Articles Posted in Federal Trade Commission

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Cyberattacks are on the rise—so much that we seem to hear about a high-profile hack more often than it probably rains in most parts of California. Although reputational damage from a cyberattack can be scarring, a recent U.S. Third Circuit Court decision provides a reminder that the pain can come in many forms. In Federal Trade Commission v. Wyndham Worldwide Corp, the Court confirmed that the FTC can levy expensive fines on a business for failing to adequately protect consumer information. If there wasn’t sufficient reason before, the Third Circuit opinion should convince many who ignored cybersecurity to take a more proactive approach.

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Following an 18-month investigation into the practices and operations of data brokers,
the Federal Trade Commission has issued a voluminous report calling for legislation to regulate the industry in the interests of consumer privacy.  The report, called Data Brokers: A Call for Transparency and Accountability, identifies “data brokers” as “companies that collect consumer’s personal information and resell or share that information with others,” and notes that in today’s economy, “Big Data is big business.”  The report recounts that the privacy issues that data brokers present today were first addressed back to the 1970’s when Congress enacted the Fair Credit Report Act (FCRA) to regulate the collection and use of consumer data in connection with credit, housing, employment and similar decisions.  The FTC has been active in enforcing the provisions of the FCRA, but has also argued for similar types of protections even where the FCRA does not apply, such as where data is collected for marketing purposes, fraud prevention purposes, and people search products.  In its March 2012 report “Protecting Consumer Privacy in an Era of Rapid Change: Recommendations for Businesses and Policymakers”, the FTC noted that prior self-regulatory efforts by the industry had not addressed its concerns with transparency and called for the industry to create a web portal to provide consumers with more information about and access to information that data brokers hold about them.  In addition, an FTC Commissioner has spearheaded a “Reclaim Your Name” campaign urging the industry to adopt self-regulatory reforms to educate consumers as to how information is collected and used and to allow consumers access to the data that brokers hold,
correct any errors in it, and opt out of its use for marketing purposes. 

Noting that the industry has not moved on past suggestions such as these, the report calls for legislation that would require data brokers to provide the consumer with access to the data they hold regarding the consumer and to permit consumers to opt-out of the sharing of that information for marketing purposes.  The FTC reiterates its suggestion that a central web portal be created where data brokers identify themselves and their information collection and use practices and allow consumers access to their data and to opt out of certain uses.  The report also calls for legislation that would require data brokers to disclose to consumers that they not only use raw data that they collect, but whether they combine that data with other information and draw conclusions based on it such as determining a consumer’s interests based on magazine subscriptions, previous purchases, or website visits.  To facilitate consumer education, the report suggests that all consumer-facing entities be required to disclose if they sell consumer information to data brokers, provide opt out options concerning this sharing, and to provide the names of the specific data brokers with which the information is shared and a link to the web portal where consumers can learn more about the data brokers and their data access and opt out rights.  With respect to risk mitigation products, the report recommends extending FCRA-like notices to the consumer where, for example, the consumer is denied a cellular phone contract not because he or she is a credit risk, but because risk mitigation information indicates that he or she is an identity thief.  The notice would identify the data broker from which the information was obtained and the data broker in turn would provide the consumer with access to the data and a right to correct it if it is inaccurate.  In connection with people search products, the report recommends not only that consumers have the ability to access their data and opt out of certain uses, but that limits on those opt outs be clearly identified and that the data broker’s sources of information be identified.

The report concludes with a recommendation that all data brokers adopt the principles in the Commission’s 2012 report that they adopt “privacy by design”
and incorporate consumer privacy into all aspects of their operations. 

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federal-trade-commission-ftc-logo.pngOn March 12th, the Federal Trade Commission issued a report updating its mobile and online advertising guidelines.  The recently issued report was a follow-up to the year 2000 “Dot Com Disclosures” to address the marked technical and legal changes that have occurred in the past 13 years.  The FTC guidelines emphasize that no matter how technology changes the delivery of content, consumer protection laws continue to apply equally “across all mediums, whether delivered on a desktop computer, a mobile device, or more traditional media such as television, radio, or print.”  The intent of the report is to assist advertisers to better identify when a disclosure is needed in connection with social media ads and how best to ensure that any disclosures are conspicuous and not deceptive.  In order to maximize its usefulness, the report used more than 20 mock ads to illustrate the updated principles.

