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Financial Supermarket? No. Financial Advertising Supermarket? Well, Maybe…

Years ago, a number of companies hoped that by offering to simplify financial record-keeping and collect your financial information in one place, consumers would find it easier than trying to keep track of all of the numbers, codes and IDs they have to contend with in the real world. The concept fizzled, primarily because there was resistance to giving one website all the information—putting all your nest eggs, so to speak, in one basket. Now, some companies are hoping to revive the concept, this time with the lure of education, advertising and sponsorship.

Although the basic idea remains, the new aggregation model uses sponsored links—recommendations based on an analysis of consumer data and financial information—all geared to educating consumers about the availability of financial products and services. Just as search engines accumulate information about browsing—to prioritize and serve advertising believed to be of higher value to the individual—these new sites use the same model to recommend financial services. If you use a credit card to purchase airline tickets, the site might recommend or display an advertisement for an affinity credit card tied to an air carrier or one which offers points for your purchases. Use an overdraft line of credit for your checking account? You might see an advertisement or recommendation to consider a home equity line of credit to potentially lower your tax bill while you borrow.

While advertising-supported revenue models may have greater appeal from an economic viewpoint and may attract financial institution sponsors and advertisers, these sites still have to overcome consumer discomfort with making all—or a significant portion—of their nonpublic financial information available at a single point of aggregation. With the identity theft, data breach and privacy issues front and center in the past few years, one has to wonder if the power of advertising can overcome that anxiety.

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Shop, Then Drop

Potentially signaling tougher enforcement initiatives ahead, New York recently enacted a law that gives consumers who shop online, essentially the same types of consumer protections available when buying over the phone or through the mail. New York’s law that now applies to sales over the Internet means that merchants must reasonably expect to be able to ship the goods ordered within 30 days or the order can’t be accepted; merchants who use a post office box or other fulfillment mail address must display (prominently) the company’s name and physical street address; merchants must allow a consumer to cancel any order that doesn’t actually ship within 30 days and either obtain a refund or pick substitute merchandise; the merchant must clearly detail the conditions under which the consumer will be entitled to a refund; and the merchant must keep records of consumer complaints that deal with failures to ship or to provide advertised goods and services.

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Content is King, but the Medium Is Still the Message

Recently lawyers have begun to debate the question of just how much control advertisers can exert when paying for product placements or branded entertainment before the line between First Amendment expression by the creative staff putting together the program and the financial subsidies from advertisers is crossed. Now, the Ninth Circuit has dealt with a similar question relating to the immunity that interactive computer service providers have typically enjoyed under the Communications Decency Act (the “CDA”). The CDA insulates service providers from liability so long as the service provider remains a publisher of information and content of others (there are exceptions, so the immunity is not blanket and you should always consult legal advice for specifics that apply to your situation). That said, a company that operates an online web service that specializes in matching roommates based on their preferences has been held in violation of the Fair Housing Act because a questionnaire put together by the company asks for certain demographic information that, when posted on the website, could be used by users and site visitors to discriminate against others. The company, Roommates.com, asked users to disclose information, among other things, about roommate preferences such as age, sex, children, etc. The Ninth Circuit held that although Roommates.com was immune as long as it was simply enabling the distribution or display of information provided by its members, when it became an information content provider, it lost immunity with respect to that activity and information. And by putting together the questionnaires and soliciting their preferences in response, Roommates.com was not simply posting content authored by users, but rather was eliciting specific information that could be abused and that might or might not have been voluntarily posted or disclosed absent the questionnaires.

Hmmmm…user profiles, play lists, segmented marketing, asking consumers to participate in promotions…this is an interesting test of the limitations of the CDA to protect and insulate interactive online service providers from liability. As social networks, virtual worlds and other digital arenas that don’t simply enable but also solicit or encourage certain information to be provided, and as web services become more targeted, focused and segmented to match consumer preferences, the immunity is likely to be tested further. Stay tuned.

