President Obama is Expected to Issue Executive Order on Cyber Security and Privacy

The Draft Executive Order requires certain federal agencies to identify critical infrastructure where a cyber security incident could have national or regional effects on public health or safety, or economic or national security.

The article here points out what proactive steps industry can take in view of potential new regulation in this area.

As has been reported, the FTC recently issued a revised "Green Guides" to guide marketers when making claims regarding the environmental attributes about their products. 

We have published a Locke Lord Article entitled “FTC Unveils Final Revised Green Guides for Environmental Marketing- Energy Industry and B2B Included” available here.

Today, FTC Releases the Revised Green Guides for Environmental Marketing

Author: Paul Van Slyke

The FTC released today the long-awaited final, revised version of its Guides for the Use of Environmental Marketing Claims — the Green Guides.

If your company makes green or environmental claims in its advertising, labeling or marketing, you will want to seize on the link above and start figuring out what is new, what is changed and what has stayed the same.  In the next few weeks, we will be issuing a series of posts with analysis and implications of the revised Green Guides for various industries.

For now, here are  a few ways to get started in understanding the revised Green Guides and how they might impact advertising, labeling and marketing for your business.

After briefly reviewing the text  of the Green Guides, the next stop should be the EnvironmentalClaims: Summary of the Green Guides prepared by the FTC.  It is written for marketers with a brief explanation of the FTC’s approach to environmental benefit claims, and terminology often used in green marketing.

Next, you can watch the video with an overview of the  revised Green Guides prepared by the FTC.

Finally, check out the FTC’s Environmental Marketing  page with all kinds of resources for green claims, natural claims and energy pitches.  You will find links to legal resources such as:

·   Case Highlights

·   Reports and Workshops

·   Laws, Rules, and Guides

·   Compliance Documents 

Louboutin v. YSL – Second Circuit misses the ‘mark’‎

Robin Barnes

Hamad Hamad

Last November, we wrote an article on the Louboutin red sole trademark case against YSL ‎shortly after Tiffany filed its amicus brief supporting Louboutin’s position at the Second ‎Circuit.  Our primary focus was the difference between Tiffany’s and Louboutin’s trademark ‎registrations.  Tiffany’s registrations claimed a fairly specific color, namely “robin’s-egg ‎blue,” while Louboutin’s registration simply and broadly claimed “red.”  We noted that, at least ‎until the Second Circuit ruled on the issue, it would be advisable to claim colors with some ‎specificity in trademark applications.  ‎

As we previously noted, while not perfect, the opinion did a good job of criticizing the breadth ‎and vagueness of the color description in Louboutin’s registration.  Now that the Second ‎Circuit has ruled, we feel that we should reexamine the district court’s opinion in light of its ‎characterization by the Second Circuit.  ‎
According to the Second Circuit, the district court held “that a single color can never serve as a ‎trademark in the fashion industry” and that “in the fashion industry, single-color marks are ‎inherently ‘functional.’”  That’s not how we read the district court’s decision.  As we ‎previously noted, the district court did analyze the question of whether a single color could ‎serve as a trademark in the fashion industry and spent considerable time on the functionality ‎issue, but ultimately did not issue any direct holding or per se rule on the viability of single-‎color marks in this context.  Specifically, the district court denied Louboutin’s request for a ‎preliminary injunction (which is based on a likelihood of success standard) because the court ‎had “serious doubts that Louboutin possesses a protectable mark.”   Had the district court held ‎that a single color can never serve as a trademark in the fashion industry, it would have stated ‎that Louboutin did not possess a protectable mark rather than merely expressing doubt.   ‎

Putting aside the issue of how far the district court did or did not go, it seems the Second ‎Circuit missed the mark by not going far enough to limit Louboutin’s trademark rights.  The ‎Second Circuit reversed the district court’s order to the extent that it denied Louboutin ‎trademark protection (which it really did not at the preliminary injunction stage, but might ‎have at a later stage of the proceedings) and limited the mark to a red outsole contrasting with ‎the other parts of the shoe (and ordered that Louboutin’s registration be amended accordingly).  ‎Since YSL’s allegedly infringing shoes were monochromatic, the Second Circuit affirmed the ‎denial of the injunction based on its ruling that Louboutin’s rights were limited to contrasting ‎uppers.  However, the Second Circuit did not address the claimed “red” color itself or the type ‎of footwear to which the red color is applied. ‎

