Friday, June 25, 2010

PLI hot topics in ads: PIs and endorsements

PLI Hot Topics in Advertising Law 2010

Provisional Remedies: TROs & Preliminary Injunctions in Advertising Cases

David H. Bernstein, Debevoise & Plimpton

Defended the presumption of irreparable harm after a finding of false advertising. Consumer surveys to show harm take time and huge amounts of money while the damage is ongoing. What about eBay? Unlike patents and copyrights, there’s no concern for monopoly with the Lanham Act; the concern is to protect consumers and source-identifying functions of marks and the public interest is on the side of a plaintiff who has shown likelihood of success on the merits.

11th Circuit has addressed this in the Axiom case—use of TMs in metatags. The real problem was that metatags are useless and have nothing to do with actual search engine practice; nevertheless, relying on old caselaw, the district court enjoined the use. On appeal, the 11th Circuit said the presumption of irreparable harm was no longer applied under eBay. The Supreme Court was concerned with categorical rules, but a presumption of irreparable harm stemming from likely success on the merits is not a categorical rule. Burden is on the defendant to rebut the presumption and show that monetary relief would be sufficient or some other defense.

DirecTV case as an example: 2d Circuit continued to presume irreparable injury after a showing of success on the merits; a few cases are beginning to question this. Footnote in Salinger suggests that eBay would apply to injunctive relief in all cases, not just TM/false advertising. He disagrees that this is appropriate—eBay was about categorical rules: patent trolls don’t get injunctions (in the district court) and patentees get injunctions (in the Federal Circuit). When there’s likely success on the merits, the defendant should have the burden of rebutting irreparable harm. (Why wouldn’t this also have applied in Salinger?)

Where does this leave us? Be prepared to show evidence of harm, but that’s a two-edged sword. In the Mylanta Night Time Strength case (with which I was involved when I was in practice), he came in with evidence of lost sales, but a court might say that this ensured that the harm was measurable/compensable in money damages. Hard to explain how the loss of goodwill will hurt the brand over time.

Hon. Denise Cote

Litigating preliminary relief: judges like IP cases, especially trademark cases. They’re fast-paced. They’re intellectually engaging. Give judges some insight into the real world—learn about the details of each business/industry. Also important public policy ramifications. And generally it’s a very skilled bar, which is a pleasure.

TRO: be prepared to work night and day because of the timeframe. If you have a strong case on the merits, the main question is laches. The court will want to know why it should issue an injunction, now, before discovery and a fuller hearing. If you’ve just discovered this problem and it’s critical to your business, you have a better case for a TRO compared to if the problem has been out there for a while. Don’t just do it to educate the court; you might be educating the court that you can’t be trusted if you don’t have the full facts. However, you might be able to convince the court, even if it doesn’t grant the TRO, that it’s a close call deserving an expedited schedule.

At the first conference, TRO or not: come knowing about what kind of discovery you want, with the understanding that you’re likely to face an expedited schedule and you can’t overburden the other side; the same will happen to you. Think about cost. Impressive if you can immediately serve your document requests and interrogatories. Shows seriousness on sides of both plaintiff and defendant. Have to make a decision about a survey early on too. If you decide to survey, be aware: (1) the design is the most critical component. (2) Courts are far more sensitive today than 10-20 years ago to scientific principles; control is the key component though there are others. Even if the judge doesn’t have an explicit requirement, try to resolve any disputes with your opponent before going to her.

At the PI: don’t forget to think about admissibility for exhibits—you need a stipulation, witness, or other hook. Witness preparation: some judges use direct testimony by affidavit. Many advantages to that for attorneys and parties. Concise and accurate; allows judge to prepare for the hearing. Make sure it’s the witnesses’ voice the judge listens to, not the lawyers. The advocate has to ensure precision; the witness can be hurt by imprecision or inaccuracy and that can undermine the entire case. Is the witness testifying to direct knowledge? Prepare witnesses for questions they’ll likely get/documents they’ll likely see.

