Withstanding FTC and State Scrutiny of Emerging e-Marketing Practices,


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Corporate Counsel on E-Marketing & Privacy Law (Los Angeles March 19, 2007).

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Withstanding FTC and State Scrutiny of Emerging e-Marketing Practices,

  1. 1. Marketing PitfallsBennet KelleyMarch 19, 2007
  2. 2. Scope• Not about handling FTC or state investigations• About staying off regulators radar screen
  3. 3. Part I:Marketing Methods
  4. 4. WORDS MONTY THINGS IN ARCANEHORMEL YOUR INBOX RHYMING MINUTIA PYTHON WITH RAM100 100 100 100 100200 200 200 200 200300 300 300 300 300400 400 400 400 400500 500 500 500 500
  5. 5. What do the following have in common? Vikings Margaret Thatcher Nikita Khrushchev Herbal Viagra Users
  6. 6. What is Spam?
  7. 7. CAN-SPAM Act of 2003Controlling the Assault of Non-SolicitedPornography and Marketing Act of 2003•  Anti-Fraud & Disclosure Statute•  Does not “CAN Spam” – –  except for wireless spam•  No “Do Not Email Registry”•  No “ADV” Requirement•  Applies to an email where the “primary purpose” is commercial advertisement or promotion of a product/service•  No volume requirement•  Is sending a resume subject to CAN-SPAM?•  No private right of action•  Except for ESP’s
  8. 8. CAN-SPAM Principal Requirements From line must identify sender Subject line must not be deceptive. Adult Messages must provide notice.Requires Working Opt-OutMechanism for Advertiser Postal Address for Advertiser
  9. 9. Opt-Out Mechanism•  Opt-out Link •  Separate Lines Of Business/ –  More Detailed Options Possible Divisions (e.g., menu options for –  If (a) email sent by separate unsubscribing) line of business or separate –  Must be functioning for 30 days division; and (b) it holds itself out as the separate unit to the –  Remove within 10 days consumer – then opt-out only –  Must also provide postal applies to that division and not address the entire company.•  May Not Use/Sell After Opt-out Example Consumer opting out of email from•  Suppression List Chevrolet is not opting out of –  Must use before each mailing General Motors. –  Seed suppression to ensure not being abused by affiliates
  10. 10. Opt-Out ExamplesAcceptable Opt-Out Non-compliant I no longer wish to receive □ I no longer wish to receive the following offers: Country Music offers. □ Country Music □ Hip-Hop □ I no longer wish to receive updates on Britney Spears’ □ Disco meltdown □ Latin □ K-FED □ Please send me more stuff □ Remove me from all offers
  11. 11. Multiple Advertisers In One Email/Newsletters CURRENT RULE•  CAN-SPAM ACT AS DRAFTED: All must have opt-out•  Non-binding FTC Guidance Letter –  Multiple opt-out links are not required only if: (1) the recipient has opted-in to receive multi-advertiser messages and such consent is documented (2) one advertiser assumes role as “Designated Sender” (3) Designated Sender” provides opt-out link which it honors; and (4) Designated Sender” should select the list and its name should be in the from line.
  12. 12. Multiple Advertisers In One Email/Newsletters PROPOSED REGULATIONS FTC Example•  May designate one advertiser as X, Y and Z are the advertisers. X may the sender – who must provide be the “Designated Sender” ONLY IF address, opt-out link etc. •  X satisfies (1), (2) or (3)•  Designated Sender must either: •  AND neither Y nor Z satisfy (1), (2) or (1) Control the content; OR (3) (2) Determine list to be used; OR (3) Be identified in from line; AND (4) No other advertiser satisfies 1-3 –  Not in effect yet
  13. 13. State Spam Laws•  CAN-SPAM Does Not Preempt –  State laws that “are not specific to electric mail, including State trespass, contract or tort laws”; OR other State laws “to the extent that those laws relate to acts of fraud or computer crime”•  E.g., California Chapter 571 (effective January 1, 2005) –  Prohibits e-mail using third-party domain without permission; falsified or forged headers or deceptive subject lines. –  Private right of action - damages of $1,000 per email up to $1MM “per incident”•  Michigan & Utah Child Registry Laws –  Question of Preemption
  14. 14. Omega World Travel (4th Cir 2006): States can only regulate material misstatementsThe CAN-SPAM Act . . . does not make every error or opt-out request into grounds for a lawsuit. The e-mails in this case are not actionable under the Act. Nor can the messages be actionable under Oklahoma’s statutes, because allowing a state to attach liability to bare immaterial error in commercial e-mails would be inconsistent with the federal Act’s preemption text and structure . . .