The district court spent a good number of paragraphs discussing the vagueness and ambiguity ‎of Louboutin’s trademark with respect to both of these issues.  Let’s first take a look at the ‎color dimension.  Here’s what we said last November concerning the vagueness and breadth of ‎the claimed color:‎

Imagine the difficulty for competitors – are fire engine, cherry, ‎and brick red all covered by Louboutin’s registration?  There are ‎difficulties on the consumer side too – can multiple shades of red ‎establish sufficient secondary meaning to support the registration, ‎and can the average person even tell the difference between ‎certain shades?‎

Or perhaps it is “Chinese Red” (Pantone No. 18-1663 TP) that is covered by Louboutin’s ‎registration, as Louboutin asserted in his preliminary injunction reply brief? Oh, but wait, after ‎YSL pointed out that it never used Chinese Red, Louboutin insisted that YSL used a (different) ‎shade that was still too close.  Which shade?  We don’t know.  Apparently, neither does ‎Louboutin.  At one point in argument, Louboutin asked the district court to pick a particular ‎range of colors above and below Pantone No. 18-1663 TP and find that anything within that ‎range of hues and shades of red would be infringing its trademark.  The district court declined ‎because it found that such an approach would have “the effect of appropriating more than a ‎dozen shades of red-and perhaps other colors [such as pink and orange] as well.”‎

It appears that the real problem is not that Louboutin’s registration claimed a single color.  The ‎real problem is that Louboutin’s registration claimed an entire spectrum of red colors.‎

And what about the type of footwear?  The registration states “women’s high fashion designer ‎footwear.”  What is high fashion?  As the district court pointed out, Louboutin sued Zara in ‎France.  And while Zara makes some nice, trendy stuff, it’s not exactly the type of brand that ‎would be considered “high fashion.”  And what types of shoes exactly? Would flats and flip-‎flops be included? What about low-heeled shoes?  At one point Louboutin tried to limit his ‎registration to “high-heeled” shoes, but as the district court also pointed out, the registration ‎doesn’t include that limitation.   ‎

Here’s something else to consider: what about design-your-own shoe websites and stores?  ‎Would a customer be liable for infringing Louboutin’s mark for using Nike ID to make Air ‎Force 1’s with a glossy red sole and a black upper?  Would a customer be liable for infringing ‎Louboutin’s mark for ordering a custom pair of sandals to be made with a glossy red sole and ‎brown straps?  Would the manufacturers have any liability?‎

Perhaps these are bad analogies because designers would know better than to pursue an ‎infringement claim against a competitor’s shoe that is clearly not going to cause customer ‎confusion, right?  Maybe not, since Louboutin sued YSL for a monochromatic shoe that wasn’t ‎lacquered and didn’t use the Chinese Red that Louboutin now claims is his shade of red.  ‎Customers and competitors alike are left without proper guidance as to which hues or shades of ‎‎“red” are off limits.  ‎

Louboutin’s registration was too broad and too vague and remains so even after the Second ‎Circuit’s ruling.  Although the Second Circuit did well to at least limit the registration to ‎contrasting uppers, it could have taken this opportunity to rein in a clearly overbroad and vague ‎registration.  Having passed on that opportunity, did the Second Circuit effectively  hand ‎Louboutin an exclusive palette of the entire spectrum of “red” to be used on shoe outsoles as ‎long as the uppers are a contrasting color?  We’re not suggesting that Louboutin should ‎necessarily be tied to a specific Pantone No. (although, interestingly, some foreign countries ‎require a specific Pantone No. when a color claim is made in a trademark application), but ‎Louboutin’s registration should have at least been limited to a word-description of the ‎particular hue or shade of red that he intended to claim.  In the end, the Second Circuit’s ‎opinion does not shed much light on the boundaries of color claims in the fashion world, but we ‎still think is advisable to claim color marks with some specificity.  After all, Tiffany seems to ‎be doing just fine with “robin’s-egg blue.”‎

Consumer Privacy and Cookies: What the FTC's $22.5 Million Settlement With Google Means For Your Company

Author: Paul C. Van Slyke

Recently the Federal Trade Commission reached a record $22.5 million settlement with Google for consumer privacy violations of an earlier order involving what is called “online behavioral advertising” or OBA.  The Google case is a roadmap for avoiding serious legal missteps for tracking of consumer interests in violation of a company’s own policies and claims that are commonly made and often overlooked.  In the Google settlement, the FTC sent a loud and clear message that it will not tolerate promises and claims made in fine print to protect the privacy of consumers and breaking those promises by use of cookies and user tracking tools in day-to-day operations long after the promises in fine print are forgotten. 

