Wednesday, March 16, 2011

ANA part 2

What’s Happening in Washington
Dan Jaffe, Executive Vice President, Government Relations, ANA

It’s within our power to affect how present challenges are resolved. Ad tax proposals: they come at times of economic distress, and politicians don’t treat them as increases (because they are usually attempts to limit deductibility/require amortization either of ads in general or of certain types of ads).

Do not track/behavioral advertising. It’s done anonymously and by machines, not creepily tracking individuals around the way congressional representatives think. Self-regulation allows opt-outs even of anonymous tracking. Scare statements that anonymity will only exist if it’s mandated are mistaken. Cookies are useful for many things other than tracking; help keep the same ad from being shown over and over again, for one thing. Killing tracking cookies on the internet will kill the internet, and it’s our job to educate regulators and legislators because they still don’t fully understand.

David Vladeck was blunt: FTC statements in regard to online behavioral advertising were directed to put industry’s feet to the fire, accelerate online self-regulation. It’s up to us to win in the marketplace or face the legislative response. Please go back and see that your companies are involved in self-regulation; overly restrictive legislation is otherwise almost inevitable.

Key law on sale of doctors’ prescribing histories for use in marketing—most significant commercial speech case since Nike. Is this an economic practice or an inextricable part of commercial speech? SG and 35 state AGs have weighed in claiming that data mining does not merit First Amendment protection. If it’s primary conduct, not speech, then the ability to develop data to provide targeted ads will be profoundly eroded. (RT: If legislators then restrict such collection in other circumstances.)

Sixth Circuit also considering appeal of challenge to tobacco law; lower court struck down ban on colors and images in ads but let the warning label requirements stand. The government has gone way too far and is violating fundamental First Amendment norms. Proposed FDA pictures: graphic and gruesome pictures required to be placed on every pack of cigarettes. ANA agrees the government can require neutral and factual disclosures, but anyone can clearly see that the proposed warnings are not neutral or strictly factual: non-neutral and emotive words and pictorial disclosures. (RT: I am writing about the use of images in law right now!) This violates the First Amendment; may take up 50% of the pack; if upheld, will not stop with cigarettes because the justification is that images are the only/best way to reach children. (And part of what I’m writing about is this: images seem to work better than words; this is a key source of their danger and their power—note the connection between images, emotion, and effectiveness.)

Another issue: who is a child? Ad industry: under 12. Concerted effort to expand this to anyone under 17. Especially critical with food/beverage advertising. FTC is also considering expanding COPPA, which applies to those under 13. SCt denied cert on a case upholding ban on alcohol ads in college newspapers even though the majority of students are above drinking age. Leaves a circuit split, because the 3d Circuit (Alito) held the contrary. Treating near-adults as little children.

“Your own safety is at stake when your neighbor’s wall is ablaze.” Not just a food industry issue. (RT: He almost sounds like a union member.)

Q: How do we deal with bad actors through self-regulation?

A: we may never be able to get 100% agreement, but that’s also true with legislation. Major ad networks, advertisers, and educated consumers looking for our icon can improve the situation. 90% of major markets will be enough for the legislators.

A Word From Our Critics
Margo Wootan, Director, Nutrition Policy, Center for Science in the Public Interest

Of course the goal of food marketing is to change children’s preferences. You wouldn’t do it if it didn’t work, and studies show marketing influences choices and even the whole way they think about food. Parents say no over and over and over again. The problem is that the types of food marketing to children are very different than the kinds of food they should be eating.

Concerned about characters used to market food, not just in advertising but also in other ways—on the food packages themselves. On-package marketing is key for kids. Snack brand books: addition with Hershey’s Kisses—brilliant marketing. Marketing via cellphones: mobile games, ringtone and wallpaper giveaways, text-in trivia contests and sweepstakes—good to cover this with self-regulatory guidelines. Companies’ own websites with products incorporated into advergames and marketing on third party websites; marketing on toys, where brand is incorporated into the toy—picture of Barbie’s McDonald’s toy set.

TV ads on Nickelodeon for foods of poor nutritional quality: compare 2005 and 2009, no real progress. With self-regulation, we saw the first change in the mix of products marketed to kids—some promise, but very disappointed with the extent of that promise: before self-regulation, 90% of the food ads were for foods of poor nutritional quality, but after all companies’ pledges were in full effect, 80% of the ads were for those foods.

