Covering Your Ads

Path/FTC Settlement - Much More Than A Slap On The Wrist

Sheppard Mullin — Tue, 05 Feb 2013 10:00:05 -0800

On February 1, 2012, “smart journal” application provider, Path, Inc. (“Path”) agreed to settle Federal Trade Commission (“FTC”) charges that it deceived consumers and improperly collected personal information in violation of the FTC Act and the Children’s Online Privacy Protection Act (“COPPA”). Mobile platforms and application providers should take note of this settlement and the underlying charges in order to avoid potentially onerous fines associated with such privacy violations.

Path describes its social networking service as a way to “keep a personal journal, or ‘Path’, of your life.” Through the “Path App”, a user can upload, store and share photos, written journal entries, current locations and songs. The FTC initiated its action against Path in February of 2012, taking issue with the method by which Path was collecting and storing personal data. Specifically, the FTC pointed to the “Add Friends” feature that provided users with three options: “Find friends from your contacts; “Find friends from Facebook;” and “Invite friends to join Path by email or SMS.” Regardless of whether the user elected to “Add Friends,” Path automatically collected the first name, last name, address, phone number, email address, Facebook username, Twitter username and date of birth for each contact in the user’s mobile device address book. According to the FTC’s complaint, “the user had no meaningful choice as to the collection and storage of personal information from the user’s mobile device contacts, and the user interface options were illusory.” In addition, the FTC argued that Path knowingly accepted registrations from approximately 3,000 children under the age of 13, without first obtaining parental consent, and collected personal information for each contact in the child registrant’s mobile device address book.

Path’s automatic information collection diverged from its Privacy Policy, which stated that Path automatically collected only certain information such as IP address, operating system, browser type, address of referring site and site activity stats. Therefore, the FTC argued that the automatic collection constituted a deceptive act or practice in violation of section 5(a) of the FTC Act, 15 U.S.C. § 45(a). In addition, the FTC asserted that PATH violated COPPA, through its collection of information from children under the age of 13, by failing to: (a) post a privacy policy on its website that provided notice of its information practices, including what information it was collecting from children online, how it used such information, and its disclosure practices for such information; (b) provide notice of its collection practices, including specific disclosures, directly to parents; and (c) obtain verifiable parental consent prior to collecting, using, and/or disclosing personal information from children.

The settlement requires Path to establish a “comprehensive privacy program” and to obtain independent privacy assessments every other year for the next 20 years. Path is also prohibited from making any misrepresentation about the extent to which it maintains the privacy and confidentiality of consumers’ personal information and must delete information collected from children under the age of 13. Perhaps most importantly, Path must pay $800,000 to settle the COPPA charges.

For a relatively new startup like Path, the $800,000 fine is a significant deterrent measure and signals the FTC’s serious commitment to consumer, especially child consumer, privacy. It is no mistake the FTC announced this settlement on the same day that it released guidelines on how to improve mobile privacy disclosures. Accordingly, mobile developers should look to this settlement, and the underlying charges, as a touchstone going forward.

FTC Updates To Online Privacy Acts, COPPA And VPPA

Sheppard Mullin — Tue, 29 Jan 2013 13:50:20 -0800

By Gina Ilardi

The Children's Online Privacy Protection Act (“COPPA”) was enacted to place parents in control over what information is collected, used and disclosed from young children online. COPPA applies to operators of commercial websites and online services directed to children under the age of thirteen that collect, use, or disclose personal information from children, and to operators of general audience websites or online services with actual knowledge that they are collecting, using or disclosing personal information from children under thirteen. On December 19, 2012, The FTC announced the adoption of its long-awaited amendments to COPPA. The updates are primarily aimed at mobile privacy, but are intended to reflect the FTC’s commitment to “helping to create a safer, more secure online experience for children” in the face of rapid technological change. The amended rule will be effective July 1, 2013.

The Video Privacy Protection Act (the “VPPA”) prevents disclosure of personally identifiable rental records of “prerecorded video cassette tapes or similar audio visual material.” On January 10, 2013, President Obama signed into law amendments to the VPPA that facilitate social media sharing of video viewing preferences when users consent to disclosure of information via the Internet. The amendments provide that a consumer’s written consent can now be obtained through electronic means using the Internet, provided that the consent is in a “form separate and distinct from any form setting forth other legal or financial obligations of the consumer.”

This article discussing these two important federal privacy laws was originally published by The Metropolitan Corporate Counsel.

Click here to view the entire article.

FTC Issues Revised "Green Guides"

Sheppard Mullin — Fri, 12 Oct 2012 08:43:00 -0800

By Robert Magielnicki

On October 1, 2012, the Federal Trade Commission issued revised “Guides For The Use Of Environmental Marketing Claims” – the “Green Guides,” 16 CFR Part 260. The Green Guides originally were issued in 1992 and were revised in 1996 and 1998. The review resulting in the latest revisions began in November 2007.

The Green Guides set forth the FTC’s views concerning environmental claims and are intended to help marketers avoid making environmental marketing claims that are unfair or deceptive and thus violative of Section 5 of the FTC Act. The Guides are administrative interpretations of the law and thus do not have the force and effect of law. However, the FTC can take action under the FTC Act if a marketer makes an environmental claim that is inconsistent with the Guides.

The Guides apply to claims about the environmental attributes of a product, package or service in connection with the marketing or sale of such item or service to individuals or in business-to-business transactions. They apply to claims in labeling, advertising, promotional materials and all other forms of marketing in any medium, whether asserted directly or by implication.

The Green Guides consist of general principles, specific guidance on the use of particular environmental claims, and examples. They begin by reaffirming the FTC’s long-standing position regarding deceptive advertising claims:

A claim is deceptive if it is likely to mislead consumers acting reasonably under the circumstances and is material to consumers’ decisions.
Marketers must identify all express and implied claims that the advertisement reasonably conveys, and ensure that all such claims are truthful, not misleading, and supported by a reasonable basis before the claims are made.
A reasonable basis often requires competent and reliable scientific evidence consisting of tests, analyses or studies conducted and evaluated in an objective manner by qualified persons and are generally accepted in the profession to yield accurate and reliable results.

The Green Guides underscore the FTC’s antipathy to general environmental claims, such as “green” or “eco-friendly.” According to the FTC, such claims are difficult to interpret and likely convey a wide range of meanings. In many cases, such claims convey that the product has far-reaching environmental benefits with no negative environmental impact. “Because it is highly unlikely that the marketers can substantiate all reasonable interpretations of these claims, marketers should not make unqualified general environmental benefit claims.”

The Green Guides also provide that an environmental claim should specify whether it refers to the product, the packaging, a service or just a portion of the product, packaging or service. Qualifications and disclosures should be clear, prominent and understandable. This includes using plain language and sufficiently large type, placing disclosures in close proximity to the qualified claim, and avoiding inconsistent statements. Comparative claims should be clear and substantiated. With regard to third party certifications and seals of approval, the Guides warn that they may be an endorsement subject to the FTC’s Endorsement Guides and that their use must include the specific basis for the certification or seal.

The Guides also provide specific guidance, including examples, for a plethora of particular environmental claims. These include:

Carbon Offsets
Certifications and Seals of Approval
Compostable Claims
Degradable Claims
Free-Of Claims
Non-Toxic Claims
Ozone-Safe and Ozone-Friendly Claims
Recyclable Claims
Recycled Content Claims
Refillable Claims
Renewable Energy Claims
Renewable Materials Claims
Source Reduction Claims

The Green Guides can be found at http://business.ftc.gov.

