Advertising, Marketing & Promotions >> 2015 Lessons Learned / … · 2019-04-25 · Page 3 2015...

Advertising, Marketing & Promotions

2015 Lessons Learned2016 Practical Advice

Alcohol

Children’s Advertising

Entertainment and Sports

Environmental

FDA

FTC – Regulatory and State

Mobile

NAD

Native Advertising

Political Advertising

Programmatic and Ad Blocking

Privacy and Data Security

Social Media

Trademark

T H I R D E D I T I O N

Introduction

The marketing communications industry experienced a number of important changes in 2015.

In the third edition of our Lessons Learned/Practical Advice publication, lawyers from Davis & Gilbert explore the key regulatory developments, statutory changes, and court decisions in numerous areas such as children’s advertising, entertainment, social media, trademark, and data security.

In addition, each article suggests steps that marketers and agencies may take to decrease risks and help ensure compliance with applicable laws and regulations.

With unmatched depth and breadth of experience in all issues facing the industry, no firm is better equipped to deal with these developments than Davis & Gilbert LLP.


Advertising, Marketing & Promotions

2 Alcohol3 Children’s Advertising4 Entertainment and Sports5 Environmental6 FDA7 FTC – Regulatory and State8 Mobile

9 NAD10 Native Advertising11 Political Advertising12 Programmatic and Ad Blocking13 Privacy and Data Security14 Social Media15 Trademark


ALCOHOL

FOR ALCOHOL BRANDS, NEW IS NOT ALWAYS BETTER

Looking AheadAs newly consolidated alcoholic beverage suppliers seek to expand market share, there should be a continued push to bring innovation and new types of products to the U.S. marketplace.

Whether the more entrenched interests and antiquated alcoholic beverage legal framework will allow such innovation remains to be seen.

For marketers and agencies trying to successfully push the limits in the evolving alcoholic beverage industry environment, a carefully considered strategy and thorough legal review will be critical.

In 2015, a contentious “new” alcohol product — Palcohol “powdered alcohol” — was, somewhat surprisingly, approved for labelling and sale by the U.S. Alcohol and Tobacco Tax and Trade Bureau, setting off a chain reaction among the states to counteract the TTB’s approval. From March to December, nearly a hundred bills to ban this type of product were introduced in over 40 states, the District of Columbia, and Puerto Rico, a reminder to the industry that states still hold much power when it comes to alcoholic beverages.

However, in today’s “disruption” economy, the state’s absolute power to control industry practices is increasingly being questioned, a recent example being a challenge by an operator of retailer digital advertising display units to a California law that purportedly prohibited alcoholic beverage suppliers from buying space on those units because a percentage of the ad buy revenue necessarily flowed to the retailers. California law expressly forbids manufacturers and wholesalers of alcoholic beverages from giving anything of value to retailers for advertising their alcoholic products. And, in a rare setback to the state’s authority, a federal court in the U.S. Court of Appeals for the Ninth Circuit was sympathetic to the challenger’s argument that such a strict and absolute prohibition against any money flow from supplier to retailer, no matter how indirect it may be, may not be constitutional.

The U.S. Food and Drug Administration recently released its proposed rule to establish requirements for fermented and hydrolyzed foods, or foods that contain fermented or hydrolyzed ingredients that bear a “gluten-free” claim. The final rule may affect the manner in which alcoholic beverages not covered by the labeling provisions of the Federal Alcohol Administration (FAA) Act (i.e., beers that are not sake or malt beverages under the FAA Act and wines with an alcohol content of less than seven percent alcohol by volume) are labeled and advertised.


CHILDREN’S ADVERTISING

CHILDREN’S PRIVACY AT THE HEART OF REGULATORY ACTIONAllison Fitzpatrick, Partner, 212.468.4866, [email protected]

Looking AheadAs the market for wearable technology and child-directed toys and apps continues to grow, children’s marketers and agencies should expect to see more regulatory action to ensure that new services maintain the levels of protection required by COPPA and current law.

Children’s marketers and agencies should continue to design and monitor the use of child-directed apps that include in-app charges to ensure clear disclosure of charges and parental consent to those charges.

The CARU Guidelines should be reviewed to ensure compliance prior to advertising to children and, in particular, to make sure food advertisements focus on the product offered and not a “free” premium gift.

Regulators and industry members continued to focus attention on children’s privacy, particularly in response to the rush of technology involving child-directed toys and child-directed apps.

