The Law of Advertising on the Internet Presented to the Association of Corporate Counsel March 29, 2011 Michael McCue Linda Norcross Lewis and Roca LLP Las Vegas, Nevada

The Old

The New

Overview Online advertising Web sites Third-party (social media, AdWords, etc.) What law applies? Federal: FTC Act, Lanham Act, Copyright Act, COPPA, CAN-SPAM, etc. State: deceptive trade practices laws, advertising content regulations, etc. Who can sue? Government: FTC, State attorneys general Private parties: consumers, competitors

10 Questions You Should Ask About an Online Ad Is it false or misleading? If misleading, are there sufficient disclaimers? Are the trademarks cleared? Are the rights of publicity cleared? Do we own or have a license to use copyright material? If we are using third-party trademarks or copyrights, does fair use apply? Does the ad comply with endorsement rules? Are other substantive legal requirements met? Do we comply with our privacy policy? Do we comply with laws governing Internet advertising methods?

Is the ad false or misleading? (Q1) Prohibited by FTC, state law, and federal Lanham Act Elements of Lanham Act claim: Advertisement contains a false or misleading statement of fact (opinion is not actionable) Statement actually deceived or had the capacity to deceive a substantial segment of the audience Deception must have been material in that it was likely to influence the purchasing decision Plaintiff must have been or is likely to be injured as a result

Pizza Hut v. Papa John’s BETTER INGREDIENTS. BETTER PIZZA.

False v. misleading Literal falsity Tests prove claims: plaintiff must prove that the test is unreliable or does not support the claim Bald claims: plaintiff must prove that the claim is actually false Misleading Ad taken as a whole (text, photos, etc.) cannot be misleading

Misleading photos?

More misleading photos?

Are there sufficient disclaimers? (Q2) Disclosures can be used to limit or explain a misleading claim, but not a false claim Disclosures must be CLEAR and CONSPICUOUS Factors: Prominence (hyperlinks?) Understandable Placement relative to the claim Distracting elements Repetition

Airborne disclaimer

Are trademarks cleared? (Q3) Make sure any trademarks (word, logo, slogan, etc.) do not infringe any third party’s rights. Identify: (1) the mark you want to use, and (2) the specific goods and services for which you want to use it. Are you using a term or phrase as a trademark? If so, is the trademark confusingly similar to the trademark of a third party? Is the trademark likely to dilute a famous trademark? Don’t rely on advertising agency for clearance

Are rights of publicity cleared? (Q4) Make sure that the name, likeness, image and signature of every person is cleared Law prohibits use of rights of publicity for commercial purpose without consent Nevada: written consent is required Applicable law usually based on domicile of plaintiff Don’t assume stock photos include clearance of rights of publicity

Do you own or have a license to use copyright material? (Q5) Assume everything is protected by copyright (photos, artwork, articles, etc.) If you use any copyrighted work, make sure you have cleared it Work made for hire or assignment  you own it License right to use it Obtain warranties and indemnification from third-party providers (ad agencies, stock photo companies, free lance photographers, etc.)

Does fair use apply? (Q6) Trademark fair use: use term in a descriptive, non-trademark sense Trademark nominative fair use: use third-party trademark to refer to third party (e.g., comparative advertising) The product or service cannot be readily identified without using the trademark Use so much of the mark as is necessary for the identification Do not suggest sponsorship or endorsement by the trademark holder Example: Toyota v. Tabari: buy-a-lexus.com

Copyright fair use Usually reserved for criticism, comment, news reporting, teaching, scholarship, and research Four factor test: purpose and character of the use The nature of the copyrighted work The amount and substantiality of the portion used in relation to the copyrighted work as a whole The effect of the use upon the potential market for, or value of, the copyrighted work

Does the ad comply with endorsement rules? (Q7) Endorsement: advertising message that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the advertiser Must be the honest opinions, findings, beliefs, or experience of the endorser If ad says the endorser uses the product, must be a bona fide user and continues to use the product Material connections must be disclosed unless ordinarily expected

Are other substantive requirements met? (Q8) Look for other potential issues based on the subject matter of the advertisement, special offers, promotions, etc. Subject matter restrictions (alcohol, cigarettes, etc.) Deceptive trade practices (Chapter 598 of NRS lists more than 50 deceptive trade practices) Sweepstakes and promotions

Is the privacy policy accurate? (Q9) Do you have a privacy policy that meets the FTC fair information practice principles? Notice of what information is collect from consumers and how the information is used (KEY REQUIREMENT) Consumers should be given choice about how information collected from them may be used Consumers should have access to data collected about them. Take reasonable steps to ensure the security of the information collected from consumers

Privacy laws FTC Act and state laws (applied to privacy policy violations) Children’s Online Privacy Protection Act (applies to web sites that target or knowingly collect information from children under age 13) Graham-Leach-Bliley (financial institutions) Health Breach Notification rule (applies to companies that allow online access to medical records) Red Flags rule (deters identify theft; clarified in December 2010 to narrow definition of creditor)

Hot issues in privacy Flash cookies (often not disclosed; outside of browser cookie settings) Behavioral advertising (tracking online behavior for purpose of delivering targeted ads) Inadequate disclosure: FTC v. Sears (disclosure of online tracking in lengthy license agreement was not adequate) Failure to comply with privacy policy: FTC v. Chiquita (opt out of data collection lasted 10 days)

Comply with laws governing Internet advertising methods? (Q10) CAN-SPAM No false or misleading header information.  No deceptive subject lines. Identify the message as an ad.  Your message must include your address.  Tell recipients how to “opt out.”   Honor opt out requests within 10 business days.

Digital Millennium Copyright Act Provides safe harbor for online service providers May apply if web site allows posting of user generated content Must register with Copyright Office and include notification information on web site Notice and take down procedures

Key Word Advertising Refers to purchasing key words to trigger sponsored links in search engine results (such as Google AdWords) Trademark owners have complained that purchase of the marks as key words constitutes infringement Courts have generally found use permissible May not constitute use of a mark in commerce May not cause confusion (Ninth Circuit recently vacated an injunction blocking a software company from purchasing keyword ActiveBatch, a mark owned by direct competitor)

Questions?