FTC Update on Gathering Data; Disclosures To Consumers

In an area of major interest to the entertainment industry, the Federal Trade Commission (FTC) continues its active enforcement of advertising practices in emerging areas such as social media and mobile marketing. At the same time, advertisers and marketers are attempting to piece together best practices as new consumer protection requirements come into effect and the first cases applying new regulatory standards are settled.

Following an active 2012, during which it issued an important privacy report and announced significant and groundbreaking privacy settlements with Google, online data broker Spokeo and social media giant Facebook, the FTC continued its focus on privacy, in 2013 bringing additional actions against other data brokers and companies that experienced data breaches.

With regard to data brokers, newly appointed FTC Chairwoman Edith Ramirez cautioned companies that collect large quantities of consumer data that the agency intends to closely scrutinize those companies' data security measures to ensure that the massive amounts of consumer information they collect are properly protected against unauthorized access. She echoed these warnings in a keynote address at the Technology Policy Institute's annual conference in Aspen, CO, where she expressed concerns about the private sector's increasing collection and use of “big data,” or datasets whose size is beyond the ability of typical database software tools to capture, store, manage and analyze. The FTC also continued its call for legislation in this area, citing the lack of transparency with which such data-gathering companies operate.

California, a leader in privacy legislation, enacted several new laws designed to provide consumers with tools and information to protect their privacy. California AB 370 amended the California Online Privacy Protection Act (CalOppa) to require operators of commercial websites and online services to disclose whether and how they respond to a consumer's “do not track” signal or header, as indicated in their browser. Of note, the law does not require an operator to honor the signal, just to inform consumers whether or not it honors the request. This new law takes effect in January 2014.

Early last year, the FTC updated its 13-year-old guidance on making disclosures in online and digital advertising, including on websites, mobile devices and through social media. In March 2013, the agency issued a revised version of its so-called Dot Com Disclosures guidance document, which was last published in 2000.'Like the original, the updated guidance emphasizes that consumer protection laws apply equally to marketers across all mediums, whether delivered on a desktop computer, a mobile device, or more traditional media such as television, radio or print. However, the revised guidelines provide examples of ways that marketers can satisfy disclosure requirements in the context of new types of online advertising that have emerged in the past decade, such as websites specifically developed for mobile devices and social media sites such as Twitter. The guidelines include 22 examples to help illustrate how marketers can run afoul of the rules in the mobile and social media context.

Interestingly, these new guidelines quickly spawned litigation, but not involving the FTC. In August, actress Octavia Spencer filed a breach-of-contract and fraud lawsuit against Sensa, a weight-loss product company for whom she was a paid spokesperson. Spencer v. Sensa Products LLC, BC 519632 (L.A. Sup. Ct.) At the heart of the controversy is the allegation that part of the reason the company terminated Spencer was due to her insistence on adding the tag “#spon” to her tweets as a method of disclosing her connection to the company, a practice which the company claimed reduced the usefulness of the tweets as marketing tools. Effective methods for disclosing endorsements in space-constrained messages, such as tweets, are extensively discussed in the new FTC guidance, including the potential use of the “#spon” tag. It remains to be seen whether Spencer will be successful in characterizing her actions as a good faith attempt to comply with FTC guidelines.

'Native' Advertising

The FTC is also taking a closer look at “native” or “sponsored” advertising. This practice of blending advertisements with news, entertainment and other content in digital media, has caused some confusion by blurring the line between traditional advertising and editorial content, complicating the application of traditional advertising law principles. The FTC hosted a workshop for industry constituents in December 2013, in order to gain a better understanding of the relevant issues in this area, to help in determining whether a rulemaking or official guidance is warranted.

In the meantime, the National Advertising Division of the Better Business Bureau (NAD), as part of its ongoing monitoring program, examined “native advertising” by Qualcomm Inc., for its Snapdragon Processors-microprocessors specifically designed for use in cell phones and tablets. Qualcomm entered into an agreement with Mashable.com for a series of articles that explored the technology behind various electronic products, which were “sponsored” by Qualcomm. Qualcomm argued that none of the articles addressed mobile phones or devices that contained Snapdragon components and that it had not directed the creation of subject matter of the articles, which, it maintained, existed independently without mention of the company.

NAD found that Qualcomm's sponsorship was more like an advertisement that ran alongside an article for a period of time; therefore, it was appropriate for the company to disclose itself as the series sponsor when its advertising ran in conjunction with the series. However, it was not necessary for Qualcomm to continue to identify itself as the sponsor after the sponsorship period ended.

As technology continues to evolve, entertainment and advertising companies seek new ways to gain and hold consumer attention; and as the methods by which companies are able to collect, analyze and manipulate consumer data increase at breakneck speed, regulators will be challenged to balance their charge with protecting the marketplace under traditional advertising and marketing laws without stifling innovation. Of greater importance to many companies, however, is not the sound of a regulator knocking at their door but, rather, the fear of a class action suit that could result in crippling statutory damages. No doubt, 2014 brings new challenges for marketers and regulators, as both will need to foster consumer trust and confidence for a healthy and vibrant marketplace.

Marc S. Roth is a partner in the New York City office of Manatt, Phelps & Phillips. Edward Kabak is the chief legal officer of the Brand Activation Association (formerly the Promotion Marketing Association). La Toya Sutton, an associate in Manatt's Washington, DC, office, contributed to this article.

