Digital Media Lawyer Blog

Digital media law update: The FTC has been working on Internet privacy policy since at least 1995. It is currently engaged in a series of roundtables focusing on privacy and behavioral advertising. However, the shape of any new regulations is very fuzzy. This may be because the data is conflicting on the public's true interest in the issue, as well as the lack of a clear Congressional mandate.

At the FTC's December 2009 privacy roundtable, panelists raised concerns that collection and third party use of browsing data invades private space by: (1) revealing a user's innermost thoughts, such as a search history that reflect a user's explorations of his sexual identity, (2) taking away a user's control over her identity, such as by broadcasting compromising photos of a user at a Cancun Spring Break party to a potential employer, (3) revealing sensitive identity or financial information that can be misused by third parties to perpetrate fraud, or (4) intruding on a user's seclusion by serving targeted ads during a browsing session that reveal that outsiders are listening in.

Survey data presented at the roundtable indicated that consumers are aware that information is being collected about them online and are uncomfortable with the idea that third parties are using this data. Alan Westin of a Columbia University stated that surveys indicate that "a majority ranging in numbers from low of 50% all the way up to 70% to 80% say they're uncomfortable with behavioral marketing and would want to have at a minimum a kind of notice, choice, security and ways of intervening that would give them some comfort if they were going to have their information tracked in that way."

A growing number of firms with online presences are offering users a chance to review the data being collected about them and to opt-out or the change the collection and use of that data. For example, Google's Dashboard and Ad Preferences Managers provide users with extensive details on the browsing history Google has collected about them. They also let users select or de-select ad categories they want served to them.

However, most users do not take advantage of these "notice and choice" systems. According to Google's head of U.S. public policy, Alan Davidson, Google gets "tens of thousands of unique visitors to these sites each week." However, "four times as many people who come as visitors to the site actually change their preferences rather than opting out. . . . [a]nd actually, ten times as many people actually do nothing." Rick Erwin of Experian Marketing Services stated that about 7200 consumers choose to opt-out of Experian's marketing data collection activities. Jennifer Barrrett from Acxiom stated that over the past ten years "about a half a million consumers" have asked to opt-out or correct information gathered by her site.

One explanation for the low level of consumer response to notice and choice systems is that these systems are simply too complex and confusing for consumers to navigate. Another explanation is that despite the survey data and a few incidents where use of private data led to personal woe, consumers are really not that concerned about the collection and use of their personal data.

Continue reading "The FTC's Privacy Initiatives Pose a Threat to Online Behavioral Advertising, Despite the Lack of a Clear Congressional or Public Mandate" »

Readers of this blog know that courts around the U.S. frequently arrive at opposite conclusions on whether the use of a competitor's trademark in search engine advertising constitutes trademark infringement. In my view, the courts should not devise a one-size-fits-all rule for such cases, that dictates that such use of a competitor's trademark does or does not constitute infringement. Rather, the courts should take into account the content and context of each ad in question, as well as concepts such as nominative fair use.

A recent decision by an Illinois District Court shows how close some courts come to adopting a per se rule that the use of a competitor's trademark in search engine advertising constitutes trademark infringement.

The case is Morningware, Inc. v. Hearthware Home Products, Inc.. See N.D. Ill., No. 1:09-cv-04348, Memorandum Opinion and Order (Nov. 16, 2009). Morningware sells counter-top electric ovens. Hearthware is Morningware's nearest competitor. Morningware claimed that Hearthware purchased Morningware's trademark as an AdWords keyword for pay-per-click advertising on Google's search engine. When an internet user entered the word "Morningware" as a search term, Hearthware's advertisement would appear at the top of the search results page -- before the link to Morningware's website. Moreover, the content of Hearthware's link stated "The Real NuWave Oven Pro Why Buy an Imitation? 90 Day Gty."

According to Morningware, the placement and content of the Hearthware ads misled some consumers into believing that Morningware's products were of poorer quality and were fakes -- which they were not. Other consumers were misled into simply believing that Morningware products were products were available from Hearthware, and thus were improperly diverted from Morningware's website.

Morningware sued Hearthware under several legal theories, including trademark infringement, under false designation of origin and product disparagement theories, and several related Illinois state law claims. Hearthware filed a motion to dismiss. This motion requires a court to determine whether the facts stated in the complaint, if true, are sufficient to state a plausible cause of action against the defendant. The Court denied the motion.