Overlooked Privacy Claims in the Google Case

Most companies have gotten the message that what they say in their privacy policies has to line up with their day-to-day operations. The problem is that many companies are conveying claims not just in a formal privacy policy in the fine print on the website, blog or social media brand page, but also where the company states choice mechanisms, opt-outs, and other ways consumers can customize their experience.  The FTC’s complaint against Google highlights alleged misrepresentations on the company’s Advertising Cookie Opt-Out Plug-in page that were overlooked for compliance.  Cookies are the unique file codes placed on a consumer’s computer when a website is opened and consumer choices are made on the website.

Google claimed in its fine print that for users of the Safari browser that it would not place tracking cookies on the users’ computers or serve them targeted advertisements.  The  FTC alleged that Google used codes to disguise its cookies to work around Safari’s opt-out default setting. 

Overlooked Claims of  Self-Regulatory Compliance

Many companies promote on their website their affiliation with self-regulatory programs.  For example, to join the Network Advertising Initiative (NAI), a voluntary self-regulatory group for the online advertising industry, company members agree to disclose to users their data collection and use practices.  Although Google touted its NAI membership on its website, the FTC says the company did not truthfully disclose what it was doing with Safari users’ data. 

Key Points

• The CEO and top executives of your company must often repeat that they are committed to compliance with consumer privacy and advertising laws and they will hold the IT director and Chief Marketing Officer accountable.

• Your information technology staff needs to take the lead in compliance before your marketing managers and legal advisors get involved.

• It helps for a company to adopt an internal consumer privacy policy that places primary responsibility on the IT Department and secondary responsibility on the marketing staff for compliance with laws and regulations on the use of cookies and user tracking tools.

•  The internal policy should require that IT department make and update a list of all the places on your company websites, social media promotions and sponsored blogs where  privacy representations and claims are made,  maintain an inventory of the cookies they use, and not launch new ones without both marketing and legal review.

• The internal policy should also require that the marketing staff make and update a separate list of all the user tracking tools being used on your company websites, social media promotions and sponsored blogs and maintain an inventory of the categories of data being collected from users, and not launch new tracking tools or categories of data being collected without both IT and legal review.

•  Sidestepping users’ preferences can lead to costly legal missteps.

NAD Finds “Pinned” Content is Testimonial in Nature, ‎Requires Disclosures

By: Paul C. Van Slyke

The National Advertising Division, following its review of advertising by Nutrisystem, Inc. on the new social media site Pinterest, has determined that the weight-loss success stories “pinned” to such boards represent consumer testimonials and require the complete disclosure of material information and the results consumers can generally expect to receive. Nutrisytems currently has many advertisements on Pinterest.com. See http://pinterest.com/search/?q=nutrisystem. 

NAD is an investigative unit of the advertising industry’s system of self-regulation and is administered by the Council of Better Business Bureaus. NAD decisions are non-binding, but are given deep respect by the advertising industry and the advertising legal community.  Compliance with NAD decisions is generally a good guide for avoiding liability in civil litigation and Federal Trade Commission (“FTC”) enforcement actions.

Pinterest.com

Pinterest.com is a trendy new virtual bulletin board, often described as a social photo-sharing or scrapbooking website where users create and manage theme-based image collections by “pinning” digital content they add or find on the web to their personal boards. When content is “pinned,” Pinterest automatically grabs the source link for the content which allows Pinterest to give credit to the original creator, and allows users to return to the original source of the content simply by clicking on the image as it appears on the pinboard.  When a photo is repinned, Pinterest prompts the user to direct the image to the specific pinboard they wish to pin to, and, provide comments or notes about the image (if they wish )

NAD noted in its decision that Pinterest has become a new way for companies to encourage consumers to engage with their products and drive traffic to their websites.

Nutrisystem’s “Real Consumers” pinboard featured photos of “real” NutriSystem customers and highlighted their weight-loss successes.  The customer’s name, total weight loss and a link to the NutriSystem website appeared below each photo.  If consumers browsing the Nutrisystem Pinterest board clicked on Nutrisystem’s consumer testimonial pins, they were redirected to Nutrisystem’s website at www.nutrisystem.com

Express Claims at Issue

Express claims at issue in NAD’s review included:

•   “Christine B. lost 46 lbs on Nutrisystem.”

