Addressing legal issues with the latest technological developments and social media trends.
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Pepsi.jpegSocial media took a step into the real world with Pepsi’s announcement of a social vending machine. According to the press release, Pepsi will launch its Social Vending System, a state-of-the-art networked
unit that features full touch screen interactive vending technology, enabling
consumers to better connect with PepsiCo brands right at the point of purchase.
A prototype of the Social Vending System will debut at the National Automatic
Merchandising Association’s One Show in Chicago, April 27-29. According to the release:

Using digital technology, PepsiCo’s Social Vending System enables any user to
gift a friend by selecting a beverage and entering the recipient’s name, mobile
number and a personalized text message. There’s also the option to further
personalize the gift with a short video recorded right at the machine. The gift
is delivered with a system code and instructions to redeem it at any PepsiCo
Social Vending system. When the recipient redeems his or her gift, they’re given
the option of either thanking the original sender with a gift of their own or
paying it forward and gifting a beverage to someone else.

A promotional video is available.

This innovative approach to integrating social media into everyday activities and to devices and appliances is part of a growing trend that is resulting in social media going well beyond just Facebook and other internet sites.

Judging from the patent filings that we monitor in this area, there is much more to come!. Many companies are filing patents for innovative uses of social media integrated into everyday activities and to use of social media for innovative advertising and brand engagement concepts.

 

 

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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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The US Attorneys for the SDNY and the FBI unsealed an indictment against the three largest online poker sites on
Friday, alleging an elaborate scheme to circumvent the federal law prohibiting certain gambling related activities (UIGEA).

The Indictment and Civil Complaint seek at least $3 billion in civil money laundering penalties and forfeiture from the Poker Companies and the defendants. The District Court issued an order restraining approximately 76 bank accounts in 14 countries containing the proceeds of the charged offenses. Pursuant to a warrant for arrest in rem issued by the U.S. District Court, the United States also seized five Internet domain names used by the Poker Companies to operate their illegal online businesses in the United States.

When one tries to access the seized domains, here is what they now see:

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movietickets.jpgA court dismissed claims against online discount program Webloyalty.com and MovieTickets.com alleging that they deceptively enrolled plaintiff in a program that he would not have joined had he know the terms. The court distinguished these companies’ disclosures from those
recently held actionable in the Keithly case. 

After the disclosures were presented to him, Plaintiff Berry took three
affirmative steps to accept the terms of the club membership. He entered his
email twice and clicked the ‘Yes’ button. The court further noted that right below the Yes button was a ‘No thanks’ button which he could have clicked to refuse membership. Additionally, the court found that at least five notices were provided to inform Plaintiff that his  credit card
would be charged.

The type of data-sharing arrangement between defendants, in which consumers are presented with
an offer from a third party following an online purchase, and through which they
are charged via the payment information they provided to the first website, has
come under scrutiny of legislators and regulators. This case highlights that with adequate disclosure, websites and offers companies can insulate themselves from liability for these types of claims.

A recently enacted law prohibits post-transaction third party sellers from charging consumers for
goods or services without the consumer’s express informed consent.

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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!

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A UK charity recently did a survey
to look at how people deal with idea of death and digital music, photography and online bank accounts. Their research found that although 80% of those surveyed have such things, fewer than 10% have given any thought about what should happen to those assets when they die. More than half also said their computers contained important domestic and personal information which could not be accessed by family members.

This issue has been gaining importance as our online life becomes an increasing portion of our activity and consumption. People used to keep photos in albums – now they’re scattered among devices, memory cards and online services. Personal diaries are now protected with a password instead of a physical lock – and might even be stored on Blogger or LiveJournal or another online service rather than on a hard drive.  Family financial information or even personal recipes might be stored in Google Docs.  Most of the services we use on a regular basis have little-to-no provisions in place for a family member or an executor to transfer account information. Few companies and even fewer users are thinking about end of life issues when it comes to their online lives.