Last year, Google launched YouTube Kids, which uses algorithms to filter and select age-appropriate content from YouTube. After the launch, consumer groups complained to the Federal Trade Commission (FTC) about blurred lines between advertising and content for children and the possibility of children discovering inappropriate content using the app’s search mechanism. The groups also asked the FTC to investigate whether the app was behaviorally tracking children in violation of the Children’s Online Privacy Protection Act (COPPA). Google recently updated the application to address the growing concerns.

Meanwhile, the FTC still is engaged in a lawsuit against Amazon for alleged unfair billing for in-app purchases made by children without their parent’s consent.

The Children’s Advertising Review Unit (CARU), the self-regulatory arm of children’s advertising, continued enforcement of the CARU Guidelines, including in an inquiry involving the Harlem Globetrotters’ website. Although the site primarily targeted an adult audience, ads in Boys’ Life and Sports Illustrated Kids directed children to visit the site. CARU determined that the age-screening mechanism in place (a checkbox) was ineffective and, according to CARU, not in compliance with CARU Guidelines and COPPA. The Globetrotters agreed to modify the site based on CARU’s recommendations.

CARU also claimed that McDonald’s Happy Meal advertisements violated CARU Guidelines. CARU determined that the overall impression created by the advertisements focused on the “free“ premium instead of the meal and, therefore, children could have trouble distinguishing between the premium and the product.

At the state level, California continued to lead the nation in children’s privacy protections, adopting the California “Online Eraser” law (officially, the California Rights for Minors in the Digital World Act) to provide minors with the right to remove content posted by them on any website, application, or online service. The law was intended to curb the permanency of Internet discussion, although it should be noted that most major platforms already allowed for this type of deletion.


ENTERTAINMENT AND SPORTS

DAILY FANTASY SPORTS POSES CHALLENGES FOR PLAYERS AND REGULATORSJames L. Johnston, Partner, 212.468.4867, [email protected] J. Gordon, Associate, 212.468.4834, [email protected]

Looking Ahead The daily fantasy sports industry maybe facing an early flameout caused by inadequate internal safeguards and an underestimation of state and federal regulators, but the odds certainly are swinging against the industry. For sponsors, marketers and media companies, this legal uncertainty will undoubtedly lead to a reevaluation of the value of partnering with the daily fantasy sports industry.

With legal attacks on so many fronts, 2016 will remain a year of continued instability and uncertainty for daily fantasy sports. 2016 has already seen both DraftKings and FanDuel agree to stop doing business with people physically located within New York.

Media companies, sponsors, and marketers should be cautious in evaluating how deeply to extend their relationship with daily fantasy games. The last year has brought substantial, rapid change and 2016 promises even more – it may be wise to wait until the dust settles.

A new industry burst into the mainstream in 2015. At the beginning of 2015, daily fantasy sports was a nascent business taking advantage of gaps in federal regulation to find deep-pocketed backers among major media companies, professional leagues, and their owners. Flush with new investment, the major competitors in this business, FanDuel and DraftKings, blanketed sports media with advertising and discovered an audience aching for an opportunity to spend money. In one weekend in October of 2015 alone, FanDuel and DraftKings collected more than $45 million in entry fees. Daily fantasy sports had become a multi-billion dollar industry.

By the end of 2015, however, the industry seemingly faced every type of legal challenge imaginable. The State of Nevada ruled that daily fantasy sports was unlicensed and, therefore illegal, gambling. In the months that followed, states including Texas, Illinois, and Hawaii made similar rulings.

The New York Attorney General sought to have both companies cease operations in New York. Just after the New Year, he requested that the companies refund to New York residents all the money they had lost playing daily fantasy in that state and pay a fine of up to $5,000 per person. Massachusetts is limiting deposits to $1,000 per month.

On top of state actions, multiple class action suits have been filed. Moreover, an online payment processor announced that it would no longer provide services to daily fantasy companies.

News stories questioned the security of fantasy sports systems, prompting the Federal Trade Commission to consider getting involved. After news reports alleged that an employee of one site used insider information to gain a competitive advantage playing fantasy games on a competitor site, there were calls for Congressional hearings.

Daily fantasy sports also have lost some of its luster with its media partners. The National Collegiate Athletic Association has banned advertisements from championship game broadcasts and DraftKings has asked its media partners to reduce the number of commercials aired.


ENVIRONMENTAL

GREEN MARKETING STILL NEEDS SUPPORT Ronald R. Urbach, Chairman/Co-Chair, 212.468.4824, [email protected]

Looking AheadExpect a dramatic increase in the use of “green marketing” claims, as brands try to convince consumers that they are a part of the solution, not the problem.

