REGULATORS ARE TAKING AIM: ARE YOU A TARGET?

KEN DREIFACH, KEN@ZWILLGEN.COMAFFILIATE SUMMIT EAST, AUGUST 20, 2013

Ken Dreifach

ZwillGen, PLLC

ken@zwillgen.com

What I Will Discuss

FTC and other CONSUMER laws THINGS THAT MATTER:

WHO is liable? WHAT are you advertising? HOW are you describing it? WHY are you saying it (What’s in it for

you?) Examples

The Legal Principles

Don’t Be: Deceptive Unfair Creepy Sloppy

FTC’s Section 5: Deception

“Deception” – a misrepresentation or omission likely to mislead the consumer acting reasonably, to the consumer’s detriment Express and implied claims “Reasonable” consumer standard What is the “net impression”? Is a deception “material”?

FTC Section 5: Unfairness

Likely to cause substantial injury Not reasonably avoidable Not outweighed by other benefits Arises in privacy cases (what is “injury”?)

The “What”: Products FTC Scrutinizes

Health and safety claims Dietary, weight loss Work from home/business opportunities Hard-to-test claims

“Save” on energy “Safe” for ozone layer

Sweepstakes Advertising Software (“adware,”

“overlay”)

Hot Button: It’s “FREE!”

A particular hot-button “Free” must be “Free”

Any conditions must be disclosed clearly and conspicuously “free with subscription” “free basic subscription” “free trial”

For instance, adjacent to claims If Software – disclose material

functionality

Hot Button: Negative Option Rule Clearly and conspicuously disclose

automatic renewal Within a ToS or EULA is not clear and

conspicuous FTC may consider high chargebacks as a

negative inference of deception

Hot Button: Privacy

Intense Focus on Data and Online Privacy Multiple FTC Reports (2012, 2013) Investigations by FTC, State A.G.’s, Congress Lawsuits re cookie placement, geo-location data,

address books, social network data FTC: Privacy Violations = Harm Rule Number One: Privacy Policies Must Be

Followed! Disclose what info you take, how you use it.

Where is the Creepy Line? “Google policy is to get right up to the creepy line and not cross it.“ (Eric Schmidt, CEO)

Hot Button – Kids, COPPA

Children’s sites, apps – is site “targeted to children under 13”

Focus on “Personal Information” taken from children (without parents consent) “Personal Information” now = anonymous

identifiers Fines = $11,000 per violation

(substantial) NEW RULES: July 1, 2013 FTC: Increased Enforcement

The “WHO” -- WHO is Liable? The Advertiser The Affiliate Network and the Ad Agency?

Maybe, depending on role. Did they help design the ad? Did they help create the strategy?

Create websites? What was their level of knowledge?

Individuals Participation or Authority to Control

The “HOW” -- What is “Deceptive”?

False Statements – “ABC mouthwash prevents colds” (express) “ABC mouthwash kills germs that cause

colds” (implied) “Will help you lose 60 pounds with no

exercise” “Contains no chemicals” Results reported must be typical

What about customer testimonials? Must be typical of the average consumer.

The “HOW”: Can’t I Disclaim? A disclaimer in a Terms of Service is insufficient Can’t be “easily missed” on website. Disclaimer can’t be used to contradict other

statements in ad or clear up misimpressions that ad leaves

"Lose 10 pounds in a week doing nothing!” Cannot disclaim via: "Diet and exercise required"

“RESULTS MAY VARY” does not disclaim atypical claims

Disclaimers should be close/adjacent to claim

The “WHY” - Sponsored Content . . . Endorsements, Astroturf & Flogs

SPONSORED: The Taliban Is A Vibrant And Thriving Political MovementNEWS • News • ISSUE 49•03 • Jan 15, 2013

Flogging Across America

“Wal-Marting across America” Blog (2006) Laura & Jim in an RV, staying in Wal-Mart

lots Failed to Disclose Wal-Mart sponsorship

Astroturf, Sockpuppets & Flogs

Background What are these things?