Proposition 37 Permits "Natural" Labeling for Non-GMO Processed Food

Sheppard Mullin — Mon, 08 Oct 2012 09:21:44 -0800

Proposition 37, the California Right to Know Genetically Engineered Food Act ("Prop 37”), if approved by the voters on November 6, 2012, will provide that food offered for retail sale in California produced with genetic engineering (“GMO food”) is misbranded unless clearly labeled to say it is genetically engineered. Prop 37 also provides that GMO “processed food” may not on its label, store signage, advertising or promotional materials state or imply that the food is “natural” or words of similar import.

Ballot materials prepared by the Legislative Analyst’s Office (LAO) state that Prop 37 could be interpreted to mean “processed food” is subject to the prohibition against “natural” labels, even if it is not produced with genetic engineering. In our view, this is not the correct interpretation of Prop. 37.

THE FINDINGS, STATEMENT OF PURPOSE AND LANGUAGE OF PROPOSITION 37 DEMONSTRATE THAT THE LABELING REQUIREMENTS ARE DIRECTED TO FOOD PRODUCED WITH GENETIC ENGINEERING, NOT TO PROCESSED FOOD IN GENERAL

The Findings and Declarations in Proposition 37 state that “California consumers have the right to know whether foods they purchase were produced using genetic engineering," and that "The labeling, advertising and marketing of genetically engineered foods using terms such as 'natural,' 'naturally made,' 'naturally grown,' or 'all natural' is misleading to California consumers.”

The Statement of Purpose provides: “The purpose of the measure is to create and enforce the fundamental right of the people of California to be fully informed about whether the food they purchase and eat is genetically engineered and not misbranded as natural so that they can choose for themselves whether to purchase and eat such foods.”

These statements show concern about misbranding of genetically engineered food as natural, but not about labeling non-GMO processed food as natural.

Section 110809, Disclosure With Respect to Genetic Engineering of Food, provides that "any food offered for retail sale in California is misbranded if it is or may have been entirely or partially produced with genetic engineering and that fact is not disclosed." Subdivision (c) of § 110808 defines “genetically engineered”; and subdivision (d) defines “processed food.”

Section 110809.1, Misbranding of Genetically Engineered Foods as 'Natural,' provides:

In addition to any disclosure required by Section 110809, if a food meets any of the definitions in subdivision (c) or (d) of Section 110808 . . . the food may not in California, on its label, accompanying signage in a retail establishment, or in any advertising or promotional materials, state or imply that the food is "natural," "naturally made," "naturally grown," "all natural," or any words of similar import that would have any tendency to mislead any consumer.

The title of § 110809.1 highlights the fact that it applies to "Misbranding of Genetically Engineered Foods as 'Natural.'" The introductory phrase, "In addition to any disclosure required by section 110809," clarifies that the “natural” labeling restriction in § 110809.1 applies only where disclosure is already required—i.e., for food that "is or may have been entirely or partially produced with genetic engineering."

Basic rules of statutory interpretation require a law to be construed consistently with its purpose and to avoid absurd results. Construing § 110809.1 to prohibit “natural” labels on non-GMO processed food would violate these rules. Under § 110808(d), "processed food" includes any food subject to "canning, smoking, pressing, cooking, freezing, dehydration, fermentation or milling." Prohibiting "natural" labels on "processed food" regardless of whether it is genetically engineered would affect foods such as 100 percent fruit juice, pure nut butters, dried fruit, flour, ice cream, and virtually any food that is not raw, freshly harvested and unprocessed. Such a result would confound consumer expectations, and it is not consistent with Prop 37’s purpose of protecting consumers against undisclosed use of genetic engineering.

STATUTORY INTENT SUPPORTS THE VIEW THAT PROPOSITION 37 IS LIMITED TO FOOD PRODUCED WITH GENETIC ENGINEERING

Background materials for Prop 37 focus on the right to know whether food is genetically engineered, with no expression of intent to regulate "natural" marketing in any other context. In submitting Prop 37 to the Attorney General’s Office for review, the LAO described the measure as "a proposed statutory initiative related to the labeling of genetically engineered (GE) food products," noting: "the measure prohibits the use of terms such as 'natural,' 'naturally made,' 'naturally grown,' and 'all natural' in the labeling and advertising of any food that is genetically engineered." The official Yes on 37 website states that the prohibition on “natural” marketing does not apply to food that is not genetically engineered.

THE SINGLE SUBJECT RULE SUPPORTS THE VIEW THAT PROPOSITION 37 IS LIMITED TO FOOD PRODUCED WITH GENETIC ENGINEERING

Article II, § 8(a) of the California Constitution, the “single subject rule,” provides: "An initiative measure embracing more than one subject may not be submitted to the electors or have any effect." It is settled that courts should construe laws to avoid unconstitutionality. According to the California Supreme Court, "a measure complies with the [single subject] rule if its provisions are either functionally related to one another or are reasonably germane to one another or the objects of the enactment." The object of Prop 37, as expressed in its title and text, is to require disclosure if food sold in California is genetically engineered. A provision that prohibits "natural" labels on nongenetically engineered food would not be germane to the other provisions of Prop 37 or to its object. A court would avoid such a construction because it would violate the single subject rule, rendering the entire measure unconstitutional.

ABOUT THE AUTHORS

The authors are partners in the San Francisco office of Sheppard Mullin Richter & Hampton, LLP, where their practices include food labeling, organic, consumer class action defense, and environmental law.

Peter Hecker, Partner
415.774.3155
phecker@sheppardmullin.com

Neil Popović, Partner
415.774.3156
npopovic@sheppardmullin.com

Robert Uram, Partner
415.774.3285
ruram@sheppardmullin.com

Note: This summary is for informational purposes and is not intended to provide legal or other advice or to create an attorney-client relationship. The opinions expressed herein are those of the authors and may not reflect the opinions of the firm, its clients or any other attorney.

He "Likes" Me, He "Likes" Me Not - Facebook's Sponsored Stories Lawsuit and the Proposed Class Settlement

Sheppard Mullin — Mon, 30 Jul 2012 10:04:32 -0800

By Elizabeth Barcohana

Facebook, Inc. was sued in a class action last year over one of its advertising practices called “Sponsored Stories,” which typically consist of a Facebook Friend’s name, profile picture, and an assertion that the person (your Facebook Friend) “likes” an advertiser, coupled with the advertiser’s logo, featured on your Facebook page or News Feed. The idea is that the target of the advertisement (i.e., you) will be more influenced by the company’s advertisement because someone in your network (i.e., your Friend) “likes” that company. The disconnect is that “liking” a page on Facebook does not necessarily mean the user likes that company in the normal sense of the word. For example, one could “like” a page in order to get some promotional benefit from the company or learn more information about the company or its product.

The named plaintiffs, two of which are minors, alleged “Sponsored Stories” violated California’s Right of Publicity Statute, Civil Code § 3344; California’s Unfair Competition Law, Business & Professions Code § 17200, et seq. (“UCL”); and the common law doctrine of unjust enrichment. Generally, the plaintiffs alleged the way Sponsored Stories worked unlawfully misappropriated their names, photographs, likeness and identities for use in paid advertisements without their consent. Facebook moved to dismiss their claims, arguing lack of Article III standing, immunity under § 230 of the federal Communications Decency Act (“CDA”), and failure to state a claim upon which relief can be granted. Late last year, the California Northern District Court denied the motion except with respect to the unjust enrichment claim.

