Saturday, November 14, 2009

Buffalo Panel #3/New Forms of Advertising Regulation

Laura Bradford, George Mason Law: Sponsorship Confusion

Consumers would prefer more transparent information about sponsorship, but the market is underproviding because of agency and other costs. It’s becoming more and more difficult to tell advertising from organic speech—viral YouTube videos and so on. Search engine results: why do results come up first? More of an issue before Google.

Historically, we have TM owners police deceptive uses of marks. They have more incentive to watch the marketplace carefully. But seller interests in sponsorship disclosure diverge from consumer interests—an agency cost, if we are concerned with consumer welfare. The linkage of a product with a well-known brand tells a consumer that someone with a lot to lose has control over the product: Apple’s reputation sells iPods; McDonald’s reputation sells burgers. But then there’s sponsorship—95% of new product introductions are brand extensions, and cobranding is also on the rise, allowing each brand access to the other’s customers. McDonald’s and Disney market Happy Meals that promote movies and food.

Some buyers punish brands for affiliation—Converse was an indie sneaker, until it was bought by Nike and some buyers abandoned it. Now the Black Spot sneaker, produced by a family business in Portugal, intended to show distance from artificial sameness of mass production, and (some) consumers want this.

Sponsorship and affiliation affects consumer preferences and gives them information about unobservable qualities. Consumers are also interested in learning about compatible products that may not be sold by the TM owner; may want to compare; but they do get useful information from sponsorship. (This doesn’t seem to go to sponsorship of communications v. sponsorship of products and services.)

Sellers: want to preserve the value and meaning of their own marks. Sellers are hurt by lack of common language for disclosing affiliation. They rely on logos/distinctive typefaces to indicate sponsorship, which means that TM owners are forced to police uses in unrelated markets. And she means forced; had to advise clients that they needed to send threat letters even in unrelated markets in order to preserve the right to go after real threats in the future. They have to object when anyone, anywhere accurately depicts the mark/logo. This is a coordination problem: TM owners can’t get together to provide a common language. There’s also an agency problem, because some benefit from uncertainty. There’s no penalty for obscuring sponsorship, as with product placement or guerrilla marketing. Consumers are getting more wary, but that just means that the real harm is the ability to have and trust organic speech.

Another harm: this gives TM owners broad power to pursue other goals. Consumer uncertainty = TM owners can safeguard preferred distribution channels by alleging affiliation confusion, shut down secondary markets in used goods, prevent competitors from using brand names in truthful ads for compatibility or comparability, police brand image by suppressing objectionable speech, etc. Advertisers don’t fully share the costs to consumers of uncertainty and get offsetting benefits.

Since TM law creates the problem by assigning enforcement of consumer interests to producers, TM law should deal with that problem by creating a new mark to realign incentives. The new (s) symbol would indicate a licensed use, and they’d be entitled to current levels of protection against sponsorship/endorsement confusion. Those who didn’t do so would need to provide clear and convincing evidence of confusion and materiality. Asks sellers to stand by their choices. If they want freedom to engage in ambiguous strategies, have to allow others to do so themselves. Shareholder derivative lawsuits: plaintiffs’ attorneys are incentivized to find potential harms, but because of the agency costs—risks of meritless lawsuits—we impose a heightened pleading standard.

Three possible outcomes, all an improvement: (1) everyone uses the (s) mark. Affiliation becomes much more transparent. Everyone learns to recognize it. (2) No one uses it; advertisers want to blur the lines. Heightened standard allows more freedom for organic users. Advertisers who don’t like it can use the (s). (3) Inconsistent use, most likely. Consumers remain uncertain. But the availability of the symbol may change courts’ approach—organic use would be given more breathing room. We’d also get more revealed preferences of sellers—when sponsorship information is seen as critical and when less important, for example by industry.

Katyal: Sees how it would work visually; how would it work orally/in movies?

A: In a lot of cases, you see the logo, so it wouldn’t be that hard to have a little (s) next to it, part of the way it’s depicted in the scene. Consumers would learn it has significance, in the same way that some brand names are blurred out and that practice teaches consumers about legal significance of appearance.

My Q: Seems to me that use and recognition might not covary as she says in (1), which would have consequences for the regime. And I’m not sure how you’d have the current standard and the availability of the (s)—sounds like she thinks the existence of the (s) would change the standard, and wouldn’t it do so even if the plaintiff did use the (s), because the plaintiff would be challenging a use without the (s) and thus have a decreased likelihood of confusion?

A: Yes, she assumes consumers will learn, and that’s key to the regime. And she agrees that it would be harder for everyone to win. Consumers can learn to see the absence of a symbol as an absence of sponsorship, and that would lower the likelihood of success for people who use the (s).

Ramsey: Oral use? Think about how it works with things like trade dress, etc.

A: Needs to be worked out. (Audio disclosure at beginning/end?) That’s advertiser’s job, if they want the protection.

Q: Why not mark when it’s not sponsored and disclaim?

A: That’s kind of the law now. The burden is on the user to show nonconfusion, and that’s hard in context. There’s no easy language to disclaim sponsorship either. Federal Expresso coffeeshop—not claiming affiliation. Because names are seen as indicators of sponsorship, no easy way to say “we’re not affiliated,” and disclosures/disclaimers often don’t work.

Q: Wouldn’t it be burdensome to have all the logos around sports arenas add an (s)?

A: Not a big one, and if they find it burdensome they don’t have to do so.

Stauffer: proposed EU directive: product placement would have to be generically disclosed with a black dot on the screen. Could have a tone for radio.

Why are you confident this won’t be coopted by the antibrands as well? The Yes Men will use the (s).

A: Then they’re likely to be confusing!

