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.

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.

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.”
 

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.

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.

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.

The FTC Gets Into the Patent Act

The FTC recently held that Rambus, a developer of computer memory technology, violated Section 5 of the FTC Act, engaging in monopolistic practices—abusing the process for setting industry standards for memory chips (DRAM). Rambus participated in the standard setting, but didn’t reveal it applied for and obtained patents that included technology incorporated into the very standards Rambus helped to craft. The FTC held that as a result of Rambus’ deceptive conduct, it engaged in anticompetitive conduct. The FTC found Rambus had intentionally and willfully engaged in deceptive conduct and misled others in the standards-setting organization—clearly to its detriment.

The Commission determined that Rambus’ conduct enabled it to acquire patent monopoly power in a number of relevant and related markets, while its deceptive behavior within the standards-setting organization led to the adoption of standards by the industry group that unwittingly incorporated Rambus’ patent rights. At least one FTC Commissioner went even farther and wrote that the abuse and deception within the standards-setting process was not only in violation of antitrust laws, but also constituted an unfair method of competition in violation of the broad scope of the FTC Act.