FTC to Hold Workshop on Advertising and Privacy Disclosures

Online advertising and privacy regulations are frequent sources of issues for in-house lawyers and marketing teams.  The Federal Trade Commission, one of the chief federal regulatory agencies in this area, is known for providing businesses with a multitude of resources.  To that end, the FTC has announced plans to host a one-day workshop to consider the need for new guidance concerning advertising and privacy disclosures in today’s online and mobile environments.

The workshop, which will be held live in Washington DC and webcast on Wednesday, May 30, 2012, will almost certainly discuss the direction for future FTC policy and enforcement priorities relating to advertising disclosures in online and mobile media.  The workshop will provide an update and will likely be followed by an expansion of the current FTC guidance ---the Dot Com Disclosures—which was first published 12 years ago. 

Several Locke Lord attorneys in our Advertising, Marketing and Social Media group will monitor the workshop.  Highlights will be posted on our blog AdMark Buzz after the workshop.

Details about the workshop can be found here.

DMCA Safe Harbor is Not Absolute – Do YOU Know What Your Users are Posting on Your Website?

Does your website allow users to post content?  Companies that host websites that allow user generated content have long operated under a belief that they enjoyed broad immunity from copyright infringement claims pursuant to the "safe harbor" provided by the Digital Millennium Copyright Act (“DMCA”).  Subsection 512(c) of the Copyright Act provides limitations on Service Provider liability for storage of copyrighted material that was uploaded, or placed, at the direction of a user.  Section 512(k) defines "Service Provider" as "an entity offering the transmission ... [of] digital online communications, between [users] of material of the user's choosing, without modification to the content of the material as sent or received."

As the recent Viacom decision in the Second Circuit instructs, Service Providers should recognize that such broad immunity may not exist.  As a result, it is wise to think carefully about website policies relating to the removal of user-generated content.  In particular, to what extent might the Service Provider be disqualified from the "safe harbor" provisions of the DMCA. 

In Viacom, a case of first impression, the court held that the “willful blindness” doctrine applied to demonstrate the knowledge or awareness of a Service Provider of specific instances of infringement under the DMCA.  Viacom Int’l, Inc. v. YouTube, Inc., 10-3270, 10-3342, Slip Op. at 22 (2nd Cir. 2012).   Moreover, the court held that Service Providers must stand trial if there is evidence from which a reasonable juror could conclude that defendants had actual knowledge or awareness of specific instances of infringement under the DMCA. The court noted that while the DMCA does not require affirmative monitoring, online providers and service providers shall not make a “deliberate effort to avoid guilty knowledge.”

District Court Proceedings

The Viacom case involved two related class actions that included as plaintiffs:  Viacom International, Inc., The Football Association Premier League Ltd., and various film studios, television networks, music publishers, and sports leagues for themselves and on behalf of others similarly situated.  The plaintiffs  alleged that defendants YouTube, Inc., YouTube, LLC, and Google Inc. (collectively, “YouTube”) engaged in direct and secondary copyright infringement based on the public performance, display, and reproduction of approximately 79,000 audiovisual clips that appeared on the YouTube website between 2005 and 2008.  Plaintiffs demanded statutory damages in an amount up to $150,000 per work infringed.

The United States District Court for the Southern District of New York granted YouTube summary judgment holding that defendants are entitled to safe-harbor protection from infringement liability provided by DMCA in 17 U.S.C. §512(c). 

Second Circuit Opinion

On appeal, the Second Circuit interpreted § 512(c), confirmed the District Court correctly concluded that the § 512(c) safe harbor requires knowledge or awareness of specific infringing activity, but held that summary judgment in favor of YouTube was premature because a reasonable juror could find that YouTube had actual knowledge or awareness of specific infringing activity on its website.

The court concluded that the statutory phrases “actual knowledge that the material … is infringing” and “facts or circumstances from which infringing activity is apparent” both refer to “knowledge or awareness of specific and identifiable infringements.” The court explained that under § 512(c)(1)(A), knowledge or awareness alone does not disqualify the Service Provider for the safe harbor; rather, the Service Provider that gains knowledge or awareness of infringing activity retains safe-harbor protection only if it “acts expeditiously to remove, or disable access to, the material.” 17 U.S.C. § 512(c)(1)(A)(iii).

The court thus held that “actual knowledge or awareness of facts or circumstances that indicate specific and identifiable instances of infringement will disqualify a Service Provider from the safe harbor and if it fails to act “expeditiously to remove, or disable access to, the material.”  Slip Op at 19.