•   “Michael H. lost 125 lbs. on Nutrisystem.”

•   “Lisa M. lost 115 lbs. on Nutrisystem.”

•    “Christine H. lost 223 lbs. on Nutrisystem.”

NAD Finding

In its decision, the NAD found that the claims made on Pinterest were testimonial and required complete disclosures of “material” information. In re Pinterest (unpublished) (NAD Case # 5479 06/20/12).  The NAD found that one board, entitled “Real Customers. Real Success.” featured photos of “real” Nutrisystem customers and highlighted their weight loss success. The customer’s name, total weight loss and a link to the Nutrisystem website appeared below each photo. The NAD found “[i] t is undisputed that these pins represent consumer testimonials.”

The NAD cited  Section 255.2 (b) of the FTC’s Guidelines Concerning the Use of Endorsements and Testimonials in Advertising that  states:

An advertisement containing an endorsement relating the experience of one or more consumers on a central or key attribute of the product or service also will likely be interpreted as representing that the endorser's experience is representative of what consumers will generally achieve with the advertised product or service in actual, albeit variable, conditions of use. Therefore, an advertiser should possess and rely upon adequate substantiation for this representation. If the advertiser does not have substantiation that the endorser's experience is representative of what consumers will generally achieve, the advertisement should clearly and conspicuously disclose the generally expected performance in the depicted circumstances, and the advertiser must possess and rely on adequate substantiation for that representation.

The NAD found that the weight loss “pins” found on Nutrisystem’s “Real Customers. Real Success.” board tout atypical results (i.e., “Michael H. lost 125 lbs. on Nutrisystem” or “Lisa M. lost 115 lbs. on Nutrisystem”). Therefore, as required by the FTC Guidelines, the NAD concluded that these pins should be accompanied by a clear and conspicuous disclosure noting the typical results consumers can expect to achieve using the Nutrisystem weight loss program.

The NAD noted that if consumers browsing the Nutrisystem Pinterest board clicked on Nutrisystem’s consumer testimonial pins, they were redirected to Nutrisystem’s website which included the necessary qualifying information (i.e., the typical results a consumer can expect to achieve using the Nutrisystem program). The NAD observed, however, that it is well-established that disclosures should not only be clear, conspicuous and easy to understand, but placed in immediate proximity to the claim or representation it is intended to clarify. In re the Campbell Soup Company (Campbell’s Supper Bakes), Case #4038, NAD/CARU Case Reports (May/June 2003). Therefore, said the NAD,  providing the disclosure on the website (which the consumer may or may not visit), is not sufficient.

The advertiser Nutrisystem agreed that such statements require a disclosure, and immediately  added the necessary disclosure (“Results not typical. On Nutrisystem®, you can expect to lose at least 1-2 lbs. per week. Individuals are remunerated. Weight lost on prior Nutrisystem® program.”  The NAD therefore concluded its action.

Take-Aways

Social media and online sites that may not appear to be traditional advertising media can have advertising messages of a testimonial or endorsement nature that require compliance with the requirements for complete disclosures of material information as well as comply with the FTC guidelines. When there is any reasonable interpretation that the content is a commercial advertising message of a testimonial or endorsement nature, it is wise to include a complete disclosure of material information about the endorser’s connections with the advertiser and whether the endorser was paid or received a benefit from the advertiser, accompanied  by a clear and conspicuous disclosure noting the typical results consumers can expect to achieve.  The disclosure must be in close proximity to the advertising claim.

ICANN revealed the new gTLD applications today; were any infringements to your Brand revealed?

Today is ICANN’s Reveal Day for the new generic top level domain (gTLD) applications. Common gTLD’s include .com, .net, .org, and country-specific domain name extensions such as .uk (United Kingdom) or .ca (Canada). The new gTLD extensions are referred to as “strings.”  ICANN published its list of applied-for gTLD strings here. You can download a PDF version of the list here.  You can search for strings of interest here.

          

Now that the gTLD application list has been published, a public review period has begun, including a 2-month comment period and a 7-month formal objection period.  ICANN permits a few objections anyone can raise(applicants and non-applicants). 