Notably, the District Court rejected Facebook’s argument that the plaintiffs lacked Article III standing, drawing a distinction between the plaintiffs’ allegations and other recent District Court privacy cases coming to the opposite conclusion under similar facts (Low v. LinkedIn, iPhone App Litig., and LaCourt v. Specific Media, In re Doubleclick, Cohen v. Facebook), on the grounds that the plaintiffs’ allegations were sufficiently particular with regard with what information Facebook used, how it used it, to whom their information was published, how they were economically injured by the use of their information to advertise to others (versus using one’s information to advertise to oneself), and how their information inherently had some commercial value (because a Sponsored Story ad was viewed by Facebook as more valuable, and therefore more expensive, than a generic ad).

The case did not proceed beyond the plaintiffs’ allegations to class certification or summary judgment because, before the hearing on class certification was held, the parties reached a settlement in or around May, 2012. The plaintiffs filed a motion for preliminary approval of the proposed class settlement, which calls for changes to Facebook’s website and terms of use and additional control functions over one’s appearance in a Sponsored Story. The settlement includes other terms applicable to minors, such as a requirement that minors represent that they have received parental consent before they can be featured in a Sponsored Story. Facebook also agreed to bear the costs for class notice and settlement administration, in addition to paying $10 million incy pres relief to the class and almost $40,000 to three class representatives. The proposed class is nationwide, and there is also a proposed subclass consisting of minors.

A motion to intervene and oppose the motion for preliminary approval was filed in June, 2012 on behalf of the minor class members, whose interests are also represented in another related class action against Facebook and would be covered by the proposed release in the Fraley settlement. The minors are objecting for several reasons, including for example (1) the proposed settlement would not address the fundamental issue that minors lack the capacity to provide consent, and simply asking them to confirm they have parental consent is insufficient, and (2) that the Fraleyaction is limited to Sponsored Stories, whereas their related action, C.M.D. v. Facebook, challenges the use of children in advertising more generally. The intervention has the potential to blow up the proposed settlement and force the parties to start settlement discussions over again or proceed to class certification.

Both motions (for preliminary approval and intervention) are set to be heard on August 2, 2012.

A Slam Dunk For Trademarking Sports Catchphrases

Sheppard Mullin — Fri, 06 Jul 2012 10:07:04 -0800

By Ryan Hilbert

Following on the heels of New York Jets quarterback Tim Tebow’s attempt to register the trademark "Tebowing," Baltimore Ravens linebacker Terrell Suggs’ attempt to register the trademark "Ball So Hard University," and New York Knicks phenom Jeremy Lin’s attempt to register the trademark "Linsanity," it appears that another high-profile athlete, former University of Kentucky basketball standout and consensus No. 1 NBA draft pick Anthony Davis, is now getting into the trademark business.

Click here to read the entire article as published by Law360.

Losing The Race To Trademark Sports Catchphrases

Sheppard Mullin — Wed, 25 Apr 2012 10:41:56 -0800

By Ryan Hilbert

Baltimore Ravens linebacker Terrell Suggs may be fast on the field. But it’s too bad he wasn't faster to the U.S. Patent and Trademark Office.

During the telecast of a game between Suggs’ Ravens and the Pittsburgh Steelers on Nov. 6, 2011, Suggs referred to his alma mater, Arizona State University, as “Ball So Hard University.” This phrase immediately caught on, and three days later Suggs appeared at a press conference wearing a T-shirt with “Ball So Hard University” printed on the front. The only problem was that Suggs didn’t create or sell the shirt himself; he bought it from someone on the Internet.

When Suggs filed a number of trademark applications for "Ball So Hard University" less than a week later on Nov. 17, someone had already beaten him to the USPTO. Now Suggs is engaged in a legal fight to determine who owns prior rights to the trademark "Ball So Hard University."

Of course Suggs’s situation is not unique. Right around the time Suggs was proudly proclaiming his allegiance to his alma mater, a pair of fans in St. Louis were engaged in their own race to the USPTO to register the mark "Rally Squirrel." This term was adopted by fans of the St. Louis Cardinals when a squirrel scurried across the field at Busch Stadium first in game three of the 2011 National League Championship Series and then again in game four. Now, as with Suggs, two opportunistic fans are stuck in a legal dispute about which one of them has prior trademark rights.

And who can forget the case of Pat Riley, Hall of Fame NBA coach, and his trademark for the term "three-peat." Pat Riley will probably be the first to tell you that he didn’t coin the term “three-peat.” However, he was the first one to file a trademark application for "three-peat" with the USPTO in 1989, at a time when the Lakers team he was coaching was attempting to win its third consecutive NBA championship. Even though Riley’s Lakers did not accomplish this feat that year, the Chicago Bulls did so four years later in 1993. Because of his foresight, Riley was able to collect royalties from sports apparel makers who wished to use the "three-peat" mark in connection with the Bulls’ success.

So what are athletes, opportunistic fans, coaches and others to take from these examples?

The short answer is: In order to establish prior trademark rights to a term or catchphrase for which there has not yet been any valid trademark use, it is important to contact trademark counsel as soon as possible and to file a trademark application for that term or catchphrase with the USPTO.

In the U.S., there are essentially two ways in which one may establish priority in a trademark. The first is to start using the mark in connection with certain goods and services. To do this, a trademark owner must use a particular word or slogan as a source indicator — i.e., to denote the origin of the goods or services with which the mark is used, even if that origin is unknown.

An example would be to use the mark on the labels of goods like T-shirts, baseball caps or other articles of clothing. In this situation, one creates what are called “common law” rights to a mark. Such rights are fully enforceable against others as of the date the mark was first used and in the geographic region in which the mark was used, regardless of whether the mark is ever registered with the USPTO.

The problem with this approach as it relates to popular terms or catchphrases, however, is that such terms or catchphrases are typically uttered and catch on before use of the mark can commence. That is why the second way to establish trademark priority may be preferred.

The second way to establish trademark priority is to file an “intent to use” (“ITU”) application with the USPTO under Section 1(b) of the Lanham Act governing trademarks. To do this, one need not actually use the mark with the goods and services identified in the application yet — a mere “bona fide” intent to use the mark for such goods or services in the future will suffice. Eventually, use of the mark along the lines mentioned above “in commerce” (i.e., between state lines or between a state and a foreign country) is a prerequisite for registration of a federal trademark. However, once an ITU application proceeds to registration, the trademark owner will own rights to the trademark dating back to the filing date of the application, regardless of when such use began.

It may be the case that one simply cannot file a trademark application soon enough after the spontaneous debut of a soon-to-be-popular term or catchphrase in order to establish priority. In such cases, an athlete, fan or coach may need to rely on more sophisticated legal maneuvers in an attempt to obtain rights to a mark. For example, when a pair of fans tried to register "Tebowing" with the USPTO before NFL quarterback Tim Tebow could get his own applications for "Tebowing" on file, Tebow’s counsel sent the USPTO a letter of protest on Tebow’s behalf. Those fans’ applications have now been preliminarily rejected by the USPTO on the ground that they falsely suggest a connection to Tim Tebow under Section 2(a) of the Lanham Act, among other reasons.

Another possible yet risky option — especially if a particular mark or phrase does not call to mind a particular individual, as appears to be the case with "Tebowing" — is to simply commence use of the mark before the owner of an earlier-filed ITU application can establish use or is able to perfect the application.

Generally speaking, when a registrant sues for infringement of a registered mark, monetary remedies cannot be recovered for acts which took place after the application was filed but before the mark was actually used. See, e.g., Reliable Tire Distrib. Inc. v. Kelly Springfield Tire Co., 592 F. Supp. 127, 136 (E.D. Pa. 1984) (holding that the plaintiff could not recover damages because “[a] registrant cannot recover damages or lost profits prior to the date of registration of the mark.” (citations omitted)). It is worth noting that Nike has been offering shirts bearing the word “Linsanity” since March 2012, even though Jeremy Lin was the third person to file an application for "Linsanity" for apparel.

