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Italian Authorities Aren’t Loyal to Customer Information Used for Behavioral Marketing

A new provision of the Italian data protection law (Loyalty Cards, issued Feb. 24, 2005), is getting a workout. The Data Protection Authority fined a well-known supermarket chain €54,000 for not giving customers adequate information regarding use of personal data. The retailer issued loyalty cards—for shoppers to obtain discounts and rewards—and gathered customer names, email and cell phone numbers (personally identifiable information) and behavioral marketing information (spending habits and locations). Customer profiles were then evaluated and used to create targeted ad campaigns. The retailer didn’t ask customers for consent for all of these uses—a violation of the data protection law.

In Italy, if customer information is not used solely for operating the loyalty program, but for customer profiling and advertising, the consumer must be told and must give consent. While consent is not needed to carry out contract obligations needed to fulfill the loyalty reward program itself, collecting more information than needed for that purpose or using information for other purposes requires specific consent. Is this true elsewhere? In Europe? The United States? Canada? Latin America? Asia? New Zealand? Call me and find out, or read my bio.

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Deceptive Sweepstakes Draw NY Fines

In June, H&R Block settled charges brought by the New York Attorney General arising from two sweepstakes programs involving instant-win scratch-off cards. The cards were available at retail when purchasing tax-return preparation services, or online via free registration. The advertisements online, in print, and on radio and television mentioned “no purchase necessary,” but the mentions were fleeting or not conspicuous, according to the NY AG. Further, in-store advertising did not include these words, nor were Official Rules posted in the retail stores. The NY AG noted that under these circumstances, customers who found about the promotions in retail stores had no way to know they could enter online at no charge. The NY AG alleged the lack of disclosure in stores about free entry, coupled with unclear or minor disclosures in the other ads, was false and deceptive. To settle, H&R Block agreed not only to clearly post the Official Rules at participating retail offices, but also to pay $245,000 in penalties and costs. The settlement also requires H&R Block to train employees to direct consumers to information about no purchase means of entry and clearly disclose that alternate means of entry are available whenever advertising mentions entry is available by purchasing an H&R Block service.

There are complex state laws that cover how promotions, chance, skill or combinations, are to be advertised and operated. When marketing globally, rules are more complicated with language, currency, prize notification and disclosure regulations, as well as age and consent requirements on national, provincial or trading-block scale. What is a “skill” or when is “no purchase” required? When does the chance of winning have equal “dignity” when entering without a purchase? These are often subject to varying interpretation—online and offline. Compliance (registration and bonding in some jurisdictions) can seem an endless legal quagmire. Fortunately, Rimon’s Advertising Technology & Media lawyers around the world can help.

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Text, Lies & Videotape (Got Your Attention, Didn’t We?)

When Coors asked, football fans chose to receive text-message alerts about the NFL football draft, each one containing a blurb about Coors Light; and mobile devices can also send messages, not just receive them. They can be interactive! While messaging technology allows only 40 characters for an ad (the other 120 are for content), simple tag lines are the current vogue.

Coors is not alone. Marriott has sponsored a campaign combining print and cellphone ads with free sports alerts from USA Today’s website. Verizon Wireless is sponsoring an ad campaign in which Screenvision, a company that boasts an ad network of thousands of screens in thousands of motion picture theaters, will ask theater audiences to vote by text messaging, with results calculated and displayed on-screen. The advertising campaign will feature branded popcorn containers and a short film directed by Spike Lee entitled “VCast Street.”

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“Deal or No Deal?” It’s a Deal – At Least for SMS!

When NBC Universal broadcasts “Deal or No Deal,” viewers are invited to play a “Lucky Case Game.” The game allows viewers to pick one of six cases and submit their entry via premium text message ($.99) or online. If you pick the right case, you are entered in a random drawing for a prize of up to $100,000. Well, wouldn’t you know. Someone lost and sued NBC under Georgia’s gambling laws, which make gambling contracts void and states that any “money paid…upon a gambling consideration may be recovered from the winner by the loser” (Hardin v. NBC Universal). There are also actions pending before the California courts. Just a few weeks ago, the Georgia Supreme Court held that the $.99 was not a bet or wager, and there was no “gambling contract” between the plaintiffs and NBC. For now, and at least in Georgia, a premium text message game is permissible.

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Videogame Advertising to Hit the $1 Billion Mark

According to a report in Media Week, advertising spending for advertising in videogames will reach about $1 billion by 2012. Advertising in video games can take a number of forms: in-game advertising, which is preformatted ads that appear within the game itself; advergames, which are games constructed around a particular brand or product in order to highlight and promote that product or brand; context-sensitive or dynamic advertising, which is similar to in-game advertising, but rather than static advertisements, can be contextually modified in a number of ways depending on when, where and how the in-game scene is viewed. Most of that growth is projected in the casual, online, web game world catering to a broader audience than hard core console gamers. The logic is that people are more willing to accept advertising in return for free game playing on the web; and absent a dynamic Internet connection with more user acceptance than is evidenced to date, console gaming provides fewer opportunities for placing context sensitive or behavioral advertising.