Don’t assume that the judge will stop with the briefs. Cite relevant circuit law; you’ll lose enormous credibility if your citations don’t check out. If there’s a district court opinion that is really factually similar, it’s helpful to discuss that too. Also be familiar with your judge’s jurisprudence in this area and feel free to cite them; address them if they’re against you on certain points. If you’d like the judge to read your document, make it accessible—don’t package a brief with three feet of affidavits—make it portable.

Salinger: Judge Calabrese did suggest that the PI standard has been changed across the board. The four-part test will replace the simple two-part test of likely success and irreparable injury. Before a court, whatever you are arguing, you are probably advantaged by saying that you aren’t afraid of the four-part test and that you win under it without a presumption of irreparable harm. She reads Salinger to suggest that the things we used to talk about as underlying the presumption of irreparable harm are alive and well in talking about the existence of irreparable harm even in the absence of a presumption: a loss to goodwill from false advertising or the existence of market confusion; difficult to measure or replace. First Amendment rights can also be useful to establish irreparable harm. Always helpful to a litigant, whether or not public interest is part of the standard, to be able to make a public interest argument in the context of a request for an injunction, which is after all an equitable remedy asking for judicial intervention.

Reminder on the skill of listening: you may think you know how a witness will answer a question, but that might not happen. Thinking about the next question may lead you to assume that the record is one way when it is missing facts or containing ones that hurt you. Likewise, listening to your adversary’s questions and witnesses: your best insight into their strategy for further witness prep/later argument is to listen to cross-examination. And listen to the court: the court may be confused/may not understand everything that’s been given to it in writing.

If you’re allowed posthearing briefing, ground the court in the record and the relevant law: make it easy for the judge by citing the transcript/exhibits. Acknowledge bad facts and give the court reasons to reject their relevance. The most effective advocates establish their own credibility before the court with preparation and respectful advocacy.

On discovery: judges do consider cost in these disputes. You should only have to do one search in a case, and it should be narrow/targeted in time and with respect to the number of custodians. Consider whether you want electronic discovery at all. Don’t be shy about talking to judges about the cost and burdens of discovery; we’re supposed to think about efficiency and burdens on the parties. If there’s disparity in means, that’s fair to talk about. Best way to do it: “We want to cooperate and these issues are important to us, but we can’t afford what’s proposed; here’s what we think are the core issues. Discovery limited in the way we propose can address the matter while protecting everyone’s interests.” Give suggestions about controlling costs. She doesn’t think counsel are aggressive enough about raising this issue—why do we need all these depositions? Ten, allowed as a presumption by the rules, shouldn’t be your starting point—think of it as an endpoint.

Bernstein: Discussion of failure to send a hold order at the outset of litigation as a problem risking sanctions. In the rush to a PI, litigants can forget two things that come back to haunt you: first, suspend electronic deletions using a litigation hold notice; second, check to see if you have advertising injury insurance coverage. In some districts, this covers TM. Give your client notice right away so that it can inform the insurer right away.

The FTC Guides Concerning the Use of Endorsements and Testimonials in Advertising

Randi W. Singer, Weil, Gotshal & Manges LLP (moderator)

Thomas A. Cohn, Venable LLP: The guides date to 1980; in effect 27 years before the first review even began. They aren’t rules or regulations.

Why do we care about endorsements? Advertisers regularly use them to make a more memorable or effective claim about the product/service. For the guides to apply, the endorser has to be acting on behalf of the advertiser—it must be a sponsored message.

General rules: if the endorsement represents that the endorser uses the product, that has to have been true at the time, and the ad can be run only so long as the endorser uses the product and so long as the advertiser has good reason to believe that the endorser still agrees with the endorsement.

Substantiation: “results may vary” or “results not typical” safe harbor has been eliminated. Ads containing testimonials/endorsements are treated just the same as other ads: based on the net impression consumers take away. Key: how would an endorser’s experience be interpreted? As a measure of results themselves users would likely get? Remember that likely doesn’t mean always. Also, “results may vary” isn’t banned, its effectiveness just depends on what consumers would think.

