1. 1 2015 ACC-SoCal In-House Counsel Conference [add logo of sponsor] #IHCC15 RISK AND REWARD: WHAT YOU SHOULD KNOW ABOUT REGULATORY AND LITIGATION RISK AFFECTING YOUR COMPANY’S MARKETING STRATEGIES IN 2015 January 21, 2015 Anaheim, California Sponsored by Crowell & Moring LLP Panelists: David Ervin Steven Allison Van Nguyen

2. 2 2015 ACC-SoCal In-House Counsel Conference [add logo of sponsor] #IHCC15 Social Media – Endorsements

3. 090701_3 3 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Social Media Platforms

4. 090701_4 4 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Same Principles Apply To Marketing Through Social Media  Two Basic Principles – Reasonable basis to substantiate claims made in advertisements – If disclosures needed, they must be clear and conspicuous

5. 090701_5 5 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Endorsements & Testimonials

6. 090701_6 6 #IHCC15 2015 ACC-SoCal In-House Counsel Conference FTC Revised Endorsement Guides  Refer to more than just a celebrity or consumer talking about a product on television  Apply to comments made on social media

7. 090701_7 7  Endorsements must represent the accurate experience and opinion of the endorser and describe the typical performance  Material connections must be disclosed Key Requirements for Endorsements #IHCC15 2015 ACC-SoCal In-House Counsel Conference

8. 090701_8 8 #IHCC15 2015 ACC-SoCal In-House Counsel Conference 8 When is a statement an endorsement?  Is the speaker acting independently or on behalf of the advertiser? – Whether the speaker is compensated by the advertiser; – Whether the product was provided for free by the advertiser; – The terms of any agreement; – The length of the relationship; – The previous receipt of products, or the likelihood of future receipt of products; and – The value of the products received.

9. 090701_9 9 #IHCC15 2015 ACC-SoCal In-House Counsel Conference 9 Why does it matter?  Advertisers may be liable for an endorser’s actions. – Failure to disclose connections – False claims  Advertisers may be liable even if they did not authorize, approve, or use the claims.  Risks can be greater for use of celebrity endorser who is professionally-trained actor, has millions of social media followers and appears regularly in press and media.

10. 090701_10 10 Disclosing Material Connections #IHCC15 2015 ACC-SoCal In-House Counsel Conference

11. 090701_11 11 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Disclosing Material Connections  Legacy Learning Systems Inc. sold guitar lesson DVDs using social media (2011)  Recruited affiliates to promote through endorsements  Affiliates received commissions on sales resulting from referrals  Ads were deceptive because they purported to reflect the views of ordinary and independent consumers, without clearly disclosing affiliation

12. 090701_12 12 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Disclosing Material Connections  Reverb Communications hired by video game developers encouraged employees to pose as ordinary consumers and post reviews on Apple’s iTunes store, without disclosures (2010)  Company charged with engaging in deceptive advertising in social media

13. 090701_13 13 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Disclosing Material Connections

14. 090701_14 14 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Disclosing Material Connections  Sony hired an ad agency to promote its Sony PlayStation Vita (2014)  Account executive sent an email to employees asking them to tweet about the product from personal Twitter accounts  #GAMECHANGER

15. 090701_15 15 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Staying Out of Trouble  Ann Taylor LOFT Blogging Campaign (2010) – LOFT provided gifts to bloggers who attended a preview event – Some bloggers failed to disclose that they received gifts for posting blogs about the preview event

16. 090701_16 16 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Staying Out of Trouble  FTC decided to not enforce – There had only been one preview event, so no pattern of violations – Only a small number of bloggers and several disclosed that gifts were provided – LOFT adopted a written policy stating that it will not issue gifts to bloggers without informing bloggers that they must disclose receipt gift in blog

17. 090701_17 17 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Staying Out of Trouble  Cole Haan’s Wandering Sole Pinterest Contest – Contestants instructed to create Pinterest boards titled “Wandering Sole” – Board to include five shoe images from Cole Haan’s Wandering Sole Pinterest Board – #WanderingSole in each pin description – $1000 shopping spree to contestant with the most creative entry

18. 090701_18 18 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Staying Out of Trouble