The FTC report advises that advertisers should ensure that clear and conspicuous disclosures are made on all devices and platforms that an advertisement can be accessed on and if the disclosure cannot be made clearly and conspicuously on a particular device or platform, then that device or platform should not be used.  Not only does the new report take into account the space limitations inherent in certain social media sites, like Twitter, but also the growing user viewing habits of content make available on small screen smartphones.  “The new guidance points out that advertisers using space-constrained ads, such as on some social media platforms, must still provide disclosures necessary to prevent an ad from being deceptive, and it advises marketers to avoid conveying such disclosures through pop-ups, because they are often blocked,” the FTC said.  In order to accomplish this in a better form the report suggests that an advertiser can include “Ad” or “Sponsored” before the message itself.  Additionally, the report admonished advertisers to consider whether a consumer will be able to view any disclaimers if it is required to “zoom-in” to read any part of the ad.  However, the new report is slightly more flexible when dealing with smaller screens by, allowing advertisers to make sure disclosures are “as close as possible” to the ad claim instead of the original guidelines which discussed having disclaimers “near or on the same page” as the advertisement.

If you have any questions about the new FTC guidelines and how they may affect your business Pillsbury would be happy to speak with you about them.  

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Thank you to everyone who joined us in both New York and Washington, DC for our Social Media Week events – Game On!

Special thank you to all of our panelists: Randy Leibowitz, Mike Scafidi, Tim Ettus, Lou Kerner, Peter Corbett, Jim Gatto, Sean Kane, Lauren Lynch Flick and Tina Kearns (many featured in the picture and video below). 

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User endorsements are becoming a more and more popular form of “advertising” as the use of social media and user-generated content continues to increase.  These endorsements often take the form of reviews via blogs or Yelp, but can also include other less conspicuous communications. These endorsements can be quite powerful. As a result some companies will compensate users for giving them.  In some cases, the compensation can bias the endorsement. While this is not illegal, it creates issues that need to be considered.

In some cases, user endorsements leverage social media features.  For example, a company’s website may include a button that, when clicked by a user, causes a positive message about the company to be posted via the user’s Facebook, LinkedIn, Twitter, or other social media account. When there is compensation for that endorsement–even soft compensation such as through loyalty program points or virtual goods–federal laws may come into play.

The Federal Trade Commission’s endorsement guidelines impose requirements on both the endorser and the advertiser if there is a “material connection” between the two parties.  A material connection exists when there is a commercial link that consumers would not expect.  A commercial link may arise when an endorser is compensated for the endorsement, for example, by payment, free samples, coupons, or other benefits.  Several factors must be considered when determining whether there is such a consumer expectation to trigger the FTC requirements.

One of the requirements identified by the FTC is that any material connection must be “clearly and conspicuously” disclosed.  The advertiser has affirmative duties to advise the endorser regarding the disclosure requirement and to have procedures in place to monitor compliance by the endorser.  While both the endorser and the advertiser are subject to liability, the FTC has indicated that its enforcement activities will generally focus on advertisers.

Contact us for more information on compliance with the FTC guidelines.

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Due to “legal and regulatory pressure” Dublin-based Intrade will no longer accept bets from US customers and all existing US customers must exit their trades and close their accounts. Intrade operates a real-money based prediction market. This announcement from Intrade came just hours after U.S. regulators filed a civil complaint against it.  

This action is another example of how gambling and gambling related activities are being subject to regulatory scrutiny. This trend is important for companies to note, particularly as a broader range of companies get involved in on line gambling. This is also important for companies involved in “gamblification.” Gamblification is the use of gambling mechanics for non-gambling purposes, i.e, leveraging the fun of gambling without real money at stake. Gamblification raises a whole host of legal issues, of which companies leveraging this phenomena must be aware.