In some cases it takes legal action to gain access to an email account because of the privacy issues involved with messages to and from others who are still living. After the case of Lance Corporal Justin Ellsworth in 2004, the US Army began counseling deploying soldiers on this issue,

Legal Assistance attorneys can counsel deploying soldiers about the merits and consequences of giving a letter that contains the user ID and password to their e-mail to someone they trust. The merits include comforting their loved ones by enabling them to piece together his or her life “down range.” The consequences include that access is not selective and the soldier may want to protect his or her privacy even after their death. In the alternative, LA attorneys may advise deploying soldiers to draft a letter specifically telling their loved ones to respect his or her privacy and not attempt to access his or her e-mail account posthumously. LA attorneys providing this counseling should also instruct deploying soldiers to keep the contents of his or her letter secret from the person intended to deliver it to the soldier’s loved ones.

Following up on the US Army’s approach, companies like Legacy Locker are providing people with the ability to create an archive of userids and passwords as part of a “digital will.” Going beyond the sentimental value of photographs and correspondence, 80%
of those responding to the UK charity survey thought their collections of virtual goods (music, iPhone apps and other virtual goods) were financially valuable. Yet only 9% had considered including them among assets to be distributed after their death.  Companies like Confidant are providing users with the ability to create a single online repository of important information and designate specific individuals who have access to some or all of the information.

As demonstrated by the UK charity’s study, the digital assets we acquire during life have value that is not just sentimental.  The US IRS Taxpayer Advocate recognized this in 2008 in her annual report to Congress.  The relevant portions of the report were extracted and posted here.
So when you die, your heirs would theoretically have to pay an estate tax on all of the digital assets you collected in your years of virtual asset collecting and building. As long as it has a real-world value, it can be taxed for that real-world amount just like a piece of art or a valuable stamp collection.

Any consumer who collects digital assets – whether through playing games ranging from Kingdom of Loathing to World of Warcraft,
participating in a virtual world, simply purchasing music or other digital goods, or just saving important pictures and files – should consider what should and will happen to those files when the consumer dies.  Consumers should consider whether the terms of use for relevant services permits those assets to be transferred to a third party or whether the service has policies and procedures for dealing with the death of a user.  In addition, the heirs of consumers with significant, valuable collections of digital assets may need to deal with estate tax issues related to the value of those digital assets.  Similarly, providers of online services need to consider how they will deal with the death of users, whether they will permit accounts and/or specific assets to be transferred to third parties and what levels of evidence they will require to verify the death.  In many cases, where a service provides a virtual currency, laws may regulate the manner in which such online currency accounts must be maintained and/or transferred.
Providers of online role-playing games and other virtual worlds may need to create systems to notify other users of the death of a member and, perhaps,
even hold online memorial services.

 

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We have previously posted about some of the often overlooked requirements of the FTC Endorsement Guidelines. Recent actions show that the FTC and other regulatory authorities are getting serious about enforcement.

In March 2011, a company selling a popular series of guitar-lesson DVDs agreed to $250,000 to
settle Federal Trade Commission charges that it deceptively advertised its
products through online affiliate marketers who falsely posed as ordinary
consumers or independent reviewers. According to the FTC release:

The Learn and Master Guitar program promoted by Legacy Learning and Smith is
sold as a way to learn the guitar at home using DVDs and written materials.
According to the FTC’s complaint, Legacy Learning advertised using an online
affiliate program, through which it recruited “Review Ad” affiliates to promote
its courses through endorsements in articles, blog posts, and other online
editorial material, with the endorsements appearing close to hyperlinks to
Legacy’s website.  Affiliates received in exchange for substantial commissions
on the sale of each product resulting from referrals.  According to the FTC,
such endorsements generated more than $5 million in sales of Legacy’s
courses.

The FTC’s revised guidelines on
endorsements and testimonials, issued in 2009,
explain in general terms when the agency may find endorsements or testimonials unfair or deceptive.
Under the guidelines, a positive
review by a person connected to the seller – or someone who receives cash or
in-kind payment to review a product or service – should disclose the material
connection between the reviewer and the seller of the product or service.

