Thursday, April 19, 2007

ABA Section on Antitrust Law, Panel on Product Promotion and Disparagement by Consumers: private speakers

Darren Bowie, assistant general counsel for advertising etc. at AOL: Encourages people to visit the Word of Mouth Marketing Association website, which he finds useful to identify types of WoM marketing, including creating “evangelists” who might not even be paid.

Nonpecuniary compensation is a huge deal: tchotchkes or other incentives. The FTC punted on that in its opinion letter. As Engle said, it would be fact-dependent. Traditional FTC precedent asks whether it would be material to the consumer, which may depend on the value of the tchotchke. If it’s an iPod, that’s probably material. You need to train your marketing folks that the rules do apply to these new practices; WOMMA’s ethical guidelines are a good starting point.

Affiliates: now a big deal for the FTC and the states who may hold you responsible for the acts of affiliates or subaffiliates. You should consider putting something in your contracts about complying with specific guidelines, like WOMMA’s.

Social networking: MySpace, Facebook, Second Life, etc. As many of 48% of marketers are going to use social networking this year. Many companies have their own pages on MySpace. AOL owns space in Second Life. Issues: substantiation; privacy/information collection; Children’s On-line Privacy Protection Act. Also: refer-a-friend features and their relationship to CAN-SPAM -- the FTC says that refer-a-friend has to comply with CAN-SPAM if the feature’s purpose is commercial and if there’s compensation of any kind, including nonpecuniary, or if the company affirmatively urged the sender to refer-a-friend.

There is lots of law enforcement scrutiny in the social networking space, including from the FTC and the states, especially surrounding children and age verification. Budweiser recently launched BUD TV, and they had a fairly robust age verification mechanism looking at drivers’ license records, but state AGs didn’t think that was adequate and sent a very nasty letter. There are also relevant state legislative proposals that would require parental consent before people under 16 could join.

Q: How can you avoid fraud by a 14 year old kid?

A: It’s a big problem. The FTC has specified certain procedures under COPPA. Some states feel that more is required, or should be for the 13-16 group for whom COPPA doesn’t apply. No one has a perfect solution. The Progress & Freedom Foundation has a recent report; the states haven’t figured out what to require. It would be a good business model for a company that solved the problem.

Continuing, what about product promotion by consumers? Consumers can talk up your product or trash it. There have been actions against bloggers for posting unfavorable information – more than 50 by corporations and individuals. One recently went to trial and resulted in a verdict for the plaintiff, a lawyer who’d been defamed by a former client. There are a lot of legal issues, including procedural issues: a court in Pennsylvania recently refused to require Yahoo! to disclose the identity of anonymous posters before the plaintiff made a prima facie showing of defamation. It’s important for companies to monitor what’s going on in the blogosphere.

Q: What do you do with a consumer who’s a loose cannon, making false/misleading statements?

A: You need to make a business decision about taking action – it could lead to more publicity. If a consumer were to get hold of a trade secret, you might have to act.

John Villafranco, partner, Kelley Drye Collier Shannon: Blogging dos and don’ts.

By late 2006, 8% of Fortune 500 companies were blogging. There’s no doubt that regulators and competitors are monitoring your blogs. You need to make a clear decision on whether the compnony will sponsor and/or host a blog, or several, and what the objectives are. Just because other competitors are doing it doesn’t mean you should. Are you prepared to keep it current? There’s nothing worse than a stale blog.

You need to implement a clear policy on employee blogs, especially senior employees. What type of conduct is acceptable? How will the company respond to troublesome postings?

Chances are, many of your employees already have blogs. Make sure you know what your employees are saying about your company, and that they’re abiding by company policy. One guy talked about what it was like to work at Google day to day; he meant it for friends and family, but it became more popular than that (60,000 visitors/day). His superiors were concerned, and initially asked him to remove some information they considered sensitive; then he was fired. He believes it was directly or indirectly related to the blog.

Train employees on how to comply with all applicable laws and corporate policies before they blog. (Good luck on the securities laws!) It’s no different than any other medium.

Disparaging statements about competitors are a favorite pastime on blogs, and both regulators and competitors will be watching, so keep an eye out for that too. When possible, avoid negative postings about competitors. Train employees to post content that’s unlikely to trigger tort suits and, if it’s factual, content that can be substantiated. If you can’t say it in an ad, you shouldn’t say it on the blog. (Comment: some Lanham Act cases have distinguished between formal and informal communications in determining the extent to which a reasonable consumer would treat a statement as factual or puffing.) Frequently, in a defamation action, the plaintiff will go after the company as well as the employee.

Individual employee disputes are also often aired on employee blogs, and you should try to intercept and resolve it internally. This is a real liability trap!

Be mindful of IP and train your employees on requirements, including fair use.

Compliance with security disclosure laws if they apply to your business. Watch out for failure to include appropriate cautionary language when you make a forward-looking statement. Watch out for material nonpublic information.

Monitor postings periodically to ensure compliance with the policy, and take actions against noncompliance (for example, when Microsoft was embarrassed by photos of Macs arriving on a Microsoft loading dock). Retraining can be a solution, not just firing.

Consider how a corporate blog will affect the company’s discovery and document retention obligations. You need a method to archive material.

Assign authors and identify responsibilities before launching the blog. For some companies, this is a full-time position.

Don’ts: Jessica Cutler’s blog Washingtonienne about her many affairs in DC. This resulted in the firing of the blogger who made Cutler’s blog popular and a defamation lawsuit against Cutler.

Don’t hire bloggers to say great things about your products or services without ensuring disclosure. A blog about people who slept in RVs in Wal-Mart parking lots turned out to be Wal-Mart-backed, and generated a lot of bad publicity.

Don’t allow employees to vent personal grievances; don’t permit them to publish trade secrets or patentable information – this requires training since they might not know what that is.

Before disciplining or firing employees for inappropriate postings, make sure you have a clear policy. Sun, IBM and Yahoo! all have excellent corporate policies that are easily modelled.

Q/Comment: Cyberspace/multimedia insurance is now available. The insurance policy is itself a good guide to the due diligence you should be doing.

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