This test is not new, but applying this test to the facts found in the record of this case, the Second Circuit found:

·    an email by the director of video partnerships for Google and YouTube, requesting that his colleagues take down any “clearly infringing, official broadcast footage” from a list of certain premier league clubs in advance of a meeting with the heads of several major sports teams and leagues,

·    a 2006 report by one of YouTube’s co-founders stating that episodes and clips of certain well-known shows could still be found on YouTube’s website and that YouTube would benefit from preemptively removing content that was “blatantly illegal”, and

·    emails by another co-founder that suggested that a CNN video clip of the space shuttle should be left on the website until CNN’s legal department requests that it be taken down. 

In light of these facts, the court held that the plaintiffs raised a genuine issue of material fact regarding YouTube’s knowledge or awareness of specific instances of infringement.  As a result, the court remanded the case for a determination of whether any specific infringements of which You Tube had knowledge or awareness correspond to the clips–in-suit.  Slip Op. at 22 .  Further, the court remanded the case to the District court for a determination of whether the plaintiffs have adduced sufficient evidence to allow a reasonable jury to conclude that You Tube had the right and ability to control the infringing activity and received a financial benefit directly attributable to that activity.  Slip Op. at 28-29.

Conclusion

In light of Viacom, Service Providers of online services that accept user-posted content such as artwork, text, video clips, music clips, television broadcasts and radio broadcasts should immediately seek counsel’s advice on removing or disabling access to infringing content when a take-down notice or other information raises any reasonable inference of actual knowledge of specific infringing activity. It may be preferable to notify the poster of the content and request evidence that the content is authorized or otherwise not infringing.   If there is any serious doubt about whether the Service Provider is on notice of facts that raise such a reasonable inference of infringement, it may be preferable to remove the content than incur the risk of copyright infringement with a potential of up to $150,000 in statutory damages per work and payment of the copyright owner’s reasonable attorneys’ fees. 

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Authors: Paul Van Slyke

Gregory Casamento

Jason Mueller

FTC Tells Skechers to Shape Up with their Exercise Shoe Ads; Skechers will pay $40 mil.

Companies spending marketing dollars on ad campaigns may want to think carefully about how they go about substantiating the claims made in their ads. This Wednesday, the FTC announced that Skechers USA, Inc. will pay $40 million to settle a complaint filed by the FTC that Skechers deceived consumers by making unfounded claims that Skecher’s “Shape-ups” and “Resistance Runner” brand shoes would help people lose weight and strengthen and tone their muscles.

Under  FTC policy, all express and implied claims must be substantiated; in other words, the advertiser must have a “reasonable basis” for making the claims. When advertising claims concern “health and safety,” a higher level of substantiation is generally required. But the FTC-Skechers complaint did not mention the level of substantiation required by Skechers to support their claims of the weight loss and muscle-strengthening benefits of their shoes. Instead, the FTC focused on the case studies that were run by Skechers that were supposed to substantiate Skechers' claims. These studies were harshly criticized for the following reasons:

• Skechers represented in advertising that the studies were independent, but the chiropractor who ran the studies was a compensated endorser for Shape-ups, and is married to the senior VP of marketing at Skechers;
• One fitness study did not have a control—that is—a group of participants who wore normal fitness shoes to which Skechers shoes could be compared. The sample size was also apparently small—only eight participants;
• In another study, the data was altered and incomplete: some participants actually gained weight, but were falsely reported as having lost weight;
• Data was missing and/or not collected for some participants in one study;

Unfortunately for Skechers, these irregularities in the clinical studies evolved into large-dollar liability. However, problems such as these can be avoided: studies should both be constructed and run in a manner that is consistent with good scientific principles. 

When preparing such studies as support for advertising claims, close work with a company’s in-house (or outside) counsel who has experience in consumer surveys (in either the advertising, trademark, or unfair competition fields) can ensure compliance with FTC substantiation principles. Essentially, the study should be able to stand up to judicial scrutiny—even if this is done at the expense of having to run a more costly study. 

The Skechers $40 million settlement demonstrates that the return on investing time with counsel to construct substantiation and formulate claims that can withstand scrutiny is worth the effort.  

Authors:

Young man, there's no need to feel down—the music industry is set to evolve…again

On Monday, a high-profile copyright dispute was resolved in favor of artist Victor Willis, the original lead singer of the Village People.  In 2011 Willis provided Scorpio Music with a notice of termination of copyright for 33 songs.  Scorpio Music responded by filing suit to invalidate the terminations.  The court ruled for Willis, dismissing Scorpio Music’s case.  See Scorpio Music SA v. Willis, 3:11-cv-01557, Dkt. 30 (S.D. Cal. May 7, 2012). 

