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 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.

Internet Gambling – Hit Me!

On Oct. 13, 2006, President Bush signed The Internet Gambling Prohibition and Enforcement Act into law. The Act was actually tacked onto a piece of legislation intended to tighten security for the United States’ sea ports. The Internet Gambling legislation, originally a standalone bill, was attached as an amendment to the security legislation at the last minute. Although titled “The Internet Gambling Prohibition and Enforcement Act,” it is actually not an outright ban on online gambling. It is, however, a federal ban on banking institutions knowingly transferring funds to businesses or individuals that operate, conduct or are engaged in activities that are considered illegal under U.S. law. Thus, transactions involving the movement or transference of funds to businesses that are conducting gambling operations in states and areas where gambling is prohibited is now illegal.

The law requires financial institutions to develop and implement some type of transaction security system within the next nine months, so that fund transfers to institutions on a blacklist will automatically and electronically be blocked; presumably on the list will be those online gambling operators identified by the Department of Justice. That said, the Act is not specifically limited to gaming companies—although it appears that those are its initial focus and intended target. In the wake of passage of the Act, online gambling operators—many from the U.K., Malta and jurisdictions outside the United States—have already announced their withdrawal from the U.S. marketplace. Stay tuned as enforcement efforts start to make news.

Brands & Entertainment

Those name brands appearing in hit shows. Those logos on the motion picture screen. The characters at the breakfast table with a favorite cereal. The star driving around in a particular automobile. The airline shown flying the lead character off to an exotic destination. Reality? Coincidence? Hardly. They are the result of contracts between the entertainment company or producers and the advertisers, and they represent a growing and important trend in marketing to consumers, along with the Internet, as reaching market segments through traditional radio and television advertising becomes increasingly difficult in our on-demand, fast-forward world.

In some cases, such “branded” entertainment is subtle—inserting itself into a scene or a sequence quite seamlessly and, not necessarily inconsistent with, reality. In other cases—“Harold and Khumar Go to White Castle”—yes, this really was the name of a movie, as was “Akeelah and the Bee,” which Starbucks helped finance and promote. In case you didn’t know, the FCC (and the FTC) regulate advertising on television—the FCC’s regulations concerning disclosure arose primarily from the quiz show scandals in the 1950s. When does creative control over programming yield to paid sponsorship and financing dollars or Euros (or British Pound Sterling). At what point does a program or movie become an infomercial or advercast? Are there vulnerable groups (e.g., children) that might not distinguish so readily between advertising and programming and at what point is that deceptive? What does SAG say about their actors being de facto appearing to endorse a product or brand inserted into their scenes and programs? If an actress is under contract with a cosmetic brand exclusively and a movie scene requires her to use a different brand—actionable? When the trailer with that clip airs on broadcast television—problem? Witness the following quote from Jonathan Adelstein, FCC Commissioner: “Now, products have even seeped into plot lines. Soap operas have woven cosmetic lines into their tales of who-did-what-with-who, while “The Apprentice” sounds more and more like an hour-long infomercial for the latest corporate sponsors.”

Trademark issues, endorsement and competitive/ambush marketing issues, free speech, freedom of expression, adequacy of disclosures, misleading or deceptive advertising—the list of potential issues is growing as the balance between creative control and commercial reality infect the entertainment industry. At one extreme is the traditional product placement in which an advertiser pays a fee for the hopes that the scene with its product doesn’t get cut and wind up on the editing room floor. At the other extreme is a placement fee and promotional campaign that is so integrally tied with the plot and the program that the two are indistinguishable—think “The Apprentice” or “Home Makeover.”

The deals are becoming more complex, and more fraught with potential legal and regulatory issues, and the stakes are higher. Need help? Contact Doug Wood or me—we would be happy to help.