1. The Law of Advertising on the Internet
Presented to the Association of Corporate Counsel
March 29, 2011
Michael McCue
Linda Norcross
Lewis and Roca LLP
Las Vegas, Nevada

2. The Old

3. The New

4. Overview Online advertising Web sites
Third-party (social media, AdWords, etc.)
What law applies?
Federal: FTC Act, Lanham Act, Copyright Act, COPPA, CAN-SPAM, etc.
State: deceptive trade practices laws, advertising content regulations, etc.
Who can sue?
Government: FTC, State attorneys general
Private parties: consumers, competitors

5. 10 Questions You Should Ask About an Online Ad
Is it false or misleading?
If misleading, are there sufficient disclaimers?
Are the trademarks cleared?
Are the rights of publicity cleared?
Do we own or have a license to use copyright material?
If we are using third-party trademarks or copyrights, does fair use apply?
Does the ad comply with endorsement rules?
Are other substantive legal requirements met?
Do we comply with our privacy policy?
Do we comply with laws governing Internet advertising methods?

6. Is the ad false or misleading? (Q1)
Prohibited by FTC, state law, and federal Lanham Act
Elements of Lanham Act claim:
Advertisement contains a false or misleading statement of fact (opinion is not actionable)
Statement actually deceived or had the capacity to deceive a substantial segment of the audience
Deception must have been material in that it was likely to influence the purchasing decision
Plaintiff must have been or is likely to be injured as a result

7. Pizza Hut v. Papa John’s
BETTER INGREDIENTS. BETTER PIZZA.

8. False v. misleading Literal falsity
Tests prove claims: plaintiff must prove that the test is unreliable or does not support the claim
Bald claims: plaintiff must prove that the claim is actually false
Misleading
Ad taken as a whole (text, photos, etc.) cannot be misleading

9. Misleading photos?

10. More misleading photos?

11. Are there sufficient disclaimers? (Q2)
Disclosures can be used to limit or explain a misleading claim, but not a false claim
Disclosures must be CLEAR and CONSPICUOUS
Factors:
Prominence (hyperlinks?)
Understandable
Placement relative to the claim
Distracting elements
Repetition

12. Airborne disclaimer

13. Are trademarks cleared? (Q3)
Make sure any trademarks (word, logo, slogan, etc.) do not infringe any third party’s rights.
Identify: (1) the mark you want to use, and (2) the specific goods and services for which you want to use it.
Are you using a term or phrase as a trademark?
If so, is the trademark confusingly similar to the trademark of a third party?
Is the trademark likely to dilute a famous trademark?
Don’t rely on advertising agency for clearance

14. Are rights of publicity cleared? (Q4)
Make sure that the name, likeness, image and signature of every person is cleared
Law prohibits use of rights of publicity for commercial purpose without consent
Nevada: written consent is required
Applicable law usually based on domicile of plaintiff
Don’t assume stock photos include clearance of rights of publicity

15. Do you own or have a license to use copyright material? (Q5)
Assume everything is protected by copyright (photos, artwork, articles, etc.)
If you use any copyrighted work, make sure you have cleared it
Work made for hire or assignment  you own it
License right to use it
Obtain warranties and indemnification from third-party providers (ad agencies, stock photo companies, free lance photographers, etc.)

16. Does fair use apply? (Q6)
Trademark fair use: use term in a descriptive, non-trademark sense
Trademark nominative fair use: use third-party trademark to refer to third party (e.g., comparative advertising)
The product or service cannot be readily identified without using the trademark
Use so much of the mark as is necessary for the identification
Do not suggest sponsorship or endorsement by the trademark holder
Example: Toyota v. Tabari: buy-a-lexus.com

17. Copyright fair use
Usually reserved for criticism, comment, news reporting, teaching, scholarship, and research
Four factor test:
purpose and character of the use
The nature of the copyrighted work
The amount and substantiality of the portion used in relation to the copyrighted work as a whole
The effect of the use upon the potential market for, or value of, the copyrighted work

18. Does the ad comply with endorsement rules? (Q7)
Endorsement: advertising message that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the advertiser
Must be the honest opinions, findings, beliefs, or experience of the endorser
If ad says the endorser uses the product, must be a bona fide user and continues to use the product
Material connections must be disclosed unless ordinarily expected

19. Are other substantive requirements met? (Q8)
Look for other potential issues based on the subject matter of the advertisement, special offers, promotions, etc.
Subject matter restrictions (alcohol, cigarettes, etc.)
Deceptive trade practices (Chapter 598 of NRS lists more than 50 deceptive trade practices)
Sweepstakes and promotions

20. Is the privacy policy accurate? (Q9)
Do you have a privacy policy that meets the FTC fair information practice principles?
Notice of what information is collect from consumers and how the information is used (KEY REQUIREMENT)
Consumers should be given choice about how information collected from them may be used
Consumers should have access to data collected about them.
Take reasonable steps to ensure the security of the information collected from consumers

21. Privacy laws
FTC Act and state laws (applied to privacy policy violations)
Children’s Online Privacy Protection Act (applies to web sites that target or knowingly collect information from children under age 13)
Graham-Leach-Bliley (financial institutions)
Health Breach Notification rule (applies to companies that allow online access to medical records)
Red Flags rule (deters identify theft; clarified in December 2010 to narrow definition of creditor)

22. Hot issues in privacy
Flash cookies (often not disclosed; outside of browser cookie settings)
Behavioral advertising (tracking online behavior for purpose of delivering targeted ads)
Inadequate disclosure: FTC v. Sears (disclosure of online tracking in lengthy license agreement was not adequate)
Failure to comply with privacy policy: FTC v. Chiquita (opt out of data collection lasted 10 days)

23. Comply with laws governing Internet advertising methods? (Q10)
CAN-SPAM
No false or misleading header information. 
No deceptive subject lines.
Identify the message as an ad. 
Your message must include your address. 
Tell recipients how to “opt out.”  
Honor opt out requests within 10 business days.

24. Digital Millennium Copyright Act
Provides safe harbor for online service providers
May apply if web site allows posting of user generated content
Must register with Copyright Office and include notification information on web site
Notice and take down procedures

25. Key Word Advertising
Refers to purchasing key words to trigger sponsored links in search engine results (such as Google AdWords)
Trademark owners have complained that purchase of the marks as key words constitutes infringement
Courts have generally found use permissible
May not constitute use of a mark in commerce
May not cause confusion (Ninth Circuit recently vacated an injunction blocking a software company from purchasing keyword ActiveBatch, a mark owned by direct competitor)

26. Questions?