The lawsuit was filed by the Commodity Futures Trading Commission, which accused Intrade and its parent company of violating its ban on off-exchange options trading, by enabling users to bet on predictions relating to commodities prices. But commodity trading is just one aspect of Intrade’s business. Intrade’s prediction market also enables users to bet on “predictions,” ranging from who will win presidential elections or Academy Awards or whether a dictator will be toppled by a certain date.

“It is against the law to solicit U.S. persons to buy and sell commodity options, even if they are called “prediction” contracts, unless they are listed for trading and traded on a CFTC-registered exchange or unless legally exempt,” Enforcement Director David Meister said in a statement. However, the CFTC has previously rejected exchange applications from companies that wanted to sell options on political outcomes, because they involve gaming and are contrary to the public interest.

A number of US-based companies operate prediction market platforms that enable users to make predictions on a range of activities, but sports-related predictions are among the most popular.  However, most of these platforms do not enable users to wager and/or win real-money. Some use virtual currency that users “wager” in connection with a prediction, but usually the virtual currency cannot be cashed out. The “win” that keeps users coming back is the bragging rights for those who are most accurate in their predictions.

While many of these models steer clear of the gambling laws, they must be done right to avoid crossing the line. Getting it right is especially tricky when virtual goods and/or currency are involved. Pillsbury’s social media team has prepared a client advisory on gamblification and the use of virtual goods/currency in these gamblification models. For a copy email us.

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On Thursday the Federal Trade Commission released a staff report titled, “Mobile Apps for Kids: Current Privacy Disclosures Are Disappointing,” in which the FTC criticized companies for failing to properly disclose to parents how the companies are collecting personal data through mobile applications (“apps”) aimed at young children.

The results of the FTC’s study follow the FTC’s August 2011 settlement with W3 Innovations, which was the FTC’s first enforcement action against a mobile app developer.

The FTC’s Children’s Online Privacy Protection Act (COPPA) Rule requires that website operators notify parents and obtain their “verifiable consent” before they collect, use, or disclose the personal information of children under 13.  The COPPA Rule also requires that website operators post a privacy policy that is clear, understandable, and complete. Failure to obtain “verifiable parental consent” can expose a company to an FTC enforcement action and the potential for significant damages and unwelcome publicity.

The FTC surveyed approximately 1,000 apps designed for children and available through iTunes and the Android Marketplace by searching for the word “kid.” According to the FTC, despite the warning provided by the W3 Innovations settlement, they found that the operators of those apps could be collecting location (via GPS), phone numbers, contact lists, call logs and other “unique identifiers,” but that the apps do not make it easy for parents to figure out what’s being collected, how the data is being used or to give consent to such collection and use.

“Companies that operate in the mobile marketplace provide great benefits, but they must step up to the plate and provide easily accessible, basic information so that parents can make informed decisions about the apps their kids use,” FTC Chairman Jon Leibowitz said in a statement.

The FTC noted that the various app stores create their own age ratings and that these guidelines are often not consistent.  The Staff Report recommends that app developers provide simple and short disclosures on how they collect and share information about users, including whether their apps connect to social media sites like Facebook.  Connection to Facebook (or other social media sites) for some of these apps could be problematic, since the Facebook terms (and the terms of most other social media sites) specifically prohibit access if the user is under 13 precisely to avoid having to deal with the COPPA Rule.

The FTC also wants app developers to inform parents if apps targeted towards children contain ads.  In some apps, ads and/or content that is inconsistent with the age rating is buried deep within the app and can be found only when a player reaches an advanced stage of the game.

The FTC Staff Report is particularly interesting in light of a report from the Wall Street Journal today asserting that “Google Inc. and other advertising companies have been bypassing the privacy settings of millions of people using Apple Inc.’s Web browser on their iPhones and computers–tracking the Web-browsing habits of people who intended for that kind of monitoring to be blocked.”

The FTC’s evaluation of app privacy disclosures comes as the agency is evaluating the comments it received and finalizing updates to COPPA that were revealed in September 2011.

