News & Resources

NEWSLETTER: Advertising, Marketing & Promotions, Spring 2010

Spring 2010

Dear Clients, Colleagues and Friends,

We hope that 2010 has been a prosperous and productive year so far for you. A lot has happened on the legal front in the marketing industry since our Winter newsletter, including a new proposed privacy bill, credit card data sharing restrictions, a proposed dietary supplement safety bill, and further state restrictions on Internet marketing. These and other timely topics are discussed in this newsletter.

As always, if you would like to discuss any of these developments, have concerns about their impact on your business or marketing campaign, or have any questions about the marketing industry in general, please feel free to give us a call.

VISA BARS DATA PASS ACCOUNT SHARING

In an effort to address the scrutiny Senator Rockefeller (D-WV) and the United States Senate Commerce Committee has been placing on online marketers who engage in the transfer of credit card data between customers, Visa announced that it is prohibiting marketers from engaging in "data pass," in which a consumer's credit card information is shared with additional merchants who offer online upsells without the re-entry of credit card data.

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TWEETING FOR TROUBLE: TRAIN PERSONNEL ON MECHANICS OF POSTING TO PREVENT FAUX PAS

Twitter can be a useful tool for attorneys, serving as a source of business intelligence, faster-than-cable-news notices of practice-relevant events, and a way to build trust and possible referrals from potential clients. However, the real-time and informal nature of these services can lead potentially embarrassing, or even expensive business and ethical lapses.

Hazards abound, such as accidental leaks of confidential information; overly-personal messages seen by colleagues, clients and even judges; or tweeting while supposedly performing billable work (even in court).

These lapses often can take on a viral life of their own, because many services have automatic distribution tools. For example, you can program blogs to automatically populate your posts onto your Twitter and Facebook accounts. Many social networking sites have integrated search tools, and major search engines (Google, Microsoft Bing, etc.) now track and index social media. Given the recent announcement that the Library of Congress plans to permanently archive Twitter's entire output, mistweets may literally live forever.

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PROPOSED DIETARY SUPPLEMENT BILL SEEKS TO PROTECT CONSUMERS WHILE PLACING GREATER BURDEN ON MANUFACTURES

Manufacturers, distributors and retailers of dietary supplements have become the target of new legislation proposed by Senator McCain (who has now withdrawn his support) and co-sponsored by Senator Dorgan. S.3002, The Dietary Supplement Safety Act of 2010, is currently pending before the United States Senate. The proposed legislation seeks to modify the Food, Drug, and Cosmetic Act and the Dietary Supplement Health and Education Act of 1994 ("DSHEA") on matters relating to safety.

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PRIVACY/SECURITY SERVICE CONTROLSCAN SETTLES FTC CHARGES

On February 25, 2010, the FTC announced a settlement with ControlScan, a company that certifies the privacy and security of online retailers, over charges of misleading consumers. According to the FTC's release, ControlScan's seals promised consumers that it had reviewed sites' information security practices, although ControlScan performed "little or no verification" of the sites' protections. Additionally, the company's seals had a current date stamp, implying ongoing checking, but the company did not review any sites on a daily basis (and some not even weekly).

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DANNON SETTLES CLASS ACTION CHALLENGING "CLINCIALLY" AND "SCIENTIFICALLY" PROVEN HEALTH CLAIMS FOR $45 MILLION

The Dannon Company recently settled a Northern District of Ohio class action which challenged the company's claims that its Activia and DanActive yogurts were clinically or scientifically proven to help regulate the body's digestive system. The settlement is being characterized as one of the largest settlements of food false advertising cases and highlights the importance of ensuring that a marketer's level of claim support matches the advertised claim.

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COLORADO PASSES TWO RESTRICTIVE DM TAXES

The state of Colorado recently passed two laws which apply to the direct marketing industry. Both laws went into effect on March 1, 2010. One of the laws applies particularly to out of state sellers who do not collect and remit Colorado sales tax.

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MORE STATES TRY TO GET IN ON "AMAZON TAX"

As we have previously written and spoken about, states are increasingly looking at out-of-state e-commerce as a source of new tax revenues. New York led the way with its "Amazon Tax," which extended "nexus" for sales tax purposes to the 3rd party affiliates who referred deals to Amazon.com via its Associates Program, leading to a lawsuit from Amazon and other retailers.