We analyzed 120 companies: food/beverage, entertainment, etc.—75% earned an F, mostly for having no policy at all on marketing to kids. Food companies were most likely to have a marketing policy: 2/3rds. Restaurants/entertainment companies: only ¼ have policies. Some companies say they don’t market to kids; many of them don’t do major TV ads during children’s programming, but they have marketing in other ways—branded fundraisers in schools (Pizza Hut’s “Book It” program that promotes pizza more than reading), children’s menus, character marketing, and so on.

The majority of pledge-approved products (60%) don’t meet third party standards. People favor their own product portfolio: cereal companies have good sodium standards, but lax sugar standards, whereas McDonald’s has decent sugar standards but no sodium standards. Our standards are modest and consistent with others’; it’s just that the individual standards favor the company.

Key failure of self-regulation: in schools. A lot of work addresses food sales in schools; companies have responsibly agreed not to sell unhealthy products through vending machines and a la carte. But various kinds of sponsorships/ads aren’t covered; too much in-school marketing is ignored. Also, the self-regulation only covers elementary schools. At the very least, companies should be covering middle schools; average 6th grader is 11 years old. Also need to apply to high schools. Schools are a special place: taxpayer funded, supposed to be teaching and modeling healthy eating; parents aren’t there to supervise choices.

Another gap in self-regulation: on package marketing, covered by very few companies’ policies. It’s 2nd or 3rd largest category of marketing aimed at kids. Directly creates parent-child conflict in inappropriate ways. If it’s up to parents to say no, then market to parents; if you market to kids you interfere with and undermine parents’ ability to feed their children. Related merchandise: characters on cereal bowls and T-shirts, etc.

Entertainment companies: 80% have no marketing policy, and those that do usually (50%) just address the use of licensed characters.

Basic groundwork for self-regulation is laid. The policy could work, but it’s not working. All companies need to have a marketing policy; nutrition standards need to be consistent; it should cover all marketing—on packages, schools; need a strong and consistent definition of kid-targeted marketing (sees movement forward on this last).

Q: teenagers?

A: Practically, teenagers are watching what adults are watching; schools will be covered by guidelines but probably not other things like TV (though there might be cellphone etc. teen-specific marketing).

Q: any rumors about when new guidelines will emerge?

A: probably in the next month or so, but no promises.

Q: As proposed, guidelines would wipe out a great deal of advertising—only 100% fruit juice would be allowed; no peanut butter and jelly, some yogurts would be barred. Is this too stringent?

A: I don’t know anyone actually marketing peanut butter to kids. The standards were rough in draft, but we did take those standards and compare all the pledge-approved/self-regulatory products. About 25% met the standards as written. 50% couldn’t be analyzed because the draft standards weren’t clear enough—didn’t have meal standards so whole meals couldn’t be evaluated. If the standards were extended to meals, many products marketed to kids would be okay.

Q: should the proposals be extended to restaurants, not just supermarket standards?

A: FTC said very clearly that it would have meal standards. They have to be tweaked; couldn’t extend them directly the way they were written. Only certain food categories were allowed—fruits, vegetables, whole grains. That’s not the way she’d structure the standards; CSPI has its own recommendations available on its website: any food marketed to kids needs a positive nutritional benefit, either from an under-consumed food group like fruits/vegetables or from nutrients missing from kids’ diets. This would lead to a lot more foods being included.

Q: Disney has been doing interstitial messages to kids about what’s good to eat. Can we reinforce those positive messages and promote them to other companies as a way to promote the brand?

A: we do look at positive steps. Not many companies have any data on how their PSAs affect eating habits, so we don’t know the impact. We don’t count that as making up for lots of ads for unhealthy foods. Disney’s nutrition standards are strong for the main channel, but not on Disney XD, which lacks the PSAs as well as having the bad foods advertised. Nutrition PSAs: can’t have an educational message about sugars without addressing drinks—telling them to read the label of regular foods for tiny amounts of sugar is almost doing more harm than good; ketchup is not a problem for kids—it’s drinks and desserts.

Q: do you ever worry about the effects of these arguments on things like gun control and abortion? (RT: Do you ever worry about the effects of these arguments on things like underage drinking or taxation? After all, if the government can take 1% of my income, couldn’t it take 100%? If it can ban 12-year-olds from drinking, can’t it ban all of us?)

