AD-ttorneys@law – April 24, 2018

Alerts / April 24, 2018

In This Issue:

Proposed US Consumer Internet Privacy Legislation Threatens Digital Advertising

Amid growing concerns over the improper use of user information and data breaches, and in the same week as the Senate examines the Cambridge Analytica controversy, a duo of U.S. senators who have long advocated for federal consumer privacy legislation seized the moment to propose a new bill, the Customer Online Notification for Stopping Edge-provider Network Transgressions (CONSENT) Act (the Bill). It would give the Federal Trade Commission (FTC or Commission), for the first time, authority to promulgate regulations to govern internet publishers’ and service providers’ privacy practices regarding adults and propose EU-style privacy protections, including opt-in consent to data use and sharing.

If passed, the law, and the FTC regulations to be promulgated under it, could radically alter the internet economy by making it significantly harder for publishers to monetize data to provide more relevant advertising to users, so-called interest-based advertising (IBA), which is the economic underpinning of the business model of the publishers and services that provide their content and services to users for free on an advertiser-supported basis. The Bill actually goes further in some ways than European law in that it would prohibit limiting services to users that consent to data use and sharing necessary for IBA, and would give the FTC the authority to determine whether pricing based on “discounts or other incentives in exchange for express affirmative consent” is “reasonable.” It is conceivable that the circumstances of the moment may have created a tipping point that makes passage of the Bill a real possibility. And even if a federal consumer privacy law fails to get through Congress, a California advocacy group is attempting to qualify a ballot initiative for EU-style privacy laws for the November general election that could also threaten ad-supported digital media. For more information, click here for a blog post by BakerHostetler lawyers Alan Friel and Njeri Chasseau.

DJ Khaled Alcohol Endorsements Exposed, Says TINA

Watchdog group calls out hip-hop producer for failing to disclose connections to several brands

Snap, Crackle and a Drop

In the 24 hours that it takes DJ Khaled’s Snapchat “snaps” to disappear, they may attract as many as two million viewers – an astounding figure. And given claims that he is especially good at attracting minors to his Snapchat posts, the content of those snaps generally receives a fair share of scrutiny.

In one DJ Khaled snap from the summer of 2017, the immensely popular hip-hop producer touched off a firestorm. The snap, which was ostensibly meant to celebrate his recently released No. 1 record, finds DJ Khaled at his dining room table, preparing a bowl of cereal – but instead of milk, he pours sparkling wine and vodka over his Cinnamon Toast Crunch.

And eats it.

Hold the ‘Milk!"

In March 2018, DJ Khaled’s snaps prompted a letter from Truth in Advertising Inc. (TINA) and other advocacy groups – Campaign for a Commercial-Free Childhood, Public Citizen, Mothers Against Drunk Driving, US Alcohol Policy Alliance, Alcohol Justice and the Center for Digital Democracy – calling the DJ out for failing to disclose his relationships with alcohol companies. According to TINA, the cereal snap wasn’t an isolated shout-out to two favorite drinks; the watchdog group claims to have collected 300 such ads from DJ Khaled’s social media channels.

Of these hundreds, the missive claims, “the vast majority fail to disclose his material connection to the company being promoted.” The letter names Diageo, Bacardi and Sovereign Brands as DJ Khaled’s undisclosed partners.

Another section of the letter notes that DJ Khaled is marketing these beverages to a young audience. “Khaled’s Snapchat following skews young … Snapchat is the social media platform of choice for teenagers with almost half of all teenagers reporting that it is their most preferred social network.”

The letter also delivered a threat: If DJ Khaled did not remove the offending posts from circulation, ensure his future social media posts disclose brand relationships and promise to stop targeting minors with alcohol ads by April 6, 2018, TINA and its co-signers would “notify state, federal, and/or international government regulators that Khaled, Diageo, Bacardi, and Sovereign Brands are engaged in deceptive and illegal marketing campaigns.”

And apparently it worked.