Expect intense scrutiny of “green” claims by consumers, regulators, and competitors, and that each group will take legal action when suspicions of “green washing” exist.

Environmental concerns dominated the headlines throughout 2015. For marketers, this meant an increase in the development and supply of environmentally conscious products and services and a renewed focus on “green” attributes in their marketing. Not surprisingly, consumers and regulators responded by increasing their scrutiny of “green marketing” and their willingness to take legal action based on perceived “green washing.”

As in years past, the Federal Trade Commission (FTC) remained the most active regulator of environmental benefit marketing claims, seeking to ensure that all “green marketing,” regardless of media, complied with its Guides for the Use of Environmental Marketing Claims (Guides). It sent warning letters to manufacturers and retail sellers of certain “green” products and services, reminding them that it monitored the marketplace and would challenge advertising it deemed inconsistent with the Guides. The specific recipients were not disclosed, but the form letters were made public, as was the general business description of the recipients: makers and sellers of certain “biodegradable” products and companies issuing “green seal” certifications and advertisers using those certifications. In each instance, the FTC stated that it did not believe that the “green claims” were truthful and non-misleading or that the express and implied advertising claims had been properly substantiated, and it urged the companies to modify their marketing materials to avoid further regulatory action. The FTC’s conclusions were based on its review of the advertising’s express claims as well as implied claims reasonably taken away after viewing the advertising, including from its overall “net impression.”

The FTC also continued to pursue enforcement actions against manufacturers and marketers based on their allegedly deceptive and misleading environmental benefit marketing. However, unlike in previous “green” challenges, the FTC successfully challenged “green” claims that were based on seemingly reliable substantiation. In its action against ECM Biofilms, Inc., the FTC specifically rejected ECM’s substantiation for biodegradability claims, even though the tests had been based on an international test method. The FTC found that because ECM’s testing had not simulated the physical conditions found in most U.S. landfills, it was not “competent and reliable scientific evidence.”


FDA

FDA SCRUTINIZES COSMETICS CLAIMS, CONTINUES TO EVALUATE IMPORTSStuart Lee Friedel, Partner, 212.468.4818, [email protected] Erdos Singer, Partner, 212.468.4940, [email protected] C. Gokhale, Associate, 212.468.4978, [email protected]

Looking AheadProperly vet all new product packaging, advertising, and websites to ensure compliance with FDA regulations and, in light of increased scrutiny, review already existing packaging and claims through a more conservative lens.

When importing FDA-regulated products, companies should anticipate the FDA’s increased scrutiny.

Keep an eye out for new Congressional bills related to cosmetics.

The Food and Drug Administration (FDA) continued to exercise its increasingly conservative approach to cosmetics claims by issuing numerous warning letters to cosmetics companies and continuing to carefully scrutinize imported products. The FDA’s agenda demonstrates that regulating cosmetics has become an increasingly important priority for the agency.

The FDA was particularly concerned with claims for cosmetic products that indicated that the product could affect a structure or function of the human body or treat, prevent, or mitigate a disease or its symptoms, as these types of claims indicated that the product was a drug rather than a cosmetic. The FDA issued several warning letters to major cosmetics manufacturers for claims that products could “reduce visible redness,” “treat dark spots and discolorations,” “change the anatomy of a wrinkle,” “provid[e] noticeable lift,” and “stimulate collagen production.” In the warning letters, the FDA indicated that such claims rendered the products new and unapproved drugs. Companies reacted to the FDA’s actions by reviewing and examining product claims.

The FDA also detained significant numbers of cosmetic shipments that it believed were not in compliance with the law — particularly those containing claims that a product could remove wrinkles, reduce hyperpigmentation, or prevent the appearance of dark spots. In addition, the FDA focused on detaining products that it believed might contain illegal color additives that were unsafe for use in cosmetics products.

To enhance the FDA’s authority in the cosmetics area, a bill was introduced that, if enacted, would require cosmetics companies to register their facilities with the FDA, submit ingredient statements, and allow the FDA to prohibit a cosmetic’s distribution if the FDA determined that the product might cause serious health consequences.


FTC – REGULATORY AND STATE

FTC REMAINS FOCUSED ON SUBSTANTIATION AND ENFORCEMENTRonald R. Urbach, Chairman/Co-Chair, 212.468.4824, [email protected] Lee Friedel, Partner, 212.468.4818, [email protected] Savage, Associate, 212.468.4956, [email protected]

Looking AheadMarketers should not take the FTC’s increased focus on new media as a sign that it is no longer monitoring and policing traditional advertising issues of claims and substantiation.