“Whether they advertise directly or through affiliates, companies have an
obligation to ensure that the advertising for their products is not deceptive,”
said David Vladeck, Director of the FTC’s Bureau of Consumer Protection.
“Advertisers using affiliate marketers to promote their products would be wise
to put in place a reasonable monitoring program to verify that those affiliates
follow the principles of truth in advertising.”

In August 2010, a public relations agency hired by video game developers agreed to pay $250,000 to settle Federal
Trade Commission charges that it engaged in deceptive advertising by having
employees pose as ordinary consumers posting game reviews at the online iTunes
store, and not disclosing that the reviews came from paid employees working on
behalf of the developers. The company also agreed to set up a monitoring program to ensure compliance going forward.

Other regulators have taken similar actions. In 2009 Lifestyle Lift, a cosmetic surgery company, paid $300,000 to settle with the
State of New York over its attempts to fake positive consumer reviews on the
Web regarding the results of face-lift procedures. .
Many aspects of social media provide great business opportunities, but it is important to ensure that your use, and your employee’s use, of social media is done in way that does not create legal liability.

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On March 28, 2011, the U.S. District Court for the Northern District of California held in Facebook, Inc. v. MaxBounty, Inc. that messages sent by Facebook users to their Facebook friends’ walls, news feeds or home pages are “electronic mail messages” under the CAN-SPAM Act. The court, in denying MaxBounty’s motion to dismiss, rejected the argument that CAN-SPAM applies only to traditional e-mail messages. The ruling is the most expansive judicial interpretation to date of the types of messages falling within the purview of the CAN-SPAM Act. While the court did not address the underlying merits of the CAN-SPAM claims, companies using social media in marketing should verify that they (and any marketing services they engage) comply with CAN-SPAM’s requirements for commercial messages sent via social media platforms.

While technically the court’s decision means that a message posted by one Facebook user to a friend’s wall promoting the poster’s home business could potentially be construed as a commercial “electronic mail message” under CAN-SPAM, it seems unlikely that Facebook or other social networking sites would sue their users under CAN-SPAM’s private right of action for small numbers of such individual messages (or even large numbers, provided a business was not violating the site’s terms of use).

However, the broad interpretation of the applicability of the CAN-SPAM Act could have far-reaching consequences for companies that use social media platforms for marketing. It is unlikely that more mainstream companies would adopt the aggressive tactics allegedly taken by MaxBounty, or that most social media platforms would take action against companies or users who were not abusing the system. Nevertheless, the CAN-SPAM Act requires that all commercial “electronic mail messages” comply with the following:

  1. The header information for the message (including the “From,” “To,” “Reply-To,” and routing information including the originating domain name and email address) must be accurate and identify the person or business who initiated the message;
  2. The subject line must accurately reflect the content of the message;
  3. The message must disclose clearly and conspicuously that it is an advertisement;
  4. The message must include a valid physical postal address for the person or business who  initiated the message;
  5. The message must include a clear and conspicuous explanation of how the recipient can opt out of getting email in the future from the person or business who initiated the message;
  6. Any opt-out mechanism must be able to process opt-out requests for at least 30 days after the message is sent. A recipient’s opt-out request must be implemented within 10 business days.

The CAN-SPAM Act makes it clear that companies cannot contract away their legal responsibility to comply with the law. Both the company whose product is promoted in the message and the company that actually sends the message may be held legally responsible for compliance.

The FTC has been aggressive in pursuing violators of the CAN-SPAM Act’s requirements, and those who use social media to send what have now been defined as “electronic mail messages” ignore the act’s requirements at their peril.

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There are a number of people out there who are warning us that there needs to be more awareness of how much information we’re disclosing via social networks. Some of them, like the now-shuttered PleaseRobMe.com, were doing it intentionally. Others, like Facebook Breakup Notifier (FBN),
do it by implication. FBN lets users pick certain friends whose relationship status they’d like to monitor. If one of those relationships changes, the user gets notified by e-mail. Every tweet, update, video and blog post is a micro-chapter of your public profile that anyone can access. Although the information that is created is for friends, family and colleagues,
people seem to rely on the scale of the internet to keep them anonymous without realizing that the information they post is also available to people with less virtuous interests. According to a study reported in The Telegraph, 36% of users who responded to a survey do not limit access to their social media profiles.