More recently, Colorado passed a new law that takes a different approach to New York's, although it has still led Amazon to drop its Colorado-based affiliates. Colorado made out-of-state retailers responsible to help enforce and collect its existing sales or use tax from Colorado residents, by providing statements of all Colorado sales to the state. Colorado is using the affiliates as the connection to provide jurisdiction for retailers like Amazon that don't have other personnel or operations there.

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WHY THE GOOGLE-ITALY PRIVACY CASE MATTERS TO YOUR BUSINESS

On February 24, 2010 after a case lasting more than two years, an Italian court convicted three Google executives, including its global privacy counsel Peter Fleischer, of criminal invasion of privacy, and sentenced the men to six months in jail (although the sentences were automatically suspended under Italian law). What makes this event so troubling, and important not just for multinational corporations like Google, but small startups, is that none of the three men had any connection with the incident at the heart of the case. In fact, at least in the case of Fleischer, his conviction arose because he happened to work in one country, for a company based in another country, because of Internet-based activity in a third country.

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LIFELOCK SETTLES CHARGES BY THE FTC AND 35 STATES THAT IDENTIFY THEFT PREVENTION AND DATA SECURITY CLAIMS WERE FALSE

On March 9, 2010 the identity theft protection service, LifeLock, settled charges made by the Federal Trade Commission and 35 states alleging that the company made false claims. The settlement would provide $11 million to the FTC and $1 million to the group of states that include California, Florida, Massachusetts, New York and Pennsylvania. Moreover, LifeLock and its co-founders will be barred from making any deceptive claims about its services and will be required to take strict measures to safeguard the sensitive information of their customers.

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FTC SEEKING PUBLIC COMMENT ON PROPOSED GUIDELINES FOR COPPA COMPLIANCE

As part of its ongoing efforts to protect children's privacy, the FTC has called for public comments on whether changes to technology warrant modifications to COPPA.

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AMAZON.COM SUES NORTH CAROLINA OVER DEMAND FOR PURCHASER LIST

In addition to the ongoing fight between Amazon.com and states seeking to levy sales taxes based on its associates (affiliate) program, the retailer has recently brought a lawsuit against the state of North Carolina, after the state sought to force Amazon to turn over names and addresses of North Carolina residents that have made more than 50 million purchases from it since 2003.

The suit, filed in the U.S. District Court for the Western District of Washington (near Amazon's headquarters), seeks to block the disclosure of the data, arguing that the state's request violates the First Amendment rights of users and other privacy laws, and is unnecessary for tax collection. According to the complaint, Amazon has already turned over non-personal data about the purchases in response to a state sales and use tax audit, but the state has gone further in asking for names and addresses. Amazon has previously faced litigation and FTC attention arising out of its privacy policy, so its concerns about North Carolina's demand are understandable.

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20 YEARS PRISON SENTENCE FOR LACK OF SUBSTANTIATION FOR WEIGHT LOSS PRODUCT

Frank Sarcona of West Palm Beach, Florida, was recently sentenced to 20 years in prison by the Federal Court for the Southern District of Florida. This is following his conviction on multiple charges, including mail and wire fraud, in connection with the advertising of the diet pill Lipoban. Sarcona, a man with a long history in the weight loss industry, was subject to a 1999 FTC injunction restricting him from engaging in deceptive marketing in connection with weight loss products. The court found Sarcona violated that order with his most recent activity.

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RESPONSE MAGAZINE ARTICLE ENTITLED "LEGAL REVIEW: NEW JERSEY ATTORNEY TARGETS MARKETERS IN PUTATUVE CLASS ACTIONS" IS NOW ONLINE

Our Recent Response Magazine article entitled " Legal Review: New Jersey Attorney Targets Marketers in Putative Class Actions" is now online. The article, highlights the putative class actions that attorney Harold Hoffman has brought against nationwide direct marketers for claims ranging from product efficacy to shipping and handling charges.