19. 090701_19 19 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Staying Out of Trouble  FTC’s position: – Pins featuring Cole Haan products were endorsements – Fact that pins were incentivized by $1000 shopping spree would not reasonably be expected by consumers – Cole Haan did not instruct contestants to label their pins and Pinterest boards to make clear pins were connected to a contest – #WanderingSole not enough

20. 090701_20 20 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Staying Out of Trouble  FTC decided to not enforce: – Case of first impression – had not previously publicly addressed whether entry into a contest is a material connection or whether a pin may constitute an endorsement – Limited duration and limited contestants – Cole Haan has since adopted a social media policy

21. 090701_21 21 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Social Media Policies Really Matter  Hyundai Blogging Campaign – Bloggers received gift certificates as an incentive to include links to Hyundai videos in their posts or to comment on Hyundai’s Super Bowl ads  FTC’s position: – Advertiser providing gift to blogger for posting specific content promoting the advertiser’s product constitutes a material connection that needs to be disclosed

22. 090701_22 22 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Social Media Policies Really Matter  FTC Closing Letter to Hyundai, Nov. 16, 2011:

23. 090701_23 23 The Power of Policies  FTC investigation re: Nordstrom Rack promo event “TweetUp” for new store  Nordstrom provided “social influencers” with gifts to promote store opening  FTC closes investigation Feb. 2013 for two reasons: – Some influencers did disclose gifts – Nordstrom revised social media policy to address FTC’s concerns  Key to defense – social media policy and efforts to comply 23 #IHCC15 2015 ACC-SoCal In-House Counsel Conference

24. 090701_24 24 #IHCC15 2015 ACC-SoCal In-House Counsel Conference FTC Provides Guidance on Disclosures

25. 090701_25 25 #IHCC15 2015 ACC-SoCal In-House Counsel Conference.com Disclosures  In 2013, the FTC released the “.com Disclosures”  Originally released in 2000 to address ads on websites  Updated to broaden scope to include social media  Addresses advertising or promotional messaging via Twitter or other virtual media  Examples of how to comply with the law: “Ad” or “#Sponsored” (not #spon) in the tweet  Advice to avoid buried or generically labeled hyperlinks  Also not a good idea to use pop-ups

26. 090701_26 26 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Disclosures

27. 090701_27 27 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Disclosures

28. 090701_28 28 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Disclosures

29. 29 2015 ACC-SoCal In-House Counsel Conference [add logo of sponsor] #IHCC15 Telephone Consumer Protection Act I’m Not A Telemarketer – Why Should I Care?

30. 090701_30 30 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Cell Phone Based Marketing Has Arrived  Telephone marketing (and collection) is a well- established part of many industries  With the prevalence of cell phones, much telephone marketing has moved away from landlines to cellular telephones  If making a marketing call, should assume it is a cell phone

31. 090701_31 31 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Text Message Marketing Is Especially Attractive  The open rate of text promotions/offers is a whopping 98%  Compare that to the 22% open rate of emails  According to the Mobile Marketing Association, $223 million estimated spent on text message marketing alone in 2014

32. 090701_32 32 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Industries Using Mobile Marketing Are Not Traditional Telemarketers  Retail  Healthcare  Financial Services  Entertainment  Social Networking/Online Services

33. 090701_33 33 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Example – Carl’s Jr. Text Campaign

34. 090701_34 34 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Risks Increase  As these industries have started to use these new technologies based on new ways of marketing, the risks increase  One of them is the requirements of the Telephone Consumer Protection Act, or TCPA

35. 090701_35 35 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Recent TCPA Settlements  Capital One: $75.5 million  Jiffy Lube Int’l: $35 to $47 million  Bank of America: $32 million  Sallie Mae: $24 million  Steve Madden Ltd.: $10 million  Domino’s Pizza: $9.75 million (3 states)  Vivint Home Security: $6 million  LA Clippers: $5 million

36. 090701_36 36 #IHCC15 2015 ACC-SoCal In-House Counsel Conference TCPA Text  It shall be unlawful for any person... to make any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice... to any telephone number assigned to a paging service or cellular telephone service

37. 090701_37 37 #IHCC15 2015 ACC-SoCal In-House Counsel Conference TCPA Text – Key Terms  It shall be unlawful for any person... to make any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice... to any telephone number assigned to a paging service or cellular telephone service

38. 090701_38 38 #IHCC15 2015 ACC-SoCal In-House Counsel Conference What is a “Call”?  Voice call  Prerecorded message  Text message

39. 090701_39 39 #IHCC15 2015 ACC-SoCal In-House Counsel Conference What is An “Autodialer”?  Definition: “equipment which has the capacity – (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers”  FFC interpretation: – equipment need only have the “capacity” to store or produce numbers; – as a result, “predictive dialers” which dial numbers and use software to assist in predicting when sales agents can take calls are autodialers under the TCPA – Ninth Circuit deferred to FCC interpretation (Meyer v. Portfolio Recovery Assocs.)”