Advertisements making specific scientific claims or relying upon studies will likely face increased regulatory scrutiny.

Companies that settle claims with the FTC must comply with all settlement stipulations.

While 2015 saw the Federal Trade Commission (FTC) increase its focus on social media campaigns, native advertising, and data security and privacy, marketers should remember that the FTC continues to police traditional advertising issues of claims and substantiation.

This past year, the FTC settled with two companies over allegations that they could not substantiate claims touting the efficacy of their dietary supplements. In one case, a marketer of a supplement aimed at increasing cognitive ability settled with the FTC for allegedly making multiple false claims, including that a scientific study validated its claim that its product would reverse cognitive decline and memory loss. Similarly, a marketer of a green coffee bean extract settled with the FTC over claims that it had falsely stated that its supplement could generate rapid and significant weight loss without diet or exercise.

In addition, a Texas company settled with the FTC over allegedly unsupported claims that its computer game permanently improved children’s focus, memory, attention, and behavior. The FTC asserted that the company’s claims lacked scientific support or other substantiation. These actions illustrate that the FTC remains steadfastly focused on ensuring that all claims made by marketers are supported by competent and reliable evidence.

The FTC also reminded marketers in 2015 that it is serious about enforcement when it settled with LifeLock for $100 million over charges that LifeLock had violated the terms of a 2010 FTC-State coordinated settlement prohibiting the company from engaging in deceptive advertising. The FTC alleged that, after the 2010 action and settlement, LifeLock had continued to falsely advertise that it protected consumers’ sensitive data with high-level safeguards and that it sent alerts “as soon as” it received any indication that a consumer was a victim of identity theft. This settlement represents one of the largest monetary awards obtained by the FTC in an order enforcement action.


MOBILE

REGULATORS SEEK TO PROTECT USERS’ INFORMATION IN AN EVER INCREASING MOBILE UNIVERSEZachary Werner, Associate, 212.468.4883, [email protected]

Looking AheadThe key issues will be the extent to which the FTC and DAA seek to enforce their respective recommendations and self-regulatory guidelines, and whether any further rulemaking is on the horizon.

IoT companies will be expected to follow the relevant recommendations in the FTC’s report, and mobile companies that collect user data or engage in online behavioral advertising will be subject to the DAA’s self-regulatory principles.

We, at the minimum, expect to see enforcement where IoT companies do not provide reasonable data security or privacy to consumers using their devices. Cross-device data will also remain at the top of the regulatory agenda in 2016.

In the mobile world, regulators grappled with how best to protect the privacy and security of user information as new technologies continued to emerge, with the Federal Trade Commission (FTC) and Digital Advertising Alliance (DAA) issuing reports, convening workshops, and signaling their intention to increase enforcement.

The FTC’s report on the “Internet of Things” (IoT) recommended steps companies should take to protect users’ security and privacy. The report defined IoT as devices or sensors — other than computers, smartphones, or tablets — that connect, store, or transmit information with or between each other via the Internet. It estimated that there will be 50 billion of these devices by 2020. Privacy risks arising from mobile devices such as fitness monitors, wearable technologies, and GPS trackers prompted the FTC to recommend that companies implement certain “reasonable security” mechanisms, including:

• Building security into devices at the outset through “security by design.” • Ensuring that outside service providers are capable of maintaining reasonable security.• Taking steps to prevent unauthorized users from accessing consumer information.

In addition, the FTC made recommendations regarding data minimization and consumer choice and notification, acknowledging that there may not be a “one size fits all” approach.

Another regulatory body, in the mobile space, the DAA, announced that it would begin to enforce its self-regulatory principles, which define categories of mobile data and apply to companies engaged in online behavioral advertising. Upon issuing mobile guidance with user notice and consent requirements back in 2013, the DAA indicated then that it would allow an “implementation phase” and would not immediately begin enforcement. As of September 2015, however, any entity engaged in interest-based advertising or the collection and use of certain mobile data is required to comply with the DAA’s self-regulatory principles.

In addition, 2015 brought increased attention to cross-device data and tracking, which involves identifying users across multiple devices (such as a laptop, tablet, and smartphone) to deliver targeted advertising or personalized services. In November, the FTC convened a workshop that discussed the need for consumer notice and consent, and the DAA released specific guidance emphasizing transparency and user control.


NAD

MANY CHALLENGES AND BIG CHANGES FOR THE NADRonald R. Urbach, Chairman/Co-Chair, 212.468.4824, [email protected] Taylor, Partner, 212.468.4984, [email protected]

Looking AheadIn light of revisions to the NAD’s procedures, marketers should expect NAD challenges to be considerably more efficient, NARB appeals to be more equitable, and Advertiser’s Statements to lack their typical objections and counterarguments.