            

The “Legal Rights Objection” will likely be the most useful and relevant for purposes of brand protection.  Once a Legal Rights Objection is filed, an independent panel of one or three experts will decide whether the applied-for gTLD string would be likely to infringe an existing trademark, intergovernmental organization name, or another acronym in which an entity has a cognizable right.

            

The panel will decide whether the applied-for gTLD takes unfair advantage of the objecting party’s mark or name, whether it unjustifiably impairs the distinctive character or reputation of the objecting party’s mark or name, or whether it creates a likelihood of confusion with the objecting party’s mark or name.  To make these determinations, the panel looks to various non-exclusive factors, including, whether the applied-for gTLD is identical or similar in appearance, sound or meaning to the objecting party’s mark or name, and whether the intended use of the applied-for gTLD will create a likelihood of confusion with the objecting party’s mark or name as to the source, sponsorship, affiliation, or endorsement of the gTLD.

            

Trademark and brand owners should take the time on the front end to challenge any gTLD strings that may be encroaching on their trademark or brand names.  We think that the effort put into challenging objectionable gTLD strings now could pay huge dividends in the future, especially considering the time and cost of after-the-fact trademark litigation, UDRP proceedings, and ad hoc brand enforcement and protection.

Authors:

Hamad Hamad

Jason Mueller

Jason Nardiello

FTC to Hold Workshop on Advertising and Privacy Disclosures

Online advertising and privacy regulations are frequent sources of issues for in-house lawyers and marketing teams.  The Federal Trade Commission, one of the chief federal regulatory agencies in this area, is known for providing businesses with a multitude of resources.  To that end, the FTC has announced plans to host a one-day workshop to consider the need for new guidance concerning advertising and privacy disclosures in today’s online and mobile environments.

The workshop, which will be held live in Washington DC and webcast on Wednesday, May 30, 2012, will almost certainly discuss the direction for future FTC policy and enforcement priorities relating to advertising disclosures in online and mobile media.  The workshop will provide an update and will likely be followed by an expansion of the current FTC guidance ---the Dot Com Disclosures—which was first published 12 years ago. 

Several Locke Lord attorneys in our Advertising, Marketing and Social Media group will monitor the workshop.  Highlights will be posted on our blog AdMark Buzz after the workshop.

Details about the workshop can be found here.

DMCA Safe Harbor is Not Absolute – Do YOU Know What Your Users are Posting on Your Website?

Does your website allow users to post content?  Companies that host websites that allow user generated content have long operated under a belief that they enjoyed broad immunity from copyright infringement claims pursuant to the "safe harbor" provided by the Digital Millennium Copyright Act (“DMCA”).  Subsection 512(c) of the Copyright Act provides limitations on Service Provider liability for storage of copyrighted material that was uploaded, or placed, at the direction of a user.  Section 512(k) defines "Service Provider" as "an entity offering the transmission ... [of] digital online communications, between [users] of material of the user's choosing, without modification to the content of the material as sent or received."

As the recent Viacom decision in the Second Circuit instructs, Service Providers should recognize that such broad immunity may not exist.  As a result, it is wise to think carefully about website policies relating to the removal of user-generated content.  In particular, to what extent might the Service Provider be disqualified from the "safe harbor" provisions of the DMCA. 

In Viacom, a case of first impression, the court held that the “willful blindness” doctrine applied to demonstrate the knowledge or awareness of a Service Provider of specific instances of infringement under the DMCA.  Viacom Int’l, Inc. v. YouTube, Inc., 10-3270, 10-3342, Slip Op. at 22 (2nd Cir. 2012).   Moreover, the court held that Service Providers must stand trial if there is evidence from which a reasonable juror could conclude that defendants had actual knowledge or awareness of specific instances of infringement under the DMCA. The court noted that while the DMCA does not require affirmative monitoring, online providers and service providers shall not make a “deliberate effort to avoid guilty knowledge.”

District Court Proceedings

The Viacom case involved two related class actions that included as plaintiffs:  Viacom International, Inc., The Football Association Premier League Ltd., and various film studios, television networks, music publishers, and sports leagues for themselves and on behalf of others similarly situated.  The plaintiffs  alleged that defendants YouTube, Inc., YouTube, LLC, and Google Inc. (collectively, “YouTube”) engaged in direct and secondary copyright infringement based on the public performance, display, and reproduction of approximately 79,000 audiovisual clips that appeared on the YouTube website between 2005 and 2008.  Plaintiffs demanded statutory damages in an amount up to $150,000 per work infringed.