According to the Staff Report, the FTC is planning to conduct an additional review in the next six months to determine whether some of these mobile apps were violating the COPPA Rule.  As currently drafted, the COPPA Rule creates the potential for violators to be fined up to $1,000 per violation (i.e., per child) – an amount that can add up very quickly for even a moderately popular app.

App developers targeting pre-teens and younger teens should carefully evaluate the data their apps collect, how that data is used and whether the developer’s privacy policy is consistent with such collection and use.

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The growing use of mobile applications has created great opportunities for all types of businesses. Many companies have leveraged apps to enhance their reach and interactions with customers and potential customers. But with these growing opportunities comes some legal pitfalls. Many companies are not focusing on the vast array of legal issues that relate to what their apps do. The FTC and other government agencies are becoming more active in policing these activities.

In a recent pronouncement, the FTC has warned marketers that certain apps may violate the Fair Credit Reporting Act. The FTC warned the apps marketers that, if they have reason to believe
the background reports they provide are being used for employment
screening, housing, credit, or other similar purposes, they must comply
with the Act.

According to the announcement, “If you have reason to believe that your background reports are being
used for employment or other FCRA purposes, you and your customers who
are using your reports for such purposes must comply with the FCRA.”

The FCRA is designed to protect the privacy of consumer report
information and ensure that the information supplied by consumer
reporting agencies is accurate. Consumer reports are communications
that include information on an individual’s character, reputation, or
personal characteristics and are used or expected to be used for
purposes such as employment, housing or credit.
The companies that received the letters are Everify, Inc., marketer of the Police Records app, InfoPay, Inc., marketer of the Criminal Pages app, and Intelligator, Inc., marketer of Background Checks, Criminal Records Search, Investigate and Locate Anyone, and People Search and Investigator apps. According to the letters, the agency has made no determination whether
the companies are violating the FCRA, but encourages them to review
their apps and their policies and procedures to be sure they comply with the FCRA.

In light of the FTC, FDA, FCC and other government agency’s increased activity in monitoring mobile apps and other social media usage, it is strongly advisable that you submit all of you apps and social media plans to a qualified attorney to review for potential compliance issues.

 

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A Wall Street Journal article today touts an upcoming book by Harry Hurt III, which recounts a cross-country road trip with an impressive list of encounters with notable figures including former President Bush. But more notably, this book includes a plethora of product-placement deals and other sponsorships. This approach, while innovative, may raise issues in connection with the FTC Endorsement Guidelines. If applicable, the guidelines may create legal issues for Mr. Hurt and the sponsors. A prior post highlights some recent enforcement actions for those who have not complied. This is an issue that journalists and advertisers need to pay heed to because additional enforcements are likely.

The range of sponsorships include deals that range from companies agreeing to:  promote his book through e-mail, Twitter, Facebook and other electronic blasts in exchange for advertising within the book; supply travel gear (e.g. Coleman Co. providing sleeping bag, tent and $2500 cash) for which Mr. Hurt endorses Coleman’s products saying things such as “the Coleman engineers have done a remarkable job…”; and $1,000 in monthly credits from Best Western International in exchange for filming videos showcasing the hotels’ amenities. Interestingly, a hotel spokesperson called this deal “standard industry practice” for bloggers and free-lancers.

Kudos to Mr. Hurt and his sponsors for the innovative approach that enabled him to self fund and self publish this e-book. However,
as the article notes, his dual role as both an ad salesman and a journalist strikes “an unholy alliance.” The issue is whether an author, beholden to such sponsorships, can be objective in his or her writings. In the article, Mr. Hurt stated that the book is “mainly the truth,” but recognized that it may raise questions as to his objectivity. He added that he doesn’t believe his objectivity was compromised because he only struck deals with companies he already patronized and asked readers to trust his judgment and integrity.

I have no reason to doubt Mr. Hurt’s judgment or integrity. However, this scenario raises some interesting legal issues. A growing number of bloggers and other journalists have come under fire for touting products for which they received some undisclosed financial benefit.
While these practices are hopefully the exception rather than the norm, they caused the FTC to take action.