A: she doesn’t believe in slippery slopes. Congress accepts an argument in a particular fact situation. She has no professional opinion on gun control, but if banning one type of gun is reasonable and another isn’t, you support the reasonable one and oppose the unreasonable. Food marketing is different. You’re marketing to children. You should do it in a way that doesn’t make them sick and undermine their health. After smoking, obesity and nutrition are the major contributors to disease. I’m asking you to be responsible. If we give up on self-regulation and ask the government to step in, we then have to ask whether marketing to kids is inherently deceptive.

There are reasons to focus on food marketing to kids that are unique to them; doesn’t mean consequences for teens/adults.

Q: He’s seen a report that eating anything for breakfast, even cereal, decreases the chance of obsesity.

A: of course kids should eat breakfast. She’s concerned with the specific cereals, and the sweetness. American kids are being acculturated to eat supersweet.

Collateral Consequences
Ron Urbach, Chairman, Partner/Co-Chair, Advertising, Marketing & Promotions, Davis & Gilbert LLP

Class actions: the modern-day boogeyman.

Jerry Karnick, Associate General Counsel, Marketing and Consumer Law, Verizon Wireless

We want to solve problems with our competitors’ ads; we don’t necessarily want to go to court. Develop good relationships with competitors’ legal departments to resolve potential ad issues informally. Sometimes ads get run without going through the legal department—this happens all the time; can resolve it in-house. Good relations mean you can present the facts/claims to the other side and stay out of court.

Lanham Act: when you do need immediate relief. Be aware that once you sue/are sued, you can’t control the press. Are you willing to take that risk?

Regulatory attention: regulators are generally looking out for our consumers; there is an opportunity for dialogue, education on what’s going on in the industry, etc. Not the same with plaintiffs’ lawyers where you’re not sure where the interest lies.

NAD: much more limited relief, no discovery—but less disruptive for clients, also private. There are times when you want to depose the other expert, and he’s been happy with how the NAD deals with these situations. People want to keep their credibility with the NAD because they are repeat players. In his industry (wireless) there are also industry self-regulators that help avoid a scorched-earth policy. The same people you may have an ad dispute with are the people you may be side by side with on a regulatory issue.

Urbach: recent FTC actions in substantiation: Danone, Kellogg’s, Pom, etc. Importance: some of you may think that the FTC actions don’t apply to you because you have sophisticated inside and outside counsel and you review data. The days of thinking that the FTC and the states are focused solely on the issues of fraudsters and scammers are (if they ever existed) gone. Consider yourself a potential target.

Karnick: Focus on health, safety, privacy, digital media/innovative practices—and we’re all engaged in those these days.

Urbach: class action counsel are fundamentally focused on the fact of making a lot of money. There may be a benefit to consumers, but in many cases they don’t care about effecting change, just about making money. Result: may not be as concerned with prospective relief, which may be either a positive or negative. Positive: opportunity to resolve issues; negative: may not understand the business and may ignore good solutions.

One case: Cohen v. Windsor Fashions: violation of Cal. Privacy law, lawyer paid $125,000 in gift cards—this was overturned on appeal though. CAFA: greater scrutiny of settlements, particularly coupon settlements.

Advertisers can manage PR around settlements with regulators. While accepting that lawyers aren’t PR agents, have some input—timing, exposure, characterization (though you can’t necessarily control it). Some class action counsel monitor FTC/regulators’ reports, but it’s the ones that go to the general media that attract the attention of lawyers.

Class actions can also stimulate regulatory actions—Dannon was originally a class action and then the FTC brought an action. NY AG intervened in a class action in Massachusetts against Webloyalty to ensure full refunds; previously only 2 months were provided.

Consumer class actions increased 172% between 2001 and 2007, in part substituting for securities litigation. 28% of all federal class actions. Challenge major companies—Apple, Google, Facebook—on major issues, from privacy to health benefits. Facebook’s been sued for right of publicity violations; Pineda v. Williams-Sonoma, Cal. SCt ruled that retailers can’t ask for zip codes from consumers. Zip was used to derive information about the individual and market to them.

Karnick: industry implications—class action against another has meaning for you. Now we put arbitration/class action waivers in our agreements—we’ll even pay for dispute resolution, but don’t bring class action lawyers in. This increases complexity of the agreement and interpretation thereof (and may not be valid in the 9th Circuit).

