FTC Continues to Focus on Marketing to Children

The FTC is expected to release a Report on how violence is being used to market to children—in movies, music and video games. Some insiders fear the FTC will suggest the entertainment industry has violated or outgrown its voluntary standards—can you say “regulation.” Both the FTC and the FCC have targeted children’s advertising, programming and products. Want to know more? Contact John P. Feldman in our Washington, D.C. office; me or Douglas J. Wood in our New York office; or Stephen Edwards, Michael Skrein or Carolyn Pepper in our London office. Please also visit our www.KidAdLaw.com web pages. If you market or advertise to children or if you are a company that carries advertising which is or could be targeted to children, why would you look anywhere else for legal counsel.

The Future of the Web

This is a portion of testimony before Congress. Think you know who said this?

“In the future, the Web will seem like it’s everywhere, not just on our desktop or mobile device. As LCD technology becomes cheaper, walls of rooms, and even walls of buildings, will become display surfaces for information from the Web. Much of the information that we receive today through a specialized application such as a database or a spreadsheet will come directly from the Web. Pervasive and ubiquitous web applications hold much opportunity for innovation and social enrichment. They also pose significant public policy challenges. Nearly all of the information displayed is speech but is being done in public, possibly in a manner accessible to children. Some of this information is bound to be personal, raising privacy questions. Finally, inasmuch as this new ubiquitous face of the Web is public, it will shape the nature of the public spaces we work, shop, do politics, and socialize in… Progress in the evolution of the Web to date has been quite gratifying to me. But the Web is by no means finished.

“The Web, and everything which happens on it, rest on two things: technological protocols, and social conventions. The technological protocols, like HTTP and HTML, determine how computers interact. Social conventions, such as the incentive to make links to valuable resources, or the rules of engagement in a social networking web site, are about how people like to, and are allowed to, interact. As the Web passes through its first decade of widespread use, we still know surprisingly little about these complex technical and social mechanisms. We have only scratched the surface of what could be realized with deeper scientific investigation into its design, operation and impact on society. Robust technical design, innovative business decisions, and sound public policy judgment all require that we are aware of the complex interactions between technology and society.

“So how do we plan for a better future, better for society? We ensure that both technological protocols and social conventions respect basic values. That the Web remains a universal platform: independent of any specific hardware device, software platform, language, culture, or disability. That the Web does not become controlled by a single company—or a single country. By adherence to these principles we can ensure that Web technology, like the Internet, continues to serve as a foundation for bigger things to come.”

Advertising & Marketing to Children–Update from Italy

This article was provided by Felix Hofer, partner in the Italian law firm of Hofer Lösch Torricelli and member of GALA. If you need more information, contact Felix.

Advertising targeted at children and minors has become the focus of legislators and watchdogs throughout the world. In the United States, the Mobile Marketing Association (“MMA”) released stricter industry guidelines directed to wireless carriers, aggregators and content providers, to increase protection of children in marketing practices. In the U.K., Ofcom (the regulatory authority) has required an end to “junk-food” advertising to children under 16. The Greek Ministry for Education has established a mobile phone ban for teachers and pupils at school that also regulates how students may carry cell phones onto school premises.

The issue has become a topic of intense debate in Italy and on Nov. 15, 2006, the local Communications Regulatory Authority (“Agcom”) required communication providers offering audiovisual and multimedia services available through mobile devices, to include technical means to prevent minors from accessing harmful content. Services with adult-oriented content must provide a control mode—allowing parents to block access. Providers should provide notice about these controls and users must confirm, in writing, receipt of the notices. A few days later, the same Agcom issued additional rulings to protect minors in the context of entertainment programming, requiring television and radio broadcasters to ensure that content directed at—or likely to attract—children complies with requirements as to language and behavior, and avoids unjustified violence, vulgarity, bad language and sexual innuendo.

Almost at the same time, the National Journalists’ Association released a new version of its rules (the so-called Carta di Treviso) with a specific section (no. 7) dedicated to protection of minors. The rules require that, with few exceptions, journalists refrain from publishing personal or identifiable data of minors; these rules have been approved by the local Privacy Commissioner as an ethical self-regulatory code. This updated version of the ethical rules now applies to on-line, multimedia and any kind of journalistic communication—even bloggers will have to take into account the Carta’s prescriptions.

Food advertising to children is being targeted by the authorities in Italy. For example, a company producing a lollipop popular among young consumers, ran into trouble in a recent television advertising campaign. The commercial depicted three young girls in a bedroom sucking lollipops. The narrative comments “New XX lollipop with fruit cream, really excellent!” One of the girls picks up her skates and says, “Well now we’ll have to do some exercise.” The other girls reply “Exercise? Why? XX contains 0% fat! Didn’t you know?” The commercial closes with the statement “XX: new ultra-juicy flavours and zero percent fat.”

The complaint filed with the Italian Authority for Market and Fair Competition argued the advertisement was targeted at children and the lollipop was presented as a food product that didn’t increase weight because it didn’t contain fat—thus exercise wasn’t needed, suggesting a “dietetic” effect for children and specifically young girls concerned about their weight. In its defense, the company argued the lollipop did not, in fact, contain any fat, and might actually be considered a dietetic product.

