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.”
 

Video Gaming–First Amendment Prevails

A California appellate court has held (Kirby v. Sega of America) that makers of video games have a First Amendment right to base game characters on real celebrities, as long as the characters have been transformed. The celebrity in this case, Lady Miss Kier, former lead singer for Deee-Lite, claimed a character (named “Ulala”) in the video game Space Channel 5, infringed her rights. Not so—at least not in this case. So what does “transformed” mean? For that, you have to call us (or read the case for yourself).

Just When You Thought File Sharers Would Know Better

So you think it’s nice to share? A Federal District Court has ruled in favor of Universal and Paramount Studios, holding that willful copyright infringement is committed when digital movies are downloaded from KaZaA, a peer-to-peer file-sharing service, and stored in a directory of shared files capable of being downloaded by other KaZaA users.

New E-Discovery Rules

With file sizes growing, you would think computers that can rapidly process large files and storage capability would be all the rage. For compliance officers, record managers and lawyers, it’s retrieving the information that is the hot issue and hardly a trivial one. New Federal rules relating to civil litigation took effect at the end of last year, requiring companies involved in federal litigation to produce electronically stored information as part of the pre-trial discovery process. The new rules apply to employee e-mails, instant messages and other electronic, digitally stored information. In the event the companies are sued, legal experts say, companies will need to start worrying about everything in electronic form—from digital photos on employee cell phones to text (“SMS”) messages.

Companies need to have sound record retention and destruction of records policies to ensure compliance with regulatory record-keeping requirements and to avoid potentially massive costs of searching and retrieving information that could and should have been purged. Absent actual or an expectation of specific litigation or a subpoena requiring production of data, companies can purge their systems of information that may no longer be relevant or necessary to their business operations. As the cost of storage has come down, however, companies routinely store information and don’t bother to delete unnecessary information—because it’s easy and affordable to simply keep everything!

The opposite is also an issue. Communication between lawyers and technology folks is less than perfect. A lawsuit arrives, but no one tells data management or systems. Tapes and disks continue to be routinely erased or written-over, with corresponding loss of data. Lots of companies don’t have policies and don’t know what information they have, where it is stored, and who may have, have kept or destroyed copies of information in electronic form. Lack of information is a weakness for lawyers. If you remember the adage, “never ask a question you don’t already know the answer to,” imagine how a litigator for the company will feel blindsided by records she was unaware of or cited by a court for destroying records he didn’t know his client had.

Why pay attention? Because by exercising preventive care, you can avoid potentially huge legal and operational expenses. By crafting and enforcing compliant and well-thought-out record retention and destruction policies, you can avoid high-priced lawyers sorting through email messages about the staff luncheon, and the pitfalls associated with a “smoking gun” needlessly showing up in that pesky lawsuit. Call us. The ATM Legal Team can help!

Looking Back at 2006–Ahead to 2007

How Exciting Was 2006!

That introduction is not a question—it’s an exclamation! Buzz and viral marketing, branded entertainment, social networking, MMOG (that’s online, interactive, web-based gaming for those looking to impress their neighbors or their teenagers), and Internet gambling all made increasingly bigger news in 2006. Then came data protection, identity theft, data breach disclosure legislation, payment card industry data security standards, and gift cards on the top-10 list of technology related issues in 2006. Oh, did we mention virtual reality, digital music, DMCA (that’s Digital Millennium Copyright Act) take-down notices, streaming wireless video, user-generated content, and context sensitive advertising and product placements?

Some things won’t surprise you today, but if you thought about it only a few years ago—indeed, in some cases at the beginning of this year—it was an amazing year. The world’s largest licensor of personal computer operating systems delayed the launch of its new Windows Vista operating system—the traditional core of its business—but entered the digital music business. Some huge un-named search engine technology-driven company (that happens to derive its primary revenue from advertising), just bought a young company that made no profit but virtually created the buzz over user-generated content—YouTube—for more than $1.6 billion. Social networking companies were considered social and anti-social, depending on who you ask—kids, parents, regulators.