The Copyright Act allows artists or authors to terminate a grant or sale of a copyright pursuant to either § 304(c) or § 203.  Section 304(c) allows an artist or author to terminate the grant of a copyright in a work after 56 years if the work was transferred or sold before 1978.  Section 203, on the other hand, allows an artist or author to terminate the grant of a copyright in a work after 35 years if the work was transferred during or after 1978.  Under these provisions, many copyright terminations become effective as early as 2013.

While the legal arguments in Willis’ case might interest some, we find the impending cascade of artists’ copyright grant termination suits to be substantially more significant.  The initiation of copyright grant terminations like Willis' has been expected for a number of years, but Willis’s case is the first high-profile case to be resolved in favor of the artist.

            Moreover, Willis’s victory comes in the midst of another torrent of lawsuits being brought by music artists regarding the appropriate classification of digitally downloaded songs.  In a dispute over songs by artist Eminem, the Ninth Circuit held that digital downloads of songs are “licenses” and not physical “sales.” FBT Productions LLC v. Aftermath Records, 621 F.3d 958 (9th Cir. 2010).  The distinction means that under a large number of contracts in the music industry, artists are entitled to a substantially higher royalty percentage (50% for licenses versus 12-20% for conventional records). 

            After FBT, other artists filed a flood of similar digital royalty suits.  See, e.g., James v. UMG Recordings Inc., 3:11-cv-01613 (N.D. Cal.); Zombie et al. v. UMG Recordings Inc., 3:11-cv-02431 (N.D. Cal.); Williams v. UMG Recordings Inc., 3:12-cv-01289 (N.D. Cal.); Harris v. UMG Recordings Inc., 3:12-cv-01305 (N.D. Cal.); Toto Inc. v. Sony Music Entertainment, 1:12-cv-01434 (S.D.N.Y.); The Youngbloods v. BMG Music, 1:07-cv-02394 (S.D.N.Y.); Shropshire v. Sony Music Entertainment, 1:06-cv-03252 (S.D.N.Y.); Ear Booker Enterprises Inc. v. Sony Music Entertainment, 1:12-cv-02385 (S.D.N.Y.); Rogers v. Capitol Records LLC, 3:12-cv-00180 (M.D. Ten.); Wright v. Warner Music Group Corp., 12-cv-0870 (N.D. Cal.). 

            While the music industry has been evolving to adapt to digital music and increased artist independence for some time now, these types of digital royalty suits are likely to accelerate that evolution.  Now the battle is likely to be waged on two fronts.  Just as a rush of artists followed in FBT’s footsteps, we expect that a rush of artists will follow in Willis’s, and there will be more termination notices served on music publishers and record labels.  As more artists begin to reclaim copyrights in their songs, the music industry’s evolution will likely further accelerate, with re-negotiations of distribution rights undertaken to handle the likely annual waves of copyright grant terminations. 

We expect artists to leverage both the Willis and the FBT (Eminem) rulings to increase their share of royalties received for sales or licenses of their music.  For example, an artist might give a notice to terminate copyright grants as a precursor to royalty rate negotiations and agree not to terminate the copyright grant in exchange for higher royalty rates.  And, with established artists reclaiming copyrights in successful tracks, publishers are subject to losing significant revenue.  For example, Willis can bypass traditional distribution channels for his well known songs and target the market directly.  While start-up acts may still need the help of the labels to market and distribute new sounds, famous artists can rely upon the inertia of their popularity to maintain continued licenses (downloads) of their music.  The combination of the digital royalty and copyright grant termination disputes will inevitably cause many industry contracts to be rewritten.  

