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MobiU2011 Lecture: STRAT131 Mobile Legal Implications - Sedgwick LLP


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Dave discusses the legal pitfalls that all brands should be aware of when running a mobile campaign. He will also cover the court precedents that are important to how mobile campaigns should be run to prevent legal action, particularly class action lawsuits. All brand owners should attend to ensure they are protecting their brands in the current wild wild west setting of mobile marketing and legal.

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MobiU2011 Lecture: STRAT131 Mobile Legal Implications - Sedgwick LLP

  1. 1. Presented by the Heartland Mobile Council Legal Landmines in “Mocial” Marketing David S. Almeida, Partner, Sedgwick LLP, @almeidage @SedgwickLLP Event hashtag #MobiU2011
  2. 2. #MobiU2011, @almeidage @SedgwickLLP  Primarily, a litigator; defending companies faced with class action lawsuits over their marketing and data security policies and practices  Also, counsel clients on best practices for direct, mobile and other forms of marketing, as well as on use of social media, mobile commerce, privacy and data security Focus & Representative Clients
  3. 3. #MobiU2011, @almeidage @SedgwickLLP  Mobile (text, sites, apps, commerce) o Laws, Lawsuits, Ways to Defend, Ways to Avoid  Social o FTC Guidelines, Investigations o Social & Mobile Commerce  Privacy, including Geolocation & Information Sharing  Best Practices for Minimizing Risk Overview/Agenda
  4. 4. #MobiU2011, @almeidage @SedgwickLLP Lawyers Are Not All Bad  Focus on lawyer as business partner  Legal should not be seen as an obstacle  Can add value to “Mocial” marketing campaigns that go beyond risk avoidance and mitigation to customer satisfaction/retention  Knowledge of applicable laws & regs will help build campaigns that focus on consumers’ desires & expectations, and keep you out of trouble
  5. 5. #MobiU2011, @almeidage @SedgwickLLP  Choice and Privacy exist in partnership  Obtain opt-in and opt-out preference and desired frequency for your customers and respect those choices  The consumer has chosen you based on your representations (policies) and told you how they want to interact with you  Compliance entails meeting both the legal and responsibility requirements
  6. 6. #MobiU2011, @almeidage @SedgwickLLP — Michael Becker, Managing Director for North America, Mobile Marketing Association 1. Protect consumers’ privacy 2. Give consumers choice in terms of timing and method of engagement 3. Provide CLEAR AND CONSPICUOUS NOTICE to consumers of what they can expect when they engage in marketing program, including information re: opt-out “Protect the consumer, and you protect the opportunity”
  7. 7. #MobiU2011, @almeidage @SedgwickLLP Many, many, many laws & regulations potentially apply  Laws either explicitly or implicitly regulate particular channels of marketing, including: 1. The FTC Act (Section 5) 2. State Unfair and Deceptive Practices Acts 3. CAN-SPAM 4. TCPA and FCC regulations 5. Do-Not-Call Rules  Generally speaking, US’ laws are channel specific (TCPA, CAN-SPAM, etc…), whereas many other countries’ laws are broader and cover many channels (i.e., regulate privacy generally as opposed to channels specifically)  Increasing focus on marketing practices by FTC, FCC, Congress & Plaintiffs’ lawyers  If you don’t voluntarily and proactively comply, either government (FTC) or plaintiffs’ lawyers will come calling
  8. 8. #MobiU2011, @almeidage @SedgwickLLP Telephone Consumer Protection Act (TCPA)  Originally passed in 1991  Broadly applicable to direct marketing via calls, faxes and texts  Recipients May File a Lawsuit on Behalf of a Class of Similarly Situated Persons (a Class Action Lawsuit) Seeking: o Actual monetary damages incurred or o $500/per violation or $1,500 for each “willful” violation. o No cap on amount of “damages” recoverable (unlike many other consumer protection statutes) o For certain judges, plaintiffs’ burden on proving willfulness is very easily met.