Laws and regulations took greater cognizance of the evolving interplay between advertising, technology and media. Identity theft and the compromise of data security became the basis for legislation in state after state in the United States. Obesity and the advertising and marketing of food to children became the soup du jour for regulators on both sides of the Atlantic, and potentially the world. Advertising regulators and marketing associations increasingly noticed the world was changing. Digital technology was not simply an enabler, an automation tool or business productivity tool—it invaded our schoolrooms, our playrooms, our automobiles (now I don’t have to stop and ask for directions) and our living rooms. New business models, new social models and new economic models. It’s just exhausting.

This has been an exciting year, one filled with change and challenge (did you know the Chinese word for “crisis” consists of two characters—one means danger and the other means opportunity). We hope you have enjoyed our year of Legal Bytes as much as we have taken joy in bringing it to you and highlighting some of these exciting developments. So let’s look at what’s ahead.

2007–ATM is Coming!

You have heard the term “convergence” and perhaps you thought about “The Perfect Storm.” Well we are talking about Advertising Technology & Media—our new ATM law group. Have you seen the ads? Product placements in the movies? In banks and on computer monitors? Watch the UGC, unauthorized digitally distributed version, the podcast, advercast, interstitial ad, webcast, streaming video, CGI, buzz and viral version—even the version playing in an embedded video player on my personal web page.

I’m not particularly great at predictions, but like everyone else, I’ll go ahead anyway and make some for 2007. Wireless applications will go through the roof. School children, workers, people at play and people on the go will carry their games, their assignments, their work and toolkit with them digitally and wirelessly–the toolbox of the 21st Century. Applications and content on demand—web apps gone wild! Why load up and clutter up your computers and devices with applications (and content) when you can order them “to go.” And speaking of orders to go, “Would you like fries broccoli with that…?” may be regulated into existence. Worried about the homeless? Advertisements have been feeling lonely on TV lately. Don’t worry—put them on vehicles, beam them wirelessly from your satellite to your car. Move them to the Internet—buffer and stream them before, in between and after news clips and someone else’s dumbest home videos. Better yet, put them in a virtual world and watch the real world virtually go by. Virtual reality will get real. Part play-acting, part gaming, part behavioral therapy and part social networking, virtual worlds will start making money, making waves and making a difference. Go look—start to notice real brands and real people playing in the virtual sandbox. Media will start to take digital seriously (again). Digital effects, digital distribution—did we say digital yet? Intellectual property will need to stop being so intellectual and figure out what to do with all of this “stuff.” The old rules still apply, but are being challenged. So where are the new rules? If content is king, user-generated content is queen, jack and possibly the Duke of Earl. I’m exhausted already.

COPPA – Xanga Settles

Based on a complaint that Xanga knew it was collecting (and sharing) personal information from children under the age of 13 (they asked for and were given the birth dates from registrants), the FTC reached a settlement agreement in which Xanga.com agreed to pay a civil penalty of $1 million. The complaint also alleged that Xanga didn’t notify children’s parents, nor did they give parents access to or control over their children’s information.

The Children’s Online Privacy Protection Act (“COPPA”) mandates that commercial web sites give parents notice and get consent before collecting personal information from children they know to be younger than 13 years old. The order which is part of the settlement with the FTC forces Xanga to erase any personal information collected and stored that violates the Act. Xanga also will have to put up hypertext links for the next five years to FTC-designated consumer educational materials.

Social networking has been in the news recently for many reasons. Recently, Facebook was faced with controversy when it started serving automated alerts about users’ friends and classmates. Facebook has less than 10 million users, compared with MySpace—which is now owned by News Corp.—which has in excess of 100 million users.

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.

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.

Global Forum Shopping in Defamation Cases Gets More Difficult

In a decision of potentially great import, the UK’s top court sided with a European newspaper (The Wall Street Journal Europe) in a defamation case. Until now, British libel laws had been among the most plaintiff-friendly of any jurisdiction in the world, in part based on a 2001 libel decision known as Reynolds vs. Times Newspapers Ltd. that was intended to protect serious investigative journalism on matters of public concern.

It is expected the ruling will now allow the media in the United Kingdom to better defend against libel actions by asserting reports were in the public interest, involving responsible journalism, protections similar to those of the U.S. media under the First Amendment of the Constitution of the United States. The High Court articulated the new standard for such decisions as being “whether the defendant behaved fairly and responsibly in gathering and publishing the information.” If journalists and editors behave responsibly and the news story is of public importance and relevance, the fact that there are defamatory allegations against prominent people in the report, does not, in and of itself, permit damages for libel.