Athletes are used to being the fastest ones on the field, court, ice or pitch. The one area in which history has shown they have not been fast enough, however, is to the USPTO. If and until this changes, this is one contest they could find themselves losing.

This article was originally published by Law360.

Third Circuit Issues Decision in New Jersey Gift Card Escheat Suit

Sheppard Mullin — Mon, 30 Jan 2012 11:20:31 -0800

By Craig Cardon, Brian Anderson, Rachel Hudson.

On January 5, 2011, the Third Circuit issued its decision in New Jersey Retail Merchants Association v. Sidamon-Eristoff, Case No. 10-4551 (3d Cir. Jan. 5, 2012). The appellate court affirmed the decision of the District Court partially granting and partially denying a motion for a preliminary injunction of enforcement of New Jersey's unclaimed property law as applied to gift cards or stored value cards ("SVCs").

Background

The New Jersey Retail Merchants Association ("NJRMA"), New Jersey Food Council, and American Express Prepaid Card Management Corporation (referred to as "SVC issuers") are challenging New Jersey's statute regarding the return of unclaimed property, 2010 N.J. Laws, Chapter 25, also known as an escheat law, as it relates to SVCs. In general, escheat laws require that once property has been deemed abandoned, the holder must attempt to contact the owner at his or her last known address and if unsuccessful, turn the property over to the state for safe keeping. The New Jersey law amended the state's escheat laws to apply to SVCs for the first time and created new rules specifically relating to SVCs.

Third Circuit Decision

The Third Circuit's decision concerns the SVC issuers' motion for a preliminary injunction of certain provisions of the law. The District Court granted the motion as to the retroactive application of the law and the place-of-purchase presumption and denied the motion as to the two year abandonment period and the name and address collection requirement. The Third Circuit affirmed the decision.

The Third Circuit agreed with the lower court that it was reasonably likely that the SVC issuers would prevail on the issue of whether retroactive application would violate the Contracts Clause of the United States Constitution. The court held that retroactively applying the law would impair the contractual relationship between the SVC issuers and their customers by imposing a new burden on the SVC issuers not accounted for when the relationship was formed. The place-of-purchase presumption provision provides that where no information is known about the residence of the purchaser of the SVC, it is presumed that a SVC sold in New Jersey escheats to the State of New Jersey. Both courts held that the SVC issuers established a reasonable likelihood of prevailing on their claim that this rule is preempted by the federal common law rule that governs the priority of escheatment of property.

The Third Circuit affirmed the District Court's denial of the preliminary injunction of the two-year abandonment period as the court held that it was not reasonably likely that the SVC issuers would prevail on their claim that the New Jersey law is preempted by the federal Credit CARD Act, 15 U.S.C. § 16931-1(c).

The Third Circuit also affirmed the District Court's denial of the preliminary injunction of the requirement that SVC issuers collect the name and address of the purchaser or owner of each SVC issued or sold and at least maintain a record of the zip code of the owner or purchaser. The court held that this portion of the law was severable from the place-of-purchase presumption provision. The court further held that the SVC issuers were not likely to succeed on their claim that the requirement was preempted by federal law and that there are rational, legitimate reasons for the requirement.

Finally, the Third Circuit affirmed the District Court's holding that the SVC issuers did not establish a reasonable likelihood of success on their substantive due process challenge to the law.

The case will now return to the District Court to proceed on the merits should the parties continue to pursue the litigation, however, the parties still have the opportunity to petition for rehearing by the Third Circuit or appeal the decision to the Supreme Court. The NJRMA has stated that it is unlikely to petition for rehearing or appeal.

State Treasury's Response

The New Jersey Treasurer's office has stated that they are taking time to "digest" the decision and will then schedule a meeting within the next few weeks to discuss the NJRMA's concerns. The Treasurer's office has assured the NJRMA that they will not issue any type of implementation guidance prior to this meeting. The Treasurer's office has said that they will not begin enforcement of the law until they issue guidance.

Legislative Efforts

In addition, the NJRMA and other retail groups will continue to pursue legislative strategies if their discussions with the state are unproductive.

Losing Games: Player Strikes Adversely Affect Sponsorship Agreements

Sheppard Mullin — Tue, 01 Nov 2011 08:53:25 -0800

The end of the collective bargaining agreement between a professional sports league and the players association that represents the athletes triggers a series of dominos: The players go on strike, the league implements a lock-out of the players, the parties meet over the course of several weeks to try to negotiate a new deal, both sides posture (with the league cautioning that pre-season and regular season games will be cancelled and the players association threatening to decertify as a union if a new agreement cannot be reached), the league files an unfair labor practice complaint with the National Labor Relations Board coupled with a declaratory judgment action in U.S. district court seeking a ruling that the lock-out is a legitimate negotiation tactic under the labor laws, the union decertifies and files its own lawsuit claiming that the league's lockout constitutes price-fixing and an illegal group boycott in violation of the antitrust laws, and fans brace for lost games.

Many writers, observers and enthusiasts following the most recent professional sports labor disputes in both the National Football League (NFL) and the National Basketball Association (NBA) have focused solely on the players, the owners and the fans. But there is another group of stakeholders that is inevitably affected by a lack of labor peace: sponsorship partners. Sponsors such as banks, beverage companies, electronics manufacturers and athletic apparel companies that spend millions of dollars a season to sponsor the teams and promote their products to fans may be left losing much of the value they bargained for, even if no pre-season or regular season games are actually lost.

This article, by Benjamin Mulcahy, was originally published in the New York Law Journal. To read the full article please click here.

Compliance Deadline Looms for New Transparency in Supply Chains Act

Sheppard Mullin — Mon, 17 Oct 2011 14:08:53 -0800

On January 1, 2012, the California Transparency in Supply Chains Act of 2010 will become effective. This legislation will require every large retailer and manufacturer doing business in California to publicly disclose whether it has taken specified actions to eliminate slavery and human trafficking from its product supply chain. The Act does not require a company to make any effort to eliminate slavery or human trafficking, but only to disclose the extent, if any, to which it has taken the actions listed in the Act. The impact of the Act ultimately will depend on whether consumers, investors and activists use the required disclosure to pressure companies to monitor and eliminate abuses in their supply chains. California Civil Code Section 1714.43(a).

This article, by Peter Menard, was originally published in the Daily Journal. To read the full article please click here.

ZIPped Back Up: Williams-Sonoma Gains Federal Dismissal Of New Jersey Consumer Privacy Claim in Feder

Sheppard Mullin — Wed, 12 Oct 2011 04:33:58 -0800

In Feder v. Williams-Sonoma Stores, Inc, the United States District Court for the District of New Jersey joined the New Jersey Superior Court in weighing in on the issue of whether a retailer violates consumer privacy state law by requesting a customer's zip code at the point of purchase. Feder was brought by the same plaintiff’s lawyers and with claims similar to those in the state court case Imbert v. Harmon Stores, Inc.(Bed, Bath & Beyond). Imbert was decided last month, but without any written decision, and permitted that case to proceed past the pleading stage. The District Court in Feder, however, issued the first written opinion under the New Jersey statutes, finding that allegations that a zip code was verbally requested could not support a claim under New Jersey law.

Both Feder and Imbert involved plaintiffs suing under New Jersey’s Truth-in-Consumer Contract, Warranty and Notice Act (“TCCWNA”), alleging that a store’s requirement that customers provide their zip codes during a credit card transaction violates their rights under the TCCWNA. The TCCNWA prohibits a seller from "offering, entering into, giving or displaying a written consumer contract or notice that violates a clearly established right of the consumer." N.J. Stat. Ann. 56: 12-15. As a predicate for the TCCNWA claim, both Feder and Imbert relied on the Restrictions on Information Required to Complete Credit Card Transactions ("Restriction Statute"). The Restriction Statute prohibits a retailer from requiring a customer to provide "personal identification information" to complete a credit card transaction, thus providing the basis for violation of a "clearly established consumer right."

