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.

Virtual Worlds–Not Really Virtual, Not Virtually Real

I was having an interesting discussion with a lawyer friend whose views about promotions and marketing I respect greatly. We started out talking about virtual worlds and avatars and the new proliferation of non-reality based entertainment—virtual Laguna Beach, for example. Now, I seem to have enough trouble juggling the demands of life in the real word. I have had my fill of reality shows—which never seem to be quite real—and I was just beginning to get the hang of fantasy sports leagues and interactive game playing. Now along come virtual worlds, where fantasy, role-playing, game-playing and interactive social networking collide. I remember playing Kings Quest and Police Quest and Space Quest and chuckling, with my kids, about the funny lines and the clever clues as we searched kingdoms, busy streets and outer galaxies to solve the puzzle. My daughter just recently reminded me of Ecoquest—a game I can’t find anymore that taught us all a little bit about saving the environment. Then came MMOGs and MMPORGs (that’s “Massively Multiple Player Online Role-Playing Games”—for the uninitiated). In virtual worlds, I get to act out a combination of real and fantasy activities with virtual characters called “avatars” which are created within parameters defined by the computer code, but which are otherwise open to my unique interpretation of the characters and roles I choose to play. I read a report about a man in South Korea who died of heart failure last year. Apparently stopping only for bathroom breaks and short catnaps, he played an online simulated war game for 50 hours and, ostensibly because of exhaustion, his heart gave out. I recently read several reports that made me realize this was no longer just child’s play. The first was about a woman who was able to quit her job because, through buying, selling and creating properties and providing services in a virtual world, she was able to “earn” more than $150,000 per year. Although I don’t know exactly what she did, I know you can convert your digital earnings into real money at websites such as gamingopenmarket.com. These sites not only enable you to convert digital-virtual money into U.S. cash at exchange rates that are established much the same way monetary exchanges do around the world, but they also enable folks like you and me to dabble in arbitrage trading in virtual currency. Will I someday be able to take my virtual company public in an IPO or solicit venture capital investments from qualified avatars? Is the SEC far behind?

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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.

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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The Truth Shall Set You Free: Deception Gives Rise to Personal Liability

A court has held an individual personally liable to the tune of $17 million for deceptive mail solicitations because of his exercise of control over companies that mailed solicitations, his review of some of these solicitations, and his personal knowledge of customer complaints. If a person is directly involved in the act, has the authority to control them, knew of material misrepresentations or was recklessly indifferent to the truth, or knew there was a high probability of fraud and intentionally avoided the truth, that person can be held personally liable under Section 5 of the FTC Act.

Should You Hear Me Now?

Clients often ask whether customer service calls can be taped or recorded for training, monitoring, security or other purposes. They want to know if they need to get express consent from the customer or even their employees when setting up the recording process. Many states have specific laws that deal with both monitoring and recording of telephone or other electronic communications—not to mention federal wiretap laws. Well recently, the California Supreme Court ruled that a business located in the state of Georgia that recorded a call with a California resident violated California’s two-party consent rule, even if you are in Georgia (which only requires one of the parties to consent— i.e., yours). In addition to California, a number of states have two-party consent laws (for example, Pennsylvania, Florida, Connecticut and Washington, to name a few), and if you are or are thinking of monitoring or recording any calls, check with a lawyer to be sure you know what you must do to comply—on second thought, don’t just check with a lawyer, call Rimon. Our Advertising, Technology & Media Law practice has what it takes—record that please!

Truth in Video Gaming?

A proposed new “Truth in Video Game Rating Act” (H.R. 5912), would require the Federal Trade Commission to promulgate rules prohibiting unfair and deceptive acts or practices by video game marketers, and would require ratings to be based on video or computer game content as a whole. It would also be a violation if any producer or maker of these games hid or grossly mischaracterized the content of the game. Joysticks ready?

Disclosures, Decency and Data Security

For the record, privacy, data protection, information security and international law have officially converged with management, compliance and marketing. More than 30 U.S. states have now passed legislation in one form or another that requires businesses to notify consumers if an actual or potential breach of data security may lead to the compromise of personally identifiable information. This comes on the heels of several years of the government tightening its own policies regarding data security breaches and instances of compromised security.

Recently, the Office of Management & Budget, which oversees U.S. federal agencies, announced a tougher policy for government, requiring agencies to follow the security procedures checklist prepared by the National Institute of Standards and Technology (“NIST”) to protect data. An internal OMB memo recommends that data on mobile computers and devices carrying agency data be encrypted, and suggests two-factor authentication (one being separated from the actual computer obtaining access to the data).

