Outside Influences Affecting Performance Marketing

1. Gary Kibel PMA General Counsel Partner, Davis & Gilbert LLP gkibel@dglaw.com @GaryKibel Rachel Honoway PMA BOD President 2016 - 2017 CEO at FMTC rachel@fmtc.co @FMTC_co

2. • Affiliate Nexus Tax • Ad Blocking • Influencers • Native Advertising • Privacy Today’s Topics

3. What Is Nexus? Nexus = connection States are attempting to create a nexus for taxes Real estate Operating a business Employees Resident-specific solicitation Affiliates or Click-through nexus 3

4. How Does Nexus Affect Affiliate Marketing? Merchants/Advertisers have dropped affiliates in states with Click-Through Nexus laws Only the “click” has the connection – consumer is not necessarily in state Tracking technology Additional tax filing burden Affiliates are specifically targeted while other platforms aren’t 4

5. Who Has Click-Through Nexus? Arkansas California Connecticut Georgia Illinois Kansas Louisiana Maine Michigan Minnesota Missouri Nevada New Jersey New York North Carolina Oklahoma Pennsylvania Rhode Island Tennessee Vermont Washington 5

6. Where else is is / has it been on the table? Alabama Colorado* Indiana Massachusetts South Carolina South Dakota Utah Wisconsin Wyoming 6

7. What’s Being Done About It? Federal Legislation Colorado provisions Grassroots efforts PMA 7

8. It’s Not Just the Government… Consumers want a say in Advertising as well. 8

9. The Rise of Ad-Blocking PC Software Browser-specific extensions Platform-specific extensions Mobile apps 9

10. It’s More than Limiting Distribution Blocking ads from displaying Disabling tracking Protecting privacy 10

11. The PMA’s Special Council Study 2015 - 2016 Members from top networks, publishers and advertisers Determine concerns from all types of industry participants Study processes ad-blockers use Determine best approach for optimizing distribution and tracking to avoid further alienating these consumers 11

12. Findings One major source for “whitelisting/blacklisting” List of ad-serving domains and directories List of tracking domains and directories Moderated forum for updates and discrepancies 12

13. The Approach to Mitigation Accept Respect Report Maintain 13

14. Resources The curated lists and moderated forums referenced in this piece can be found at EasyList - https://easylist.to/for the Curious

15. Best Practices for Advertisers & Agencies Accept that not all consumers want to participate in advertising. Do not attempt to circumvent Work with a compliant affiliate network or tracking solution provider ShareASale Impact Radius LinkConnector Rakuten Linkshare PepperJam Affiliate Window Tune

16. INFLUENCERS & SOCIAL MEDIA DISCLOSURES

17. Federal Trade Commission Act Section 5 “Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful.” Deception = Misrepresentations or omissions likely to mislead consumers acting reasonably under the circumstances Unfairness = causes or is likely to cause substantial consumer injury, not reasonably avoided by the consumer, and not outweighed by countervailing benefits to consumers or competition 17

18. 18 Endorsements / Testimonials Endorsement / Testimonial = Any advertising message which message consumers are likely to believe reflects the opinions, beliefs, findings, or experience of a party other than the sponsoring advertiser” Must be honest and not deceptive Disclosure of material connections: “When there exists a connection between the endorser and the seller of the advertised product which might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience), such connection must be fully disclosed”

19. 19 FTC Revisions to Endorsements and Testimonials in Advertising (Guides) (October 2009) Big Q – whether, when viewed objectively, is the relationship between the marketer and the speaker such that the statements are considered “sponsored” Marketers can be liable for a blogger’s misleading or unsubstantiated claims FTC encourages companies to have social media participation policies. Existence of such policies considered by FTC in any enforcement action

20. 20 FTC’s Revised Endorsement Guides A blogger/word-of-mouth marketer has a duty to disclose any “material connections” with an advertiser (e.g., payments or free products that the consumer would not expect) Celebrities have a duty to disclose their relationships with advertisers when making endorsements outside the context of traditional ads, such as on talk shows, blogs or in social media Employees who promote their employer’s products or services in social media should clearly and conspicuously disclose their employment relationship