As a result of these significant changes, the self-regulatory process promises to be even more popular in 2016.

2015 was another eventful year for the National Advertising Division of the Council of Better Business Bureaus (the NAD). Fifty-six competitor challenges were filed, most involving dietary supplements, drugs and health aids, and telecommunication products and services.

Despite the caseload, a series of revisions to the NAD’s procedures stole the spotlight. In April 2015, a working group of two American Bar Association committees released a report recommending extensive changes to the NAD’s procedures to make the NAD work “even better.” The NAD subsequently revised its procedures to reflect several of the working group’s recommendations.

The most significant revisions included:

• Revisions to Challenge Process: The NAD took several steps to expedite the NAD challenge process. The revised procedures establish a scheduling conference at the outset of each challenge to set the timing for all filings and meetings, limit the scope of all case filings to 20 pages, and require challengers to identify all express and implied claims to be considered by the NAD. In addition, the NAD must now issue a decision within 20 business days.

• Revisions to Advertiser’s Statement: The NAD also took steps to ensure that the Advertiser’s Statement would not be a forum for new or renewed arguments. Should the NAD require an advertiser to modify and/or discontinue any of its advertising claims, the advertiser must state whether it: (1) agrees to comply with the NAD’s recommendations; (2) will not comply with the NAD’s recommendations; or (3) will appeal the NAD’s decision to the National Advertising Review Board (NARB). Although the advertiser may still include a supporting statement, that statement must be extremely concise and must not reargue the merits of the case, mischaracterize the decision, or contain new facts.

• Revisions to Appeal Process: The revised procedures also affect appeals before the NARB. Specifically, NARB appeals may now contain new arguments and cite to precedent not referenced in the appellant’s original submissions. Moreover, the NAD may no longer be a party to NARB appeals of NAD decisions in competitive challenges. Instead, participation is limited to the challenger and the advertiser.


NATIVE ADVERTISING

REGULATORS CONTINUE TO FOCUS ON NATIVE ADVERTISING PRACTICESPaavana L. Kumar, Associate, 212.468.4988, [email protected]

Looking AheadNative advertising should include clear and proximate disclosures in accordance with the NAD’s recent decisions and the FTC’s recent guidance, as well as traditional FTC regulations, the FTC’s history of enforcement, and ongoing FTC developments. In particular, the FTC recently brought its first case against an advertiser, Lord & Taylor, for its deceptive use of native advertising practices.

Expect the FTC to continue to enforce the Native Advertising Guidelines and its core principles of transparency, disclosure and monitoring, and build these best practices and principles into marketers’ and their agencies’ approach on native advertising, especially if marketers and their agencies are engaging in behavioral advertising practices to target native advertisements to consumers.

Remember that in evaluating whether an ad’s format is misleading, the FTC will examine the “net impression” of the ad – examining factors such as its overall appearance, the similarity of its written, spoken or visual style to non-advertising content offered on a publisher’s site, and the degree to which it is distinguishable from other such content.

Native advertising is still on the rise, with marketers continuing to shift media buys into the sponsored content arena as a means of addressing issues such as ad fraud, viewability, and ad blocking – which are primarily issues for traditional display advertising. By way of context, native advertising spending rose from $4.7 billion in 2013 to $7.9 billion in 2014 and is projected to rocket beyond $20 billion by 2018, according to data reported by Business Insider.

The FTC has expressly taken the position that long-standing consumer protection principles apply to native advertising, and that native advertising disclosures are required and subject to enforcement under Section 5 of the FTC Act. In December 2015, the FTC issued an Enforcement Policy Statement on Deceptive Formatted Advertisements, supplemented by a Native Advertising Guide for Businesses (Native Advertising Guidelines), advising that, if consumers may be misled about the nature or source of an advertising message and if such misleading impression may affect the consumers’ conduct regarding the advertised product or services, clear, proximate and prominent disclosures need to be included, such as “advertisement” rather than more ambiguous terms such as “promoted” (which could lead consumers to believe that advertising content is endorsed by a publisher site).

Moreover, the NAD has found (and the FTC reiterated the position in its Native Advertising Guidelines) that disclosures such as “You may like” or “More from the Web” may confuse consumers as to why the content is linked. Further, self-regulatory bodies such as the Mobile Marketing Association and the Interactive Advertising Bureau have released a number of guidelines and best practices and the Online Interest-Based Advertising Accountability Program recently published its first self-regulatory challenges requiring content recommendation and web publishing companies to display the Digital Advertising Alliance’s “AdChoices” opt-out icon (or an equivalent opt-out icon) when native advertisements are targeted to consumers based on their browsing history or other online behavioral activities.