Senior District Judge Walls in Feder granted Williams-Sonoma's Motion to Dismiss, finding that the plaintiff failed to sufficiently allege conduct that violated the TCCWNA because she failed to identify a particular provision of a written consumer contract that violated her rights. Feder pled that the credit card transaction form constituted the written consumer contract. Judge Walls, skeptical of this assertion, reasoned that even if the form qualified as a contract, plaintiff's recorded zip code and verbal request for the same did not constitute a contract provision. Consequently, Judge Wales found that plaintiff failed to satisfy the elements of TCCNWA because "[t]he alleged requirement that plaintiff provide her zip code would only violate the TCCWNA if it was a provision of a written contract." Plaintiff also alleged that her rights were violated under the Restriction Statute -- not by the recording of her zip code -- but by the requirement that she provide her zip code. However, the Restriction Statute does not provide for a private right of action, and, as discussed above, a claim under Plaintiff’s proposed private vehicle for enforcement, the TCCNWA, failed.

Williams-Sonoma also argued that if the credit card transaction was considered a written consumer contract, the court must consider all terms of that “contract” including the point of sale signage at Williams-Sonoma stores expressly stating that when a zip code is requested it is used for marketing purposes, and that providing it is voluntary and is not a condition of processing the transaction. The Restriction Statute differs critically from California’s Song-Beverly in that New Jersey’s Restriction Statute only applies to information being “required,” whereas Song-Beverly also applies to a “request.” This issue was not presented in Imbert. However, since the District Court ruled on the TWNCCA, it did not need to reach this issue.

One additional anomaly between the Feder and Imbert cases is that in Imbert the state court permitted the plaintiff to proceed with an invasion of privacy claim. However, when presented with Williams-Sonoma’s Motion to Dismiss, Feder abandoned her invasion of privacy claim in her Opposition because the Motion revealed she had previously provided her contact information to Williams-Sonoma. Feder also filed a cross-motion for leave to file an Amended Complaint, which the District Court denied as futile.

Craig Cardon, Elizabeth Berman; and Sean Kirby of Sheppard Mullin Richter & Hampton LLP represented Williams-Sonoma.

Authored By:

Ted Max
(212) 653-8702
tmax@sheppardmullin.com

and

Valentina Shenderovich
(212) 634-3019
vshenderovich@sheppardmullin.com

UnZIPped in New Jersey?

Sheppard Mullin — Thu, 22 Sep 2011 06:57:01 -0800

A New Jersey state trial court has initially weighed in on the issue of whether a retailer violates state law by requesting a customer’s zip code at the point of purchase. In a case fashioned after the California Supreme Court's decision in Pineda v. Williams-Sonoma, 51 Cal.4th 524 (Feb. 10, 2011), New Jersey Superior Court Judge Stephan Hansbury has denied a motion to dismiss brought by Harmon Stores, Inc. (Bed, Bath & Beyond), finding that the plaintiff Robert Imbert adequately pled a claim for violation of New Jersey's Truth in Consumer Contract, Warranty and Notice Act, N.J.S.A. 56:11-17 (“TCCWNA”). The Court's ruling allows plaintiff to proceed beyond this initial stage, but no liability has been found.

In the matter of Imbert v. Harmon Stores, Inc., plaintiff Robert Imbert filed a complaint against Harmon Stores, Inc., alleging that Harmon Stores violated the TCCWNA by requesting his and other customers’ zip codes at the point of sale. The allegations in the complaint (which are virtually the same as the allegations set forth in California cases) assert that Harmon Stores’ practice of requiring a customer’s zip code at the point of sale violates the New Jersey Restrictions on Information Required to Complete Credit Card Transactions (the “Restriction Statute”), which prohibits a retailer from requiring a customer to provide “personal identification information” to complete the credit card transaction. The Restriction Statute is only directly enforceable by the state Attorney General. However, plaintiff has alleged that a violation of the Restriction Statute, in turn, violates the TCCWNA’s prohibition against “enter[ing] into any written consumer contract or giv[ing] or display[ing] any written consumer warranty, notice or sign . . . which includes any provision that violates any clearly established legal right of a consumer or responsibility of a seller, lessor, creditor, lender or bailee as established by State or Federal law . . .” which does provide for a private right of action. In issuing his ruling from the bench, Judge Hansbury held that, as pled, the transaction appears to qualify as a written consumer contract within the meaning of the TCCWNA. The judge's reasoning in reaching this limited conclusion is not specifically known as no written opinion was issued. This decision appears to be the first decision outside of the State of California where a court has held that a retailer could potentially be held liable under state law for requesting a customer’s zip code at the point of sale.

One important difference between the Restriction Statute and California's Song-Beverly is that a "request" does not violate the Restriction Statute -- only "requiring" the information does. This issue is before a federal court in a different case alleging violations of the TCCWNA for requesting a zip code. That case against Williams-Sonoma Stores, Inc. (“Williams-Sonoma”) is currently pending in the District Court for the District of New Jersey. Williams-Sonoma has filed a motion to dismiss the plaintiff’s claims and is awaiting a ruling from the Court. That motion addresses the fact that Williams-Sonoma requires the posting of a sign at the point of purchase which explains that a zip code is requested for marketing purposes and that providing it is voluntary.

Authored By:

Craig Cardon
(310) 228-3749
ccardon@sheppardmullin.com

Who's Right On Privacy?

Sheppard Mullin — Thu, 08 Sep 2011 07:26:03 -0800

Advertisers are constantly looking for new ways to obtain more information from and about online consumers in an effort to provide a more enriching and satisfying online experience for the consumer. At the same time, consumers are becoming more and more knowledgeable about the online collection of their information and are finding new ways to prevent it. As technology evolves, advertisers are seeking to strike a balance between their business objectives and the rights and desires of the modern consumer. What if an advertiser were able to collect weeks, or even months of personal data, including a consumer’s location, time zone, photographs, text from blogs, shopping cart contents, emails and a history of web pages visited, all without the consumer giving consent? Would the collection of such information merely provide for a significantly enriched user experience, or does it present a substantial invasion of privacy? The World Privacy Forum fears the latter, and along with various class action plaintiffs’ lawyers, points to the increasing use of HTML5 as a data collection vehicle as the source of grave concern.

This article by Ben Mulcahy and Gina Ilardi was originally published in the Metropolitan Corporate Counsel. To read the article please click here, or visit the Metropolitan Corporate Counsel website.

Former Student Athletes' Right of Publicity and Antitrust Claims Will Proceed Against the NCAA and Electronic Arts

Sheppard Mullin — Wed, 15 Jun 2011 03:52:35 -0800

Closely watched class action lawsuits by former student athletes against the National Collegiate Athletic Association (“NCAA”), its licensing arm, the Collegiate Licensing Company (“CLC”), and the popular video game maker, Electronic Arts, Inc. (“EA”) will proceed following a May 2, 2011 decision by Judge Claudia Wilken of the United States District Court for the Northern District of California. See In re NCAA Student-Athlete Name & Likeness Licensing Litigation Case No. 4:09-cv-01967-CW (N.D. Cal. May 2, 2001) (the “May 2 Order”).

