiny, a few themes emerged.

An important distinction exists between native advertising that actively promotes a product or service and messaging that simply presents information with which an advertiser wants to be associated. Most panelists agreed that where a paid native advertising message either promotes a product or service or disparages a competitor’s product or service, disclosures must be made, regardless of whether the brand participated in the creation of the content.

As the title of the workshop suggests, the line becomes blurred where the content does not contain a message that promotes a product or service, but simply contains information relevant to the brand’s target audience. For example, if an outdoor equipment company disseminates an advertorial that reviews and rates various companies’ camping equipment, and concludes that its camping equipment is superior, a disclosure obligation seems fairly obvious. If that same company pays to be associated with an article describing the best places to camp in the northwestern United States, the existence of a disclosure obligation is less clear, even if the company participated in generating the content.

Also, whether a disclosure should be made seems to be as much a business consideration as a legal one. The publishers and advertisers who spoke seemed to agree that consumer trust and confidence are of paramount importance and, as such, suggested that the best practice is to err on the side of transparency. Certainly, in the example above, the outdoor equipment company that paid to publish the article about the best campsites would want credit for delivering relevant content to its target audience, and might also be concerned that its target audience would feel duped if its participation in generating the content were not disclosed. What remains unclear is whether there is a legal obligation to disclose the advertiser’s role in delivering that content – whether through paying to have it placed or influencing the messaging itself.

Some panelists expressed the opinion that consumers are entitled to know whether an advertiser paid to deliver content or participated in its creation, but these opinions seemed to stem from journalistic ethical considerations rather than the law. Other panelists and participants questioned how this information would influence a consumer’s purchasing decision, and thus could be considered “material” pursuant to Section 5 of the FTC Act. FTC Chairwoman Edith Ramirez’s welcoming remarks may have shed some light on the FTC’s thinking when she noted that native advertising may contain an implied message that the information comes from an “unbiased source” and that disclosures may be necessary to alleviate any such misleading message.

There was significant discussion as to whether specific terminology to label native advertising should be required. Most panelists agreed that consumers do not fully understand what “sponsored” means, and therefore, that term is inadequate to disclose in and of itself. However, most panelists also suggested that there is no one-size-fits-all term that all publishers and advertisers should be required to use. Hence, more questions than answers emerged.

Regarding appropriate methods of disclosure, context appears to be as important as terminology. Panelists reported research suggesting that consumers may not see disclosures if they are not visually presented in a way that the consumer expects. As such, flexibility is not only imperative to enable publishers and brands to disclose in a way that is natural to the brand but also necessary to ensure that consumers actually view disclosures. More than one online publisher explained that, as a part of their overall disclosure approach, they supplement explicit disclosures that content is advertiser sponsored by surrounding native content with traditional ads for the brand. While there was no suggestion that this approach is required, or even adequate, it demonstrated that publishers and brands are creatively crafting methods to ensure that consumers understand the source of native content.

Why it matters: Online native advertising is a powerful tool and has emerged as the preferred way to connect with consumers online. While many questions remain unanswered, one theme of the workshop came through loud and clear – the FTC will scrutinize all players in this space. The FTC’s remarks clearly communicated that the agency expects not only advertisers but also publishers, ad agencies and other syndication services to take necessary steps to ensure that consumers are not deceived or mislead. While it is unclear whether the FTC will issue formal guidance on this topic in the near future, this type of advertising is without question on the regulatory radar.

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FTC Ends Action Against “Cardholder Services” Robocall Defendants

More than one year after the Federal Trade Commission announced a joint enforcement effort with multiple state attorneys general to target robocall scams, the agency reached a settlement with the remaining six defendants.

Last October the FTC and officials in Arizona, Arkansas, and Florida filed a complaint against five companies and their principals accused of making illegal prerecorded calls claiming to be “Rachel” from “Cardholder Services.” Some of the defendants entered into a settlement with the FTC earlier this year.

The FTC’s complaint had alleged that the defendants placed automatic calls that began with a prerecorded message. Recipients who elected to speak with a representative were connected to a telemarketer who pitched a deceptive offer to reduce credit card debt and save the consumer thousands of dollars in finance charges. Sometimes the marketers claimed to be employed by the consumer’s credit card company.

In addition to misrepresenting that they would be able to pay off consumer debts more quickly as a result of lowered credit card fees and making false claims about their refund policies, both in violation of Section 5 of the FTC Act, the defendants also charged illegal up-front fees in violation of the Telemarketing Sales Rule, the agency said.

