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