POLITICAL ADVERTISING

POLITICAL ADVERTISERS CAMPAIGN TO AVOID TRANSPARENCY AND DISCLOSURESAshima A. Dayal, Partner, 212.468.4912, [email protected]

Looking AheadThe chair of the FEC, Ann Ravel, has deemed the FEC “worse than dysfunctional,” so voters should not expect the agency to compel political advertisers to make additional disclosures or provide greater transparency to voters in 2016.

Interesting developments in the law governing political advertising more likely will emerge on the media side, especially in connection with the growing trend of transit agencies around the country refusing to carry advertising regarding political issues, to avoid offending riders and, arguably, to avoid inciting violence.

Courts have been divided on whether these bans violate the First Amendment, and in light of inconsistent rulings in 2015 on advertisements with such messages as “Killing Jews is Worship that draws us close to Allah” (permitted, in New York) and “Israeli War Crimes: Your Tax Dollars At Work” (prohibited, in Seattle) and the public importance of political speech, a case on public transit advertising bans likely will appear on the U.S. Supreme Court docket in the near future.

Political candidates and their supporters have been projected to spend a record $11.4 billion on advertising during the election cycle ending on Tuesday, November 8, 2016. As a result of legal and media developments that occurred in 2015, much of this advertising will withhold from voters the identity of the people paying for it. 2015 should be remembered as the year that political advertisers rejected transparency and disclosure in their campaign communications, and received support in that effort from the government and the press.

Reformist politicians and public interest groups pushed the Federal Election Commission (FEC) to require advertisements placed by political action committees (PACs) to more clearly identify the individuals paying the bills, but the FEC did not act. As a result, ads nominally sponsored by PACs with indistinguishable patriotic names continue to proliferate, and voters continue to have little knowledge of who actually is funding those ads.

PACs and other political advertisers also welcomed the emergence of another path to minimize their disclosures to voters, as BuzzFeed launched a service to create and host native political advertisements for candidates and causes. Because BuzzFeed native advertising typically has been only lightly labeled “sponsored,” media watchdogs anticipate that BuzzFeed native political advertising similarly will only inconspicuously identify to voters that it is paid content and who sponsored that content. As a result, voters who encounter BuzzFeed native political advertising alongside editorial listicles and through their social media feeds may have no idea that a political article they are reading is biased spin and not nonpartisan news.

The savviest political candidates, however, succeeded in dodging FEC disclosure rules altogether by exploiting two legal loopholes. First, they placed their campaign advertisements on their own websites and social media pages and disseminated them through sympathetic bloggers and other unpaid Internet media opportunities, thereby bypassing the paid online media placements that trigger FEC disclosure requirements. Second, they coordinated their advertising efforts with the monied PACs supporting their election runs before they formally announced their candidacies, thereby enabling the pro-candidate advertising that the PACs release later in the election cycle to avoid being deemed by the FEC a “coordinated communication” which requires disclosure that the ad has been approved by the candidate. As a result, “Swift Boat”-style attack ads created by a candidate and a PAC under this pre-candidacy FEC exception can carry a disclaimer stating that the ad was not authorized by the candidate, and the candidate can distance himself or herself from any deceptive claims in the ad.


PROGRAMMATIC AND AD BLOCKING

THE RISE OF AD BLOCKINGRichard S. Eisert, Partner, 212.468.4863, [email protected] Savage, Associate, 212.468.4956, [email protected]

Looking AheadProgrammatic buying and cross device tracking will remain hot issues in 2016, and marketers and their agencies should continue to be mindful of transparency and privacy when conducting media buys.

Marketers and agencies should expect to see the issue of ad blocking come to the fore.

Litigation may result, but it remains unclear what the arguments will be and whether they will hold water.

In the meantime, there will be further movement into native advertising, branded content, and user-generated content as marketers and agencies maneuver around the increasing prevalence of ad blocking.

Expect to see publishers experimenting with ways to get around ad blockers, for example by detecting users who use ad blockers and/or by erecting more pay walls.

2015 saw the continued rise of programmatic buying and cross-device tracking, as well as the continued focus on related concerns such as ad fraud and privacy compliance. These trends will remain pertinent in the coming year, and marketers and their agencies should continue to be mindful of transparency and privacy issues when conducting media buys.