40. 090701_40 40 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Broad View: Every Computer Might Be an Autodialer  Key is whether it has capacity store and produce numbers to be called using a random or sequential number generator, rather than whether it actually performed the function  Key cases – Satterfield v. Simon & Schuster (9 th Cir.) – Sherman v. Yahoo! (S.D. Cal.) – Nelson v. Santander Consumer (W.D. Wisc.)

41. 090701_41 41 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Narrow View: Only Present Capacity Makes It An Autodialer  Narrow view: Capacity means “present, not potential capacity” to randomly produce and dial numbers  Key cases – Hunt v. 21 st Century Mortgage (N.D. Ala.) – Gragg v. Orange Cab Co. (W.D. Wash.) – Dominguez v. Yahoo! (E.D. Pa.) – Marks v. Crunch San Diego (S.D. Cal.)

42. 090701_42 42 #IHCC15 2015 ACC-SoCal In-House Counsel Conference How To Break The Tie?  Petitions pending with FCC to clarify that system is not an ATDS unless it has capacity to dial without human intervention and is capable of doing so, without further modification, at time the call is placed  Limited Circuit Court opinions

43. 090701_43 43 #IHCC15 2015 ACC-SoCal In-House Counsel Conference What is “Prior Express Consent”?  Under FCC regulations effective October 2013, it now must be prior express written consent  Prior express written consent requires: – written agreement, signed by individual authorizing telephone solicitations to specific phone number (can be effectuated by text, e-mail, or in compliance with E- SIGN Act), and – clear and conspicuous disclosure that signed agreement is not a condition of purchasing any good or service

44. 090701_44 44 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Who is Liable?  Usual structure is that branded company hires a third-party company to conduct a telephone or text marketing campaign  Courts (and FCC) increasingly finding that vicarious liability is available  Right of control, apparent authority, or ratification can be basis for vicarious liability (Thomas v. Taco Bell)

45. 090701_45 45 #IHCC15 2015 ACC-SoCal In-House Counsel Conference What to Do to Limit Liability?  Be careful who you do business with for phone or text marketing campaigns  Pay careful attention to the indemnification and insurance requirements in contracts with phone or text marketers  Make sure consent procedures meet FCC rules — ask marketing companies how they obtain consent  Consider opt-out and refund procedures

46. 090701_46 46 #IHCC15 2015 ACC-SoCal In-House Counsel Conference If Lawsuit Happens  Investigate early and determine if an early settlement is best option  Remediate any problems right away – limit size of potential class  Consider a Rule 68 offer to settle with class plaintiff and moot action – but, not viable in 9 th Circuit  Consent and lack of autodialer are best class certification defenses

47. 47 2015 ACC-SoCal In-House Counsel Conference [add logo of sponsor] #IHCC15 Native Advertising

48. 090701_48 48 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Native Advertising Sponsored Content Custom Content Brand Journalism Content Marketing Content Integration Advertiser- generated Content Thought Leadership Sponsored Micro-sites Paid Links Product Placement Brand Content Advertorial Advertising Content Embedded Advertising Hybrid Advertising Disguised Advertising

49. 090701_49 49 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Definitions of “Native Advertising”  Advertising that is intended to blend seamlessly with the medium on which it’s displayed  Blending advertisements with news, entertainment, and other editorial content in digital media.  Advertising that is maximally compatible in form and function with the editorial content of the medium.  Ads designed to look and feel like editorial content.  Ads integrated into the design of the publisher’s site.  “Native Advertising” – Form & Function differentiate

50. 090701_50 50 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Native Ad Spending Trends

51. 090701_51 51 Sponsored/Branded Content Publisher-Produced Brand-Produced

52. 090701_52 52 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Brand Journalism