  9. 9. #MobiU2011, @almeidage @SedgwickLLP Recent explosion in amount of marketing dollars spent on mobile marketing campaigns, including:  Text messaging (SMS, MMS)  Mobile Websites  Applications  Location Based  QR Codes Mobile Marketing: The TCPA’s Next Frontier
  10. 10. #MobiU2011, @almeidage @SedgwickLLP Mobile: Different LEGALLY from other forms of marketing 1. Requires affirmative consent (opt-in); most other forms of DM do not (CAN-SPAM, for ex, opt-out) 2. Lack of sufficient space for adequate disclosures (hashtags – good enough ?) 3. Absence of uniform national regulations or laws (courts apply TCPA (passed in ’91) to mobile) 4. Cost – consumers complain that unlike other forms of DM, SMS actually costs them $ (in addition to privacy concerns)
  11. 11. #MobiU2011, @almeidage @SedgwickLLP  Facts o Plaintiff received a single text message advertising publication of Stephen King’s “The Cell” o Plaintiff alleges that she granted permission to and affiliate brands, but not to Simon & Schuster, the brand & the defendant (and, most imptly, the perceived deep pocket)  Issue o Whether a text message is a “call” under the TCPA? o Whether text was sent with plaintiff’s “prior express consent”? Satterfield Mobile Information Access Co. Ipish! Simon & Schuster Satterfield v. Simon & Schuster, Inc., 569 F.3d 946 (9th Cir. 2009)
  12. 12. #MobiU2011, @almeidage @SedgwickLLP  9th Circuit reversed MTD and held that a text is a “call” under TCPA o TCPA does not define "call" (passed in 1991) o FCC considers both voice and text to fall under the “to make any call” language of TCPA o Legislative History: TCPA enacted to curb transmission of unsolicited telemarketing calls  Plaintiff did not give “prior express consent” to Simon & Schuster to text her o Calls exempt under 47 USC § 227(b)(1)(B) with consent o Simon & Schuster was not an affiliate of; affiliates construed narrowly o Consent too attenuated / need to be direct consent  Case ultimately settled: creation of a $10M settlement fund with plaintiff’s attorneys receiving $2.7M Satterfield v. Simon & Schuster, Inc.,(cont’d)
  13. 13. #MobiU2011, @almeidage @SedgwickLLP Abbas v. Selling Source, LLC, 2009 WL 4884471 (N.D. Ill. 2009) & Lozano v. Twentieth Century Fox Film Corp., Case No. Civ. 09-cv- 6344 (N.D. Ill)  Recipient of text need not be charged o Language of 47 U.S.C. § 227 is ambiguous as to whether a charge is required o TCPA amended to provide that FCC “may, by rule or order, exempt . . . [calls] a cellular telephone service that are not charged” o Implication from amendment is that charge is not required; there are also privacy concerns  Equipment sending text need not be an ATDS o Text sent from an institutional sender without personalization o Sufficient to allege sender had “capacity” for random or sequential generation; to withstand dispositive motion and get to discovery  First Amendment and void for vagueness are likely not viable defenses  20th Century Fox case settled for $16M
  14. 14. #MobiU2011, @almeidage @SedgwickLLP  Plaintiff filed suit on behalf of a putative class of similarly situated persons alleging that he received 10 unsolicited text messages in violation of the TCPA  Defendants argued the “prior express consent” requirement of the TCPA did not apply to text message cases (because language was passed in 1991 – well before text messages)  Court said no; defendants disregarded “ample evidence” that the TCPA applied with equal measure to “both voice calls and text calls to wireless numbers.”  Takeaway - “Defendants are obligated to examine FCC guidance and court decisions that address express consent for automated marketing under the TCPA.”  Makes clear that mobile marketing requires express consent, not just implied Kramer v. Autobytel, Inc.