The United States District Court for the Southern District of New York granted YouTube summary judgment holding that defendants are entitled to safe-harbor protection from infringement liability provided by DMCA in 17 U.S.C. §512(c). 

Second Circuit Opinion

On appeal, the Second Circuit interpreted § 512(c), confirmed the District Court correctly concluded that the § 512(c) safe harbor requires knowledge or awareness of specific infringing activity, but held that summary judgment in favor of YouTube was premature because a reasonable juror could find that YouTube had actual knowledge or awareness of specific infringing activity on its website.

The court concluded that the statutory phrases “actual knowledge that the material … is infringing” and “facts or circumstances from which infringing activity is apparent” both refer to “knowledge or awareness of specific and identifiable infringements.” The court explained that under § 512(c)(1)(A), knowledge or awareness alone does not disqualify the Service Provider for the safe harbor; rather, the Service Provider that gains knowledge or awareness of infringing activity retains safe-harbor protection only if it “acts expeditiously to remove, or disable access to, the material.” 17 U.S.C. § 512(c)(1)(A)(iii).

The court thus held that “actual knowledge or awareness of facts or circumstances that indicate specific and identifiable instances of infringement will disqualify a Service Provider from the safe harbor and if it fails to act “expeditiously to remove, or disable access to, the material.”  Slip Op at 19.

This test is not new, but applying this test to the facts found in the record of this case, the Second Circuit found:

·    an email by the director of video partnerships for Google and YouTube, requesting that his colleagues take down any “clearly infringing, official broadcast footage” from a list of certain premier league clubs in advance of a meeting with the heads of several major sports teams and leagues,

·    a 2006 report by one of YouTube’s co-founders stating that episodes and clips of certain well-known shows could still be found on YouTube’s website and that YouTube would benefit from preemptively removing content that was “blatantly illegal”, and

·    emails by another co-founder that suggested that a CNN video clip of the space shuttle should be left on the website until CNN’s legal department requests that it be taken down. 

In light of these facts, the court held that the plaintiffs raised a genuine issue of material fact regarding YouTube’s knowledge or awareness of specific instances of infringement.  As a result, the court remanded the case for a determination of whether any specific infringements of which You Tube had knowledge or awareness correspond to the clips–in-suit.  Slip Op. at 22 .  Further, the court remanded the case to the District court for a determination of whether the plaintiffs have adduced sufficient evidence to allow a reasonable jury to conclude that You Tube had the right and ability to control the infringing activity and received a financial benefit directly attributable to that activity.  Slip Op. at 28-29.

Conclusion

In light of Viacom, Service Providers of online services that accept user-posted content such as artwork, text, video clips, music clips, television broadcasts and radio broadcasts should immediately seek counsel’s advice on removing or disabling access to infringing content when a take-down notice or other information raises any reasonable inference of actual knowledge of specific infringing activity. It may be preferable to notify the poster of the content and request evidence that the content is authorized or otherwise not infringing.   If there is any serious doubt about whether the Service Provider is on notice of facts that raise such a reasonable inference of infringement, it may be preferable to remove the content than incur the risk of copyright infringement with a potential of up to $150,000 in statutory damages per work and payment of the copyright owner’s reasonable attorneys’ fees. 

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Authors: Paul Van Slyke

Gregory Casamento

Jason Mueller

FTC Tells Skechers to Shape Up with their Exercise Shoe Ads; Skechers will pay $40 mil.

Companies spending marketing dollars on ad campaigns may want to think carefully about how they go about substantiating the claims made in their ads. This Wednesday, the FTC announced that Skechers USA, Inc. will pay $40 million to settle a complaint filed by the FTC that Skechers deceived consumers by making unfounded claims that Skecher’s “Shape-ups” and “Resistance Runner” brand shoes would help people lose weight and strengthen and tone their muscles.