The stakes in the NCAA Student-Athlete Name & Likeness Licensing Litigation are high. If the student athlete plaintiffs are successful, the NCAA, as well as its member conferences and universities, could face significant liability, and the NCAA would need to substantially change the way in which it approaches its licensing efforts and student-athlete relationships. The resolution of the licensing and First Amendment issues also has the potential to cause significant repercussions across the entertainment industry, including the motion picture industry, as courts grapple with determining the breadth of First Amendment protection in an age of realistic computer generated depictions that could arguably be mistaken for the real thing.

This article by Daniel Brown was originally published in the Sports Litigation Alert. To read the article please click here, or visit the Sports Litigation Alert website.

March Madness Isn't for Everyone

Sheppard Mullin — Fri, 11 Mar 2011 15:22:13 -0800

It’s that time of year again. College campuses around the country are buzzing, co-workers are whispering about office pools, and “bracketology” is the popular science of the day. The NCAA men’s basketball tournament season, aka “March Madness,” has begun. To tap into the vast media audiences generated by the NCAA Tournament (the “Tournament”), ambush marketers have started populating the market with basketball-themed promotional materials. There is little doubt that ambush marketers can legally draw on generic basketball symbols and complimentary imagery to tie into the excitement surrounding the Tournament without exposing themselves to a meaningful risk of liability to the NCAA as the Tournament operator. But what about using the phrase “March Madness”?

The History of March Madness

The term “March Madness” first appeared with prominence in 1939 as the title to an essay written by Henry V. Porter for the Illinois Interscholastic, the official magazine of the Illinois High School Association (“IHSA”). See IHSA.org, A Brief History of March Madness, (last visited Mar. 11, 2011). The essay was written as a celebration of the IHSA’s annual high school basketball tournament, which began in 1908. See id. Since the early 1940’s, the IHSA has used “March Madness” to refer to its basketball tournament. See March Madness Athletic Association LLC v. Netfire, Inc., 120 Fed. Appx. 540, 544 (5th Cir. 2005). Over the years, the IHSA claimed exclusive rights over the term, and even licensed the phrase to companies such as Pepsi and the Chicago Tribune. See id. However, it hadn’t attempted to register “March Madness” as a trademark until 1990. See id. It was then that the IHSA learned that a television production company named Intersport had already registered the phrase one year earlier, in 1989, and a dispute ensued. See id.

Ultimately, the IHSA and Intersport agreed to resolve their dispute regarding the ownership of the mark by pooling their trademark rights. This arrangement continued until 1995, when the IHSA became embroiled in a dispute with the NCAA over the term. At that time, Intersport took itself out of the middle of the dispute and assigned its rights in the “March Madness” mark to the IHSA in exchange for a share of royalty payments and a limited license back, which allowed Intersport to continue using “March Madness” in connection with certain sports programming and to “advertise, promote, and sell publications, videos and media broadcasts” of such sports programming. See id.; see also Intersport, Inc. v. National Collegiate Athletic Association, No. 1-07-0626, 2008 Ill. App. LEXIS 227, at *3 (Ill. App. Ct. Mar. 26, 2007).

In the IHSA’s dispute with the NCAA, the NCAA claimed that its rights to the term “March Madness” stemmed from a 1982 Tournament broadcast during which announcer Brent Musburger described the Tournament as “March Madness.” See Intersport, 2008 Ill. App. LEXIS 227, at *4. Nevertheless, the IHSA brought suit to protect its interest in the mark after the NCAA purported to license the term “March Madness” to GTE Vantage Inc. in connection with the company’s promotion of a video game. The district court denied the IHSA’s motion for a preliminary injunction against the NCAA’s licensee, and in a case of first impression and an opinion written by Judge Posner, the Seventh Circuit affirmed.

Justice Posner pointed out that the IHSA could have supplicated the NCAA and its broadcast partners not to spoil its “March Madness” trademark by using it to name something else, but the IHSA had waited. And in the interim, “March Madness” came to identify not just the IHSA tournament, but the NCAA Tournament as well. Resolving the issue against trademark protection, the court characterized “March Madness” as a dual-use or multiple-use term, allowing the IHSA and the NCAA to co-exist in using “March Madness” to refer to their respective basketball tournaments. See Illinois High School Ass’n v. GTE Vantage Inc., 99 F.3d 244, 247 (7th Cir. 1996). The court also left open the possibility that other parties beyond the IHSA and the NCAA could use “March Madness”, as well, taking pains to explain “[w]e do not opine on the scope of the trademark rights that either IHSA or NCAA has, beyond ruling that IHSA’s rights do not extend to the NCAA tournament and to merchandise such as Vantage’s game that is sold in connection with that tournament.” After the ruling, the IHSA and the NCAA consolidated their interests and formed the March Madness Athletic Association (“MMAA”) in order to jointly exploit the “March Madness” mark and sue alleged infringers. See Intersport, 2008 Ill. App. LEXIS 227, at *4.

The MMAA in Action

Justice Posner’s decision cast some doubt on whether “March Madness” was protectable as a trademark at all. So the first step in the infringement arena was for the MMAA to try to convince a court that “March Madness” may be a “dual use” or even a “multiple use” term, but it had not become generic. The MMAA sued Netfire, Inc. to establish just that.

The MMAA sued Netfire, Inc. for trademark infringement after Netfire purchased the domain name “marchmadness.com” and developed content for the site related to the Tournament. See Netfire, 120 Fed. Appx. at 543-44. The case was ultimately resolved in the MMAA’s favor, after the Fifth Circuit upheld a lower court’s ruling that “March Madness” was a descriptive term which had acquired secondary meaning and was therefore protectable as a trademark under the Lanham Act. The court also upheld the ruling that the domain name marchmadness.com would create consumer confusion with March Madness. Accordingly, Netfire was compelled to surrender the marchmadness.com domain name to the MMAA. Today, users who type in marchmadness.com into their web browsers will be redirected to the home page for the Tournament.

Another such infringement suit brought the circle of rights back to Intersport itself. In that case, an Illinois state court held that Intersport’s limited license to use the term “March Madness” in order to “advertise, promote, and sell publications, videos and media broadcasts” in connection with certain sports programming, encompassed the right to distribute content via mobile devices and not just to television and radio. See Intersport, 2008 Ill. App. LEXIS 227, at *2-5. Despite the MMAA’s contention that Intersport’s license did not include a later-developed technology clause, the court held that when the license was agreed to in 1995, the parties could have contemplated that the term “video” might one day include distribution to mobile wireless communications devices. Thus, the MMAA was not able to enjoin Intersport from using “March Madness” to advertize, promote, and sell its mobile video content.

Conclusion

The quilt of rights-holders and the scope of their respective rights creates the possibility that an ambush marketer could secure a license from Intersport to use “March Madness” in connection with an ambush of the Tournament. That case has not yet been decided, but maybe there’s an ambush marketer this year who is willing to be the test case. If not, then in the words of Henry V. Porter, delight in the “happy Madness of March”, and enjoy the games.

Authored By:

Benjamin R. Mulcahy
(212) 634-3030
bmulcahy@sheppardmullin.com

and

Jonathan Sokolowski
jsokolowski@sheppardmullin.com

FCC Approves Controversial Net Neutrality Rules

Sheppard Mullin — Wed, 05 Jan 2011 05:04:48 -0800

On December 21, 2010, the FCC approved controversial net neutrality rules in a party-line vote. Democratic Commissioners Copps and Clyburn joined Chairman Genachowski in approving the Order, despite concerns that it did not go far enough. Republican Commissioners McDowell and Baker wrote lengthy dissents, arguing that the FCC had stepped far beyond its regulatory authority in approving Internet regulations.