Authors:

Hamad Hamad	Jason Mueller

Auto dealers beware – the FTC is watching your ads

This month the Federal Trade Commission (“FTC”) announced proposed settlements with car dealers across the country to settle investigations into the dealers’ advertising practices.  The FTC focused this particular round of investigations on claims to “pay off” the customer’s debt on the vehicle they traded in.  Examples of the allegedly deceptive advertisements provided by the FTC include:

·         "Credit upside down? Need a new car? Go to Billionpayoff.com. We want to pay off your car." The advertisement depicts a car moving, inverts the video to depict it upside down, and then turns it right-side up again. (Billion Auto)

·         "Uncle Frank wants to pay [your trade] off in full, no matter how much you owe." (Frank Myers AutoMaxx)

·         "I want your trade no matter how much you owe or what you're driving. In fact I'll pay off your trade when you upgrade to a nicer, newer vehicle." (Key Hyundai and Hyundai of Milford)

·         "Ramey will pay off your trade no matter what you owe . . . even if you're upside down, Ramey will pay off your trade." (Ramey Motors)

The FTC asserted that such advertisements (which included ads run on the dealers’ websites and on YouTube) mislead consumers into believing that the dealership was going to pay off the debt in full.  The actual practice employed by the dealerships was to roll in the negative equity (the debt balance that exceeded the value of the trade in) into the new loan the customer entered into to purchase a newer or different vehicle.

In addition to alleging deceptive advertising, the FTC alleged violations of the Truth in Lending Act and the Consumer Leasing Act.  As a result of the investigations, the five dealerships that agreed to settle must, among other things, change their advertising practices, retain copies of all advertisements for five years or more, maintain substantiation files for the claims made in each advertisement, and file compliance reports with the FTC. 

How do you avoid an FTC investigation and the resulting burdens?  Here are some compliance tips:

·         Ensure all advertisements, in any medium or in any form, do not contain any misrepresentations or misleading statements.  A statement that is misleading cannot be cured by a disclosure that contains conflicting information.

·         Comply with the Truth in Lending Act and the Consumer Leasing Act and the regulations issued under these Acts.  This includes, for instance, making clear and conspicuous disclosures when advertising certain terms related to issuing consumer credit.

·         Ensure your disclosures are clear and conspicuous.  The FTC provides guidance that to be clear and conspicuous, “the disclosure shall be in understandable language and syntax. Nothing contrary to, inconsistent with, or in mitigation of the disclosure shall be used in any advertisement or promotion.”  The FTC also provides the following examples:

o   Print: the disclosure should be in a type size, location, and in print that contrasts with the background against which it appears, sufficient for an ordinary consumer to notice, read, and comprehend it.

o   TV or Video: an audio disclosure should be delivered in a volume and cadence sufficient for an ordinary consumer to hear and comprehend it. A video disclosure shall be of a size and shade and appear on the screen for a duration and in a location sufficient for an ordinary consumer to read and comprehend it.

o   Radio: the disclosure should be delivered in a volume and cadence sufficient for an ordinary consumer to hear and comprehend it.

There is a comment period before the proposed settlements become effective.  Once effective, they will be persuasive evidence of the standards car dealerships must abide by for future FTC investigations.  Next up may be the $$ down and $$ per month claims.

Authors:

Mike Schulman	Jason Mueller

The Lorax and the Mazda CX-5: Greenwashing in a movie tie-in advertising campaign?

Are we in the midst of another case of a “citizen’s arrest” for alleged Greenwashing?  In the case of a Mazda advertising campaign tied in to the release of the movie adaptation of Dr. Suess’ The Lorax, the answer might be yes.  

As blog readers with young ones at home probably know, the Lorax movie was this past weekend’s box office champ here in the United States, grossing nearly $40 million.  And theatergoers were not the only ones attracted to this family-friendly fare with a sustainability-positive message.  Mazda, seeking to promote its CX-5 compact SUV, and in particular its Skyactiv technology, jumped in with a piece of movie tie-in marketing.  One place to see the ad is on Youtube, where Mazda touts that it “cares an awful lot”, and that the CX-5 with Skyactiv technology has received the “Truffula Tree Seal of Approval”.   Before going further, I should note that I currently own a Mazda, and have had a number of other Mazda cars over the years.  So I respect the product as a consumer, and in no way intend for this post to “pile on” the criticism this particular ad has received.

What seemed like a good opportunity to Mazda, however, now stands as yet another cautionary tale for companies looking to advertise the sustainability of products and services.   Mazda’s ad, touting the environmental friendliness of the CX-5 via Skyactiv’s fuel economy-promoting benefits against a Lorax-inspired tableau, has quickly come under fire from the “green” media and the public.  Take another look at that Youtube link, where the comments are overwhelmingly negative – along the lines of “Epic fail Mazda” – and the ad has generated 1,341 “dislikes” against 173 “likes." One commenter takes Mazda to task for “using an environmental movie to advertise an SUV” and analogizes it to using “Ghandi to advertise a gun club." 

