User-Generated Content

User-generated content (“UGC”) on the Web is serious business and becoming more so by the day. While many know UGC as a challenge to IP rights, eMarketer is predicting advertising spending on social networking, photo sharing, gaming and amateur video websites to reach $4.3 billion by 2011—compared with the $450 million in advertising revenue they reported in 2006. That means companies are going to have to figure out how to differentiate themselves and maintain positioning in the face of increased competition. The ease of creation, coupled with technology—whether embedded players, gadgets and widgets, or more sophisticated interactive game sites—means that millions of users can create, post and “snag” user-generated content, and the trend shows no sign of diminishing. Social networking companies are significant sources of advertising revenue and are growing targets for investors seeking to build market share or obtain a piece of the transactional pie. Increasingly, mobile marketing and messaging companies are building the wireless and global brands, and are increasingly monetizing their social networking and messaging capabilities.

Legislators and regulators are noticing the exuberant success and popularity these services enjoy and, with a demographic skewed to a younger portion of the population, there is no question these services, the advertising they carry, and the content available on their sites, will continue to draw scrutiny in the months and years ahead. Rimon represents social networking companies, advertising agencies, and advertisers and media companies around the world. When you think of legal issues surrounding user-generated content—standards, copyright protection, digital rights management, filtering, viral or buzz marketing and so much more—please think of our Advertising Technology & Media Law practice group.

Media in the Crosshairs?

I know of no suit by the FTC against a media company for running an allegedly deceptive advertisement for someone else’s product or service. In a July 9 letter, the FTC states the “active participation in advertising preparation” by a radio broadcaster is subject to challenge for possible violations of §5 of the Federal Trade Commission Act, which gives the Commission broad authority to prohibit “unfair or deceptive acts or practices.” The FTC characterized the broadcaster as a “hybrid entity,” both producing programming and participating in preparing advertising. In the past, ad agencies have been held liable for a deceptive advertisement if the agency was actively involved in developing and producing the advertising. Now the FTC is stating that media companies can be subject to the same analysis. Increasing use of product placement, sponsorships, context-sensitive advertising, branded entertainment and the host of ways advertising and programming increasingly intersect and blur, make it inevitable that media companies will more actively be challenged in connection with what products and services show up on the screen as part of programming. Now the FTC has also indicated the media may have responsibility for what shows up in advertising if a media company participates in its creation or development. It should also come as no surprise that certain advertising (targeted at children; diets)—those that have been special targets for FTC enforcement action—should receive the most attention. Do you have a policy regarding participation in the creation or development of advertising (if you are an advertiser or advertising agency you probably do) and does it need updating? If you are a media company, you may not (other than for your own ads)—but then, maybe you should. Where can you go for help? The answer is not a useless fact, but it is compelling.

The Law of Unintended Consequences

China: A 30-year-old man in the southern Chinese city of Guangzhou appears to have died of Internet gaming exhaustion. He had been playing online for three days and was declared dead at the Internet café where he had been playing. Clinics have sprung up to treat “Internet addiction,” noting that children and teenagers often play online games or surf the Web for days at a time. China has more than 140 million Internet users, and a huge market for online games.

Poland: A bus driver in Slupsk, a city in northwestern Poland, was fired for sending 38,000 text messages on his employer’s cell phone. The driver, Leszek Wojcik, told reporters he wanted to buy a car if he won the 100,000 zloty prize ($36,000) in an SMS (text messaging) contest. According to the Slupsk city transport service, Mr. Wojcik ran up a bill of about 94,000 zloty ($34,000) in his losing bid to win, sending an average of 1,200 text messages per day at a cost of 2.40 zlotys per message. Among the lessons learned: promotions and advertising using SMS, streaming and mobile technology are extremely powerful.

USA: A U.S. federal judge didn’t recall how he spent $3,000 at a strip club. He apparently also forgot a few other things, such as using a credit card for either an Internet dating service or to pay for pornography—all reportedly while married; the marriage has since ended. At the trial, when the Judge was asked about the $150 credit card charges, he reportedly replied, “I’m embarrassed to be even talking about this. I think you pay extra to get certain features, such as if you upload a picture or—I don’t even recall.” Under the Constitution, federal judges are appointed for life, and while they are supposed to follow an official code of conduct, they can be removed from the bench for high crimes, misdemeanors, treason or bribery.