According to the Court, to establish a cause of action for false designation of origin, a plaintiff must show: (1) that it owns a protectable trademark, (2) that the defendant has used this mark in commerce, and (3) that the defendant's use of this trademark is likely to cause confusion. Here, while Morningware does not appear to have registered its trademark, it alleged that it had used it extensively and continuously for several years -- an allegation that the Court found to be sufficient to establish a protectable interest in a trade name. Following that 2nd Circuit's decision in Rescuecom Corp. v. Google, 562 F.3d 123 (2d. Cir. 2009), the Court also found that use of a trademark as a keyword in an online search program constituted a use in commerce.

Continue reading "Morningware v. Hearthware: Illinois Court Finds Use of Competitor's Trade Name to Drive Search Engine Advertising Can Constitute Trademark Infringement" »

The recent certification of a national class action in the Citysearch click fraud case represents a major victory - at least for the plaintiffs' counsel. But whether adjudication of the case will produce significant recoveries for the plaintiffs is an open question.

The Citysearch click fraud class action (Menagerie Productions v. Citysearch, C.D. Cal., No. 2:08-cv-04263) was brought on behalf of some 10,000 advertisers on Citysearch.com websites. Citysearch operates dozens of websites that provide information about restaurants, shops, hotels and other services in individual cities around the U.S. For example, at dallas.citysearch.com, Citysearch provides information geared towards the DFW metroplex.

To earn revenue through these sites, Citysearch sells advertising. Much of this advertising is "pay-for-click", in which advertisers only pay when visitors clicked on their ads. The complaint claims that Citysearch entered into a standard form advertising agreement for these ads which claimed that: "We connect you to customers. You pay only for results." In its FAQ page for the agreement, Citysearch also stated as follow:

Q: How do I know that clicks to my website are legitimate?
A: Citysearch proactively researches and develops processes, policies, and technologies to identify invalid click activity with respect to our customers' advertising. Citysearch employs advanced security filters and blocks out clicks from spiders and robots.

The two named plaintiffs, Menagerie and Redwolf, claimed that despite paying up to $1,900 in advertising fees for pay-for-click ads over a period of several months, they received no new customers. There are many legitimate reasons that an ad campaign may not generate identifiable new revenue. However, the complaint alleged that the plaintiffs' failure to generate new customers was because of click-fraud. In click fraud, an on-line media source that is party to a click-through ad contract inflates the number of ad clicks to fraudulently increase its ad revenues.

The plaintiffs allege that Citysearch failed to track fraudulent clicks originating with its employees and "partner sites" and failed to inform advertisers that it did not employ methods to track fraudulent clicks -- but nevertheless charged customers for invalid clicks. The plaintiffs also allege that Citysearch falsely claims that customers will not be charged for invalid clicks, even though it knows or should know that these claims are false. The plaintiffs seek to recover the advertising fees they paid under breach of contract theories, as well as under California's unfair competition law.

To qualify as a class action, the named plaintiffs must meet two sets of requirements: First, they must first meet four requirements in Federal Rule of Civil Procedure 23(a) that test whether the class is sufficient numerous and whether the claims brought by the named plaintiffs adequately represent the rest of the plaintiffs in the class. The main dispute here centered on whether the claims by the named plaintiffs were typical of all of Citysearch's 10,000 pay-for-click advertisers.

Continue reading "Citysearch Click Fraud Class Action Certified -- but Proving Meaningful Damages May Remain a Problem for Plaintiffs" »

Santa Monica, California: Panelists at this Fall's Digital Hollywood agreed that a massive sea-change is about to occur in advertising. There are now "three platforms" -- TV, Internet and mobile -- that are delivering audio-visual content. According to some estimates, Internet media are getting up to 40% of the total share of the eyeball time devoted to media -- and an increasingly greater share of the younger users coveted by advertisers. However, traditional TV still gets 90% of the advertising dollars. This kind of imbalance obviously cannot go on forever.

To compete for a greater share of ad dollars, one strategy used by digital media is to offer advertising that is targeted to the characteristics of individual users. Internet sites are able to provide identification, demographic, browsing, shopping, downloading, and other information about each user and then enable advertisers to deliver ads that are directly targeted to the user's specific interests and needs. Internet sites are now also able to listen in to users' email, Facebook or Twitter conversations, and offer advertising on a real-time basis that is relevant to these discussions -- as well as to each participant's profile.

While these efforts have yet to open up the floodgates of ad money to Internet ads, most people in TV and digital media believe that the flood will come. Since the gross quantity of dollars available for ads is static, these dollars will come from TV ad budgets. This means that TV will have to respond by providing data-enriched content to viewers, and the opportunity for TV advertisers to do more refined ad targeting.