The big issue to grab the spotlight in 2015 was ad blocking. Ad blocking is not a new phenomenon; it has long been a concern of agencies, marketers, and publishers. Recent developments, however, significantly broadened the potential for the use of ad blocking technology.

For one, use of ad blockers is on the rise, especially among millennials. What is more critical, however, is that the fight has moved to mobile. Apple’s most recent release of its iOS allows content blocking extensions to be added to Safari for the first time.

Publishers are beginning to get aggressive in response, and are actively considering litigation as an option. Copyright litigation has been the most common legal means used to fight ad blockers so far, but some previous attempts to leverage this legal theory yielded little success in similar matters.

Litigation is more likely to emerge around publishers’ terms of use. Prominent publishers already have begun to add language to their terms of use prohibiting users from masking or obscuring the ads appearing on their sites.

It will take some time for this legal landscape to further develop. In the meantime, marketers and their agencies also have begun to focus more on content and environments less likely to be blocked. This has contributed to the prevalence of native advertising, branded, and user-generated content.

Further movement in this direction can be expected in 2016 while marketers and their agencies wait to see the initial results of any litigation. It is also possible that the relevant players will choose a more conciliatory route, leading to certain industry standards and understandings to ease the concerns raised by the trend toward ad blocking, including an understanding that certain types of content should not be blocked.


PRIVACY AND DATA SECURITY

SPOTLIGHT ON BIG DATA AND CONNECTED DEVICESGary A. Kibel, Partner, 212.468.4918, [email protected] Gitig, Counsel, 212.468.4880, [email protected]

Looking AheadCompanies will need to invest in more sophisticated privacy and data security infrastructures to comply with their commitments to consumers as well as the increased regulatory and legislative focus on data security.

With no definitive set of required security controls under U.S. law, companies must look at varying standards, regulatory guidance, self-regulatory organizations, and recognized best practices. Most importantly, a company must practice what it preaches. That is, it must put into action the promises and guarantees made in its privacy policy.

Companies exporting personal data from the EU to the United States must understand and comply with the EU Data Protection Directive.

There also will be changes in the collection and processing practices of Big Data as well as increased oversight of the Big Data market and products and services in the Internet of Things.

As the number of connected devices grew (the so-called “Internet of Things”), so, too, did the risk of data hacking and unauthorized access to sensitive personal information. After the Federal Trade Commission (FTC) action against, and its settlement with, in-store beacon tracking company Nomi Technologies, other companies — especially the makers of data-connected devices and apps — spent time and money on ensuring that they provided consumers with transparency and choice with respect to how and when their data was collected.

The continued collection, sale, and use of vast amounts of consumer data in the Big Data industry regularly was raised as a primary concern of the FTC due to the perceived lack of transparency and consumer control.

The FTC’s authority as the primary regulator in the privacy and data security arena was reaffirmed with its litigation victory against Wyndham Hotels and Resorts. The FTC alleged that Wyndham had failed to safeguard its network where sensitive consumer information was stored. Wyndham argued that the FTC lacked the authority to regulate companies’ security practices. The FTC prevailed and, as a result, it continued to exercise its authority to regulate such practices.

Perhaps the greatest privacy and data security development in 2015 arose from the European Court of Justice’s decision declaring the United States-European Union Safe Harbor Framework invalid. Over 4,400 U.S. companies had joined this self-certification program to enable them to transfer personal data of EU residents from the EU to the United States. The EU and the United States have since negotiated the EU-U.S. Privacy Shield to resolve this matter, though final approval by the EU Parliament is pending. If approval is granted, implementation will likely take a number of months.


SOCIAL MEDIA

REGULATORS SCRUTINIZE SOCIAL MEDIA CAMPAIGNSAllison Fitzpatrick, Partner, 212.468.4866, [email protected] Savage, Associate, 212.468.4956, [email protected]

Looking AheadRecent guidance and enforcement likely foreshadow further enforcement by the FTC in the area of social media marketing, particularly with respect to the online activities of promotion entrants, employees, and influencers.

Marketers and their agencies should pay special attention to how they conduct campaigns on various social media platforms, and ensure that promotion entrants, spokespeople, bloggers, and influencers make conspicuous disclosures of their material connections regardless of the platform.

It is not enough for marketers to tell their bloggers and influencers to make appropriate disclosures; marketers and their agencies need to monitor bloggers and influencers to ensure they are making appropriate disclosures.

Online reviews will face greater scrutiny by regulators as well as the review sites themselves, and marketers and their agencies should ensure that their endorsers adequately disclose if any product reviews were in fact incentivized.