  15. 15. Telephone ConsumerProtection Act of 2003 •  Do Not Call Registry – more than 107 Million telephone numbers •  The FCC’s rules prohibit telephone solicitation calls to your home before 8 am or after 9 pm. –  must provide his or her name, the name of the person or entity on whose behalf the call is being made, –  and a telephone number or address at which that person or entity may be contacted
  16. 16. Part 2: Spyware
  17. 17. Spyware A somewhat vague term generally referring to software that is secretly installed on a users computer and that monitors use of the computer in some way without the users knowledge or consent. Most spyware tries to get the user to view advertising and/or particular web pages. Some spyware also sends information about the user to another machine over the Internet. Spyware is usually installed without a users knowledge as part of the installation of other software, especially software such as music sharing software obtained via download. - Matisse Glossary of Internet Terms
  18. 18. The WaresAdware Malware•  Software bundled with ad service •  Software designed specifically to software damage or disrupt a system, such•  Notice & consent issues as a virus or a Trojan horse.Spyware Scareware•  Gathers information on user •  “Faux Spyware”, i.e., benign without knowledge applications falsely labeled as –  Email addresses Spyware –  Passwords –  Credit Card Information Warez•  Keystroke Logging •  Term used by software "pirates" to•  Alters default settings describe software that has been stripped of its copy-protection and made available on the Internet for downloading..
  19. 19. Spyware15 States with Spyware Laws•  California law is model –  Prohibits deceptive downloading and/or collection of information –  Prohibits taking over third party computer or altering default settingsNo Federal Law•  108th & 109th Congress: –  Passed House & Senate Commerce Committee –  No Senate Vote –  Reintroduced in 2007FTC Position•  Already have sufficient authority –  Enforcement actions against Digital Enterprises; Seismic Entertainment Productions; Max Theater; TrustSoft; Advertising.com; Odysseus Marketing; Enternet Media . . .
  20. 20. Federal Enforcement
  21. 21. State & Civil Enforcement
  22. 22. Public Interest Groups•  Battling in the court of public opinion
  23. 23. Part 3: Content Issues
  24. 24. The Best Things in Life Are Free**Except for everything really cool that you have to pay for. Participation or human sacrifice may be required. Void in Bosnia, Burkina Fasoand any country where Madonna adopted a kid. To claim your prize, you must tap your head and rub your belly while reciting the alphabetbackwards.
  25. 25. FTC Guidelines on Use of the Word “Free”(a)(2) . . . the offer of ``Free (c) . . . When making ``Free or similarmerchandise . . . must be made with offers all the terms, conditions andextreme care so as to avoid any obligations upon which receipt andpossibility that consumers will be retention of the ``Free item aremisled or deceived. . . . contingent should be set forth clearly and conspicuously at the outset of theb) . . . . when the purchaser is told that offer so as to leave no reasonablean article is ``Free to him if another probability that the terms of the offerarticle is purchased, the word ``Free might be misunderstood. Statedindicates that he is paying nothing for differently, all of the terms, conditionsthat article and no more than the and obligations should appear in closeregular price for the other. Thus, a conjunction with the offer of ``Freepurchaser has a right to believe that the merchandise or service. For example,merchant will not directly and disclosure of the terms of the offer setimmediately recover, in whole or in part, forth in a footnote of an advertisementthe cost of the free merchandise or to which reference is made by anservice by marking up the price of the asterisk or other symbol placed next toarticle which must be purchased, by the the offer, is not regarded as makingsubstitution of inferior merchandise or disclosure at the outset.service, or otherwise. Use “Extreme Care”. . . EXCEPT WHEN
  26. 26. It’sYourName
  27. 27. State Law Example: Ohio •  Oh.Admin. Cod., Titl. 109 ! 109:4-3-04. When using the word "free" in a consumer transaction, all the terms, conditions, and obligations upon which receipt and retention of the "free" goods or services are contingent shall be set forth clearly and conspicuously at the outset of the offer. • FONT: Terms, conditions must be printed in a type size half as large as the word "free" •  PROXIMITY: All of the terms, conditions, and obligations should appear in close proximity with the offer of "free" goods or services. •  FOOTNOTE* NOT ENOUGH
  28. 28. But then again . . . Ohio statute •  FTC - All terms not required to be included in initial disclaimer, may•  Gives “great weight” to FTC direct consumers to more rulings detailed disclosure. –  FTC has held that a clear and•  And exempts practices “required or prominent statement “directing specifically permitted by [FTC] consumers to a location where orders, trade regulation rules and the disclosure required herein guides will be available is sufficient (e.g., "For conditions and Ohio R.C. § § 1345.05(B) (2), 1345.11(B) membership details," followed by: "load up trial software" or "see registration process" or words of similar effect.)” –  In re American Online, 125 F.T.C. 403 (1998);
  29. 29. The Three P’s for Disclaimers• Placement• Prominence• Proximity
  30. 30. X Disclaimed TextDisclaimer
  31. 31. Using HyperlinksWhen Using Hyperlinks •  Make the link obvious.to Lead to Disclosures: •  Label the hyperlink appropriately to convey the importance, nature, and relevance of the linked-to information. •  Take consumers directly to the disclosure on the click-through page. •  Assess the effectiveness of the hyperlink by monitoring click- through rates and make changes accordingly. Be prepared to show the link is effective
  32. 32. Don’t Be SubtleAn explicit instruction like "seebelow for importantinformation on diamondweights" will alert consumersto scroll and look for theinformation. The text promptshould be tied to thedisclosure that it refers to.General or vague statements,such as "see below fordetails," provide no indicationabout the subject matter orimportance of the informationthat consumers will find andare not adequate cues.