53. 090701_53 53 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Sponsored Articles

54. 090701_54 54 Sponsored Articles: Brand Integrity  The Atlantic ran an advertorial on the growth of Scientology  The article was sponsored by the Church of Scientology but resembled other Atlantic articles  Readers went into uproar

55. 090701_55 55 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Content Syndication: Twitter & Vine

56. 090701_56 56 In-Stream Native Advertising In-Feed Ads Search & Promoted Listings

57. 090701_57 57 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Sponsored Tweets & Posts

58. 090701_58 58 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Promoted Listings

59. 090701_59 59 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Promoted Listings

60. 090701_60 60 Regulatory Risks & Claims  Federal Trade Commission (FTC) Unfair or deceptive acts or practices in or affecting commerce; 15 U.S.C. § 45  National Advertising Division (NAD)  Misleading, untruthful, or unsupported advertising  Consumer Litigation  Unfair or deceptive acts or practices  Cal. Bus. & Prof. Code § 17200  N.Y. Gen. Bus. Law §§ 349(a), 350-a(1) #IHCC15 2015 ACC-SoCal In-House Counsel Conference

61. 090701_61 61 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Disclosing Sponsored Content: Qualcomm, NAD Case Reports, Case #5633 (2013)

62. 090701_62 62 American Media, Inc., NAD Case Reports, Case #5665 (2013)  “SHAPE Water Boosters” promoted in article captioned as “NEWS” in the September 2013 issue of Shape Magazine.  Decision: NAD recommended that Shape Magazine “clearly and conspicuously designate content as advertising when it promotes Shape-branded products.”  Readers of Shape Magazine “may reasonably believe that editorial recommendations in [the magazine] are independent of the influence of a sponsoring advertiser.” Labeling “Editorial” Content #IHCC15 2015 ACC-SoCal In-House Counsel Conference

63. 090701_63 63  Taboola Decision: When consumers are linked to sponsored content in a context which consumers may reasonably understand to be editorial, consumers should be advised that the link is sponsored through the use of clear and conspicuous disclosures.  Governing Principles:  Consumers must be advised when linked content is sponsored.  Consumers can be misled if a party “induces the first contact through deception, even if the buyer later becomes fully informed.” Unbranded Editorial Content: Widgets #IHCC15 2015 ACC-SoCal In-House Counsel Conference

64. 090701_64 64 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Best Practices: Best Practices: Transparency and Disclosure are Critical There should be clear labeling of native ads.

65. 65 2015 ACC-SoCal In-House Counsel Conference [add logo of sponsor] #IHCC15 Gift Cards

66. 090701_66 66 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Gift Card Overview  Federal law sets the floor on consumer issues  State laws makes national gift card program nearly impossible to manage; some states have more restrictive laws  The biggest issue = Escheatment of gift card breakage and impact on revenue and costs – Property is a state law issue and varies widely – Delaware v. Card Compliant case may change the whole game for many issuers

67. 090701_67 67 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Federal Gift Card Law: What It Covers  The Credit Card Accountability Responsibility and Disclosure Act of 2009 (“CARD” Act): – Does not preempt state gift card laws, except if state laws are inconsistent with the Act. Minimum level of gift card regulation. – Applies broadly to gift cards, stored value cards, and general use prepaid cards. – Exclusions: Loyalty, award, or promotional gift cards;  Gift cards used solely for telephone services;  Gift cards that are reloadable, not marketed or labeled as a GC;  Gift cards that are not marketed to the general public;  Gift certificates issued only in paper; or  Gift cards redeemable only for admission to events or venues at particular locations.

68. 090701_68 68 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Federal Gift Card Law: What is Required  No Expiration Dates less than 5 years  Fees prohibited unless no activity for 12 mos.  Expiration and fees require clear and conspicuous disclosures  The Fed punted on preemption: inconsistent state laws still apply  Does not impact escheatment except for preventing expiration before abandonment when period is 5 years or less

69. 090701_69 69 #IHCC15 2015 ACC-SoCal In-House Counsel Conference State Laws: Some General Trends  Expiration prohibited: CA, CT, FL, IL, ME, MN, MT, NH, NJ, RI, WA  Fees prohibited or limited: CA, CT, FL, HI, IL, LA, MA, MN, MT, NH, ND, NJ, NM, OR, RI, VT  Escheatment standards vary widely: – No exemption: AK, DE, MS, MO, NJ, NY – Exempt: AR, CO, CT, FL, IN, MD, MA, MN, NH, OH, UT, WY – Exempt if no expiration: CA, HI, IL, NE, NV, NC, PA, RI, SD, TN, VA, WA