Parallel Universe Spawns Parallel Legal Woes

You knew it had to happen, but are still surprised when it does. In what may be a first-ever, a lawsuit has been filed against a defendant that doesn’t really exist, over a non-existent furniture line. Yes, you guessed it, a bed with special embedded animations that allow participants in Second Life, the virtual reality world established by Linden Labs, to essentially recreate an adult film with their virtual persona—avatars.

For the past few years, Second Life’s approach to IP protection has been to allow players to keep rights to programs, animations and objects they create—although many of the tools (programming scripts, etc.) are Linden’s and are provided to enable players to build things in this virtual world. Much like user-generated content in the world of multimedia audio-visual works, creativity and innovation is creating virtual content by the boatload and creating virtual objects and businesses is not simply a recreational pastime, but also a source of entrepreneurial glee and money for many. Clothing, real estate, automobiles, virtually (pardon the pun) anything, becomes the object of virtual purchases, sales and licensing.

Well, the law has caught up with reality. One player, whose avatar is selling virtual items under the brand “SexGen” bed, is suing another avatar for selling fakes for less—undermining the business. Since you have no obligation to disclose your true identity in Second Life, who do you sue? Well, first you try to get information from Linden, presumably because their computers house the underlying registration and information that would disclose who is behind the knock-offs. But, if the alleged infringer has not registered a real name, credit card or other “real world” items to enable identification, you might only get an IP address.

So we’ll keep you posted on developments, but who knows where this will go. Will a court entertain the case? Will they discover the identity of the alleged infringer? Will copyright infringement principles apply in a virtual world? Perhaps the plaintiff will try to enjoin Linden from allowing or enabling the fake products, or send them a virtual Digital Millennium Copyright Act (“DMCA”) “take-down” notice.

Novel Judicial View: Parents, Not Advertisers, Must Mind Their Children

Earlier this month, the U.S. Court of Appeals for the Sixth Circuit dismissed a lawsuit filed by parents against manufacturers and importers of alcoholic beverages and the Beer Institute, that alleged advertising is responsible for the illegal purchase of alcoholic beverages by minor children. Although the suit had numerous technical flaws, the parents were suing to recover money their minor children spent on alcoholic beverages, and to enjoin advertising. While the first claim was economic, the second alleged injury to their “parental rights.” Although the court dismissed the suit for lack of jurisdiction, they cite prior decisions that clearly state there appears to be no legal authority to support the notion that expression of ideas by advertisers interferes with a parent’s right to make decisions regarding their children’s well-being or upbringing. To restrict advertising would be an inappropriate restriction on the advertisers’ rights to freedom of speech and expression.

The plaintiffs acknowledged that laws designed to protect against underage consumption of alcohol—laws which prohibit both the sale to and purchase of by a minor—lose their connection to the advertisers, since intervening criminal acts of third-party sellers and third-party underage purchasers are the direct cause of the illegal activity, not advertising. The court stated what many of us consider to be all too obvious: one must trace the injury or violation to actions of the defendant, not something that results from actions and activities of parties who aren’t even in court (i.e., merchants who sold the alcohol and minors who purchased it).

Perhaps the parents should bring an action against the merchants who sold the alcoholic beverages or even against their own children to recover money the children spent (“converted”) in their violation of laws prohibiting underage purchase of alcohol. The bottom line for this court is that if the First Amendment right to commercial speech (advertising) is to be outlawed, it is for the lawmakers or a constitutional amendment to do so, not the courts.

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.

When is a Proof-of-Purchase Coupon Not a Proof-of-Purchase Coupon?

Well according to a June 5, 2007, decision by a Federal District Court in California, when it falls within “the plain language of the statute…”—that is, California’s Gift Certificate statute—(Section 1749.5 of the California Civil Code). Scared yet? You might be.

Philip Morris used proof-of-purchase promotions enabling consumers to collect “Marlboro Miles” from packages of cigarettes and send them in for catalog items. A few years ago, Philip Morris changed the promotion and announced that the “Old Miles” (ones collected prior to 2003) were only valid through 2003 and that in 2004, it would only accept the “New Miles.” In 2006, Philip Morris decided to end the promotion altogether and removed “Marlboro Miles” proofs-of-purchase material on cigarette packages sometime in 2006, indicating that folks had until the end of September to put in their catalog order requests with any “New Miles” they had accumulated.