21. 21 FTC FAQs – 2015 Clicking “Like” – Some platforms – like Facebook’s “like” buttons – don’t allow you to make a disclosure. Advertisers shouldn’t encourage endorsements using features that don’t allow for clear and conspicuous disclosures. However, we don’t know at this time how much stock social network users put into “likes” when deciding to patronize a business, so the failure to disclose that the people giving “likes” received an incentive might not be a problem. An advertiser buying fake “likes” is very different … they are clearly deceptive.

22. 22 How to Make A Disclosure in Social Media How should a disclosure be made? There is no special language but goal is to effectively communicate your relationship with the marketer Acceptable: “Company X gave me this product to try ...” “I work for Company X, so ...” Not acceptable: Button that says DISCLOSURE or LEGAL ABOUT US or GENERAL INFO

23. How to Make A Disclosure in Social Media with A Hashtag Suggested: #paid ad #paid #ad (at the beginning of the post) #sponsored (but not just #spon) #contest or #sweepstakes (but not just #sweeps) But the FTC now seeks longer disclosures: “Making the word “contest” or “sweepstakes” part of the hashtag should be enough. However, the word “sweeps” probably isn’t, because it is likely that many people would not understand what that means” 23

24. Hot Topics in: Advertising, Social Media and Consumer Privacy Law 24 Hot Topics in Social Media and Mobile Marketing Law24 Social Media and Privacy Law24 #SPONSORED

25. How To Manage The Legal And PR Risks In Social Media 25

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27. FTC FAQs Contest hashtags – It’s likely that many readers would not understand such a hashtag to mean that those posts were made as part of a contest or that the people doing the posting had received something of value (in this case, a chance to win the contest prize). Making the word “contest” or “sweepstakes” part of the hashtag should be enough. However, the word “sweeps” probably isn’t, because it is likely that many people would not understand what that means. 27

28. FTC vs. Cole Haan (March 2014) #Wanderingsole Contest - $1,000 FTC – “We believe that participants' pins featuring Cole Haan products were endorsements of the Cole Haan products, and the fact that the pins were incentivized by the opportunity to win a $1000 shopping spree would not reasonably be expected by consumers who saw the pins” 28

29. Sweepstakes and Contest Disclosures 29

30. FTC – Machinima (September 2015) Machinima paid a wide array of influencers to produce and upload endorsement videos of Xbox One to YouTube The FTC charged Machinima with engaging in deceptive advertising for failing to have the influencers disclose that they were being paid for their seemingly objective opinions FTC – “when people see a product touted online, they have a right to know whether they’re looking at an authentic opinion or a paid marketing pitch. That’s true whether the endorsement appears in a video or any other media.” 30

31. FTC – Lord & Taylor (March 2016) Retailer hired influencers to post photos of themselves wearing its Design Lab paisley dress Influencers required to include @lordandtaylor and #DesignLab in posts FTC charged that influencers did not disclose they were compensated to post photo Result: 20-year consent order with extensive disclosure, monitoring and reporting obligations on retailer 31

32. FTC ACTION – LORD & TAYLOR 32Recent Updates to the FTC’s Regulatory Guidance

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35. FTC Enforcement – Warner Brothers (July 2016) Warner Bros. hired an advertising agency, Plaid Social Labs, to coordinate a “YouTube Influencer Campaign” for its video game Shadow of Mordor Plaid Social Labs hired individuals who had earned reputations as video game enthusiasts on YouTube to post positive videos promoting the game in exchange for free access to a pre-release version of the game and cash payments Warner Bros. required that Plaid instruct the game enthusiasts to place in the description box: (1) information about the game and (2) an FTC disclaimer disclosing that the post was sponsored 35