Pursuant to the settlement, the defendants – some of whom were repeat offenders – are banned from telemarketing and the marketing of debt relief services. The agency said some “extremely limited exceptions” were included in the stipulated final order to allow the defendants to engage in legitimate business conduct.

In addition, the settlement prohibits defendants from misrepresenting any financial product or service and requires them to provide substantiation for any claims about the potential benefits or effectiveness of any product or service.

The order also imposes a partially suspended $11.9 million judgment against the corporate and individual defendants.

To read the complaint and stipulated agreements in FTC v. ELH Consulting, click here

Why it matters: When the complaints were filed last year, then FTC Chairman Jon Leibowitz called Rachel from Cardholder Services “public enemy number one.” Now that the Telephone Consumer Protection Act requires prior express consent for telemarketing calls made using an autodialer or prerecorded message, we expect robocalls to remain a top enforcement priority for the FTC.

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Toy Company Showdown with Beastie Boys Fizzles Out

Toy company GoldieBlox had a busy few weeks.

First, the company struck Internet gold with a video promoting its engineering and construction toys for girls, which went viral with more than 8 million views. But the high-profile response came with a price, as the company’s use of a Beastie Boys rap song in the video triggered a legal fight.

The viral video depicts three girls building a Rube Goldberg mechanism with what the toy company described as a parody of the Beastie Boys’ 1986 song “Girls” playing in the background. Instead of the original lyrics (“Girls to do the dishes, Girls to clean up my room, Girls to do the laundry, Girls and in the bathroom, Girls, that’s all I really want is girls”), the GoldieBlox version sang “Girls to build the spaceship, Girls to code the new app, Girls to grow up knowing, That they can engineer that. Girls. That’s all we really need is girls.”

Claiming that the Beastie Boys had threatened the company with copyright infringement over the song, GoldieBlox filed a declaratory judgment action in California federal court seeking to clarify the rights of the parties. “The GoldieBlox Girls Parody Video takes direct aim at the song both visually and with a revised set of lyrics celebrating the many capabilities of girls,” according to the complaint.

“GoldieBlox created its parody video specifically to comment on the Beastie Boys song, and to further the company’s goal to break down gender stereotypes and to encourage young girls to engage in activities that challenge their intellect, particularly in the fields of science, technology, engineering and math,” the complaint continued.

The Beastie Boys responded with praise for the GoldieBlox mission as well as a clarification – the group said it had not threatened legal action. “We strongly support empowering young girls, breaking down gender stereotypes and igniting a passion for technology and engineering,” the group said in a statement. However, the group continued, “As creative as it is, make no mistake, your video is an advertisement that is designed to sell a product, and long ago, we made a conscious decision not to permit our music and/or name to be used in product ads. When we tried to simply ask how and why our song ‘Girls’ had been used in your ad without our permission, YOU sued US.”

GoldieBlox called a truce. The company removed the song from the video and replaced it with different music. GoldieBlox founder Debbie Sterling also penned an open letter to the Beastie Boys on the company’s Web site, writing that she was “ready to stop the lawsuit as long as this means we will no longer be under threat from your legal team.”

The company added that although it “believe[s] our parody video falls under fair use,” it would respect the wishes of the group, including deceased member Adam Yauch, whose will specified that Beastie Boys songs never be used in advertising. “We don’t want to spend our time fighting legal battles. We want to inspire the next generation,” Sterling wrote. “And we want to be your friends.”

The Beastie Boys have now filed a counterclaim for copyright and trademark infringement, and violation of state right of publicity laws. “Unfortunately, rather than developing an original advertising campaign to inspire its customers to create and innovate, GoldieBlox has instead developed an advertising campaign that condones and encourages stealing from others,” the counterclaim said.

To read the complaint in GoldieBlox v. Island Def Jam, click here

Why it matters: Since GoldieBlox removed the song and appeared ready to withdraw its complaint (the docket was still active at the time of this writing), the legal question of whether the song constituted copyright infringement or was a fair use had appeared likely to remain unresolved. However, the counterclaim has put that question before the court. The fair use test is a delicate balancing test, so it is hard to tell where a court will come out. Although GoldieBlox’s video was an advertisement for its products, the company was clearly engaging in commentary on the original version of the song, taking the “highly sexist” lyrics (as described by GoldieBlox in the complaint) and transforming them into a musical power anthem for girls.