The Takeaway

According to TINA, within less than two weeks after receiving the letter, DJ Khaled stopped endorsing any alcohol brand. He also began adding the #AD hashtag on 150 social media posts and outright deleted others. As we’ve reported recently, hashtag disclosures in some circumstances may not be sufficient to adequately convey a material connection according to FTC guidance – the Commission expects “explanation disclosures” or more or less explicit statements of disclosure where necessary to convey the nature of the connection, a topic addressed by a recent research paper we reported on.

Based on this activity, TINA refrained from reporting DJ Khaled’s advertising to the FTC. However, the advocacy group warned that it would “continue to monitor DJ Khaled’s social media accounts.”

Over the past year, we’ve given a lot of coverage to endorser- and influencer-related news, which has been on an uptick since a report written by national advocacy group Public Citizen outed more than 100 influencers for failing to disclose their advertising relationships. We’ve covered famous gamers, “virtual” digital influencers, the influencer agita caused by changes to social media platforms, and some of the ad industry’s efforts to manage influencer collaborations.

Time to call it a trend?

4A’s and Agencies Issue APB on Unsafe Ad Environments

New Advertising Protection Bureau hopes to detox negative ad environments

Say Aaaah

The 4A’s, founded a century ago as a trade organization to represent advertising agencies, recently announced its latest industry program to achieve “Advertising Assurance” – the enforcement of environments where brands and consumers can “coexist with trust.”

The Advertiser Protection Bureau (APB or Bureau), introduced at the 4A’s annual Accelerate conference in April 2018, currently includes executives from GroupM, Dentsu Aegis Network, IPG Mediabrands, Havas Media, Horizon Media, Omnicom Media Group, Publicis Media and MDC Partners. The Bureau pledges to notify members when ads from any agency – even nonmembers – appear in an “unsafe environment.”

The Takeaway

Safety in an advertising context is a set of practices undertaken to protect ads, consumers and brands from situations and practices that might compromise them. Inappropriate content, malicious software and incommensurate standards between agencies are examples of challenges that can compromise the advertising ecosystem as a whole.

The Bureau will tackle three initiatives as first steps to increase safety throughout the industry. It plans to develop a “risk management module,” a taxonomy of risks that can help advertisers understand and communicate their own risk tolerance levels. The APB is also developing a “decency code,” a set of basic guidelines that will be aligned with the Media Rating Council’s pending Brand Safety Guidelines. The Bureau will also create an “industry playbook” to help standardize the industry’s approach to unsafe ad environments.

4A’s management stressed that the APB was a means to an end; the Bureau will break down “the silos to create a united community that protects the health of all brands, while keeping consumers safe, too.”

Astronaut’s Right-of-Publicity Case Won’t Timeout

Apollo 15 commander presents juryworthy arguments in space jewelry case

Space Commerce

During his Apollo 15 moonwalk, astronaut and mission commander Colonel David Scott – one of only a dozen people who have walked on the moon – wore a chronograph (a watch with additional measurement capabilities, such as a stopwatch) given to him by the Bulova company. Colonel Scott held on to the chronograph for decades, until auctioning it off for $1.6 million in 2015.

In 2016, Bulova began marketing a “Lunar Pilot Chronograph” (LPC) as a commemorative piece; the LPC was based on the original chronograph Scott wore during his extraterrestrial stroll. Bulova (now renamed Citizen Watch Co.) began marketing the timepiece, including through sales made by Sterling Jewelers (Sterling does business as Kay Jewelers, of TV commercial fame).

These marketing materials got under Scott’s skin.

Dave? You’re Suing Me, Dave …

The materials included photos of Scott, audio clips of his voice and direct textual references to the colonel in some versions. In response to these representations, Scott filed suit in January 2017 against Citizen and Sterling, alleging in his first amended complaint that the defendants had given a false impression of his endorsement in order to drive up the value and exposure of the LPC. He also claimed that Citizen and Sterling had exploited his unique role as an extraterrestrial explorer to line their own pockets, thereby ruining his carefully cultivated image – Scott claimed to have rarely taken advantage of commercial opportunities related to his star-farer status.

Scott charged the two defendants with common-law invasion of right of publicity, common-law invasion of right of privacy, violation of the California Civil Code, false advertising under the Lanham Act, false designation of origin/description, negligence, and intentional and negligent infliction of emotional distress.