But the toughest criticism has come from the Guardian’s “Environment blog” which savages the ad for its “crass chicanery” and holds it out as an example of greenwashing at its worst – and in the case of the Lorax himself “character assassination."  This Guardian blogger even uses the ad as a jumping-off point to explore Mazda’s entire green strategy in a critical way.  One can safely assume that this is probably not what Mazda intended with this ad.  

Perhaps most troubling for companies that have a legitimate desire to advertise sustainable products and services is the absolute speed at which a well-intended campaign can fall into critique for alleged greenwashing offenses.  And in today’s marketplace, that criticism can come from all sides, including government agencies, media, and the general public. Further, not only does the criticism emanate from several sources, its sting affects both the sponsor (Mazda) and the co-branded product (Universal's The Lorax film). Now both Mazda and Universal have to deal with the fallout. These unintended consequences are the types of contingencies that a well-informed advertising counsel can help a client consider, prior to the ads' publication.

While policing of greenwashing claims is warranted, there is a risk that such policing will have a chilling effect on advertising of sustainable products and services generally.  Any resultant drop in innovative activity on the part of companies  or missed opportunities to inform consumers of more sustainable choices would be a shame.  For now though, companies must proceed cautiously with such advertising efforts.  Mazda may be the latest to have learned this lesson, but they won’t be the last.

Author: Gaston Kroub

Self-Regulatory Online Privacy Program Part of Comprehensive White House Proposal

The White House, Department of Commerce and Federal Trade Commission each commended the Digital Advertising Alliance (DAA) self-regulatory privacy program for online, interest-based advertising.  This event was one carefully orchestrated part of a significant and comprehensive Consumer Privacy Bill of Rights the White House unveiled on the same day. This Bill of Rights is intended to provide consumers with greater online privacy protection through voluntary codes of conduct, federal legislation, and enforcement by the Federal Trade Commission and state Attorneys General.

Advertisers and agencies will likely watch closely this DAA self-regulatory program that is a White House-commended form of voluntary code of conduct provided for in the Consumer Privacy Bill of Rights.  Online advertisers in all industries will need to review their policies and processes for compliance with these DAA principles and programs as a forerunner of possible future regulatory and court action.

While Internet companies clearly seem to have gotten the message that they must regulate themselves or be regulated, they are likely to be more than a little nervous that a large percentage of consumers may opt-out, which could result in a significant re-tooling of behavioral advertising revenue models.  Notably, the self-regulation measures generally do not impact first-party behavioral advertising (such as targeted ads sent by Amazon to Amazon customers, or sponsored Google search results).

Digital Advertising Alliance

The Digital Advertising Alliance is a consortium of the nation’s largest media and marketing associations, including American Association of Advertising Agencies, the Association of National Advertisers, the National Advertising Federation, the Direct Marketing Association, the Interactive Advertising Bureau, and the Network Advertising Initiative. 

The DAA has several programs for guidance of advertisers for all types of businesses, including advertisers, agencies, web publishing or non-profits that have a presence on the web.

Most recently, last January, the DAA launched the “Your Ad choices” public education advertising campaign designed to inform consumers about interest-based advertising and how they can take greater control of their online privacy through the ad choices icon:

The educational campaign includes banner advertising that directs consumers to the icon and also links to a new informational website.  According to the DDA, “[w]henever you see the Icon, you’ll know two things: (1) You can find out when information about your online interests is being gathered or used to customize the Web ads you see, and (2) you can choose whether to continue seeing these types of ads.”

The first program of the DAA was launched in 2009 for Online Behavioral Advertising (OBA) by introducing seven self-regulatory principles of OBA.

In 2011 the DAA expanded the scope of its self-regulatory program beyond OBA with a self-regulatory guide for Multi-Site Data Principles” which established a framework governing the collection of online data from a particular computer or device regarding web viewing over time and across non-affiliated websites. 

See our previous analysis of the DDA “Multi-site Data Principles.   The Multi-Site Data Principles codified existing industry practices prohibiting the collection of multi-site data for the purpose of any adverse determination, including employment, credit, health treatment or insurance eligibility, as well as specific protections for sensitive data concerning children, health and financial data.

Pointer to the Future of Compliance

The commendation by the White House and government agencies may signal a new era in self-regulation and place greater focus on compliance with the DDA guidelines as being compliant with the direction that online consumer privacy law is taking.  Some privacy activists, however, have complained that these and similar guidelines  do not go far enough, and that the government should not trust this industry to regulate itself.  Time will tell.

Authors:

      Paul C. Van Slyke                                        Bart Huffman