The Authority held that the ads were likely to reach an audience of children, considering the time the commercials were aired; and that stating there was no fat in the lollipop was irrelevant because it contained sugar, and the ads suggested exercise was unnecessary. Consequently, the commercial resulted in a misleading message and a fine was imposed.

In Italy, as elsewhere, the promotional message, as well as the presentation, in advertising directed to children requires a high level of attention—even more so with regard to food products, given the particular attention the obesity problem has raised among regulators.

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.

What a Jam(ster!) You’ve Gotten Us Into

Charles Ford has sued Verisign, Jamster!, Jamba! (the European version of Jamster!), T-Mobile USA, AT&T Wireless, and Cingular, hoping to turn his lawsuit into a worldwide class action. The problem: his daughter responded to a TV ad promising her a free ring tone. Although she claims never to have downloaded any songs the company sent her, Ford was billed $1.99, plus another 5 cents for each text message she received and read over her monthly limit—to the tune of $80. Ford is alleging fraud, negligent misrepresentation, false advertising, and unfair competition, and is claiming that by targeting children who often don’t understand, they are using this as a means to keep sending text messages which are read—costing consumers money. Stay tuned.

Data Miners Can’t Market to Minors?

Just last month (June was a busy month), Utah and Michigan laws came into force which prohibit sending commercial e-mail to children for products a minor can’t legally own there—but the children must be signed up in the newly created Child Protection registries to be covered by the protection. That means not just gambling or alcohol, but tobacco, prescription drugs and a host of other items which children are not permitted to own in those states. Michigan and Utah will both impose fines for violations , and in Utah, sending a message or a web link could also land you in jail for up to three years. And you thought CAN-SPAM was tough—in both states, the penalties apply even if a parent requested the e-mail. Although likely to be challenged, at this point, if you are using e-mail or web-based links to market in these states, the time to worry about doing a merge-purge against the registries before you e-mail is now.

What’s in a Game? Promotions and Advertising on the ‘Net (Part 2 of 2)

As we mentioned in last month’s issue, sweepstakes, contests and promotions are primarily regulated by state law, although federal statutes and regulations must be considered. Jurisdiction and eligibility across borders, language, currency restrictions, licensing and export of technology, liability, billing and payment, whether a deposit to play might be construed an account for banking purposes, or whether gathering non-public, personally identifiable information about contestants may have privacy implications, are just a few of the issues that transcend the “gaming” aspects of any legal analysis.

On the U.S. federal level, although the FTC can take regulatory action and sue advertisers for deceptive or unfair acts and practices, it relies heavily on the states to regulate the industry. The FTC has, however, promulgated rules that do have significant impact on promotions. For example, the Children’s Online Privacy Protection Act (“COPPA”) was enacted to protect children from marketers who collect or use personal information obtained online from under-age children without parental permission, and authorized the FTC to develop a rule that requires “verifiable parental consent.” Because contests are extremely popular for Internet marketing, online advertisers must be cognizant of COPPA if a portion of their online traffic is, or is likely to be, children under the age of 13.

To illustrate the maze of legal and regulatory issues, let’s use an example: Joe’s Airline, Widget and Screen Door Company wants to conduct a contest on the Internet in which participants are charged $2 to play successive rounds of chess, with prizes at various levels and a grand prize of a million dollars. Our promotion is really a unilateral offer to enter into a contract, subject to terms and conditions (e.g., rules) agreed upon through some manifestation of acceptance. Participants accept the offer by performing a required act—registering, paying, selecting an “I ACCEPT” link—and a binding contract is formed. Point number 1: if Joe fails to adequately disclose the rules upon which the offer is made, the promotion could be construed as an illegal lottery, rather than a contest. Point number 2: Joe better get the rules right and disclose them properly because there are cases which indicate once a participant enters (“accepts”), Joe cannot change the rules (i.e., unilaterally amend the contract). Something to think about: Could each chess game be viewed as a new contest, permitting amendments prospectively?

In general, to qualify as a contest, skill, and not chance, must determine the outcome, and chance may not determine the winner or prize amount. Most, but not all, state laws distinguish games of skill from games of chance, although states do not use a uniform standard to differentiate between the two. While some states prohibit requiring consideration to engage in a promotion where a prize is awarded, most states do not prohibit the payment of money if the promotion is a bona fide contest of skill. What constitutes skill? Good question. The decision is often a question of fact, and when the Internet is involved, evidence can be complex and technology-based, straining judges and juries. Two criminal courts in New York judging the legality of a shell game and a card game reached opposite conclusions.

A number of states have disclosure statutes which apply. Some (e.g., California) arguably apply to skill-based contests, while others do not. Many prize notification statutes were not intended to apply to skill contests, but are worded broadly to include any promotion requiring an entry fee or a purchase. Joe should also be aware that some state gambling laws do not limit their application to games of chance, but focus on whether players are asked to risk or wager something of value. In those states, a skill-based contest that involves betting or offers prizes dependent on the number of entries or the amount of entry fees should be reviewed carefully against state gambling laws. Remember the three elements that constitute an illegal lottery? A prize, consideration and chance. By including an equal and alternate means of entry in which there is “no purchase necessary” to enter or win, and by avoiding a payment (i.e., consideration), Joe can introduce the element of chance in the determination of the winner and not be in violation of federal or state law.
Maybe!