  33. 33. HYPERLINK 3 P’s = W OK
  34. 34. Other Content Issues Child Registry Laws•  Michigan, Utah and more to come.•  What is prohibited: if it is otherwise a crime for the minor to purchase, view, possess, participate in or otherwise receive the product or service.•  No alcohol, tobacco, firearms, adult content (including sex for hire), gambling, illegal or prescription drugs.
  35. 35. Online Gambling•  2003 DOJ Letter to NAB: “DotNet” Sites individuals that accept and run [online gambling ads] may be •  There can be no web links from aiding and abetting these an online free-to-play poker illegal activities. website (i.e. “poker.nets”) to a online pay-to-play poker website•  Sporting News: $7.2MM (i.e. “poker.com”) website settlement with DOJ •  There must be an on-screen•  Discovery: Over $5MM Seized disclaimer on the home page of by US Marshalls the online free-to-play poker website (i.e. “poker.nets”) that states that this site is purely•  Esquire: Search warrant after educational." running BoDog ads
  36. 36. Appendix State Laws OnUse of Word “Free”
  37. 37. Connecticut Conn. Agencies Regs. ! 42-110b-19 (1998) ("It shall be an unfair or deceptive act or practice to: (a) Advertise any merchandise or service as free by the use of the word `free or any other terms of similar import when the merchandise or service is not, in fact free. . . . Failure to disclose any and all terms, conditions and obligations required of the consumer shall be a violation of these regulations.");Florida 817.415 Florida Free Gift Advertising Law. (4) RESTRICTIONS ON USE OF WORD "FREE." ! Any item or portion of an item unconditionally offered as "free" shall in fact be free, without obligation or requirement of consideration in any form, when accepted in writing within the time limit set forth in the advertisement or within a reasonable time, if no time limit is so set. However, any person so receiving and accepting such offer may be required to pay any necessary transportation or delivery charges directly to the United States Postal Service or other regulated public carrier. (5) REQUIREMENTS FOR ADVERTISEMENTS. ! Advertising in which items are offered as free with conditions or obligations necessary to acceptance shall include a clear and conspicuous statement of any such conditions or obligations and advertising in compliance herewith shall not be considered deceptive.Idaho Idaho Admin. Code ! (1998) ("It is an unfair and deceptive act or practice for a seller to offer any goods or services as free, by use of the word `free or other terms of similar import, if the seller fails to clearly and conspicuously disclose at the outset all terms, conditions and obligations upon which receipt and retention of the free items are contingent.");
  38. 38. Illinois 515 Ill. Comp. State 505/P2 (West 1992) ("It is an unlawful practice for any person to promote or advertise any business, product, or interest in property, by means of offering free prizes, gifts or gratuities to any consumer, unless all material terms and conditions relating to the offer are clearly and conspicuously disclosed at the outset of the offer so as to leave no reasonable probability that the offering might be misunderstood.").Ohio Oh.Admin. Cod., Titl. 109 ! 109:4-3-04. (C) When using the word "free" in a consumer transaction, all the terms, conditions, and obligations upon which receipt and retention of the "free" goods or services are contingent shall be set forth clearly and conspicuously at the outset of the offer. Terms, conditions, and obligations of the offer must be printed in a type size half as large as the word "free," and all of the terms, conditions, and obligations should appear in close proximity with the offer of "free" goods or services. Disclosure of the terms of the offer set forth in a footnote of an advertisement to which reference is made by an asterisk or other symbol placed next to the offer is not regarded as making disclosure at the outset.Utah Utah Admin. Code R152-2-4 (1998) ("A `free or similar offer is deceptive unless all the terms, conditions, and obligations upon which receipt and retention of the `free item are contingent are set forth clearly and conspicuously at the outset of the offer so as to leave no reasonable probability that the terms of the offer might be misunderstood.").
  39. 39. Bennet KelleyAssociate General CounselDirector of Govt’l Affairs &PrivacyValueClick, Inc.Westlake Village, CABKelley@ValueClick.com