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Don’t Like Pop-Ups or Banners? Try a Widget

Studies now show that marketing professionals looking to attract today’s generation of social networking, mobile messaging, interactive gaming young people might well experiment with more digital features that one can play and interact with on the Internet. If you responded to last month’s Legal Bytes “Useless But Compelling Facts” (or you peeked at the answer below), you know that a widget refers to a computer program that allows Web pages to be sophisticated and interactive—using graphics, animation, audio-visual effects and user-generated content. While advertisers lose control over where these little widgets are placed (e.g., next to a competitor’s widget), giving consumers—especially young people (another issue for marketing to children?)—a premium or incentive is more likely to get them to put advertising content on their pages. It appears, at least according to one study, that when kids are given a choice of what they want to appear on their pages, especially when some “goodie” is part of the offering (a game, free download, coupon, etc.), they are more likely to choose to use advertisers’ content, than if it is “pushed” to them.

Although using widgets as a promotional tool doesn’t guarantee a successful advertising campaign, especially if the product or service isn’t up to par, widgets represent another arrow in the quiver of advertising and marketing professionals to personalize and target audiences. Some social networking sites block users from putting up widgets, or selectively enable widgets based on endorsements or the protection of intellectual property rights. Widgets also represent another challenge to traditional advertising economics. Since users choose when and where to post the widget applications, the widget creator—generally a hosting, server or similar technology or digital graphics firm—is the only entity getting paid, and beyond that, advertising (and thus advertising revenue) is not tracked.

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Advertisers Online and on the Frontline

New York’s Attorney General has just settled actions against Priceline, Travelocity and Cingular Wireless for promoting products and services using “adware”—the first time a law enforcement agency has held an advertiser responsible for ads displayed through adware.

These settlements require the advertisers (and affiliates—presumably sales agents and promotional partners) to give consumers full disclosure of any adware (including adware bundled in other software); ensure advertising has a conspicuous, identifiable brand; obtain consent from the consumer to download and allow the adware to operate on the computer; and make it reasonably simple for a consumer to actually remove the adware from his or her computer. The settlements require these three companies to investigate how their online advertising is being distributed; and if the delivery mechanism violates the terms of the settlement (or the law), the advertisers must take immediate stops to cease use of the offending adware programs. Priceline, Travelocity, and Cingular have also agreed to pay penalties and investigatory costs to the State of New York.

To those of you familiar with the old saying “Caveat emptor,” we can now add “Let the Advertisers Beware.”
 

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Puffery at the Singles Bars Moves Online

The National Advertising Division has determined that when an online dating service advertises “Better first dates,” it’s puffing and not deceptive advertising. Sounds like my university dating experience—no real expectations. But if you say “more second dates,” which is comparative in nature, you better be able to substantiate it or you can’t do it. Similarly, saying “finding great people to date is easier” must also be supported by evidence (“easier” is not subjective or puffery, but is determinable statistically).

In case you didn’t know, the National Advertising Division (“NAD”) is part of the National Advertising Review Council (“NARC”), the same folks who bring you the Children’s Advertising Review Unit (“CARU”), all under the umbrella of the Better Business Bureau (“BBB”). It is not in any way associated with the FTC, OFCOM or SETI. Oh, and F U KN RD THS MSSG, U KN WRK THER.

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Do Legitimate Advertisers Unintentionally Encourage Adware?

That’s what the Center for Democracy and Technology says in a report issued this past March. Internet surfers are often tricked into downloading programs that barrage them with pop-up ads, potentially pose a privacy risk, and are just plain annoying. Here’s how the Center connects the dots: An advertiser (or its agency) makes a deal with an “adware” company. A user clicks on the ad, the adware company gets paid. The adware company needs a company that furnishes “client-side” software (those “install” packages that add “toolbars” to your browser or “plug-ins” to your applications) so the adware gets inserted into a software bundle when you install the software. Guess what—the software distributor gets paid by the adware company each time that happens, too! If that were all, you would think advertisers could easily control arrangements with adware companies and, correspondingly, software distribution companies working under the direction of those adware companies. But you knew it wasn’t going to end here.