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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.

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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.

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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.

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Gift Cards in the Legal Limelight

In a decision of potentially far-reaching consequences, on Aug. 1, 2006, a U.S. District Court in New Hampshire ruled the sale of Simon Giftcards—prepaid electronic stored value cards—sold by the company that owns and operates shopping malls, are not subject to certain provisions of the New Hampshire consumer protection laws and are preempted by federal law. Simon cards look like ordinary plastic credit cards and operate on the Visa network. Simon became subject to action by the Attorney General in New Hampshire because each card had an expiration date and fees were imposed that reduced their value, violating provisions in New Hampshire’s Consumer Protection Act.

Simon cards are issued by U.S. Bank (formed under the National Bank Act) and MetaBank (a federal savings association under the Home Owners’ Loan Act). Simon had agreements under which each bank owns and issues the cards, manages the “account” relationship with the consumer, and sets the fees and terms that apply. Simon is responsible for advertising, marketing, promoting and selling the cards. Simon has no right to define or change the terms of the contract between the bank and consumer. Simon sells a Giftcard to a consumer and collects payment. The amount of purchase, minus an initial fee, is loaded onto the card, and Simon gives the consumer a copy of the card agreement along with the card. Simon deposits the funds into the bank’s account and the bank pays Simon a sales commission. When the consumer uses the Giftcard, the bank sends the money to the merchant through the Visa network, and all further deductions or fees charged are bank charges.

New Hampshire sought to stop the sale of these cards—asserting that Simon sells these Giftcards as an agent for the banks; and since Simon is not a bank, New Hampshire laws can be applied against Simon. Because the Giftcard is sold by Simon—a non-bank—the state claimed federal laws don’t preempt any limitations New Hampshire law impose to protect its citizens.

In deciding the case, the court notes that state regulations are preempted whenever they conflict with federal regulations, or when state law impedes the accomplishment of federal law objectives. Clearly, state regulation cannot limit fees charged or impose restrictions on the contract between these banks and the purchaser—thus state regulation is preempted. But what about Simon?

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Beware of Regulators Bearing Gift Cards

Although many people think the Trojan Horse story comes from Homer, the Iliad ends before Odysseus comes up with the famous deception and the Odyssey occurs after Troy has fallen. It is Virgil, the most famous poet of Ancient Rome, who wrote the Aeneid that actually fills the gap. In Book II, the priest Laocoon warns the Trojans not to accept a giant wooden horse placed outside the walls and gates of Troy: “Quidquid id est, timeo Danaos et dona ferentes”—which translates into “Whatever it is, I fear Dardanians [Greeks] even when they bring gifts.” While we have come to think of a “Trojan” Horse as a form of malicious code—a computer virus wrapped in a friendly cocoon—the “Trojan” Horse wasn’t really Trojan at all: it was a Greek horse figure filled with Greek fighters who deceived and overpowered the drunken Trojans who thought it was a gift. The English expression “beware of Greeks bearing gifts” is derived from Virgil’s Aeneid.

Deception is also at the heart of legislation regulating gift cards, gift certificates, e-cards, gift codes and similar instruments—we’ll call them all gift cards in this article. Essentially plastic or electronic prepaid or stored value cards, they can be purchased or obtained by one person, freely transferred or gifted to another, used in promotions, or used by the original purchaser. Years ago, prepaid phone cards adorned the walls of gas stations and retail outlets. Today, newsstands, retail stores, the Internet are filled with them—adorning walls, displays, check-out counters, e-greeting card websites and online digital music services.

Gift cards owe their origins to pieces of paper issued by merchants allowing one person to pre-purchase value that can be given to someone else as a gift and which they can then use at an establishment to purchase goods or services available from that merchant. When you engage in a transaction with a merchant at the point of sale, you are presumed to know (or you should be able to know) the terms and conditions that apply. While there are legal exceptions, a posted sign that says “no refunds, no exchanges—store credit only” is part of the bargain you make when buying from that retailer. But what about a gift? If I hand you a gift card, how will you know what restrictions or limitations apply…the Trojan Horse!

Not limited by geography, gift cards can be used virtually (pardon the pun) anywhere. Chain store near you? Buy a gift card for your nephew across the street or across the country. Know a teenager who loves rock and roll, but prefer not sending a check for $100 and hope they head for the CD rack? Send a gift card that enables downloads, CD or subscription purchases online.

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