2015 saw greater regulatory scrutiny of social media marketing campaigns. Specifically, the Federal Trade Commission (FTC) advised on social media promotions, online influencers, and online reviews.

In an update to Frequently Asked Questions (FAQs) about its Guides Concerning the Use of Endorsements and Testimonials in Advertising (the FTC Endorsement Guides), the FTC reiterated that entries into a contest in return for an endorsement required a clear and conspicuous disclosure that the post was incentivized. According to the FTC, tweeting or “pinning” a sponsor’s photo as part of a contest likely constituted a material connection that required such a disclosure. Including the word “contest” or “sweepstakes” as a hashtag in a post likely would be sufficient, but the word “sweeps” alone would not be sufficient because people might not understand its meaning.

The FTC further clarified that platform-specific limitations were no excuse for failing to disclose a material connection. Therefore, if posting on Twitter, disclosures should appear in the same 140-character tweet as the endorsement itself and could be made via hashtags such as #sponsored or #paidad. If posting on YouTube, a disclosure should appear in the video itself, preferably at the beginning of the video.

The FTC also provided guidance on employee and influencer endorsements on social media. In March 2015, Deutsch LA settled claims that it misled consumers by urging its employees to promote its client Sony’s PS Vita on Twitter without also instructing them to disclose their connection to the client. Later in the year, the FTC brought an action against Machinima for allegedly failing to disclose that its influencers were being paid to produce and upload endorsements of Xbox One to YouTube. The FTC made clear that companies have a responsibility to properly instruct and monitor employees and influencers hired to promote their products or clients on social media.

Online reviews emerged as a big issue. Amazon charged customers with posting fake reviews on its websites, asserting claims for breach of contract and violations of Washington’s Consumer Protection Act. On the regulatory side, the FTC charged AmeriFreight, an automobile shipment broker, with touting the quality of its online customer reviews while failing to disclose that the reviewers were compensated. As part of its settlement, AmeriFreight agreed to stop misrepresenting that its services were highly rated based on unbiased customer reviews.


TRADEMARK

COURTS AND USPTO ANALYZE HASHTAGS, WITH VARYING RESULTSBrooke Erdos Singer, Partner, 212.468.4940, [email protected] J. Wildes, Counsel, 212.468.4974, [email protected]

Looking AheadConduct appropriate diligence before using hashtags in communications. Depending on the context, this use could potentially infringe third-party trademark rights.

Social media platforms should be monitored to identify third-party uses of hashtags containing names and slogans. Such uses could potentially infringe marketers’ trademark rights and may justify further action.

If marketers and their agencies intend to use particular hashtags as a source indicator and on a long-term basis, they should consider whether it is worth seeking federal trademark protection for the hashtags. Certain courts and the USPTO’s guidance makes clear that, depending on the nature of the use, hashtags can be registered as and function as trademarks.

In the social media world, hashtags are ubiquitously used by the general public, marketers and their agencies. But the legal protectability of hashtags as intellectual property has largely gone unaddressed. This began to change in 2015, with courts and government entities analyzing the interplay between hashtags and trademark law, with mixed results.

A court in California held that hashtags did not function as trademarks. The case involved a dispute between two competing manufacturers of electronic vaporizers. The parties had entered into a settlement agreement that prohibited one of the manufacturers from using the term “CLOUD PEN” as a unitary trademark. One manufacturer alleged that the other had violated the settlement by using the hashtag #cloudpen in Instagram posts and in connection with promotional contests encouraging consumers to use the hashtag #cloudpen. The court held that, because the hashtag was merely a functional tool used to direct consumers to the relevant promotion, #cloudpen was not a trademark and, therefore, the party in question did not breach the settlement.

A federal court in Mississippi reached a different conclusion. In that case, a t-shirt manufacturer sued a competitor alleging that the competitor had infringed its trademark rights and had engaged in false advertising by using a hashtag comprising the competitor’s name. The court declined to dismiss the manufacturer’s case, expressly accepting the notion that “hashtagging” a competitor’s name or product could potentially deceive consumers.

Meanwhile, the U.S. Patent and Trademark Office (USPTO) continued to allow registrations of trademarks that comprised hashtags. As of December 2015, the USPTO granted registration of over 150 such marks, with many more pending. These registrations were consistent with the USPTO’s examination policies, which expressly provided that trademark applications for hashtag marks had to be analyzed on a case-by-case basis to determine whether the marks as a whole functioned to identify the source of goods and services or whether they simply served as indexing tools.

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