What’s in a Game? Promotions and Advertising on the ‘Net (Part 1 of 2)

Marketing and promotional experts already know that with rare exceptions (e.g., the government), lotteries are illegal. An illegal lottery is a game or contest in which the outcome is determined by chance, the entry requires some form of consideration, and the winner is awarded a prize. Over the years, these three elements have been the subject of scrutiny, regulatory opinion and judicial decision. Although interpretive rules are not cast in concrete, a prize can be nominal in value; consideration can take the form of visiting a store or filling out a lengthy customer survey; and, if chance plays a material factor in determining the outcome, no amount of skill in any of the other elements of the promotion will save the day.

Marketing and promotional experts use “no purchase necessary” or “free alternate means of entry” as tools to avoid consideration—in general, promotions with a freely available alternate means to enter may be based on chance and may have a prize. Some promotions involve skill—eliminating chance. Shooting a hole in one at golf or solving a mathematical puzzle are examples of skill-based contests. Of course, the skill must be bona fide—guessing the number of beans in a jar is not a real skill, no matter how good one becomes at guessing.

Against this backdrop, advertisers, eager to get their message in front of consumers, are finding life increasingly difficult. Have you noticed increased advertising in movie theatres, outdoor signage or on uniforms of your favorite sports figures? Distribution technology and storage and recording media have given us the ability to fast-forward or avoid viewing messages that previously required you to physically leave the room or change the channel! Hmmm…so people are spending more time on the Internet—browsing, surfing—how about advertising there?

Well things seemed to be looking up for advertisers—cookies, pop-up ads, banners, above and below the fold advertising, mass commercial e-mail. Seemed like technology was coming to the rescue. But, enter their legal and technical counterparts—cookie disablers, pop-up blockers, spy-ware and ad-ware detection programs, SPAM and other filters, coupled with legislation and regulation over intrusive technologies or programs that invade privacy or transmit information without consent. Getting the message across is still getting tougher.

One approach is the increased use of “product placement”—insertion of branded products into actual programming “content.” Branded products become part of the action—someone is drinking a beverage, driving a car, using a computer—all branded. One of the most interesting developments in the world of product placement is taking place in interactive gaming. Interactive games require players to sit, often for hours, staring at a screen, paying close attention to the game. Background, backdrop, even music, contribute to making games realistic and become music to the ears of advertisers targeting a captive audience.

Can interactive, Internet-based games require a participant to pay to enter and participate—online “pay-to-play” games—and provide the winner cash or prizes? Here’s how such a game is typically structured: the participant downloads licensed programming for installation on his or her computer—the platform from which instructions and controls are transmitted. When combined with instructions and controls from team members or opposing players, the programming allows the game to be played. To enhance the gaming experience (and also to bolster the argument these are predominantly skill-based, not based on chance) many gaming platforms have sophisticated mechanisms to rate players and provide “matches” of comparable skill. Assuming games are skill-based, many (but not all) jurisdictions permit the payment of cash to play and the award of a prize. In some jurisdictions (but not all), the prize can even be derived from the number of players and the amounts paid by the participants. Check with Rimon before making any assumptions.

Regulation of Internet contests in the United States falls into four broad legal categories: (a) regulation of sweepstakes, contests and prizes; (b) regulation of unfair and deceptive trade practices; (c) regulation of gambling; and (d) consumer protection. We will turn to a more comprehensive legal review in next month’s issue, but we will tell you that if your game attracts children, you had better ensure there are mechanisms enabling you to comply with special regulations that apply. These are not limited to issues involving the age of majority and the ability of participants to legally enter into binding contracts (e.g., Alabama and Nebraska = 19; Mississippi and Puerto Rico = 21). Compliance with the Children’s Online Privacy Protection Act (“COPPA,” not to be confused with COPA or Copacabana—anyone still reading?), considerations of parental consent, propriety of content and a host of other regulations and legal considerations, come to mind.

Stay tuned for next month’s issue to find out more about these legal issues.

Sex, Crimes and the Internet

A federal Judge in New York State has altered the conditions that apply to the release program of a convicted child sex offender, restricting the individual’s access to the Internet. The judge ruled the use of the Internet, to find and lure victims, was such an integral part of the man’s crimes, that a ban on using the Internet is appropriate—even though his supervised work release job is computer programming. When this issue has previously been presented to a federal court in New York, Internet restrictions have been overturned. Here the judge distinguished those cases by noting that in this instance the offender had used the Internet to search for and attract new victims. Technology also played a role in this decision. Because of software incompatibilities, probation officials couldn’t monitor the individual at work. Because the employer develops software for cellular telephones, the employer was concerned about liability if a third-party is permitted to monitor the computer systems. Will this hold up? It is being appealed. Who knows? It again highlights how pervasive the Internet has become and how difficult questions continue to arise at the intersection of law and technology.