As if the tobacco industry didn’t have enough trouble, now comes the class action! Since these were distributed to consumers under “an awards, loyalty or promotion program” the plaintiffs argue they should be considered gift certificates and covered under the California Gift Certificate statute. If that is correct, Old Miles, New Miles or any miles simply can’t expire!

But wait a minute. These aren’t really “gift certificates,” are they? Look at dictionary definitions, case law, the text of the California statute itself. Listen, if proof-of-purchase coupons on boxes are gift certificates when you run a promotion, then anything and everything that is part of any sort of rewards, loyalty or promotional campaign—think bottle caps, box tops, candy wrappers—rises to the status of potential gift certificate. What’s worse, if the decision holds (Courtney Reynolds v. Philip Morris USA), once the coupons or other items are categorized as a gift certificate, in California (among other states), they can’t expire—ever! In fact, read the decision and you’ll walk away with the notion that unless a 10-point ALL CAPITAL type font is used for an expiration date on the face of the proof-of-purchase icon or label, you may never be able to terminate at all.

Think the law and regulation of promotions—gift certificates, loyalty rewards programs, sweepstakes, contests and coupons, interactive gaming, online gambling—is complicated? That’s why Rimon created the Advertising Technology & Media law group. Between our leading practice in the U.S., our network of offices around the world, and the worldwide GALA network, we are at the top of our game. Put us to work for you…and while you are at it, pay attention to the special rules applicable to marketing and advertising which is (or could arguably be) targeted at children.

If you think the tobacco industry is the only target, just pick up a newspaper. Obesity in children is caused by advertising—didn’t everyone know that? The regulators seem increasingly inclined to think so. Violent behavior? Clearly there’s too much violence in movies and television programming. At least that is what’s on the minds of some legislators. That’s why we have Adlaw By Request. The Internet has not simply expanded the reach of advertising and marketing, but has transformed (an unabashed plug for Transformers) advertising and marketing into new worlds—both real and virtual. It’s a complex and highly regulated world out there—let us help guide you through it.

What Do DSS, GLB and SOX Have in Common?

If you carry, accept, use, issue or have anything to do with the world of credit cards, debit cards, gift cards, smart cards, stored value cards, pre-paid cards—need I go on?—you need to pay attention to DSS. That is the Payment Card Industry’s Data Security Standards that apply to all types of payment cards issued by the major card-issuing companies. The PCI DSS, in case you hadn’t heard, requires, as an example, that personally identifiable card data be rendered unreadable (truncated, encrypted, firewalled, decapitated—is anyone reading) whenever it is potentially exposed to a third party, when it’s stored, transmitted, used or processed. If you are a merchant with significant card-transaction volumes. encryption can be expensive or time-consuming or both—and no one wants to slow down transactions at the point of sale or at the point of billing. The DSS also requires audit records be kept so breaches can be detected, compromises traced and data integrity monitored. Yes, there are DSS Audit Guidelines from the PCI as well. Not to mention the fact that more than 30 U.S. states already have some form of data breach legislation that requires disclosure, notice and, in some cases, that some remedies be made available to consumers who are or potentially might be the victims of lapses in data protection.

Acquiring institutions—those financial institutions and card processors that have the relationships with merchants that accept and process cards—have until year-end to bring their systems and relationships into compliance, and some card associations are offering rewards for early compliance, but stiff penalties for delays and failure to comply.

How complex does it get? Well, imagine that a merchant opts to mask all credit card numbers, even though address information is unencrypted—but the numbers aren’t visible within any systems and therefore can’t be cross-referenced. PCI compliant? Probably? BUT, that won’t comply with Gramm-Leach-Bliley, the privacy statute applicable to banks and financial institutions that requires otherwise. What about SEC regulations regarding customer data and, of course, Sarbanes-Oxley, which says, “You must control access to your information.”

It’s enough to give anyone a headache. That’s why Rimon has a Financial Services, Corporate & Securities, Intellectual Property and, of course, an Advertising Technology & Media Law practice—so you get one seamless solution to your problems, no matter how complex the world gets.