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FTC TO CREATE PRIVACY FRAMEWORK FOR SOCIAL NETWORKING

In response to a call by four U.S. senators and others for greater oversight into the use of personal information by social networks like Facebook, the FTC announced Tuesday (according to the Washington Post) that it was going to examine these networks' collection and use of data and "develop a framework governing privacy going forward." This latest effort was triggered by Facebook's having recently paired with a number of outside companies to provide " Instant Personalization," with information from Facebook showing on those companies' sites and vice versa.

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COSTCO SETTLES CONSUMER CLASS ACTION SUIT ON BACKDATING THE RENEWAL MEMBERSHIPS OF THEIR CUSTOMERS

Companies charging their customers annual membership fees should take notice of a recent lawsuit that cost retail giant Costco quite a bit of money. If you are reading this, and you charge customers an annual membership fee, you should immediately examine your renewal procedures to make sure your customers actually receive memberships for the length of time that you are charging them for.

Costco customers are required to become members to shop at Costco stores, with annual memberships going for $45- $100. The plaintiffs alleged that whenever customers paid to renew their expired memberships, that Costco backdated the membership to the date that the previous membership expired. The lawsuit charged that by backdating the renewals, Costco was effectively depriving its members of benefits for the time between expiration and renewal. In other words, many members were paying for a year's membership but were receiving less than what they paid for.

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FLORIDA ATTORNEY GENERAL SUES INTERNET MARKETER FOR ENROLLING CONSUMERS IN A MONTHLY SUBSCRIPTION PROGRAM WITHOUT CONSENT

On April 1, 2010 the Florida Attorney General announced that its office has sued a Florida company and two affiliated companies over allegations the companies and their owners enrolled consumers in a monthly subscription program without the consumers' knowledge or consent. CleanWhites, is affiliated with CleanWhites Pro and Advanced CleanWhites, markets teeth whitening products that the Attorney General alleges did not disclose the negative option terms of the billing. This action is yet another enforcement action brought by Florida against online marketers.

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FTC DECLINES TO TAKE ACTION AGAINST ANN TAYLOR OVER BLOGGERS

The FTC made public its first investigation into a company's relationship with bloggers by deciding not to take action in a case with women's retailer Ann Taylor.

The FTC informed Ann Taylor that it would not take action against an event held earlier this year when the company invited bloggers to preview the Loft division's summer 2010 collection and offered a special gift in return.

Although the FTC took no action in this case, it highlights the importance of understanding how to comply with the FTC Testimonial and Endorsement Guidelines.

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PROPOSED FEDERAL PRIVACY BILL WOULD IMPACT MOBILE MARKETING AND OTHER DIRECT MARKETERS

The recently proposed federal privacy legislation sponsored by Rep. Boucher (D-Va) and Rep. Stearns (R-Fla) seeks to create a complex notice and opt-out/opt-in paradigm for targeted marketing, whether on line or off. Mobile Marketer's article, "Is the draft privacy bill a threat to mobile marketing?" includes analysis by Andrew Lustigman and other industry experts.

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RED FLAGS RULES COMPLIANCE DEADLINE IS JUNE 1, 2010

The FTC's Red Flags Rule ( http://www.ftc.gov/redflagsrule), which requires covered organizations to implement a written identity theft prevention program, is slated to go into effect on June 1, 2010. The scope of covered organizations is very broadly defined to cover organizations well beyond financial institutions. Rather - it also applies to creditors - which are organizations which regularly extend, renew, or continue credit - and likely applies to telecommunications companies and other utilities as well as businesses that grant loans. The rule itself obligates financial institutions and any other creditor that holds a consumer account to "develop and implement an Identity Theft Prevention Program" with policies and procedures to help reduce identity theft. What makes this rule so challenging, however, is that unlike other rules relating to financial institutions (such as the Gramm-Leach-Bliley privacy rules), the Red Flags Rule applies to any firm that maintains an ongoing account through which a consumer is charged. As the FTC may not further extend the compliance deadline, you need to begin working on compliance now if you have not already done so.