“Astroturfing” = fake grass(roots) Reviews, posts,

“Sockpuppet” = fake online identity “Flog” = fake blog (undisclosed sponsor)

Purpose: Create buzz, viral marketing, influence decision-makers

Does it Really Matter (Isn’t the Internet fake anyway . . . ?)

These devices mimic influential groups: Consumers Peers Journalists

Disclosing “WHY”- Endorsements

“Guides Concerning the user of Endorsements and Testimonials in Advertising” 1975 1980 2009

An “ENDORSEMENT” is an advertising message that “consumers are likely to believe represents the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser” even if the views are the same.

FTC Rule: Disclose Material Connections

Must disclose connections “not reasonably expected” by audience

Disclose payment, if offered to induce Or if is likely to induce Reviews, testimonials, tweets

Blogs Disclose receipt of free product “An advertiser’s provision of a gift to a blogger for

posting blog content could constitute a material connection that is not reasonably expected by readers . . . .” (FTC, 2012)

Provider should require, monitor for compliance

What NOT to Do

FTC’s Warning Shots at Ann Taylor (2010) Ann Taylor Promises attendees a “special gift” Conditioned on posting about premiere within 24

hours Hyundai gift certificates for including links to

Hyundai videos (Nov. 2011) Nordstrom (Feb. 2013) – $50 gift card to

“influencers” attending a “TweetUp” opening event “But They Didn’t Say Reviews Had to be

POSITIVE . . .” FTC says it doesn’t matter. Disclosure of gift is required.

How to Disclose?

This is the disclosure that studies shows was not effective.

This is the disclosure that you are probably using. (If you disclose . . . .)

For Twitter: According to FTC: “Use a hashtag and then ‘ad,’ and that’s only three character.”

Increased Focus On . . .

Paid-for reviews Doctors, health practitioners “Reputation Management” SEO providers

FTC, New York State AG

Paid Reviews

“The Best Book Reviews Money Can Buy,” NY Times (August 26, 2012) Gettingbookreviews.com: $499 = 20 reviews $999 = 50 reviews

April 2013: Samsung apologizes for posting fake (negative) reviews of HTC devices Hired students to do it

Increase in Enforcement, Subpoenas

Fake News

More Fake News

More Fake News

Fake Reviews – Enforcement

Lifestyle Lift fined $300k by NYAG in 2010.

Told employees to “put on your wig and skirt and tell them about the great experience you had” Blogs, social media, websites

More “Who”: FTC Has Cast Broad Net

Affiliate network? FTC v. Ads4Dough.com (2012) (acai

berry case) Recruited affiliates Negotiated terms “Through their affiliate marketers” assisted in

promotion through affiliates’ websites Individuals?

Participation in wrongdoing Owner/President was Defendant in above case

Network and Individuals = Liable FTC v. IMM Interactive (2012)

“Defendants and their affiliate marketers” Operate websites Promote products Allegedly deceive users Receive commission for click or “free trial” Failed to disclose in a clear and conspicuous manner

that they are being paid to promote the products “Relevant information . . . Appears in small type at

the bottom of the page following the fake consumer comments”

Individuals – President (Owner), CEO and CMO

Some Cases Go the Other Way NY State v. Synergy6 – Affiliate email

network not liable for acts of its independent contractor

NY State v. Direct Revenue – Affiliate overlay/adware network not liable for failure of distributors to present notice.

These are litigated cases, under state law.

Protect Yourself!

Warrants & Reps (Specific) Indemnities Insurance Signed Agreements

Echosign, Docusign “Overriding” Appendixes Due diligence

Takeaways -

“Deceptive Acts” – look at whole picture

No Silver Bullet – no easy disclaimers Testimonials and endorsements must

disclose material connections Respect privacy (and the “creepy line”) –

disclose what data you take and how you use it

FTC casts broad net in determining liability

Reps/warranties/indemnities

STOP TALKING NOW.

Ken@zwillgen.com347.210.1798

Questions?

Ken Dreifach (ken@zwillgen.com)Blog.zwillgen.com