Under  FTC policy, all express and implied claims must be substantiated; in other words, the advertiser must have a “reasonable basis” for making the claims. When advertising claims concern “health and safety,” a higher level of substantiation is generally required. But the FTC-Skechers complaint did not mention the level of substantiation required by Skechers to support their claims of the weight loss and muscle-strengthening benefits of their shoes. Instead, the FTC focused on the case studies that were run by Skechers that were supposed to substantiate Skechers' claims. These studies were harshly criticized for the following reasons:

• Skechers represented in advertising that the studies were independent, but the chiropractor who ran the studies was a compensated endorser for Shape-ups, and is married to the senior VP of marketing at Skechers;
• One fitness study did not have a control—that is—a group of participants who wore normal fitness shoes to which Skechers shoes could be compared. The sample size was also apparently small—only eight participants;
• In another study, the data was altered and incomplete: some participants actually gained weight, but were falsely reported as having lost weight;
• Data was missing and/or not collected for some participants in one study;

Unfortunately for Skechers, these irregularities in the clinical studies evolved into large-dollar liability. However, problems such as these can be avoided: studies should both be constructed and run in a manner that is consistent with good scientific principles. 

When preparing such studies as support for advertising claims, close work with a company’s in-house (or outside) counsel who has experience in consumer surveys (in either the advertising, trademark, or unfair competition fields) can ensure compliance with FTC substantiation principles. Essentially, the study should be able to stand up to judicial scrutiny—even if this is done at the expense of having to run a more costly study. 

The Skechers $40 million settlement demonstrates that the return on investing time with counsel to construct substantiation and formulate claims that can withstand scrutiny is worth the effort.  

Authors:

Young man, there's no need to feel down—the music industry is set to evolve…again

On Monday, a high-profile copyright dispute was resolved in favor of artist Victor Willis, the original lead singer of the Village People.  In 2011 Willis provided Scorpio Music with a notice of termination of copyright for 33 songs.  Scorpio Music responded by filing suit to invalidate the terminations.  The court ruled for Willis, dismissing Scorpio Music’s case.  See Scorpio Music SA v. Willis, 3:11-cv-01557, Dkt. 30 (S.D. Cal. May 7, 2012). 

The Copyright Act allows artists or authors to terminate a grant or sale of a copyright pursuant to either § 304(c) or § 203.  Section 304(c) allows an artist or author to terminate the grant of a copyright in a work after 56 years if the work was transferred or sold before 1978.  Section 203, on the other hand, allows an artist or author to terminate the grant of a copyright in a work after 35 years if the work was transferred during or after 1978.  Under these provisions, many copyright terminations become effective as early as 2013.

While the legal arguments in Willis’ case might interest some, we find the impending cascade of artists’ copyright grant termination suits to be substantially more significant.  The initiation of copyright grant terminations like Willis' has been expected for a number of years, but Willis’s case is the first high-profile case to be resolved in favor of the artist.

            Moreover, Willis’s victory comes in the midst of another torrent of lawsuits being brought by music artists regarding the appropriate classification of digitally downloaded songs.  In a dispute over songs by artist Eminem, the Ninth Circuit held that digital downloads of songs are “licenses” and not physical “sales.” FBT Productions LLC v. Aftermath Records, 621 F.3d 958 (9th Cir. 2010).  The distinction means that under a large number of contracts in the music industry, artists are entitled to a substantially higher royalty percentage (50% for licenses versus 12-20% for conventional records). 

            After FBT, other artists filed a flood of similar digital royalty suits.  See, e.g., James v. UMG Recordings Inc., 3:11-cv-01613 (N.D. Cal.); Zombie et al. v. UMG Recordings Inc., 3:11-cv-02431 (N.D. Cal.); Williams v. UMG Recordings Inc., 3:12-cv-01289 (N.D. Cal.); Harris v. UMG Recordings Inc., 3:12-cv-01305 (N.D. Cal.); Toto Inc. v. Sony Music Entertainment, 1:12-cv-01434 (S.D.N.Y.); The Youngbloods v. BMG Music, 1:07-cv-02394 (S.D.N.Y.); Shropshire v. Sony Music Entertainment, 1:06-cv-03252 (S.D.N.Y.); Ear Booker Enterprises Inc. v. Sony Music Entertainment, 1:12-cv-02385 (S.D.N.Y.); Rogers v. Capitol Records LLC, 3:12-cv-00180 (M.D. Ten.); Wright v. Warner Music Group Corp., 12-cv-0870 (N.D. Cal.). 