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ILLINOIS DISTRICT COURT RULES THAT SENDING A TEXT MESSAGE IS A "CALL" UNDER THE TELEPHONE CONSUMER PROTECTION ACT

SMS text message marketers beware. In a recent decision (Lozano v. Twentieth Century Fox ), the U.S. District Court for the Northern District of Illinois ruled that Twentieth Century Fox repeatedly violated the Telephone Consumer Protection Act by sending text messages to consumers without their express consent.

The decision settled a dispute over the meaning of a telephone "call" under the Telephone Consumer Protection Act ("TCPA"), 47 U.S.C. S 227. The TCPA prohibits certain unsolicited telephone "calls" to cellular telephones. The court held that a text message should be treated as a "call," therefore requiring marketers to have consent before text messaging consumers' cellular telephones. The case illustrates how the meaning of one word can vastly broaden or restrict the effect of a law.

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NEW CALIFORNIA LAW IMPOSES TOUGHER RESTRICTIONS ON AUTOMATIC RENEWAL AND CONTINUOUS SERVICE OFFERS EFFECTIVE DECEMBER 1, 2010: PLAN NOW

A upcoming California law, taking effect on December 1, 2010, will be imposing tougher restrictions on those who offer services with automatic renewals or on a continuous basis. The law intends to end the practice of consumers' credit and debit cards being charged automatically and continuously without proper authorization. The targeted practices are quite common, so companies marketing these types of offers in California will have to be careful to conform their conduct to the new law.

The law targets two practices specifically. First, the law targets "automatic renewal" offers, and defines it as any "plan or arrangement in which a paid subscription or purchasing agreement is automatically renewed at the end of a definite term for a subsequent term." Second the new law targets "continuous service" arrangements, defined as "a plan or arrangement in which a subscription or purchasing agreement continues until the consumer cancels the service."

Some of the law's highlights are discussed here.

SWEEPSTAKES ONLINE CLE NOW LIVE

Olshan attorneys Andrew Lustigman and Adam Solomon's CLE course " Rolling the Dice: Legal Issues Related to Sweepstakes and Promotions" is now live at lawline.com. The course, which provides 1 NY CLE credit, discusses the basics of structuring a legally compliant sweepstakes promotion and further explores the legal complications that can arise. The course also explains a number of relevant, significant, and recent cases, including the television show Deal or No Deal's "Play At Home" game. In addition, Andy Lustigman and Adam Solomon focus on how social media and other evolving technologies relate to sweepstakes law and the future.

OLSHAN'S JONATHAN EZOR ON SOCIAL MEDIA LEGAL ISSUES

Businesses are facing new legal and other risks as they explore and exploit social media such as Facebook and Twitter as well as an increasingly mobile workforce. We cover many of these in our firm's blog. Jonathan Ezor, special counsel to Olshan, is a leading voice on these issues, giving presentations throughout the United States to businesspeople, technologists and attorneys on how best to manage these risks and maximize the benefits of these technologies and services.

Recent and Upcoming Presentations…

ANDREW LUSTIGMAN TO PRESENT AT THE ACI 4th NATIONAL ADVANCED FORUM ON FINANCIAL SERVICES MARKETING COMPLIANCE

On May 26, 2010, Andrew Lustigman will co-present at the ACI 4th National Advanced Forum on Financial Services Marketing Compliance on Alleviating Privacy Concerns Associated with Behavioral Targeting. The session will cover:

  • How are recent reforms regulating the increase in behavioral targeting
  • Assessing the use of cross-industry marketing in behavioral targeting
  • How the FTC's proposed privacy principles may impact the use of behavioral marketing
  • What type of consumer data may be collected and what type of data cannot be collected
  • Determining whether industry self-regulation is an effective means of protecting consumer privacy
  • Preventing Internet fraud associated with behavioral targeting
  • A full agenda for the New York conference can be found here and you can find out what's on the ACI website.

We strive to stay on top of all relevant legal issues to provide our clients with the most effective and efficient legal advice. If you find any legal marketing news of interest, send it to us!

Please pass this newsletter on to your friends and colleagues and invite them to join our mailing list. As always, please feel free to contact us with any comments, questions or recommendations. Also, please follow us on http://twitter.com/advlaw.

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Originally published by The Lustigman Firm, P.C. and has been re-branded and edited to conform and to correct certain references.

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