Urbach: plaintiff-friendly states: California, with Kwikset case. E.D. Tex., difficult to deal with patent filings there—less educated jury pools allow plaintiffs’ attorneys to overstate the rigors and complications of patent process, plaintiffs win 78% of the time, 20 points over national rate. Alabama is plaintiff-friendly but possibly on its way out; regulators have moved in and out of class action counsel status. Defendant friendly jurisdictions: federal court.

Private state AG actions: this is something you should focus on. AGs in some states can appoint private class counsel to litigate a regulatory matter. There is no class certification process; no set class because it’s on behalf of all citizens; no requirement of notice to absent class members. This happened in tobacco cases, where they needed expertise of outside counsel. Complex cases/subject matters in which AGs are not experts. Budget cuts have hit AGs’ offices. Can appoint their friends and the state gets a piece of the action at the end of the day. “Offshoring” regulatory action.

South Carolina AG appointed three private firms to represent the state against Eli Lilly in Zyprexa litigation. AG has broad discretion and power to hire counsel on contingency fee basis. Vacco v. Phillip Morris (1997): NY AG hired firms that made big donations before and after. Private attorneys were major contributors to state AGs in several states. Cases in California and Rhode Island have been critical of government contingency fee arrangement—unconstitutional/against public policy. George W. Bush issued an executive order banning contingency fee arrangements with outside counsel. (I guess privatization has its limits, outside the battlefield anyway.)

Karnick: bigger risk to companies—make sure that any injunctive relief is something the company can deal with. Also try for a time limit on regulatory/settlement injunctions—doesn’t make sense to be bound forever given how business environment changes—suppose your agreement requires paper disclosures or something like that.

Urbach: conversations with executives—do you really want to sue (under the Lanham Act)? Sometimes they say “but you don’t let us say X”! Regulators also need to understand the psychology of executives; once they sue, they may be in for a fight.

Making The Case For Self-Regulation In Regulatory World
Lee Peeler, President and Chief Executive Officer, National Advertising Review Council (NARC)/Executive Vice President, National Advertising Self-Regulation, Council of Better Business Bureaus (CBBB)

Children’s Food & Beverage Advertising Initiative: how industry can come together to address concerns.

Last year, 10 cases were referred to the government; 95% were resolved voluntarily, including when they involved ongoing advertising that was hard to change.

New self-regulatory program for online behavioral advertising: 7 principles agreed to by broad cross section of industry in 2009. We focus on transparency and consumer control. OBA is data collection over time and across websites. If you just collect info on your own website and use it to serve ads this definition doesn’t apply to you. Coverage is relatively simple: if you serve ads based on behavioral data or collect it, you’re covered. If you run a website on which this occurs, you’re covered.
Advertising option icon with information for consumers: clicking on it gives info on what’s collected and an option to opt out. CBBB and Digital Marketing Ass’n will monitor/offer compliance guides. CBBB has a new director for interest based advertising accountability; contract with Evidon to provide monitoring data; initiating enforcement procedures.

(I had to take a quick phone call and missed some of the details on the ad choices icon, spilling over into the beginning of the next presentation.)

Stuart Ingis, Partner, Venable LLP

Big push on consumer education about the icon. Consumers can opt out of some or all participating companies’ online ads. Working with European regulators to see if this program is extensible overseas. Issues with identifying people: you know the browser, but you don’t know who’s using it (a child?). Issues with definition of health/other sensitive data. New principle: demystify concerns by making sure data used for online behavioral advertising (OBA) won’t be used for eligibility for employment or insurance.

Scott Meyer, Chief Executive Officer, Evidon

Monitoring and compliance: done with panel data (300k participants), automated compliance checks, and privacy database tracking more than 500 companies looking at consistency of data collection and use of privacy policies. BBA and DMA will be the ones evaluating the data for compliance. Have no financial interest in media sales. We work with a large number of agencies, advertisers, and networks.

Q: how will opt-out work when the data company never has direct contact with the consumer?

A: The reality is that’s where the data resides—in the third party. The key is in how you explain it to the consumer. Have to solve the problem for Grandma, who’s just freaked out, and for a hardcore privacy geek.

In answer to Facebook Q: most ads on Facebook are not considered OBA because data’s all collected on Facebook.

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