Example: endorser describes her huge weightloss detailing extreme diet and exercise regime. Saying “using diet and exercise, I lost 110 pounds” wouldn’t be enough, but “eating only raw vegetables and going to the gym for six hours a day, I lost 110 pounds” would be enough. If consumers can’t expect to get the depicted result in the depicted circumstances, then the results they can expect must be clearly and conspicuously disclosed: no more pictures with “I lost 50 pounds” without a disclosure that “most women who use the product lose 15 pounds.”

Points to remember: not every ad will convey a typicality claim. Go with more general/diverse results rather than extreme, atypical example. Or you could narrow or specify the population from whom the testimonials were chosen: focus on the depicted circumstances.

New media: disclosure when the connection is one the consumer would not expect and where the connection would materially affect the weight or credibility given to the endorsement.

Singer: Lifestyle Lift—company told employees to go out and put comments on message boards about how good the company was, without disclosing the connection. Those are the things targeted.

Cohn: the disclosure rule applies to new media and old media.

Qs he gets: why are bloggers being treated differently than offline reviewers? FTC says that for traditional media reviews, those subject to assignment/oversight by independent editors aren’t endorsements. The rule is the same if there’s a direct benefit from advertiser to reviewers; we do know that this happens offline, so maybe there are endorsement issues there too. Main point: both blogger and advertiser could be held liable, but what the FTC really expects is monitoring. Advertiser has duty to establish procedures to monitor that the blogger discloses and avoids false/unsubstantiated claims. Advertisers are liable for the actions of the bloggers they support. His fuzzy crystal ball: within a year, we might start seeing the first FTC enforcement action in this area, and it will be slam-dunk/low-hanging fruit situation that goes after an advertiser who is doing no monitoring.

Richard L. Cleland, Assistant Director, Division of Advertising Practices, Federal Trade Commission

We’ve been doing education and not actively looking for law enforcement targets, but don’t ignore those when they come along. Only one case has been dealt with under new guides, Ann Taylor Loft—resulted in a closing letter with no further action. Bloggers invited to attend preview of summer 2010 fashions, and told that if they posted about the event within 24 hours of the event they could win up to $500 in a gift card. Some attempt at the event to tell bloggers to disclose; some bloggers did disclose. FTC’s view: under the circumstances, material connection needed to be disclosed. Closed the investigation because this was a single, not-very-well-thought-out event attended by a small number of bloggers; before FTC notified the company of the investigation, it had already changed the policy for future events requiring that gifts would always ask bloggers to disclose. Two years from now, this might not get a closing letter—we may think there’s been enough of an educational period.

There’s some investigation underway in this area; expect some announcements in the near future. Earlier this week, we posted FAQs on the FTC website. (You can ask more questions of

Ask two questions: First, is there a sponsored relationship between the company and the blogger/individual? That can be created in any number of ways—direct payment, free merchandise, free trips. Free merchandise is sometimes a little difficult, depends on circumstances to see whether there’s an expectation of future benefit from continuous receipt. If you’re handed a free sample in the grocery store, the purpose is to get you to try the product, not to get you to go blog about it, so there’s no sponsorship relationship. (Do my free LibraryThing review copies count? I don’t necessarily expect future books from any one publisher, but LibraryThing notes that posting a review, good or bad, of a book I’ve received through the program enhances my chances of getting picked for a future free review copy. Of course I always disclose that I got a free review copy!) Is there a de minimis threshold—a benefit so insignificant as to not effect the credibility of the consumer, like a $1 discount? That might work to get the FTC to withhold prosecutorial discretion; depends on the full circumstances.

Second, are consumers confused/misled? May be easier to answer than question one.

Low/zero tolerance: employees promoting products without disclosing. Same with ad agencies promoting for their clients without disclosing.

Celebrities: where celebrities are presenting their own opinions, it’s endorsement v. acting as spokesperson. Where there is endorsement, celebrities need substantiation; if they don’t have it, we believe they are liable for injunctive and monetary relief. Generally, you don’t need to disclose sponsorship in traditional ad formats: people expect celebrities to be paid for that. But going outside that—Twitter, Facebook, late night TV—a disclosure needs to be made in those situations.

What kind of disclosure? We haven’t dictated anything in particular.