According to the Order, the rules can be summarized as achieving three main objectives: (i) transparency; (ii) no blocking; and (iii) no unreasonable discrimination. More specifically, "fixed and mobile broadband providers must disclose network management practices, performance characteristics, and terms and conditions of their broadband services." Additionally, "[f]ixed broadband providers may not block lawful content, applications, services, or non-harmful devices; mobile broadband providers may not block lawful websites or block applications that compete with their voice or video telephony services." Finally, "[f]ixed broadband providers may not unreasonably discriminate in transmitting lawful network traffic."

The regulations have garnered much criticism. Those who believe the FCC has overstepped its regulatory authority have called for reversal either by Congress or the courts. Indeed, Hill Republicans have vowed to reverse the new FCC rules. Commissioners McDowell and Baker both expressed dismay at the FCC's attempt to regulate a sector of the economy that, in their view, needs no fixing, particularly in light of the D.C. Circuit's recent decision that enforcement of net neutrality principles is beyond the FCC's authority.

Those who believe the Order did not go far enough complain that the rules apply primarily to fixed broadband providers, leaving wireless providers largely exempted, and that the rules do not expressly prohibit "paid prioritization," which would allow content providers to pay for faster transmission of their data.

Chairman Genachowski has defended the new regulations, stating in an interview with Gary Shapiro, head of the Consumer Electronics Association, "Our hope is that there's an outcome here that preserves a free and open Internet [that will] promote innovation, protect the free flow of information … and preserve and accelerate the kind of economic activity that we've seen out of this platform for the last several decades."

Whether the FCC's net neutrality rules can withstand judicial review and Congressional challenge remains to be seen.

Authored By:

Christopher S. Huther
(202) 772-5374
chuther@sheppardmullin.com

and

Megan H. Troy
(202) 772-5373
mtroy@sheppardmullin.com

and

Brian D. Weimer
(202) 469-4904
bweimer@sheppardmullin.com

and

Celia V. Cohen
(202) 469-4947
ccohen@sheppardmullin.com

Stealing the Show?

Sheppard Mullin — Mon, 01 Nov 2010 04:38:29 -0800

The image of 36 women wearing skimpy orange dresses at a World Cup soccer match last June raised the ire of Fédération Internationale de Football Association ("FIFA"), which had two of the women arrested for organizing the ambush marketing stunt on behalf of Dutch beer brewer Bavaria. Meanwhile, Nike’s "Write the Future" soccer-themed commercial, which is a 3-minute magnum opus featuring players from various national teams that qualified for the World Cup 2010, was allowed to launch an epic reign on YouTube unfettered by any interference from FIFA. Commentators have already pointed out that the players involved in Nike’s "Write the Future" campaign had disappointing World Cups: Ronaldinho didn’t even make the Brazil squad, while Cristiano Ronaldo, Wayne Rooney, Franck Ribery, Didier Drogba and Fabio Cannavaro were all knocked out of the World Cup 2010 before the quarterfinals, each after enduring various misfortunes. But that did not stop the spot from generating major brand exposure for Nike and accumulating more than 21,200,000 hits and counting on YouTube. How can FIFA justify having women arrested for wearing orange dresses while doing nothing against Nike? Only FIFA can definitively answer this riddle, but FIFA itself publicly forecasted that it would take this approach months before the World Cup 2010 even began.

This article by Ben Mulcahy was originally published in the Sports Litigation Alert. To read the article please click here, or visit the Sports Litigation Alert website.

Will The Revised "Green Guides" Do More Harm Than Good?

Sheppard Mullin — Thu, 14 Oct 2010 03:50:21 -0800

Last week Sun Chips pulled its biodegradable snack bag off the market around the same time that the FTC announced that it wanted to change its so-called "Green Guides." Coincidence? Maybe. Sun Chips explained that the more environmentally-friendly bag that it launched with a nice spot on Earth Day - was "noisier" than its regular bag, raising complaints from consumers who were more interested in having a quiet snack bag than doing something to help save the planet. But complaints about "noisy" bags aside, the changes that the FTC has proposed to the Green Guides will make it harder for marketers like Sun Chips to tout the things that they're doing to help reduce the negative effect that their product manufacturing and distribution pipelines are having on the environment. If the FTC takes away a brand's ability to tout those attributes, then it also takes away a brand's ability to leverage those attributes to increase sales. And if that's taken away, we run the risk that brands will make green initiatives less of a priority, which will hurt us all.

The FTC's proposed changes to the "Green Guides" were developed using information collected from public workshops, public comments and a study of how consumers understand certain environmental claims. The proposed changes can be divided into two parts: (i) revisions designed to strengthen and clarify the FTC's previous guidance on marketing claims addressed in the Green Guides that currently exist and (ii) new guidance addressing claims not addressed by the current Green Guides, such as "carbon offset" claims, "renewable energy" claims and "renewable materials" claims:

Proposed Revisions to Claims Addressed by the Current Green Guides

General Claims. Marketers should not make general environmental claims such as "earth friendly" without qualifying what attributes make the product "green". Qualifications must be clear and prominent and should limit the claim to a specific benefit.
Certification/Seals of Approval. Marketers should not use unqualified certifications or seals of approval, or certifications that do not specify the basis for the certification through specific criteria. The proposed revisions emphasize that certifications/seals are endorsements covered by the FTC Endorsement Guidelines and provide examples illustrating how those guidelines apply to environmental claims (e.g., marketers should disclose materials connections to the certifier). In addition, marketers are obligated to substantiate all conveyed claims, even when the marketer has obtained a third party certification.
Degradable, Recyclable, Ozone-friendly and "Free of" Claims. The revised Green Guides advise marketer that if a marketer claims that a product thrown in the trash is "degradable," it should compose in a "reasonably short period of time", which has been defined as no more than one year, even in a landfill. The revised Green Guides also include changes to use of claims that a product is "ozone friendly", recyclable, and non-toxic. For example, the revised Green Guides warn against broad environmentally friendly claims from removal/substitution of ozone depleting ingredients in products where the substitute ingredients still produce greenhouse gases or consume substantial energy.

Proposed Guidance for Claims Not Addressed by the Current Green Guides

Carbon Offset Claims. Marketers are advised that they should have competent and reliable scientific evidence to support any carbon offset claims, including appropriate accounting methods to ensure they are properly quantifying emission reductions and are not selling those reductions more than once. The revised Green Guides also advise marketers to disclose if the emission reductions that are being offset by a consumers purchase will not occur within two years, and to avoid advertising an offset if the activity that produces the offset is already required by law.
Renewable Materials and Renewable Energy Claims. When making claims about the use of renewable materials and energy, the revised Green Guides require that marketers provide specific information about the materials and energy used (e.g., "renewable – made with fast growing bamboo" or "renewable – manufactured with solar power"). Marketers should not make renewable energy claims if the power used to manufacture any part of the product, no matter how insignificant, was derived from fossil fuels. The revised Green Guides also prohibit "double counting", meaning if a marketer generates renewable energy (e.g. using wind power) but sells RECs for all of the renewable energy it generates, then it cannot represent that it uses renewable energy.

A copy of the proposed revised Green Guides can be found here. The FTC is seeking public comments on the proposed changes until December 10, 2010, after which it will decide which changes to make final.

Authored by:

Robert L. Magielnicki
(202) 218-0002
RMagielnicki@sheppardmullin.com

and

Benjamin R. Mulcahy
(212) 634-3030
bmulcahy@sheppardmullin.com

and

Gina Reif Ilardi
(212) 634-3031
gilardi@sheppardmullin.com

California Data Breach Notification Law Vetoed

Sheppard Mullin — Fri, 01 Oct 2010 11:14:04 -0800

This week the Governor of California vetoed what would have been a landmark law on data breach notification. The law sought to strengthen the notification required when databases of personal information are compromised. California’s existing data breach law, which will continue unamended, requires companies and state government agencies to notify individuals when their personal information has been compromised.