  15. 15. #MobiU2011, @almeidage @SedgwickLLP  Question of consent is narrowly construed – thus, when contacting customers via mobile, a marketer must independently determine that the permission-basis for the contact encompasses the specific communication that the marketer intends to transmit  HUGE mistake to rely exclusively on a vendor’s opt-in list o Must build consent list with single or double opt ins o Timely honor opt-outs, “STOP”  Very impt to build indemnification language into all contracts with vendors and affiliate marketers; however, those provisions only as valuable as the financial viability of those entities  Keep records – if possible – to substantiate consent (tricky with verbal consent) Consent Issues
  16. 16. #MobiU2011, @almeidage @SedgwickLLP  Typically filed in state court  Standard for removal to federal court varies by jurisdiction  All circuits permit removal to federal court based on Class Action Fairness Act of 2005 (“CAFA”) & diversity jurisdiction: o CAFA o Class of plaintiffs 100 or greater o Minimal diversity (1 plaintiff diverse from 1 defendant) o Amount in controversy exceeds $5 million o Diversity Jurisdiction – 28 U.S.C. §1332 o Amount in controversy exceeds $75,000 for single plaintiff o Complete diversity between plaintiff and all defendants  Cases are tough to defend, but winnable on existing business relationship exemption under FCC regulations, offer of judgment or defeating class certification (superiority, predominance etc…) . Defending TCPA claims
  17. 17. #MobiU2011, @almeidage @SedgwickLLP  Number of texts x $ amount per transmission 10,000 x $500-$1,500  Total settlement fund amount $5,000,000  Incentive award for class representative $5,000-$10,000  Attorney’s fee (generally 1/3 of settlement amount) $1,650,00  Notice costs <$500 TOTAL COSTS INCURRED BY DEFENDANT $1,658,000 (avg) BEFORE OPENING UP CLAIMS PERIOD In theory, the remaining funds $3,342,000 should be paid to class members, but. . . Economics of a TCPA Class Action.
  18. 18. #MobiU2011, @almeidage @SedgwickLLP  Claims-Made Settlement o Pay claimants only if submit valid claim form (typically, 5-7% opt-in rate) o Defendant retains funds thus keeps any unclaimed monies o So, in above scenario, $3.3M Fund, 5% opt-in rate (500 claimants), pay out $167,100 to class members, left with a $3.175M residual o Significant carrot offered by Plaintiff’s lawyer to encourage early settlement and lots of attorney’s fees  Settlement Fund o Administered by third party claims administrator (an extra $25-50k) o Residual not returned to Defendant o Cy Pres: "as near as possible,” courts basically give the remainder away o In the above scenario, defendant basically forced to settle because of risk of losing nearly $3.2 M Structure of Class Settlement: BIG Difference
  19. 19. #MobiU2011, @almeidage @SedgwickLLP  Huge aspect of TCPA cases; insurance companies and courts split on duty to defend and to indemnify TCPA class actions  Plaintiffs’ lawyers “creatively plead” around insurance exclusion by alleging more than a TCPA violation o Thereby, Plaintiff ensures insurance company involvement – a deep pocket to pay for settlement or judgment  Often, 2 for the price of 1: Declaratory judgment actions by insurers  Impt takeaway – carefully review all potentially applicable insurance policies, declarations and exclusions (and those of your marketing partners) Additional resource: Insurance Aspect of TCPA Cases
  20. 20. #MobiU2011, @almeidage @SedgwickLLP Evolving Media Landscape  Business is Moving to Social Marketing, Quickly (this is not news) o 20% of marketing dollars to social media by 2015* o 60% of Fortune 500 now have Twitter accounts, up from 35% in 2009 **  Social Communications – New Dynamics o Real-time engagement o Two-way communications o Multiple sources of information & influence  Risks & Opportunities o PR nightmares o Protect brand equity o Scaling social media efforts o Transparency & accountability o Increased regulatory requirements o Social media policies & governance *eMarketer 09/2009 **Center for Marketing Research University of Massachusetts Dartmouth 2010