The Jacked solution to targeted content and advertising

A technology that is already here is offered by Jacked. According to its CEO, Bryan Biniak, a Digital Hollywood panelist, Jacked creates web sites that deliver parallel "enriched" content to TV viewers. This content tracks along with a TV broadcast and offers information and advertising that relate in real time to the events on the screen. For example, if a TV viewer is watching a sports program, the Jacked program can present detailed statistical information about the particular team member who has just made a play. It can also provide the viewer with the local (biased) play-by-play radio or TV broadcast, instead of the neutral national play-by-play -- just what the true fan wants!

Jacked can also offer targeted advertising in a variety of forms. It can target ads to the individual scenes in a TV program. So if the actors in a romantic comedy start talking about buying a house, it can deliver real estate sales ads. (Jacked does this by pulling information from the closed captioning for the broadcast). Jacked can also target ads to the geographic region in which the user resides.

To create its enriched "second screen" experience and targeted ads, Jacked draws on available information from multiple platforms, including relevant websites, news sites, closed captioning data, etc. Because Jacked advertising is keyed to the content being delivered on the parallel TV screen, it offers a true form of targeted advertising -- but a form that avoids many of the privacy concerns caused by behavioral targeting, per se.

Continue reading "Notes from Digital Hollywood: Will Behaviorally Targeted Advertising Come to TV?" »

Santa Monica, California: This is the second in a series of reports from Digital Hollywood. Digital Hollywood is a conference for businesses trying to make money from delivery of online content, such as video and gaming. It attracts online video production companies, game manufacturers, media conglomerates, well-known interactive website operators, advertising agencies, Hollywood "talent," service providers like me and many others. A prominent theme throughout this year's convention is confusion over how to make money from delivery of online content such as video and gaming.

The revenue problem for online video content

Generators of online content make money from a variety of sources including subscription fees, micro-transactions and advertising. The dominant means for producers of original online content to generate revenue is from ad sales. However, according to the advertising agency sources, at present advertisers are spending 90% of their ad dollars on traditional print and broadcast media but only 10% on online content. In addition, advertisers are often only willing for online content at rates that about 20% in cpm (cost per thousand viewers) of the rates they will pay for broadcast media. This double squeeze makes it virtually impossible from producers of online content to turn a profit.

So another common theme at Digital Hollywood is the struggle that producers of online content are going through to attract more revenue dollars. Some argue that online content should be judged with different metrics than cpm, the measure commonly used for broadcast media. Others argue that the key is to get advertisers to value the feedback that they get from online sales efforts, feedback that is not available from consumers of broadcast media.

The targeted advertising solution

A frequently proposed solution for attracting more ad dollars is to use the capabilities of the Internet to offer more targeted content to advertisers -- which theoretically could be sold at increased rates. Readers of this site are already familiar with the common use of behavioral targeting, in which a user's demographics, browsing history, etc., are used to target ads to him or her. And, readers of this site are also familiar with the privacy concerns that behaviorally targeted ads create.

Another method for creating targeted ads is to synch the closed captioning for a video with the video itself, and then use it to trigger ads that are displayed to the user on a real-time basis along with the video to which they relate. For example, if the characters in a video start talking about going on a trip to Miami, their words can be used to trigger Florida travel ads to the user. This type of targeted advertising would provide a non-privacy invasive alternative to behavioral targeting. Of course, video-content based targeting could be combined with behavioral targeting to make the targeting even more specific -- thus resurrecting privacy concerns.

Continue reading "Notes from Digital Hollywood: Online Video Companies Struggle for Means to Turn Online Content into Profits" »

Santa Monica, California: A dominant theme at this week's Digital Hollywood conference is the tension between the need to for truly targeted advertising to online audiences and an individual's right to privacy. The Internet creates the ability for businesses to gather a marketer's dream world of data about their customers. This can include identification data (name, address, phone number, email address), demographic data (age, gender, marital status, sexual orientation), financial data (bank and credit card account data), and behavioral data (browsing history, downloading history) and much, much more. If this type of data falls into the wrong hands, it can subject the customer or identify fraud. But even many purely commercial uses can cause embarrassment or harm to the consumer.

In a recent speech, David Vladeck, Director of the FTC Bureau of Consumer Protection gave the example of an adolescent who didn't want to state publicly that he was gay. A generation ago, if he had wanted to find information about persons in his situation, he could have gone to his local library, and emerged with no record of his search. "That effort would be anonymous, and would leave no paper trail. There was no privacy debate to be had," Vladeck said. Today, he would probably look for information on the Internet on his home computer. But, if he did so, Vladeck pointed out "he may be surprised -- indeed, even mortified -- to receive advertising based on his searches and to learn that third parties have access to information about his searches.