Interactive Gaming–To Boldly Go…

In a recent article in the Los Angeles Times, Michael Bay, renowned film director with cinematic blockbusters such as “The Rock,” “Armageddon” and “Pearl Harbor” to his credit, is quoted as saying, “I make world-class images. Why not put those images into a game?” Indeed! The new investor and co-chairman of Digital Domain, the effects studio evolving into a production studio, is making a bet on convergence—the application of digital technology to reduce costs and expand the horizons of entertainment and new media.

Remember watching those old cowboy movies and pretending you were the new sheriff in town? Did you secretly imagine you wielded an elegant light saber and might save the Galaxy with Luke Skywalker? How many times did you imagine yourself as Legolas, drawing an imaginary bow in the air to shoot an arrow and save Middle Earth?

But even in Middle Earth—where presumably there were no computers—there are digital effects. You trivia buffs will enjoy knowing that Orlando Bloom’s eyes are really brown. But as Legolas in Lord of the Rings, his eyes are blue, thanks to CGI technology. For example, watch Lord of the Rings: The Return of the King, and right outside the Black Gates, in a close-up, you can see his eyes are CGI blue. However, in a scene right after that, Gandalf is in the foreground and Legolas is in the near background—and Legolas’ eyes are clearly brown.

We love to be entertained, but we also love to play—play is the basis of leisure time, enjoyment, learning, and game and number theory. Play makes us active participants with interactive relationships and activities that are make-believe—in much the same way that motion pictures can move us with stunning visual sequences and transport us to places we might never see or even imagine in real life.

The computer game market represents a new—or rather a different—frontier. New motion pictures have spawned merchandising for decades—dolls, action figures, and stuffed animals, from Tarzan and Mickey Mouse to Spider-Man and G.I. Joe. In fact, product placements in motion pictures, which have gone mostly unregulated in the United States, have been used for years by advertisers to promote both reality in the movies and brand awareness to consumers. See the logo on an airplane taking off—someone paid for that. Picking up a soft drink can at the stadium with a familiar brand—someone paid for that. Watch Jack Bauer drive away or make a phone call—recognize that car or that mobile phone—someone paid for that. Do you really think Microsoft paid an estimated $6 billion for Internet advertising company aQuantive, because it does not understand the importance of convergence? Wonder why Apple Computer changed its name to “Apple”? Go to China or India or Brazil—which has more brand and name recognition, a MAC or the iPod? Which creates more buzz, the iPhone or a new operating system code named “Leopard”?

Continue reading “Interactive Gaming–To Boldly Go…”

The Empire Strikes Back?

You can’t possibly have missed the flurry of articles in the press over the past few years regarding identity theft and the measures being taken (or vulnerabilities exposed) to protect the non-public, personally identifiable financial information consumers access, use and provide in the course of routine payment transactions—both off and online. Indeed, several years ago, the Payment Card Industry (“PCI”) began formulating it’s own self-regulatory standards governing the protection of consumer information relating to the processing of credit, charge and debit card transactions. This has led to the development of the PCI Data Security Standards (“DSS”) and corresponding Data Security Audit Guidelines. In broad terms, the PCI DSS requires the protection (by encryption or other effective means) of personal information in the payment card process—whether in storage, card processing, point of sale/purchase, recordkeeping—in every link in the chain of payment using a payment card or device linked to an account at a financial institution.

As a result of the furor over the release of private information—including releases from governmental agencies and databases (e.g., social security numbers, drivers license numbers)—more than 30 states have passed specific legislation requiring companies that know, or reasonably suspect, that data, databases or electronic/digital information involving personal information of consumers has been compromised or actually leaked, to disclose and notify consumers affected (or potentially affected) by the security lapse or potential breach. Federal legislation has been proposed, although nothing has yet been enacted, and the states have stepped in to fill the perceived gap and protect the information of its citizens, and to regulate the conduct of companies doing business within their borders.

Much of the angst over the private sector, commercial transaction compromises over security—starting most visibly with ChoicePoint several years ago and continuing in a steady stream thereafter—arises from the fact that retail merchant establishments have traditionally not had to worry about privacy and the secure management of customer personal and financial information, primarily because they haven’t been regulated or needed to do so. Enter the digital age of information and the ability of marketing and advertising gurus (within and for retailers) to data-mine and use vast amounts of previously cumbersome and often unattainable information about customers. If information has always been power, than digital information transforms that power exponentially, at the speed of light (literally for those physics majors masquerading as lawyers or marketing professionals).

Continue reading “The Empire Strikes Back?”