  21. 21. #MobiU2011, @almeidage @SedgwickLLP Regulatory Environment "As a practical matter, social media is now a regulated industry; and all stakeholders are responsible for compliance with the FTC Guides. As a result, all marketers, agencies, and brands must develop a 'culture of compliance' where the vocabulary of risk management is a central aspect of an advertising strategy.” – Tony DiResta General Counsel of WOMMA "If law enforcement becomes necessary, our focus will be advertisers, not endorsers – just as it’s always been.” – FTC Factsheet on Update to Endorsement Guides
  22. 22. #MobiU2011, @almeidage @SedgwickLLP The FTC has been extremely active in policing companies’ data security and collection practices to ensure compliance with their posted policies. Chitika Costs of settlements go far beyond fines and CMPs; rather, extensive corrective action plans are typically part of any FTC or OCR settlement (not to mention class action litigation costs) Additional resource: guidance-on-data-security-failure-to-secure-pi-can-be-an-unfair-or-deceptive- practice/ Extremely Activist Regulatory Environment
  23. 23. #MobiU2011, @almeidage @SedgwickLLP FTC Requirements  Disclose & Inform o Disclosures must be clear & conspicuous o Advertisers and agencies are liable o Create a process that ensures a culture of compliance between advertisers, employees, agencies and influencers  Document & Monitor o Must know what your influencers are saying o Process & procedures must be documented  Follow Up & Takedown o Expectation is not that you will catch everything but you must be responsive and proactive in addressing required compliance All material connections must be disclosed with documented process
  24. 24. #MobiU2011, @almeidage @SedgwickLLP Notable Regulatory Events  State action (NY State)  FTC action (endorsements)  FTC action (astroturfing)  TBD SEC/FTC  UK OFT action (foreign jurisdictions)  FTC action (affiliate marketing)
  25. 25. #MobiU2011, @almeidage @SedgwickLLP Risks of Non-Compliance  Regulatory Action o Significant legal costs o Penalties and settlement terms o Potential for erosion of brand trust  Court of Public Opinion o Consumers, Bloggers, o Social media backlash o Blacklisting  PR Nightmares o Scandals o Reports & investigations o Bad press & negative opinions
  26. 26. #MobiU2011, @almeidage @SedgwickLLP The Challenges of Compliance  Short, Simple, Clear & Conspicuous o Space limitations - 140 Characters or less o Universal & recognizable  Maintain control across multiple influencer channels o Active monitoring for compliance o Ability to follow-up and take down o Ensure proper use of disclosures – enforce policies  Scale Challenges o Monitor for omitted disclosures / compliance at influencer level o Understand the context of specific messages/posts/tweets o Document follow up actions o Archive audit trail data of all program activities  Management Challenges o Communicate policies and document participant acceptance o Multiple programs, brands, agencies, stakeholders, platforms
  27. 27. #MobiU2011, @almeidage @SedgwickLLP How Are People Addressing This?  Ignorance is not bliss  Your agency *might* handle it  Listening vs. understanding  Ad-hoc compliance solutions / Hashtags  Site-wide disclosures  Background & Profile Disclosures  Contests & Promotions  Affiliate marketing programs
  28. 28. #MobiU2011, @almeidage @SedgwickLLP PRIVACY!!!
  29. 29. #MobiU2011, @almeidage @SedgwickLLP FTC Preliminary Privacy Report Issued in December, 2010 “All companies involved in information collection and sharing on mobile devices – carriers, operating system vendors, applications and advertisers – should provide meaningful choice mechanisms for consumers.”
  30. 30. #MobiU2011, @almeidage @SedgwickLLP Mobile Data, Commerce Lawsuits  Mocial – wealth of information – where you are, who your friends are, what you like  Concerns over what info is collected? From whom? When? How? o Is it personal identifiable info? o Is it personal info? o Recent changes to privacy o policy at Groupon – a good o idea
  31. 31. #MobiU2011, @almeidage @SedgwickLLP 4 broad categories of legal claims  Geo-targeting o Location, Location, Location o Coupling Location w/ Context, w/ Behavior o Brown v. Google & Gupta v. Apple  App-based o In re iPhone Application Litigation  Online tracking (through phone’s web browser and resultant behavorial advertising) o Google, Microsoft, and many others  Mobile, Social Commerce o Gift buying, daily deal sites (expiration date cases)
  32. 32. #MobiU2011, @almeidage @SedgwickLLP Geo-location legislation Many, many geo-location privacy bills introduced recently Federal Lawmakers Introduce Geolocation Bills: Main Themes are Consent & Transparency introduce-geolocation-bills-main-themes-are-consent- transparency/