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GAO Releases Privacy Report Recommending Federal Legislation

Legislators should enact a federal law creating baseline privacy rules for the collection, use, and sale of personal information, according to a new report released by the Government Accountability Office (GAO).

Issued at the request of Sen. Jay Rockefeller (D-W.Va.) as part of his investigation into the practices of data brokers, the report reviews the existing landscape of privacy-related laws and regulations, focusing primarily on consumer information used for marketing purposes.

For “Information Resellers: Consumer Privacy Framework Needs to Reflect Changes in Technology and the Marketplace,” the GAO also interviewed sources from different perspectives, ranging from government agencies to data broker companies to trade associations and consumer and privacy groups.

The result: “Congress should consider strengthening the current consumer privacy framework to reflect the effects of changes in technology and the marketplace, particularly in relation to consumer data used for marketing purposes,” the report concluded.

The report found existing laws that generally targeted a specific type of information or population, such as the Health Insurance Portability and Accountability Act and the Children’s Online Privacy Protection Act, as well as self-regulatory efforts, such as the Digital Advertising Alliance’s Online Behavioral Advertising Program, have not gone far enough. Further, while the FTC has the power to take action against unfair or deceptive practices, the agency’s enforcement on privacy measures has generally been limited to when a company violates its own stated policy.

These “gaps” in current privacy oversight can also be found in new technology such as mobile devices and tracking online consumer behavior, the report found. The “vastly increased marketplace for personal information” and the “proliferation of information sharing among third parties” also pose concerns.

To bridge the gaps and strengthen privacy protections, Congress should consider legislation, the GAO said. Consumers should receive more information about the data companies have about them, as well as have the chance to access, correct, and control the information. In addition, Congress should consider whether to restrict the collection and sharing of personal or sensitive information with third parties and whether changes are necessary in the current sources and methods of data collection. Congress should also consider whether privacy controls related to new technologies should be implemented.

The report noted that stakeholders presented very different views on what privacy legislation should encompass. While some advocated for a comprehensive privacy law, others argued that such a one-size-fits-all approach would be too inflexible. “The challenge will be providing appropriate privacy protections without unduly inhibiting the benefits to consumers, commerce, and innovation that data sharing can accord,” the report said.

To read the GAO report, click here

Why it matters: The GAO is the latest governmental entity to recommend federal privacy-related legislation. In March 2012 the FTC called for Congress to consider enacting basic privacy and data security and data broker legislation. This followed similar comments by the White House calling for a “Privacy Bill of Rights” to protect consumers online. To date, the privacy legislation that has been introduced in the federal legislature has not gone anywhere, but the issue remains a hot topic for state lawmakers and regulators alike.

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Unauthorized Use of Twitter Photos Costs Defendants $1.2 Million

A jury awarded photographer Daniel Morel $1.2 million in his copyright infringement suit against Getty Images Inc. and Agence France-Presse after concluding that the defendants willfully made unauthorized use of photos he posted on the social media site Twitpic.

Morel was in Port au Prince when the devastating earthquake hit the island of Haiti in 2010 and posted his pictures on Twitpic, a Web site that allowed users to post pictures on Twitter. Another user posted Morel’s photos as his own on Twitter, thereby creating some confusion about photo credit and ownership. The defendants – as well as other news outlets such as CBS and ABC – began to use the pictures in newspapers, on television, and online.

Morel made repeated efforts to correct the attribution of his photos and license them through his agency, which contacted both Getty and the AFP. Even a cease-and-desist letter from his lawyer didn’t stop the defendants from continuing to publish the photos. The AFP then filed a declaratory judgment action, arguing that it did not infringe Morel’s copyright in the images because he gave away his licensing rights by posting the pictures to Twitpic.

A federal court judge disagreed in December 2010, finding the defendants liable for copyright infringement, but leaving the questions of whether the defendants’ actions were willful and what would be appropriate damages for the jury.

The jurors ultimately sided with Morel, awarding the maximum amount of damages possible under the copyright statute as well as an additional $20,000 for 16 violations of the Digital Millennium Copyright Act.

Why it matters: “We believe this is the first time these defendants or any other major digital licensors have been found liable for the willful violation of a photojournalist’s copyrights in his own works,” Morel’s law firm said in a statement about the verdict. The $1.2 million verdict also highlights the risk of appropriating material from social media sources. While content on such sites is arguably meant to be shared, this does not outweigh respect for the ownership of the content.

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