            While the music industry has been evolving to adapt to digital music and increased artist independence for some time now, these types of digital royalty suits are likely to accelerate that evolution.  Now the battle is likely to be waged on two fronts.  Just as a rush of artists followed in FBT’s footsteps, we expect that a rush of artists will follow in Willis’s, and there will be more termination notices served on music publishers and record labels.  As more artists begin to reclaim copyrights in their songs, the music industry’s evolution will likely further accelerate, with re-negotiations of distribution rights undertaken to handle the likely annual waves of copyright grant terminations. 

We expect artists to leverage both the Willis and the FBT (Eminem) rulings to increase their share of royalties received for sales or licenses of their music.  For example, an artist might give a notice to terminate copyright grants as a precursor to royalty rate negotiations and agree not to terminate the copyright grant in exchange for higher royalty rates.  And, with established artists reclaiming copyrights in successful tracks, publishers are subject to losing significant revenue.  For example, Willis can bypass traditional distribution channels for his well known songs and target the market directly.  While start-up acts may still need the help of the labels to market and distribute new sounds, famous artists can rely upon the inertia of their popularity to maintain continued licenses (downloads) of their music.  The combination of the digital royalty and copyright grant termination disputes will inevitably cause many industry contracts to be rewritten.  

Authors:

Hamad Hamad	Jason Mueller

Auto dealers beware – the FTC is watching your ads

This month the Federal Trade Commission (“FTC”) announced proposed settlements with car dealers across the country to settle investigations into the dealers’ advertising practices.  The FTC focused this particular round of investigations on claims to “pay off” the customer’s debt on the vehicle they traded in.  Examples of the allegedly deceptive advertisements provided by the FTC include:

·         "Credit upside down? Need a new car? Go to Billionpayoff.com. We want to pay off your car." The advertisement depicts a car moving, inverts the video to depict it upside down, and then turns it right-side up again. (Billion Auto)

·         "Uncle Frank wants to pay [your trade] off in full, no matter how much you owe." (Frank Myers AutoMaxx)

·         "I want your trade no matter how much you owe or what you're driving. In fact I'll pay off your trade when you upgrade to a nicer, newer vehicle." (Key Hyundai and Hyundai of Milford)

·         "Ramey will pay off your trade no matter what you owe . . . even if you're upside down, Ramey will pay off your trade." (Ramey Motors)

The FTC asserted that such advertisements (which included ads run on the dealers’ websites and on YouTube) mislead consumers into believing that the dealership was going to pay off the debt in full.  The actual practice employed by the dealerships was to roll in the negative equity (the debt balance that exceeded the value of the trade in) into the new loan the customer entered into to purchase a newer or different vehicle.

In addition to alleging deceptive advertising, the FTC alleged violations of the Truth in Lending Act and the Consumer Leasing Act.  As a result of the investigations, the five dealerships that agreed to settle must, among other things, change their advertising practices, retain copies of all advertisements for five years or more, maintain substantiation files for the claims made in each advertisement, and file compliance reports with the FTC. 

How do you avoid an FTC investigation and the resulting burdens?  Here are some compliance tips:

·         Ensure all advertisements, in any medium or in any form, do not contain any misrepresentations or misleading statements.  A statement that is misleading cannot be cured by a disclosure that contains conflicting information.

·         Comply with the Truth in Lending Act and the Consumer Leasing Act and the regulations issued under these Acts.  This includes, for instance, making clear and conspicuous disclosures when advertising certain terms related to issuing consumer credit.

·         Ensure your disclosures are clear and conspicuous.  The FTC provides guidance that to be clear and conspicuous, “the disclosure shall be in understandable language and syntax. Nothing contrary to, inconsistent with, or in mitigation of the disclosure shall be used in any advertisement or promotion.”  The FTC also provides the following examples:

o   Print: the disclosure should be in a type size, location, and in print that contrasts with the background against which it appears, sufficient for an ordinary consumer to notice, read, and comprehend it.

o   TV or Video: an audio disclosure should be delivered in a volume and cadence sufficient for an ordinary consumer to hear and comprehend it. A video disclosure shall be of a size and shade and appear on the screen for a duration and in a location sufficient for an ordinary consumer to read and comprehend it.

o   Radio: the disclosure should be delivered in a volume and cadence sufficient for an ordinary consumer to hear and comprehend it.

There is a comment period before the proposed settlements become effective.  Once effective, they will be persuasive evidence of the standards car dealerships must abide by for future FTC investigations.  Next up may be the $$ down and $$ per month claims.

Authors:

Mike Schulman	Jason Mueller