In an area of major interest to the entertainment industry, the Federal Trade Commission (FTC) continues its active enforcement of advertising practices in emerging areas such as social media and mobile marketing. At the same time, advertisers and marketers are attempting to piece together best practices as new consumer protection requirements come into effect and the first cases applying new regulatory standards are settled.

Following an active 2012, during which it issued an important privacy report and announced significant and groundbreaking privacy settlements with Google, online data broker Spokeo and social media giant Facebook, the FTC continued its focus on privacy, in 2013 bringing additional actions against other data brokers and companies that experienced data breaches.

With regard to data brokers, newly appointed FTC Chairwoman Edith Ramirez cautioned companies that collect large quantities of consumer data that the agency intends to closely scrutinize those companies' data security measures to ensure that the massive amounts of consumer information they collect are properly protected against unauthorized access. She echoed these warnings in a keynote address at the Technology Policy Institute's annual conference in Aspen, CO, where she expressed concerns about the private sector's increasing collection and use of “big data,” or datasets whose size is beyond the ability of typical database software tools to capture, store, manage and analyze. The FTC also continued its call for legislation in this area, citing the lack of transparency with which such data-gathering companies operate.

California, a leader in privacy legislation, enacted several new laws designed to provide consumers with tools and information to protect their privacy. California AB 370 amended the California Online Privacy Protection Act (CalOppa) to require operators of commercial websites and online services to disclose whether and how they respond to a consumer's “do not track” signal or header, as indicated in their browser. Of note, the law does not require an operator to honor the signal, just to inform consumers whether or not it honors the request. This new law takes effect in January 2014.

Early last year, the FTC updated its 13-year-old guidance on making disclosures in online and digital advertising, including on websites, mobile devices and through social media. In March 2013, the agency issued a revised version of its so-called Dot Com Disclosures guidance document, which was last published in 2000.'Like the original, the updated guidance emphasizes that consumer protection laws apply equally to marketers across all mediums, whether delivered on a desktop computer, a mobile device, or more traditional media such as television, radio or print. However, the revised guidelines provide examples of ways that marketers can satisfy disclosure requirements in the context of new types of online advertising that have emerged in the past decade, such as websites specifically developed for mobile devices and social media sites such as Twitter. The guidelines include 22 examples to help illustrate how marketers can run afoul of the rules in the mobile and social media context.

Interestingly, these new guidelines quickly spawned litigation, but not involving the FTC. In August, actress Octavia Spencer filed a breach-of-contract and fraud lawsuit against Sensa, a weight-loss product company for whom she was a paid spokesperson. Spencer v. Sensa Products LLC, BC 519632 (L.A. Sup. Ct.) At the heart of the controversy is the allegation that part of the reason the company terminated Spencer was due to her insistence on adding the tag “#spon” to her tweets as a method of disclosing her connection to the company, a practice which the company claimed reduced the usefulness of the tweets as marketing tools. Effective methods for disclosing endorsements in space-constrained messages, such as tweets, are extensively discussed in the new FTC guidance, including the potential use of the “#spon” tag. It remains to be seen whether Spencer will be successful in characterizing her actions as a good faith attempt to comply with FTC guidelines.

'Native' Advertising

The FTC is also taking a closer look at “native” or “sponsored” advertising. This practice of blending advertisements with news, entertainment and other content in digital media, has caused some confusion by blurring the line between traditional advertising and editorial content, complicating the application of traditional advertising law principles. The FTC hosted a workshop for industry constituents in December 2013, in order to gain a better understanding of the relevant issues in this area, to help in determining whether a rulemaking or official guidance is warranted.

In the meantime, the National Advertising Division of the Better Business Bureau (NAD), as part of its ongoing monitoring program, examined “native advertising” by Qualcomm Inc., for its Snapdragon Processors-microprocessors specifically designed for use in cell phones and tablets. Qualcomm entered into an agreement with Mashable.com for a series of articles that explored the technology behind various electronic products, which were “sponsored” by Qualcomm. Qualcomm argued that none of the articles addressed mobile phones or devices that contained Snapdragon components and that it had not directed the creation of subject matter of the articles, which, it maintained, existed independently without mention of the company.

NAD found that Qualcomm's sponsorship was more like an advertisement that ran alongside an article for a period of time; therefore, it was appropriate for the company to disclose itself as the series sponsor when its advertising ran in conjunction with the series. However, it was not necessary for Qualcomm to continue to identify itself as the sponsor after the sponsorship period ended.

As technology continues to evolve, entertainment and advertising companies seek new ways to gain and hold consumer attention; and as the methods by which companies are able to collect, analyze and manipulate consumer data increase at breakneck speed, regulators will be challenged to balance their charge with protecting the marketplace under traditional advertising and marketing laws without stifling innovation. Of greater importance to many companies, however, is not the sound of a regulator knocking at their door but, rather, the fear of a class action suit that could result in crippling statutory damages. No doubt, 2014 brings new challenges for marketers and regulators, as both will need to foster consumer trust and confidence for a healthy and vibrant marketplace.

Marc S. Roth is a partner in the New York City office of Manatt, Phelps & Phillips. Edward Kabak is the chief legal officer of the Brand Activation Association (formerly the Promotion Marketing Association). La Toya Sutton, an associate in Manatt's Washington, DC, office, contributed to this article.