Errol Meidinger, University at Buffalo Law School, State University of New York: Branding Corporate Responsibility with Marks of Rectitude

Margaret Chon just published a piece on a similar topic; he’s been talking with her. Home Depot execs came to their building and found a giant banner: Stop selling old growth wood! Using their logo, too. Home Depot protesters brought inflatable chainsaw to the parking lot: thanks for helping Home Depot destroy the world’s old-growth forests!

What should Home Depot do? Initially resisted getting certified, but ultimately adopted. Contestive branding: not just about the image, but the image is part of the regulatory regime being crafted.

Forest Stewardship Council: an example of corporate responsibility institutions. A set of institutions using activist targeting of corporate brands; standard setting institutions that accredit certifying organizations and attempt to balance North/South power. They certify products and communications. FSC is legislative: the certification requires meeting various criteria on biodiversity, monitoring, indigenous rights, and so on—looks like what a state would do except that no single state institution would be able to do it.

When Home Depot agreed, the Rainforest Action Network ran an ad in the NYT thanking them. Used the ad to attack other companies that weren’t yet on board.

Pour encourager les autres: After the Network turned its attention from Home Depot, it took only two phone calls to get Lowe’s to follow.

This triggers the growth of private competing certifiers—SFI, a US industry initiative for alternative “green” certification. Eventually, the industry coalitions turned into a worldwide certifier, PEFC. It’s a tournament of competing programs. He posits this has reshaped the forest policy arena, in which environmentalist- and industry-driven certifiers are setting global policies and NGOs and states are at the periphery.

Similar things have been happening in many other sectors: fisheries, organic, coffee, apparel, tourism, carbon footprints, energy efficiency, animal welfare, flowers, etc. He showed some beautifully designed logos, of which the Marine Stewardship Council was my favorite because of the checkmark integrated into the fish.

IP strategies: the Marine Stewardship Council tries to ensure the fish comes from a sustainably managed fishery. The policy is implemented through the logo, and shaped by the fact that it’s implemented through the logo. It’s registered as a mark in Australia, Canada, EU, Iceland, New Zealand, Sweden, Switzerland, and UK. Does license agreement with each user for a fee. On-product requirements: logo, plus statement about meeting MSC’s standards, plus chain of custody code number. MSC owns the mark but delegates the power to license it to MSC Int’l for IP purposes. Main concern is use by nonlicensed organizations. MSC denied its permission for use on a brochure attacking farm/acquaculture salmon—wants to give gold stars, not black marks. They are looking into a standard for aquaculture. They don’t allow any association with campaigns, and demand permission required for all uses.

He sees strategic concerns about future use of the mark ending up being a not insignificant inhibition on public speech.

Another element: certification wars: “Don’t Buy SFI: Certified Deception by the Same-old Forest Industry.” One entity filed a complaint with the FTC: there’s no chain of custody; it’s an industry organization; standards are deceptive because they’re not ecologically protective but littered with holes. (Reminds me of the “Animal Care Certified” case.) SFI filed a countercomplaint against the Forest Stewardship Council and the US Green Buildings Council arguing there’s too much variation in the standards—sometimes it can be certified if it’s grown in a lenient environment but not in another one; imperfect auditing/chain of custody. Also making antitrust allegations because the USGBC has accepted the FSC as the sole source for certification for LEED green building standards, with allegedly anticompetive effects. FSC also doesn’t admit prospective members who publicly criticize the FSC.

And then there’s the question of the WTO: the WTO gives presumptive validity to relevant international standards. One hope is that these standards will be absorbed into international law this way.

Competition for moral authority. NGO v. industry fight, NGO v. corporate. IKEA prides itself on buying FSC wood, but doesn’t display any FSC labels in its stores. Is that a problem, for IKEA to take green branding and put it into the IKEA label?

Ramsey: This is an area where nonprofits are offering up information—complicates the commercial speech account/claims that TM law should be limited to commercial speech. You mentioned prohibitions on use by campaigns: is that justified?

A: He doesn’t make a commercial/political distinction. Maybe it’s not so bad to disallow the use of the logo in political debate—you can talk about the Council.

Ramsey: but bloggers often like to have the logo there (heh).

A: If the point is to brand rectitude, to withhold the use of the logo is a little odd—making moral claims signified in a special way. (Well, just because they say that’s their rule, doesn’t mean it’s the rule by which bloggers must govern themselves, as I believe I am demonstrating—the moral claims are made by application to fish, not to blogs.)

Rebecca Tushnet, Georgetown Law: Ad Creep, Astroturf, and Other Challenges of the Attention Economy

I have a very rough draft in which I talk about my own crackpot theories of why ads are colonizing every aspect of existence. The bulk of the paper is given over to defending advertising law’s ability to follow ads where they go, even in the realm of user-generated content, subject not to First Amendment constraints but to §230. I argue that §230 does in fact prohibit liability for advertiser adoption of pure user-generated content, creating a possibility of regulatory arbitrage (since the user will be subject only to state-law defamation standards while the advertiser who “said” the same things would be subject to strict liability under the Lanham Act), and that we might want to think about revising §230 in this specific circumstance, though opening up §230 might be so risky that it’s not worth the cost. By contrast, I argue, contrary to Eric Goldman and in agreement with Paul Alan Levy, that the FTC’s new endorsement guidelines are fully compatible with §230, since they make the advertiser responsible for a blogger’s content based not on the provision of internet access (nor even associated payment/consideration for same) but on other agency principles.

Questions focused on what counts for the FTC’s purposes—not a free book, but a free Playstation—and aforesaid crackpot theories of how ads, like porn and protest, are in a dynamic of getting more and more extreme so as to overcome our exhaustion and ennui.

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