I'll take this one step further. If he was a member of a social networking site, and purchased a book on "coming out" from an online retailer, he might be shocked to find that the social networking site had broadcast his purchase to all his online "friends" -- this outing him.

At today's Digital Hollywood sessions, there were many opinions about how to design a privacy policy to deal with concerns like these. Here are some of the commonly-proposed ideas:

• Only use opt-in targeted advertising: This suggestion, which is on the most privacy protective end of the scale, would prevent the embarrassment that the young man in our hypothetical would have faced -- assuming that the advertiser didn't sell the data to some other firm with different policies.

• Disclose the data that is being gathered: Given the dislike of many consumers for reviewing small print, this suggest would be less privacy protective. But might have prevented the problem raised in our hypothetical.

• Provide consumers with access to the data that has been collected about this -- and permit them decide if they wish to permit this data to be used.

• "Anonymization": This was the most frequent suggestion in today's sessions. Anonymization means that the marketer avoids collecting information about individual users, but simply collects information about the use of a particular computer. The information gathered in this way would be less refined in cases where multiple persons used a single computer. For example, in my household, my 4 year old daughter, 5 year old son, wife and myself all share the same home computer.

Continue reading "Notes from Digital Hollywood: Industry Solutions to Privacy Issues in Online Behavioral Advertising May Not Satisfy FTC Chiefs" »

New FTC Rules on Bloggers: According to the Word of Mouth Marketing Association (WOMMA), word of mouth advertising is "the most honest form of marketing, building upon people's natural desire to share their experiences with family, friends, and colleagues." But here comes the rub. When marketers pay for "word of mouth" messages, haven't the messages ceased to be the result of "people's natural desire to share" -- and instead become the result of people's natural desire to make money?

This certainly is the view of the FTC, which on October 5, 2009 finalized a new revision of its rules governing the use of testimonials and endorsements in advertising (to be codified at 16 C.F.R. §255). These revisions make it clear that the FTC intends to extend the reach of its advertising regulation and enforcement to bloggers who make sponsored endorsements of products and services.

The rules affect both advertisers and bloggers who cooperate on sponsored endorsements. For example, the new rules state that the FTC intends to hold both advertisers and bloggers liable for false and misleading statements made by either party in the course of an endorsement. This means that an advertiser who provides free products to a blogger can be liable if the blogger makes false statements about the products in her blog. And the blogger can be liable if she repeats false statements from the advertiser. Both parties can also be liable if the blogger fails to disclose her connection with the advertiser.

Word of mouth advertising in the age of Web 2.0

Word of mouth advertising was once naively thought to refer to a spontaneous and uncompensated testimonial communicated from one consumer who was excited about a product he had just tried to another customer. Word of mouth marketing has long been thought to be more effective than print advertising because the message comes from a peer that the customer trusts. When a customer hears a peer rave about a product, she assumes that the endorser is speaking out of his genuine experience with the product.

Now that we have moved into the world of Web 2.0, which has put the megaphone of the Internet into the hands of consumers, word of mouth has morphed into planned, compensated advertising that is piped through consumers via social media, such as blogs. This once spontaneous activity now has its own trade association -- WOMMA -- which boasts over 400 marketers as members.

WOMMA's website lists about a dozen different types of word of mouth marketing campaigns, by which an advertiser can "harness, amplify, and improve" on this "pre-existing phenomenon." Some of these methods include old-fashioned P.R., such as using high-profile entertainment events or news to create "buzz." Others include creating social networks or affinity groups of users that have a special interest in a product.

However, several categories involve providing products or compensation to "influential" consumers, who "volunteer" to tell others about the product. In "product seeding," the marketer provides samples of product to "influential" individuals, such as bloggers or persons with large social networks, who then write posts about the product on their sites. In "evangelist" and "influencer" marketing, the marketing "cultivates evangelists, advocates, or volunteers who are encouraged to take a leadership role in actively spreading the word on [the marketer's] behalf" -- in other words, the marketer pays the blogger to write about the product.

Social media posts covered by the FTC rules

The new FTC rules don't constitute a new extension of the FTC regulations on deceptive advertising to blogs. The prior FTC rules already arguably covered any form of media, including social media, such as blogs. Rather, the new rules and the FTC's statements in its Notice of Adoption simply make it clear that the FTC intends enforce these rules on new media sites, including, specifically, blogs.

Continue reading "Bloggers and Advertisers Beware: FTC Rules on Sponsored Endorsements Create Major Risks for "Word of Mouth" Advertising" »