  33. 33. #MobiU2011, @almeidage @SedgwickLLP Seven Self-Regulatory Principles 1. Education 2. Transparency 3. Consumer Control 4. Data Security 5. Material Changes 6. Sensitive Data 7. Accountability
  34. 34. #MobiU2011, @almeidage @SedgwickLLP Some say industry self-regulation futile …  Frustration w/ slow pace of privacy self-regulation leads to lawsuits  Thus, defenses to Mobile Data Collection Cases … o Lack of a Legally Cognizable Injury (no standing to sue) o Consent o End User License Agreement o Privacy Policies o Statute-specific defenses o Video Privacy Protection Act o Stored Communications Act o Electronic Communications Privacy Act
  35. 35. #MobiU2011, @almeidage @SedgwickLLP Data Breach Litigation & Costs *January 2011 Ponemon Institute Study  The Heartland Payment Systems breach disclosed in January 2009 has affected over 250,000 merchants and 500+ financial institutions. Fourteen lawsuits have been filed against Heartland. $65 Million Visa Settlement Rejected by attorneys.  TJX reached a $40.9 Million settlement agreement with banks that processed credit card transactions. This represented only a fraction of the $256 million+ cost of the breach. Of the 78% of Fortune 1,000 U.S. entities that have reported a data breach*: 80% of breaches = total insurable amount < $1,000,000 15% of breaches = total insurable amount $1,000,000 - $20,000,000 5% of breaches = total insurable amount > $20,000,000 *January 2011 Ponemon Institute Study
  36. 36. #MobiU2011, @almeidage @SedgwickLLP Cost Timeline of a Breach  Recognize breach  Determine extent of breach, number of records lost, type of information lost  Review federal and state statutes - actions necessary in breach response  Notification, forensics, credit monitoring, credit restoration  Potential regulatory fines and penalties incurred  Vendor fines and penalties incurred  Third party litigation, settlements (credit monitoring, damages, etc…), legal fees, pr issues
  37. 37. #MobiU2011, @almeidage @SedgwickLLP Source: Ponemon Institute, Five Countries: Cost of Data Breach , Apr 2010 0 50 100 150 200 250 US Germany France Australia UK Average 214 177 119 114 98 142.4 Cost of Data Breach
  38. 38. #MobiU2011, @almeidage @SedgwickLLP KEY Takeaways  Carefully review Terms of Use and Privacy Policies for accuracy and compliance  Inform consumers what data collected & how use  Plain English – consumers must know what they are signing up for  Do what you say you will do – honor representations in stated policies  Indemnity Provisions – any time dealing with 3rd parties – if buying a list, if managing opt-outs, if hosting an application  Periodically audit websites for hidden tags, cookies – need to know what you are doing, what data you are collected and why
  39. 39. #MobiU2011, @almeidage @SedgwickLLP
  40. 40. #MobiU2011, @almeidage @SedgwickLLP FCC Telemarketing Policy page: Text of the TCPA: TCC Telemarketing Rules: Satterfield v. Simon & Schuster, Inc., 569 F.3d 946 (9th Cir. 2009) Abbas v. Selling Source, LLC, 2009 WL 4884471 (N. D. Ill. Dec. 14, 2009) Joffe v. Acacia Mortgage Corp., 121 P.3d 831 (Ariz. Ct. App. 2005) Resources
  41. 41. #MobiU2011, @almeidage @SedgwickLLP Additional Resources LinkedIn: Digital Media Law Blog: 41
  42. 42. #MobiU2011, @almeidage @SedgwickLLP Sedgwick provides its clients with informed corporate and transactional advice, effective litigation strategies, and long-term litigation avoidance counsel. With more than 350 attorneys in offices throughout North America, Bermuda* and Europe, Sedgwick’s collective experience spans the globe and virtually every industry. For more information about Sedgwick, its attorneys, and its services, visit the firm’s website at About Sedgwick *Associated office.
  43. 43. #MobiU2011, @almeidage @SedgwickLLP This presentation is for general informational purposes only and is not legal advice. The evaluation of legal issues always depends on specific facts and circumstances. This presentation should not be used as a substitute for competent legal advice from a licensed attorney. Your use of this presentation does not create an attorney-client relationship. Please do not send us any confidential information by email or otherwise as your communication will not be privileged and may be subject to compelled disclosed to other persons. Disclaimer