In the Governor's veto message, Governor Schwarzenegger made the point that the law was well-intended, but it imposed additional burdens on businesses without a corresponding consumer benefit, specifically stating:

To the Members of the California State Senate:

I am returning Senate Bill 1166 without my signature.

This bill would require any agency, person, or business that must issue an information security breach notification pursuant to existing law to also fulfill certain additional requirements pertaining to the security breach notification.

California's landmark law on data breach notification has had many beneficial results. Informing individuals whose personal information was compromised in a breach of what their risks are and what they can do to protect themselves is an important consumer protection benefit. This bill is unnecessary, however, because there is no evidence that there is a problem with the information provided to consumers. Moreover, there is no additional consumer benefit gained by requiring the Attorney General to become a repository of breach notices when this measure does not require the Attorney General to do anything with the notices.

Since this measure would place additional unnecessary mandates on businesses without a corresponding consumer benefit, I am unable to sign this bill.

Sincerely, Arnold Schwarzenegger

Why Every Business Should Have A Social Media Policy

Sheppard Mullin — Thu, 05 Aug 2010 11:02:13 -0800

Words matter. Words can come back and bite you. Think before you speak. These are all self-evident truths that no one is likely to dispute. Yet, we continue to see examples of people, who should know better, doing just the opposite. This is especially true in the context of electronic communications – first, in work emails, and now, on social media websites. If it was a simple matter of personal embarrassment alone, then there would be no need for this article. This is not the case however.

Social media - Tweets, Facebook posts, LinkedIn updates - can have real legal and economic consequences for businesses. A post may seem as innocent as an employee expressing a personal opinion. However, if the person describes herself as working for a particular company, and then speaks on a highly controversial subject, her post could damage the "good will" of the company. Or, the poster may be recommending a product to all of her Facebook friends without sharing that she happens to work for the product manufacturer in violation of fair advertising practices.

1. A Social Media Policy Is A Good Way To Show Compliance With The Federal Trade Commission's Revised Endorsement Guidelines.

In the last year, businesses have increasingly recognized the need for a social media policy. First, the Federal Trade Commission revised its "Guides Concerning the Use of Endorsements and Testimonials in Advertising" ("Endorsement Guidelines") to make it clear that, in some contexts, truth-in-advertising principles may apply to social media posts: (1) endorsements should not be misleading; and (2) non-obvious connections between the endorser and the marketer of the product should be disclosed if they would reasonably affect how much weight a consumer places on the endorsement.

The connection may include the endorser being paid or receiving some quid pro quo from the product being endorsed, and this needs to be disclosed. For example, reviews on social media sites such as Yelp should disclose if the reviewer also happens to be an employee of the business, or if the reviewer is swapping positive reviews with another business owner, or is receiving anything of value in return for their positive review. Similarly, the Endorsement Guidelines would require someone who tweets about a product to disclose if the poster is being paid to endorse the product.

More significantly for businesses, the FTC recognized in its Endorsement Guidelines that a business cannot realistically oversee all of the social media posts by its employees, and ensure that they do not violate the Endorsement Guidelines. The FTC has stated that the employer should not be held liable in this situation if: (1) the employer has a social media policy concerning the "social media participation" of its employees; and (2) the established company policy adequately covered the "rogue" employee's conduct.

Thus, the company can show that, despite its best efforts, the employee violated the Endorsement Guidelines, and the company should not be held liable for the employee's unauthorized acts. In order to do so, however, the employer also needs to establish procedures to monitor compliance with its social media policy. The FTC declined to say how the monitoring should be done, but put the onus on companies to determine for themselves what would best satisfy their legal responsibilities in the context of their business.

2. Businesses Can Better Protect The Value of Their Brand By Ensuring That Employees Do Not Post Unflattering Material In Association with The Business.

Second, businesses should have a social media policy in order to protect the considerable investment they have made in their "brand" and reputation in the marketplace. A social media policy is a proactive way for a business to try and not have its employees post on controversial subjects with the business suffering by association.

A perfect example of this was headline news a few weeks ago. Namely, the CNN reporter who was fired after she posted on Twitter that she had a lot of respect for a recently deceased Hezbollah leader: "Sad to hear of the passing of Sayyed Mohammad Hussein Fadlallah.. One of Hezbollah's giants I respect a lot. #Lebanon."

Octavia Nasr described herself in her Twitter profile as a 25 year veteran of the news business, and the CNN Senior Editor of Mideast Affairs, thereby, turning the personal into a reflection on her news agency CNN. The association with CNN was further highlighted by her Twitter name which was octavianasrCNN.

Ms. Nasr tried to explain the reason for her post a few days later. She said the 140 character limit on Twitter made her message too "simplistic." Her excuse came too late. The damage was done. She was forced out of her job because a single misguided tweet was seen as compromising her position as a CNN reporter.

The immediate public outcry was directed against CNN as well. The Simon Wiesenthal Center called on CNN to make a formal repudiation of Ms. Nasr’s comments. On the other end of the scale, editorials have criticized CNN as being hypocritical in its editorial standards, and for caving in to pressure from the Jerusalem Post and conservative blog site NewsBusters. Put simply, Ms. Nasr's tweet has had a negative effect on the public perception of CNN.

On the same day as Ms. Nasr's post, CNN issued its own statement through a spokesman: "CNN regrets any offense her Twitter message caused. It did not meet CNN’s editorial standards. This is a serious matter and will be dealt with accordingly."

This statement however does not go to the essence of the problem. Ms. Nasr was not submitting an article that needed to satisfy the editorial standards of CNN. What was absent from this statement, and is the best long term solution for this type of problem, is the implementation and enforcement of a social media policy.

3. The Barebones For Any Social Media Policy.

Every business should have a social media policy. The posts of your employees reflect on your business, and can result in negative impacts to it. The damage can range from harm to the company's brand and public perception of it to legal consequences such as loss of trade secret protections, unfair competition and deceptive advertising. A social media policy should include the following bright line rules:

DO'S:

Stop and think how your post will reflect on your company and its clients or potential clients.
Do assume that no matter how restrictive your privacy settings, your posts may become public. Litigation attorneys, professional colleagues, prospective clients and employers are searching these sites for information gathering purposes.
Cooperate with your company in monitoring the social network sites by providing a current list of the sites you are using if you are associated with the company in any way on the site. This is not intended to discourage employees from using social media sites. The company favors the use of social media in general provided it is in accordance with all governing laws.
Be transparent. Make clear that any opinions you express are your own, and not the views of your employer – don't associate your position at the company with your opinion.
Use privacy settings.
Maintain business confidences by not posting information that may reveal confidential information – a deal that you are working on, a customer the company is pursuing, a new product that is being developed.

DON'TS:

No discriminatory or harassing posts.
Do not divulge any non-public private information.
Do not endorse the company's products without having your message reviewed by the company's marketing department, and approved for content and necessary legal disclosures. This is necessary to ensure compliance with the FTC Endorsement Guidelines.
Do not post defamatory content – don't insult your competition.
Do not embarrass and disparage the company.
Do not violate the privacy rights of other people by posting their personal image without their permission, or sharing their personal information.

And, finally, businesses should recognize that an effective social media policy is tailored to the particulars of the business for which it is being adopted. Consult with an attorney who is well versed in social media and the laws governing it, so an effective policy can be prepared and implemented.

Authored by:

Michelle Sherman
(213) 617-5405
msherman@sheppardmullin.com