Advertisers and agencies often work through affiliate networks. They get paid to place the ads (think “media buyer” with a technology hat)—banners, pop-ups, sponsored links, pop-unders, search engine ads. The broader the reach, the more they get paid. Some affiliate networks have other affiliate networks they use to further ensure online advertising is all over the place (and revenue increases correspondingly). There are affiliate networks that place blind advertising—their clients don’t know where ads are placed. Website operators, hosting companies and Internet service providers are also enlisted to distribute software through websites and often have developed a network of distributors. Remember, the goal of advertising is to reach as many relevant consumers as possible—limiting how, where, when and to whom adware is available is not exactly consistent with limiting the message or the medium.

Thus, for consumers and regulators it is not simple to figure out how an advertisement arrived at your computer from its origins at the advertiser. The paths may be different for each ad and for each consumer—adding to the complexity of fixing responsibility. Hmmm.

Often, the financial incentive is so great that the operator of a website will push adware onto users’ computers without consent. In many cases, neither the advertiser, nor the adware creator is likely to find out. With such a distributed, diverse and indirect chain of relationships and payments, no wonder I keep getting those pesky pop-ups! A user might not have a clue why a particular ad is showing up and, significantly, even if a consumer responds to the ad, the advertiser may have no way of knowing if the adware was placed without consent—in violation of the advertiser’s policies and best intentions.

Does your company unwittingly contribute to the problem (or ignore it)? Do you have policies (which translate into legal obligations)? Do you require monitoring, audit reports and enforcement? Why not? I like advertising, but not the kind that stems from software installed on my computer without my permission. If financial incentives stimulate (or tacitly condone) proliferation of poor practices, changing the financial incentives, especially if impermissible activities are detected, can change the practices. Would you prefer to have your company and its brand names highlighted in reports by or to the FTC? That’s where you don’t want your name to pop up!

Need to understand more? Need help? That’s why we have an Advertising, Technology & Media law group—we understand your ads, the technology and the media. Contact me if you do.

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Web Videos Test the Limits of Feeds, Uploads & Time-Shifting

Web-based videos, through links, feeds or user uploads, are generating significant legal and commercial interest these days. Advertisers are also quick to recognize the potential “buzz” marketing opportunities enabled by the use of the Internet and digital audiovisual technology. User-generated content draws consumers to websites, powerful magnets for advertising messages targeted to those consumers. But beware: Simply because a consumer creates the content, doesn’t mean it is immune from standard legal tests for advertising, endorsements, publicity and product liability.

A lawsuit has recently been filed against one online video-sharing network—Veoh—alleging it allowed video works owned by an adult entertainment company to be viewed through Veoh’s website without authorization. The claims of copyright infringement could be an important test of how the courts view sites that enable sharing or feeds of audiovisual works. Although there are a growing number of popular user-generated content sites such as IFILM, YouTube, Guba, Yahoo! and Google, these sites often have very different policies and some, but not all, of them review user-generated content before it is posted—either to ensure it meets guidelines or to confirm that the user’s tags are accurate.

Earlier this month, the New York State Consumer Protection Board published an official warning about content available on Google Video, the new Google site for user-generated content. Because videos are uploaded by users, Google Video relies on tags (labels which describe the content) which are input and generated by the users. Since the content is not indexed or catalogued by Google, a search will turn up whatever the user submits—and that is what has irritated the New York authorities. As with many websites that allow user-generated content to be uploaded for viewing, Google warns users about uploading obscene or illegal material or items protected by copyright, but currently has no mechanism for filtering it out.

In a move widely viewed as adding an air of legitimacy to these sites, Warner Bros. agreed to allow Guba to distribute some of its television shows and motion pictures, online. NBC is allegedly planning to make clips of some of its most popular programs available to YouTube to promote its fall programming lineup. NBC’s decision is reportedly coupled with advertising commitments for both companies in broadcast television medium and the Internet. That should come as no surprise since advertising is what is usually at the root of all of these revenue models—a fact that has not escaped broadcast network executives.