70. 090701_70 70 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Escheatment: Jurisdiction Issues  First Priority Rule: state law of owner applies when issuer knows name and address; most gift card programs designed to avoid – Texas v. New Jersey, 379 U.S. 674 (1965)  Second Priority Rule: state law of issuer’s domicile when owner’s name/address unknown (e.g., state of incorporation) – Delaware v. New York, 507 U.S. 490 (1993).  “Third Priority Rule”: despite being rejected twice by Supreme Court under the 11 th Amendment, number of states apply transaction-based rule to assert jurisdiction for property when no other state law requires escheatment: – AL, AK, AZ, DC, GA, ID, IA, LA, ME, MI, MT, NH (>$100), NJ, NM, TX, UT (>$25), WV, MY – New Jersey 2010 law invalidated: New Jersey Retail Merchants Ass’n v. Sidamon-Eristoff, 669 F.3d 374 (3d Cir. 2012)

71. 090701_71 71 #IHCC15 2015 ACC-SoCal In-House Counsel Conference State of Delaware ex rel. French v. Card Compliant, LLC, et al., N13C-06-289 (Superior Court of Delaware, New Castle).

72. 090701_72 72 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Card Compliant qui tam case

73. 090701_73 73 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Card Compliant case: Risk Profiles  Third party gift card service providers appear to be at risk: – Case will likely decide whether contract is enough  Subsidiary issuer entities: – Critical to maintain separateness and corporate formalities (e.g., office) – Essential that at least breakage be held in subsidiary bank account  Redemption rates: rates below 60% increase risk  Publicly-traded company filings: – Revenue recognition statements provide roadmap for regulators  Gift card programs older than 7 years: – No statute of limitations. DE looks back to 1981, CA even further – Extrapolation and estimation methods trump document retention policies  Gift card issuers that have escheatment reporting system due to nature of business: – Track record of reporting allows regulators to compare against breakage – Once issuer starts escheatment reporting, must continue in perpetuity

74. 090701_74 74 #IHCC15 2015 ACC-SoCal In-House Counsel Conference Warning Bell for Gift Card Issuers  Assess potential exposure. Assess program to gauge the potential for exposure under state unclaimed property and false claims act statutes by examining: – Structure of the gift card program – The contract and communications with any third-party card issuers or program managers – Internal communications concerning the structure of the card program or escheatment reporting – How gift card proceeds and unused balances were tracked and accounted for – Any public financial disclosures impacted by revenues from gift cards.  Monitor the litigation. Some potential outcomes: – How gift card programs should be designed and implemented – Which state’s unclaimed property law applies to card programs with sponsors, issuers, and program managers in different states – Whether corporations with gift card programs should consider reporting and paying unused balances to Delaware or other states.  Analyze options for restructuring gift card programs. – Be proactive in analyzing options for card programs under various legal scenarios that could emerge in the aftermath of the Card Compliant litigation. – Strong incentives for private individual litigants to bring qui tam actions on behalf of states in pursuit of prepaid card balances from corporations.

75. 090701_75 75 #IHCC15 2015 ACC-SoCal In-House Counsel Conference  Van Nguyen – Crowell & Moring, Partner – vnguyen@crowell.com  Steven Allison – Crowell & Moring, Partner – sallison@crowell.com  Dave Ervin – Crowell & Moring, Partner – dervin@crowell.com Panelists

76. 090701_76 76 #IHCC15 2015 ACC-SoCal In-House Counsel Conference  Know how your company uses social media for marketing and have a social media policy.  Review carefully the consent procedures for any text/phone marketing campaign, and the indemnification and insurance provisions in any contract with a third-party marketing company.  Material disclosures are critical for both branded content and in-stream advertisements.  Card Compliant case could alter how brands structure gift card programs. Significant Take-Away Points

77. 000000_77 11 th Annual In-House Counsel Conference January 21, 2015 (Anaheim, CA) #IHCC15 77 www.acc.com/chapters/socal/