36. Twitter Examples 50 Cent (Curtis Jackson) Tweeted (Jan. 2011) – “HNHI is the stock symbol for TVG. there (sic) launching 15 different products. they are no joke get in now” Curtis Jackson owns 7.5 million shares & warrants for 22.5 million more “(My) own HNHI stock thoughts on it are my opinion. Talk to (a) financial advisor about it. HNHI is the right investment for me it may or may not be right for (you)! Do ur (sic) homework” 36

37. RIGHT OF PUBLICITY RISKS

38. Rights of Privacy / Publicity The right of publicity is the right of every person to control the commercial exploitation of their identity Violations: A person’s right of publicity is violated by an unauthorized commercial exploitation of that person’s identity Pursuant to state law Limitations: Commercial vs. Editorial 38

39. Rights of Privacy / Publicity • Post Mortem Rights • Allows claims by heirs and estates • Tennessee - As long as continuously used • California - 70 years after death 39

40. RIGHT OF PUBLICITY

41. Michael Jordan vs. Jewel Food Stores Ad in 2009 Sports Illustrated Jordan sues for $10mm Lost, appealed, trial Aug. 2015 – Jury trial = $8.9mm in damages Nov. 2015 – Settled

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43. Hot Topics in: Advertising, Social Media and Consumer Privacy Law 44

44. Heigl v. Duane Reade, Inc. Katherine Heigl sued Duane Reed for violation of her right of publicity and for false association / endorsement Lawsuit sought $6 million in damages After tons of press, parties reached a private settlement “beneficial to both parties” 45

45. Social Media and Native Advertising Rules of the 46 Did They Join the Online Conversation?

46. Disclosures and Right of Publicity 47

47. Sofia Vergara vs. Venus Concept (Jan-2016) Sofia Vergara used Venus Concept’s Legacy skin tightening massage treatment in August 2014 She posted a selfie to WhoSay Also appeared in EXTRA regarding using the product Venus Concept has used the selfie in its advertising and at trade shows She is suing for $15,000,000 48

48. Hot Topics in: Advertising, Social Media and Consumer Privacy Law 49

49. NATIVE ADVERTISING

50. Blurred Lines No More: Native Advertising in 2016 51 https://www.youtube.com/watch?v=IVfslRsNXUc

51. Law Applicable to Native Advertising: FTC FTC advisory opinion, 1968: • A newspaper article reviewing several restaurants had been paid for by the advertisers but did not disclose that it was advertising • “The column uses the format and has the general appearance of a news feature and/or article for public information which purports to give an independent, impartial, and unbiased view” • Newspaper needed to clearly and conspicuously disclose that this was an advertisement 52

52. Examples of Native Advertising Sponsored Stories Promoted Tweets Branded playlists on Spotify Huffington Post “brand newsroom” Yahoo Stream ads BuzzFeed 53

53. FTC Enforcement Policy and Business Guidance (December 2015) FTC has issued specific formatting and disclosure advice on the heels of NAD decisions: • Disclosures should be placed in front of or above a native advertising headline and/or be accompanied by visual cues such as shading or borders • “Advertisement” or “sponsored advertising content” should be used instead of ambiguous terms such as “promoted” or “more from the web” • “Presented by Advertiser” may not be sufficient if the advertiser created or influenced the content as opposed to simply funding it • Echoing the eSalon case, disclosures must be made when content is shared or re-posted 56

54. Making Disclosures Based on the FTC Guidance • In general, disclosures should be • In clear and unambiguous language (logos alone are not sufficient) • As close as possible to the native ads to which they relate • In a font and color that’s easy to read • In a shade that stands out against the background • For video ads, on the screen long enough to be noticed, read, and understood • Consumers must be aware content is sponsored before making the decision to view it 57

55. • Due diligence on influencers • Have policies and an approach in place • Contracts / Terms • Educate your influencers on your policies • Monitor, monitor and more monitoring Final Tips 58

56. QUESTIONS? Gary Kibel PMA General Counsel Partner, Davis & Gilbert LLP gkibel@dglaw.com @GaryKibel Rachel Honoway PMA BOD President 2016 – 2017 CEO at FMTC rachel@fmtc.co @FMTC_co