Sterling and Citizen moved to dismiss the case in two separately written motions the court addressed simultaneously in an April 2018 order.

The Takeaway

The heart of the court’s order was simple: There were real factual disputes about the use of the colonel’s likeness, so summary judgment on the claims related to that use were denied.

According to the order, the defendants tried to undercut Scott’s misappropriation claims on several fronts – including that the use of his likeness was incidental and that it was protected under the First Amendment as a matter of public interest.

The court dismissed each defense as grounds for credible exploration by a jury. Scott’s identity, the court maintained, could be considered essential to the marketing of the piece, based on the materials and company communications. As to the historical claims, the court held that the “defendants did not sell an informational piece of media – fact-based trading cards, a newspaper, or a documentary – about Apollo 15 or space exploration. The commercial product is a watch.”

The court went on to deny all of the defendant’s motions, with one exception: emotional distress. Waxing science-fictiony, the court did away with the negligent and intentional emotional distress claims. “Even viewed in the light most favorable to Scott, this evidence is a parsec away from describing distress that no reasonable person can be expected to endure.”

Indeed, the judge seemed to be having fun with his order. In reference to Scott’s negligence claim, he wrote, “While the Court remains perplexed why Scott insists on pursuing a claim that adds nothing to the case, this supernovic white dwarf star of a claim burns on.”

Plaintiff Hopes His Fitbit Class Action Keeps On Beating

Last man standing in case against fitness-fashion designers

On Your Marks …

Plaintiff Robb Dunn joined a class action lawsuit against Fitbit filed by three other plaintiffs in January 2016, when his case against the company and a number of similar cases were consolidated with the original. The new amended complaint landed in the Northern District of California in May 2016, with a total list of 13 named plaintiffs.

If this genealogy was complicated, so was the complaint. It started off simple. The plaintiffs charged Fitbit with falsely representing that several of its wearable fitness products, including the “Charge HR,” “Surge” and “Blaze” fitness watches, were equipped with technology that would consistently and accurately record the wearer’s heart rate. They cited expert testing that they claimed proved that the products – nicknamed the “PurePulse Trackers” after the underlying technology – were inaccurate.

But the complaint also alleged that Fitbit attempted to bind its customers to an arbitration clause that was in and of itself an unfair and deceptive trade practice for anyone who had purchased the products from a third party rather than Fitbit’s website. The plaintiffs alleged common-law fraud, fraud in the inducement, unjust enrichment and breach of express warranty, along with violations of the Magnuson-Moss Act, the Song-Beverly Consumer Warranty Act and various other consumer-protection laws of more than 10 jurisdictions from California to New York state.

And Then There Was One

Suddenly, in October 2017, only Dunn remained.

Fitbit moved to compel arbitration, and the court agreed, except in the case of Dunn, who was the only plaintiff who had opted out of the arbitration clause in Fitbit’s user agreement. The rest of the plaintiffs were placed to the side while an arbitrator decided whether they should have their day in court or work things out in arbitration.

Fitbit once again moved to dismiss, claiming that Dunn’s accusations did not state a specific circumstance constituting fraud, and that the “catchy phrases” (“Know your Heart,” “Every Beat Counts”) it used to move product were nonactionable puffery, among other arguments.

The Takeaway

Dunn recently opposed the motion, claiming that a court decision in a recent stock-drop case against Fitbit legitimized his claims and countered Fitbit’s motion. “A court in this district has already concluded that these specific and objectively verifiable claims about the functionality of PurePulse technology constitute ‘actionable material misstatements’ that are not ‘mere puffing,’” Dunn wrote.

He also brushed off Fitbit’s claim that the company’s statements about its product line – “check heart rate at a glance” – did not make representations about its products’ accuracy. “This argument,” he wrote, “belies common sense.” Dunn also went back to the studies, noting that “scores of consumer complaints and expert studies … demonstrate that the Devices do not even come close to measuring users’ actual heart rates during exercise.”

We’ll have to wait to see whether the court will end the contest or let the race continue.

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