In 2009, the FTC implemented guidelines that addressed the use of endorsements and testimonials in advertising. The main stream press highlighted the part of these guidelines that require disclosure by bloggers of compensation received for recommending a product or service. However, the guidelines include some lesser known provisions, which apply more broadly, and may be relevant to the types of deals that Mr. Hurt struck.

The guidelines are not limited to bloggers, but cover “any advertising message” that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of the endorser (or any party other than the sponsoring advertiser). This includes testimonials endorsing a product or service on any social media site, not just blogs.

When a connection exists between the endorser and the seller of an advertised product that might materially affect the weight or credibility of the endorsement, such connection must be fully disclosed. For example,
the FTC says that if a blogger gets a free video game to evaluate and review,
he must clearly and conspicuously disclose that he received the game for free. Other examples refer to the dissemination of information through other “consumer-generated media.” Presumably, a self-published e-book  could be a form of “consumer-generated media.”
For at least these reasons, self-publishers of blogs, e-books or other media should become familiar with these FTC guidelines. Failure to comply can result in liability for the endorser.

However, the burden of compliance and risk of liability do not fall just on the journalists/endorsers. Rather, the FTC guidelines impose significant obligations on the part of advertisers, too.

The FTC guidelines require advertisers to advise the “endorser”
that their connection needs to be disclosed. Additionally, the guidelines state that advertisers should have procedures in place to monitor the endorsements for compliance. Advertisers are subject to liability for false or unsubstantiated statements made through endorsements, or for failing to disclose material connections between themselves and their endorsers. 

Another aspect of the guidelines relates to “expert”
endorsements. Whenever an advertisement represents, directly or by implication,
that the endorser is an expert with respect to the endorsement message, then the endorser’s qualifications must in fact give the endorser the expertise that he or she is represented as possessing with respect to the endorsement.

The guidelines also address endorsements by organizations,
especially expert ones. According to the guidelines, such endorsements are viewed as representing the judgment of a group whose collective experience exceeds that of any individual member, and whose judgments are generally free of the sort of subjective factors that vary from individual to individual. Therefore,
the FTC requires that an organization’s endorsement must be reached by a process sufficient to ensure that the endorsement fairly reflects the collective judgment of the organization. Moreover, if an organization is represented as being expert, then, in conjunction with a proper exercise of its expertise in evaluating the product it also must comply with various provisions regarding experts.

In order to comply with these FTC guidelines, journalists, advertisers and other organizations should seek legal counsel to become familiar with these requirements and, as many companies are doing, develop policies and procedures for complying.

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Some say Gamification has become the buzz word du jour. Others believe
it is a powerful business tool that cannot be overlooked. A recent Gartner report will undoubtedly fuel the fires in that debate. The Gartner report states that by 2015, more than 50 percent of companies that manage innovation processes will gamify those processes. Additionally, it states that a gamified service for consumer goods marketing and customer retention
will become as important as Facebook, eBay or Amazon, and more than 70
percent of Global 2000 organizations will have at least one gamified
application.

game.jpegRecent books such as Game-based Marketing by Gabe Zichermann and Reality is Broken by Jane McGonigal have highlighted why and how gamification can be a powerful tool if used right.reality.jpeg

Gabe also hosted the first Gamification Summit in San Francisco earlier this year and is hosting a series of Gamification Workshops for those interested in learning more about Gamification.

Many major companies (e.g., NBC Universal and CBS Interactive) are embracing gamification with great success.

As always, along with the great business opportunities come some legal issues of which companies need to be aware. One of the issues, which relates to issuing points or other things of value to reward consumers for creating product reviews or recommendations, was addressed in one of our prior posts relating to the FTC Endorsement Guidelines. A more recent post addresses some recent enforcement actions by the FTC and NY State for violations of these principles.

A number of other legal issues can arise. Additionally, we are seeing a rapid uptick in the number of patent applications being filed for gamification technology and business methods. For example, there are a number of companies offering gamification platforms. One that has an interesting business model is Big Door Media. Big Door offers free APIs and widgets to enable you to easily and cost effectively get started. Bunchball and Badgeville also offer gamification platforms and tools.

Like other cutting edge business models, gamification requires a well thought out business strategy and an understanding of the relevant legal principles!