As noted in prior issues of Legal Bytes, requirements and compliance obligations for commercial enterprises doing business across state lines and national boundaries vary, although many have common themes. If you are concerned—and you should be—contact us. We can help you sort out your current compliance obligations and help you keep track of the changing privacy and data protection landscape, both domestically and internationally. Even if you choose not to inject your views into the regulatory process, you must keep abreast of developments or risk action by consumers and regulators.

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The Medium May Be the Message, but Content is Still King — Sex, Lies and Videotape

The Mobile Marketing Association has promulgated guidelines, now adopted by many leading wireless carriers and programming networks, to deal with the growing use of email, SMS (text messaging) and similar mechanisms in advertising and marketing. As you will recall, legal and regulatory actions have arisen based on the fact that some companies’ marketing practices fail to adequately disclose the charges, whether subscription or imposed by the wireless carriers, that apply to some of their services and, in some cases, to the advertisements and marketing messages themselves.

Wireless carriers are beginning to adopt content guidelines for what they will or will not transmit from content partners—regulating such things as sexually explicit, graphic violence, profanity, hate speech and other topics, words and images—in some cases including lengthy lists of “forbidden words.” CTIA, the wireless industry trade association, issued fairly broad content guidelines last November, but left the specific implementation to the individual carriers. Some carriers have carried this implementation to a level of detail that covers everything from games, music, images and video, and in some cases even governs the file names of anything downloaded or transmitted.

Wait until you wake up to the issues raised by transmission and posting of “user generated content.” As you may know, in addition to the FTC regulating advertising and certain content in the U.S., and on top of state laws, the Federal Communications Commission (“FCC”) having authority to regulate indecent content on television and radio and the mobile phone as a media and entertainment device is no longer fiction, but fact in many cases. Did you know that our Advertising, Technology & Media Law group has significant experience in all these areas (Judith Harris for FCC and communications; Doug Wood for advertising and marketing; and, of course, any of us or me, if you simply can’t figure out where your need fits).

Web Videos Test the Limits of Feeds, Uploads & Time-Shifting

Web-based videos, through links, feeds or user uploads, are generating significant legal and commercial interest these days. Advertisers are also quick to recognize the potential “buzz” marketing opportunities enabled by the use of the Internet and digital audiovisual technology. User-generated content draws consumers to websites, powerful magnets for advertising messages targeted to those consumers. But beware: Simply because a consumer creates the content, doesn’t mean it is immune from standard legal tests for advertising, endorsements, publicity and product liability.

A lawsuit has recently been filed against one online video-sharing network—Veoh—alleging it allowed video works owned by an adult entertainment company to be viewed through Veoh’s website without authorization. The claims of copyright infringement could be an important test of how the courts view sites that enable sharing or feeds of audiovisual works. Although there are a growing number of popular user-generated content sites such as IFILM, YouTube, Guba, Yahoo! and Google, these sites often have very different policies and some, but not all, of them review user-generated content before it is posted—either to ensure it meets guidelines or to confirm that the user’s tags are accurate.

Earlier this month, the New York State Consumer Protection Board published an official warning about content available on Google Video, the new Google site for user-generated content. Because videos are uploaded by users, Google Video relies on tags (labels which describe the content) which are input and generated by the users. Since the content is not indexed or catalogued by Google, a search will turn up whatever the user submits—and that is what has irritated the New York authorities. As with many websites that allow user-generated content to be uploaded for viewing, Google warns users about uploading obscene or illegal material or items protected by copyright, but currently has no mechanism for filtering it out.

In a move widely viewed as adding an air of legitimacy to these sites, Warner Bros. agreed to allow Guba to distribute some of its television shows and motion pictures, online. NBC is allegedly planning to make clips of some of its most popular programs available to YouTube to promote its fall programming lineup. NBC’s decision is reportedly coupled with advertising commitments for both companies in broadcast television medium and the Internet. That should come as no surprise since advertising is what is usually at the root of all of these revenue models—a fact that has not escaped broadcast network executives.

Also this month, a number of leading television production and motion picture companies joined forces in filing suit against Cablevision, one of the largest cable television companies in the United States. The action asks the U.S. District Court in New York to declare the time-shifting service Cablevision has announced, but not yet offered, in violation of U.S. copyright law. Cablevision has countered that time-shifting of programming by consumers is legal. Unlike an “on-demand” service which would record everything and replay programs when selected by the consumer, Cablevision intends to offer subscribers a specific amount of allocated storage space on the network. Analogous to an outsourced set-top box or digital video recording device that a consumer might purchase, Cablevision will offer consumers an opportunity to buy storage space and use it to record and play back programs and then erase them to free space for new programs—no different than if the storage medium was sitting in their living rooms. Stay tuned.