The latest tool for would-be stalkers is the aptly-named “Creepy.”  Its creator describes it as a ‘geolocation information aggregator.’ Creepy is an application for Linux or Windows —
with a Mac OS X port in the works — that gathers public information on a selected individual via social networking services to map their travel patterns. Right now it only works through Twitter and Flickr, but it’s already pretty impressive. Creepy uses the services’ APIs to download every photo or tweet the target user has ever published, analyzing each for the user’s location at the time.  Although Twitter’s geolocation setting is optional, images shared via sites like Twitpic and Yfrog are usually taken using a smartphone – which, usually unbeknownst to the user, records the location information in the EXIF data of the image. Creepy finds these photos,
downloads them, and extracts the location data.

The end result looks something like this:

creepy_mapview.png

With a map icon appearing for each location listed. Given that people spend the majority of their time at work/school or at home, Creepy discloses a frequent Tweeter/cell phone camera user-Flickr poster’s travel patterns.

According to the same article in The Telegraph, a survey of reformed burglars determined that 12% would use websites like Facebook and Twitter to find out when their potential victim is out of the house, and that was before they had the aid of something like Creepy.

According to the Creepy FAQ, “I don’t think that the fact that your geolocation information can be gathered and aggregated is disturbing. The fact that you were publishing it in the first place, is, on the other hand. Just to be clear, the intention behind creating creepy was not to help stalkers or promote/endorse stalking. It was to show exactly how easy it is to aggregate geolocation information and make you think twice next time you opt-in for geolocation features in twitter, or hitting ‘allow’ in the ‘this application wants to use your current location dialog on your iphone.”

To quote Helen Popkin, “Honestly, the way some of you people behave online, it’s like you’ve never had a stalker.”

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The U.S. District Court for the Northern District of
Illinois has held that a company’s alleged use of an employee’s Facebook and Twitter
pages without her permission to post marketing messages that looked like they
were written by the employee may be liable under the Illinois Right to Publicity
Act and the Lanham Act for false endorsement.

In this case, the employee, Jill Maremont, worked for an
interior design firm in Chicago.  As part of her job, Maremont created a
work-related blog that was hosted on her employer’s website. She also frequently
posted to both her Facebook page and Twitter, which both included her picture
and were, according to her, personal accounts. 

In September 2009, Maremont was in an automobile accident
and was seriously injured. During Maremont’s convalescence, her employer posted
company messages to Maremont’s Facebook page and Twitter account, writing posts
that claimed to be from Maremont.

When Maremont found out about the substitute posts, she
asked her employer to stop because, among other things, it made it seem like she
was already back and work and her injuries were less severe than they actually
were. However, the posts allegedly continued until Maremont changed the
passwords to her Facebook and Twitter accounts.

The court held that those allegations were sufficient to
proceed under the theories of false endorsement and breaches of her right to
publicity. However, the court dismissed the plaintiff’s common law
misappropriation of likeness claim, noting that the tort was replaced by the
state’s Right to Publicity Act, and rejected the plaintiff’s unreasonable
intrusion upon seclusion claim.

Full text of the court’s opinion in Maremont v. Susan
Fredman Design Group, N.D. Ill., No. 10-7811, 3/15/11, is available at Maremont v Fredman 110315.pdf.

This case deals with
something employers should deal with in their social media policy – personal
social media accounts. Like most other issues regarding social media, how a
given employer deals with a given question depends a lot on the employer, its
industry and its culture. Some businesses prohibit employees from having
personal work-related social media accounts, while some encourage it. Consider
what the right position is for your business, discuss it with your employees who
are active in social media, and document the decision in your social media
policy.