Also this month, a number of leading television production and motion picture companies joined forces in filing suit against Cablevision, one of the largest cable television companies in the United States. The action asks the U.S. District Court in New York to declare the time-shifting service Cablevision has announced, but not yet offered, in violation of U.S. copyright law. Cablevision has countered that time-shifting of programming by consumers is legal. Unlike an “on-demand” service which would record everything and replay programs when selected by the consumer, Cablevision intends to offer subscribers a specific amount of allocated storage space on the network. Analogous to an outsourced set-top box or digital video recording device that a consumer might purchase, Cablevision will offer consumers an opportunity to buy storage space and use it to record and play back programs and then erase them to free space for new programs—no different than if the storage medium was sitting in their living rooms. Stay tuned.

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Damages Raise the Ante in Patent Infringement Suits

Just about a year ago, the Supreme Court in Grokster modified a decades-old ruling in the “Sony Betamax” case to remove the insulation automatically given to Internet service providers and hosting services when it can be shown that even with a substantial non-infringing use, a service condoned and encouraged (and made money) through illegal sharing of copyrighted materials. This month, a unanimous U.S. Supreme Court decided a case in favor of eBay which overturns decades of legal precedent favoring the issuance of injunctions as an automatic right granted to plaintiffs for patent infringement. The case involved eBay’s “buy-it-now” feature that permitted customers to buy items “now” without being involved in the auction process. Although the Supreme Court sent the case back to the lower court to ultimately determine if an injunction was or was not appropriate, the significance of the decision cannot be underestimated.

By way of background, when a lower court first held that eBay’s “buy-it-now” feature infringed two patents owned by Tom Woolston (founder of MercExchange), the court ordered eBay to pay damages (approximately $25 million), but did not issue an injunction. That court reasoned that since MercExchange was apparently willing to license its patents, an injunction was neither necessary nor appropriate. Unfortunately, the next court on the ladder upwards, the U.S. Appeals Court for the Federal Circuit, reversed that decision stating the “general rule” that injunctions must follow all infringement findings unless “exceptional circumstances” exist. Since an appeal was pending to the Supreme Court, the court held the injunction in abeyance awaiting the Supreme Court’s decision.

The Supreme Court, in a unanimous decision, held the lower courts did not properly evaluate the case under federal requirements. More importantly, language in the concurring opinion written by Justice Kennedy and signed by Justices Stevens, Souter and Breyer noted that courts must consider the broader implications of using injunctions because an “industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees,” and in those instances, “legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest.”

This language in the Supreme Court’s decision could deal a serious blow to companies that exist solely to engage in patent infringement litigation (so-called “patent trolls”) and who use the U.S. patent system to coerce lucrative settlements from companies who previously faced injunctions that threatened to shut down entire businesses. Hearken back to the RIM “Blackberry” litigation which recently settled. If the schedule had been a few months earlier, RIM could certainly have been much better positioned before choosing to settle for more than $600 million rather than face the possibility of an injunction shutting down (or certainly making life exceedingly difficult with work-arounds) an entire business.

The Supreme Court’s decision in the eBay case could lead to a higher threshold for injunctions, now that money damages are not automatically precluded (nor injunctions automatically issued) in adjudicating patent infringement cases. Some critics complain that the ruling creates the possibility that courts can become the arbiters of a damage-based compulsory licensing system, while advocates say the ruling will prevent companies from buying up patents and exploiting their litigation value, rather than the underlying invention itself—the basis for patent protection in the first place. Most analysts, however, agree on one thing—the likelihood that products subject to patent infringement actions will be threatened with automatic shut downs will start to decrease, increasing the leverage defendants have in any patent infringement suit to settle cases.

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Why-Fi??

In New York’s Westchester County, legislators are proposing a new law to compel commercial businesses (including home offices) that have an open wireless access point to have the “network gateway server” fitted with a firewall to block intrusions. Under the proposed legislation, not only may “public Internet access” not be provided without a gateway server equipped with a firewall, but any business or home office that stores personal information as well must install a server with a firewall—even if the wireless connection is encrypted and not open to the public. Publicly available Internet access sites would have to post a sign: “You are accessing a network which has been secured with firewall protection. Since such protection does not guarantee the security of your personal information, use discretion.” Come on.