Affiliate marketing: hot buzzword. A number of investigations in this area. For legit marketers, questions arise where they have a link on a website where they get commissions for purchases made through the link—does the link need a disclosure? If they’ve disclosed in the endorsement that there’s a connection, then the link to purchase doesn’t need another one, but if there’s no disclosure, then the commission should be disclosed.

We’re most concerned when something doesn’t look like an ad but in fact is. The more it looks like an ad, the less of a need for additional disclosure.

These programs are set up as marketing tools for the advertisers, and as such we think the advertisers are accountable for the risks created. If you use this, you need adequate training for what people can or can’t say; you need a reasonable monitoring system in place, which you probably want to do anyway for trademark and other issues. If you’re selling an important healthcare product, we think that probably requires closer monitoring than if you’re selling handbags. Finally, if there are abuses, have you followed up on them?

On substantiation: the main thing we did was to wipe out the presumptions about typicality disclaimers, and it now depends on the net impression conveyed by the ad.

Rhonda Joy McLean, Deputy General Counsel, Time Inc.

Ann Taylor gives questions to ask your clients. Is it going to be one time only or ongoing? We are dealing with hundreds of thousands of bloggers all over the world; impossible to think we can really control them. But we need a policy for what they should know about what they should say to their readers. Often bloggers want a material connection even when there is none.

Bloggers who blog regularly, but not just about us—what is the nature of the communication that might be questionable? Is this just opinion/rants? What would a reasonable consumer think was happening here?

Only a small number of bloggers participated in the Ann Taylor showing. If you have a 50-city event, you need disclosures in every place plus you need an electronic trail that it was distributed to bloggers, on your website, on your message boards, anywhere you need it.

Regular monitoring. What do you do if you find nondisclosure? Our marketers often have relationships and can let bloggers know—don’t want to be slamming people in public. Her guideline: unavoidable disclosure—it shouldn’t be easy for someone to come to your site, participate in your event, or read your content without knowing what your expectation is for them. Transparency: clarity on the nature of the connection.

Example from Teen People: Proposal to send out a letter from EIC’s 16-year-old’s daughter. Isn’t that a problem? Would have to disclose who she is; the marketer thought this was surprising. Compromise: used the letter, beginning with “my mom is the EIC …” Disclosure doesn’t kill the promotion. Clear, clean, transparent: who does the consumer think is speaking to them?

She’s finding that bloggers are being very aggressive about soliciting business—they want points/sweepstakes for delivering site visitors/subscriptions. Make sure bloggers are making their disclosures visible—no brown text on black (an example she’d seen). Make disclosure easy: if bloggers say “I got this from the company; here’s how you can too!” or something like that.

Q: would it have been better to put the disclosure request in the Ann Taylor invitation?

Cleland: the invitation was problematic—wouldn’t be fixed with a magic sentence. If you suggest they can get a gift for blogging, you need to say they have to disclose. (I think he’s suggesting that you should make it a condition of getting entered into the gift drawing, which was something I was wondering about. Maybe LibraryThing should do the same as a condition of giving me credit for the review, or even hard-code in some signal (since they do track which books I got through the program) so that they wouldn’t have to rely on my disclosure.)

Q: section for blogging by American Idol contestants. An AI contestant blogs about the Ford he got from Ford on a Ford-sponsored website. Disclosure required?

Cleland: Depends on context, but would want disclosure.

Singer: what if the contestant blogs on her personal blog?

Cleland: Disclosure needs to be accomplished in some way! Think about use of individual Twitter feed. It doesn’t matter if most of the people know about the relationship; would a significant number of possible viewers be unaware? (Even if the biggest fans know the relationship, you can’t ignore the casual fans.)

McLean: We have shortened urls so that you can do sponsored tweets with more clarity. We are also thinking about disclaimers/disclosures on the wallpaper of our Twitter accounts, other measures. She worries about inviting people to tweet recipes to one magazine’s account; ordinarily they test recipes or warn people that they’re untested; never occurred to the folks at the magazine that there was any danger in posting unvetted content.

Cleland: we’re not looking to play gotcha, but don’t be the low-hanging fruit.

No comments: