To make sense of the new Vermont law, we need to begin, as usual, at the beginning.  The basic truth of promotions law is that an illegal lottery has three elements: (1) prize (something of value, even if it’s nominal); (2) chance (the winners are selected on some random basis); and (3) consideration (something of value that’s given to enter).  In order for a company to steer clear of illegal lotteries and run a legal promotion, it must ensure that at least one of these elements is not present.  In a sweepstakes, for example, the third element (consideration) is eliminated when sponsors provide a free alternative method of entry.

Contests (games of skill) are usually treated differently.  Because the chance element is absent in a skill contest, the sponsor can generally ask for consideration without violating state lottery laws—at least, in most states in the U.S.  Before Vermont passed the new law, the state was one of the few jurisdictions that still prohibited sponsors from charging consideration to enter in skill games.  But with the new law that just became effective, Vermont now allows contest sponsors to charge entry fees or require a purchase to enter a contest.   

As for the other states, a dwindling number of places continue to prohibit consideration in skill contests, though the prohibited category is usually limited to skill contests that require purchase or payment to participate.  For example, Maryland prohibits a purchase or payment requirement for skill contests in which the prize values are greater than $200; Colorado and Arizona also prohibit monetary consideration in such contests, though Arizona may permit some registered intellectual contests.  In California, consideration is generally permitted in real games of skill, but if the contest involves a tiebreaker round that qualifies participants for additional prizes, then the sponsor generally cannot require the payment of money to enter the tiebreaker round.

With its new law, Vermont has broken with its nonconformist reputation and joined the majority by allowing consideration in skill contests.  Perhaps this move will encourage the other hold-out jurisdictions to follow its lead.

Melissa Landau Steinman and Maura Marcheski

And the NAD made good on this in a recent case brought by the Gillette Company challenging Energizer Personal Care Schick Hydro Silk Razors.  We will not delve into the detailed discussion of substantiation for moisturization provided by shaving (but needless to say NAD has developed quite a body of precedent on the topic for those who are interested).  The issue in this case was whether Energizer was able to substantiate its promise that its razor "moisturizes for up to two hours after shaving".  In examining the evidence, the NAD said they would expect "that advertisers making "up to" claims should be able to demonstrate that a substantial percentage of consumers are likely to acheive maximim results promised under normal circumstances".   The NAD found this claim supported by lab testing.  Unfortunately NAD also found that the television ads depicting women engaged in activities like jump roping and playing volleyball where the rope or ball transforms into water splashing on their legs conveys a reasonable message that the moisturizing benefit lasts longer than two hours, a claim for which there was not support. 

But this is good news for advertisers who have been concerned about a sea change in how "up to" claims are reviewed.  The FTC has not brought additional cases and NAD is holding to prior precedent, at least when it needs to interpret claims without the benefit of sound surveys.

Amy Mudge and Randy Shaheen

Most recently, on May 8, the FTC hosted a roundtable on the topic, gathering consumer advocates, government regulators, and industry representatives to explore how mobile cramming occurs and current and possible strategies to reduce the problem.  Among the points of disagreement that emerged between the panelists were the scope of mobile cramming and how to measure the problem, as well as the need for government-imposed regulation.  The lack of consensus on the former issue is particularly significant because how one thinks the problem is “solved” is determined largely by how one measures and views the scope of the problem. 

Various panelists representing consumers and government entities expressed concern about the scope of mobile cramming, including that individuals do not understand that they can be charged for third-party goods and services on their mobile telephone bills and that charges appear on bills without consumer authorization.  The Senior Vice President and General Counsel of CTIA, an organization that represents the wireless communications industry, countered the evidence that was cited, stating that he had not seen “a spike or a trend in complaints” to certain agencies which reflects that mobile cramming is a “growing problem,” even with the increased adoption of smartphones. 

An Assistant Attorney General at the Office of the Vermont Attorney General expressed concern about using complaints and refund rates to measure the scope of the problem.  The General Counsel of CTIA also expressed concern with the use of refund rates to reduce the problem, but for another reason: carriers may be very generous with providing refunds and extending refunds over a period of months, thereby increasing their refund rate.  Another panelist criticized the use of refund rates to reduce mobile cramming as premature.

Another interesting, yet expected, topic of disagreement was the need for government-mandated regulation.  The mobile business is fast-changing and continually evolving, counseling caution in imposing rigid rules that solve today’s problem but not future unforeseen problems.  The General Counsel of the Mobile Marketing Association and the General Counsel of CTIA generally expressed these concerns.  Other panelists, though, indicated that government-imposed rules are necessary and that self-regulation has proven insufficient.

While the panelists did not agree on every topic of discussion, one thing was clear.  As stated by the General Counsel of CTIA, “Nobody wants unhappy consumers, consumers who have been misled, [or consumers] who haven’t consented to the services that they receive and are charged for.”  Agreeing on that proposition is easy; figuring out the means and methods to achieve those things is hard.

The FTC concluded the workshop by announcing that they will write a report on the workshop (as they did for a recent workshop on mobile payments) and continue to monitor developments in the area and to bring enforcement along the lines of the case it recently filed against Wise Media, LLC.

Maggie Grace and Amy Mudge

Consumer products companies are constantly working to improve their products and often they want to communicate those improvements to consumers.  That’s a good thing and helps spur companies to innovate and improve their products.  But the FTC has brought actions against companies that have touted their products as “new” for too long with some “grace” allowed for time products may have spent in test markets.  The networks have similar standards; ABC, for example, permits such claims for up to a year after a product has achieved substantial distribution. NAD has also cautioned companies against making “improvement” claims that do not provide meaningful benefits and or against products that are no longer available.
 
Of course, older doesn’t always mean worse, as Coke was reminded when it introduced “New Coke;” as we constantly remind our kids and as a luxury brand auto maker reminds us in this commercial pitting Old Spock against New Spock.

Randy Shaheen and Amy Mudge

It’s not always easy to tell who is the “target audience” for an advertisement.  Many years ago RJ Reynolds was embroiled in a dispute with the FTC over whether its use of a Joe Camel cartoon character to promote its Camel brand of cigarettes was targeted to minors.  When it comes to television or print advertising companies often avoid “targeting” children by placing ads only on shows or periodicals that have adult demographics above a certain threshold. 

A billboard in Spain regarding child abuse provides a new option.  The ad uses lenticular image (if you’re like us and had no idea what this means, click here) to display a slightly different message for adults and children (or at least adults and children of average height.)  Anyone taller than 4’5” sees the message “sometimes child abuse is only visible to the child suffering it.”  Anyone shorter than that sees a picture of a child with bruises and a different message – “if somebody hurts you, phone us and we’ll help you" alongside the foundation's phone number.  The idea is to allow abused children to see the message and not their abuser who may be there with them.  So technology may make it easier, in some instances, to determine who an ad is targeted to.  However, the use of such technology can raise problems as well.  For example, what’s the value of a disclosure like “batteries not included” in a toy advertisement that only children can see if the child doesn’t read very well.  And suppose the technology allows you to target certain groups but not with 100% certainty; for example, some adults are shorter than 4’6”.  In such instances at what point does the technology work so imprecisely that a company can no longer claim it “targets” certain groups.  No doubt these questions will be sorted out as targeting technologies are targeted and utilized.  And the fact that, like most technology, it may be used both well and poorly means that lawyers and regulators will undoubtedly be busy keeping up with a rapidly evolving marketplace.

Randy Shaheen and Amy Mudge

On May 1, 2013, Judge William F. Kuntz, II of the Eastern District of New York denied a motion to reconsider his earlier decision dismissing claims arising under the Telephone Consumer Protection Act and its accompanying rules and regulations for lack of subject matter jurisdiction. See Bank v. Independence Energy Grp. LLC. The Bank Court had dismissed the TCPA claims in reliance on a Second Circuit precedent, which interpreted the TCPA to bar claims in New York federal court because New York State’s civil procedure rules do not permit statutory class actions. See Holster III v. Gatco, Inc.

In denying the motion to reconsider, Bank addressed an issue not covered in its prior decision, and held that the Second Circuit’s Holster III decision was still good law after the Supreme Court’s subsequent decision in Mims v. Arrow Financial Services, LLC. Mims had held that federal and state courts have concurrent jurisdiction over private actions brought under the TCPA. The Mims decision contains language that would appear to undermine Holster III, for example: “Congress did not deprive federal courts of federal-question jurisdiction over private TCPA suits.” Bank found that such language was dicta, noting that the issue in Mims was whether TCPA claims could be brought in state court, not whether they could be brought in federal court. The Bank Court also found that the statutory interpretations in Mims and Holster III did not conflict. For these and other reasons, Bank concluded that Holster III remains the law in the Second Circuit until further notice.

The Bank plaintiff has stated publicly that his next call is to the Second Circuit. Stay on the line for further developments.

If you would like to read our client alert on the initial decision dismissing the TCPA claims, click here.

Edward Boyle and Michael Hartmere

MTOR, which was issued in 1975, requires marketers who solicit customers via mail or telephone to have a reasonable basis for expecting that the sellers can ship within the advertised time frame, such as “allow 2-4 weeks for delivery.”  If no time frame is specified, marketers must be able to ship the merchandise within 30 days.  If sellers cannot ship within the promised time, they must obtain the buyer’s consent to delay.  The FTC last sought comments on MTOR in 2007.  Based on those comments, the Commission proposed amendments in 2011 to clarify:

• That MTOR covers orders placed over the Internet;
• That sellers may provide refunds and refund notices to buyers by any means at least as fast and reliable as first-class mail;
• Sellers’ obligations when buyers use payment methods, such as debit or pre-paid gift cards, that are not spelled out in MTOR; and
• How refunds are made to consumers who pay with third-party credit products, such as Visa or MasterCard cards, and credit products where the seller is the creditor.

The report details these recommendations that the Commission revise MTOR to respond to new methods of accessing the Internet and making payments and refunds.  The FTC will accept comments on the report until July 15, 2013.

Click here to read the FTC’s press release, access a copy of the FTC’s staff report, and learn how to submit comments on the report.

Amy Mudge and Randy Shaheen

Ms. Lohan, in case some of you have just awoken from a coma, has been in the news a time or two in recent months.  As a result, a hip-hop artist who goes by the name Pit Bull released a song entitled “Give Me Everything” which included the lyrics “So I’m tiptoeing to keep flowin’/ I got it locked up like Lindsay Lohan.”  Ms. Lohan’s attorneys found time to sue (though as we’ll see shortly, suing someone named “Pit Bull” is apparently not wise.)

Ms. Lohan alleged that the use of her name for commercial benefit violated New York’s Civil Rights Law (and apparently also caused unjust enrichment and emotional distress.)

Now no ice cream company would likely ever think of creating a black and white ice cream and calling the flavor Lindsay Lohan.  Indeed New York’s Civil Rights Law forbids the use of a person’s name for advertising purposes without written consent.  The Court, however, citing a long line of New York precedents, found that New York’s law does not apply to works of art, including music.

The Court further held that Ms. Lohan’s name was not used in the song for “advertising or trade purposes.”  Indeed, again citing New York precedent, the Court found that even if the use of Ms. Lohan’s name was designed to sell CDs (or downloads) that does not satisfy the “use for advertising” standard.

Now we’re big fans of the First Amendment (and we agree with the judge that in any event the use of Ms. Lohan’s name was “fleeting”) but does such a clear distinction between art and advertising make sense in today’s world?  If an advertiser can’t use a celebrity’s likeness without permission on a product label should a songwriter be able to use that celebrity’s name in a song about a relationship gone wrong?  At the same time, the use of a name or likeness for art that is really political speech or satire seems like exactly the kind of use we should want to protect. 

Which leads us then to messy line drawing, but courts do evaluate the types of speech and do engage in First Amendment line drawing.  Should they do that here?  We’ll close simply by observing that last year Katy Perry is reported to have earned more than several Fortune 100 companies.  The line between art and commerce can indeed be blurry.

Randy Shaheen and Amy Mudge

The bill, which moved quickly through the Florida legislature a couple of weeks ago, was likely a reaction to the recent publicity surrounding former Lt. Gov. Jennifer Carroll’s resignation.  Ms. Carroll had been involved with a nonprofit 501(c)(3) known as Allied Veterans of the World that operated more than 36 Internet cafes throughout Florida that allowed players to reserve computer time and then use the computers to check instant numbers.  The operation brought in millions in profits to Allied Veterans, but, reportedly, only 2% of those millions went to veteran’s causes, while the rest of the income was allegedly paid to a for-profit subsidiary and then transferred to the pockets of two individuals.  Ms. Carroll was previously a paid consultant to Allied Veterans, and in 2011 – when she was a member of the Florida House of Representatives – she introduced legislation that would have explicitly declared electronic gaming activity of the type conducted by Allied Veterans permissible.  That legislation was withdrawn two days after its introduction, and HB 155 was subsequently introduced in an effort to prohibit future use of this type of “sweepstakes game machine,” and similar collaborations between commercial and nonprofit entities. 

Like many states, Florida provides an exception to the general prohibition against lotteries so that certain nonprofit organizations may conduct drawings and raffles, so long as the charitable organization follows specific requirements related to disclosures and rules of the raffle.  The new law revises the definition of drawings and raffles that may lawfully be conducted by charitable nonprofit organizations, adding that permissible charitable drawings do not include “game promotions.”  A game promotion is defined by statute as “a contest, game of chance, sweepstakes, or gift enterprise, conducted by an operator within or throughout the state or other states in connection with and incidental to the sale of consumer products or services, and in which the elements of chance and prize are present” (emphasis added). 

The law also also defines an “operator” of a game promotion as a “retailer who operates a game promotion or any person, firm, corporation, organization, or association or agent or employee thereof who promotes, operates, or conducts a nationally advertised game promotion” (emphasis added), which leaves open the  question of whether regional or local game promotions are prohibited or permitted.  In addition, new provisions define a slot machine as a device that can be activated not only with a coin but also with a code, number, or information, which would potentially extend the definition to prohibit prize contests conducted through mobile devices or even online that involve entering a code, number, or other information.

While the clear intent of the law was to close down cyber-cafes in Florida, and legitimate promotions were presumably not intentionally targeted, a plain language reading of the amended law suggests that cause-marketing game promotions are prohibited as “in connection with and incidental to” the sale of products or services.  Although game promotions might lawfully be conducted by for-profit entities as an advertising and marketing tool in national advertising campaigns, the amended law would arguably prohibit charitable/nonprofit organizations from conducting such promotions – and leaves cause-marketing promotions that involve a sweepstakes or game in legal limbo, at least for now. 

Charities are still allowed to conduct raffles or games of chance that are not incidental to the sale of consumer products or services, provided the charity meets other requirements for the promotion specified in the statute.  These requirements include making certain disclosures, such as the sponsor name and address and prize award dates, on all raffle ads.  The statute also requires clear disclosures that no purchase or contribution is necessary to enter the raffle; at most, any fee associated with an entry fee may be a “suggested minimum donation.” 

The Florida Department of Agriculture and Consumer Services has released an alert regarding the new law that makes it clear that gaming promotions may not be conducted by nonprofit charitable organizations and that violation of the law constitutes a deceptive and unfair trade practice under the Florida Deceptive and Unfair Trade Practices Act. 

Venable is involved in efforts to seek clarification regarding the new law and its intended application, and our sources indicate that the Florida Department of Agriculture and Consumer Services may conduct a rulemaking or request legislative revisions to the new law.  The Florida legislature is in Regular Session until May 3, 2013.  Stay tuned for further updates.

Melissa Landau Steinman and Kristalyn Loson

Riffing on a Richard II reference, Chairwoman Ramirez quoted Shakespeare’s “spotless reputation” phrase, noting that “as advertisers, your reputation – your brand – is everything.” Ramirez said that the FTC’s work to promote truthful advertising and protect consumer privacy is aligned with the advertiser’s mission to promote the “spotless reputations” of its clients and firms.  When someone engages in a deceptive practice, the harm done to advertiser’s reputation can be so severe that the brand doesn’t ever recover.  Consumers can also lose faith in an entire industry if advertising frequently misleads people or if companies routinely hide information, she added.   Ramirez encouraged businesses to be “above-board” in their advertising and privacy practices, in order to maintain that “spotless reputation.”

Then giving a nod to the famous balcony scene in Romeo and Juliet, Ramirez spoke on the future of mobile and how the FTC is adapting to an increasingly digital world.  She referenced the FTC’s recent best practices report on privacy disclosures as well as the updated Dot Com Disclosures for digital advertising.  She spoke about how the FTC’s green guides can help marketers ensure that their environmental and renewable energy claims are not deceptive.

On the subject of Do Not Track, Ramirez noted that consumer data is the currency of the Web.  She also encouraged all players in the online advertising ecosystem to dive into the World Wide Web Consortium process in order to help develop a self-regulatory Do Not Track standard that meets the needs of consumers and advertisers alike.

In short, Ramirez spoke about how the FTC and advertisers are on the same page because advertisers know that honesty and transparency are essential to maintaining a positive brand.  Though Ramirez’s remarks did not include the Bard’s famous line from All’s Well that Ends Well, Shakespeare’s words serve as a succinct message to advertisers: “No legacy is so rich as honesty.”

Maura Marcheski