Marketing via Mobile Devices: Enforcement and Litigation Trends Melissa Landau Steinman

1. Marketing via Mobile Devices:Enforcement and Litigation TrendsMelissa Landau Steinman October 26, 2010

2. Mobile Marketing Overview One Overriding Principle: The Customer Must be in Control of the Relationship “The customer is king (or queen).”

3. Statutes/Regulations that Could Apply to Mobile Marketing The Telephone Consumer Protection Act of 1991 (“TCPA”) and FCC Rules implementing the TCPA The Federal Trade Commission Act (“FTC Act”) and the Telemarketing Consumer Fraud and Abuse Prevention Act and implementing regulations, including Telemarketing Sales Rule and Do-Not-Call List The Controlling the Assault of Non-Solicited Pornography and Marketing Act (“CAN-SPAM Act”) State laws regulating telemarketing, email marketing and privacy Industry self regulation (e.g., MMA US Consumer Best Practice Guidelines for Cross-Carrier Mobile Content Programs, DMA and other industry guidelines) Customer Proprietary Network Information (“CPNI”) Rules Lanham Act/State “Little FTC” Acts and false advertising laws

4. Mobile Marketing Overview • Mobile marketing defined: Business and legal trends • Laws implicated and key areas of potential liability • Pending regulatory activity and industry advocacy efforts

5. Key Areas of Potential Liability • Statutory violations • Unauthorized charges • Tortious interference • Breach of contract • Privacy issues

6. 2008: Timberland Co. and GSI Commerce settled charges under the TCPA for unsolicited text messages advertising Timberland’s holiday sale. Settlement: $7 million to the class and $150 per plaintiff. 2009: Simon & Schuster was sued for TCPA violations for sending text messages promoting the Stephen King novel Cell. Settlement: $10 million to the class and $175 per plaintiff Satterfield v. Simon & Schuster, 569 F.3d 946, 951 (9th Cir. 2009).

7. Recent Litigation under TCPA • Lozano v. Twentieth Century Fox Film Corp. (N.D. Ill 2010). • District Court rejected defendant’s argument that TCPA only prohibits calls that result in a charge to the recipient • Kazemi v. Payless Shoesource, Inc. (N.D. Cal. 2010).

8. Espinal v. Burger King Corp. (S.D. Fl 2010) • October 13, 2010: Federal Judge approved a class-action settlement of $510K • Espinal alleged that Burger King violated the TCPA by sending unsolicited text advertisements to thousands of cell phones nationwide • The reply “stop” feature of the promotion did not function. • BK will pay $250 to each class member who received an unauthorized text message that related to BK promotion • BK agreed to curb its sending of unauthorized text messages in the future

9. Industry Standards and Best Practices • Guidelines Issued by the Direct Marketing Association (“DMA”), Mobile Marketing Association (“MMA”) and CTIA, The Wireless Association • Address issues such as: • Security • Privacy Policies • Privacy/Data Breaches • Notice • Choice & Consent • Opting Out • Consent is Program-Specific

10. Mobile Marketing Association Guidelines • The MMA’s U.S. Consumer Best Practices Guidelines for Cross-Carrier Mobile Content Programs last updated June 2010. • Address mobile-specific marketing issues such as: • Deactivated and recycled numbers • Standard rate single opt-in and premium rate double opt-in via SMS • Subscription programs • Mobile “chat” • Disclosure of offer terms and conditions

11. MMA’s “Mobile Advertising Guidelines” • Comprehensive, technically-oriented guidelines for creating ads, including: • Downloadable applications • Formats • Dimensions • Aspect ratios

12. MMA’s Program Specific Publications Mobile Marketing Sweepstakes and Promotions Guide Introduction to Mobile Coupons

13. Direct Marketing Association (“DMA”) Guidelines for Ethical Business Practice Provide guidelines for ethical and legal conduct for different types of direct marketing using different vehicles, including sweepstakes and other types of promotions

14. CTIA—The Wireless Association • CTIA Guidelines primarily address duties of wireless carriers. • Several potentially relevant documents: • Best Practices and Guidelines for Location Based Services • Consumer Code of Conduct • Content Classification Criteria

15. Opt-in Consent • DMA suggests single opt-in. • MMA suggests single or double opt-in, depending on the circumstances: • Double opt-in for promotions where subscriber incurs a charge that is higher than usual (e.g., $0.75 per message). • Single opt-in for promotions where the customer receives no charge or where subscriber incurs standard text message charges (e.g., $0.75 per message).

16. Opt-in Consent Content providers must obtain specific, express approval from subscribers before sending them commercial SMSs and other content. MMA references how to do this (e.g., “text YES to 474747”) When keywords (such as YES and STOP) are referenced in the document, use of other languages is optional depending on the target demographic for the program.

17. Opt-in Consent The goal of any opt-in is to clearly communicate to the subscriber the financial obligation they are about to incur by entering the program. MMA recommends specific language: “Message and data fees may apply.” Provider should also communicate that the subscriber may revoke his authorization at any time, and how to do it (“Text STOP to stop receiving messages”), and how to get help (e.g., “Text HELP for help”). Selling mobile opt-in lists is prohibited.

18. Mobile-Specific Marketing • These organizations incorporate into their guidance best practices and legal compliance requirements in specific areas such as: • Advertising to Children • Word-of-Mouth Marketing • Affiliate Marketing • Use of the word “free” • Disclosure of offer terms or conditions

19. Special Issues for Mobile/Wireless Prize Promotions • Lotteries are prohibited under federal laws and the laws of all fifty states, usually as a form of gambling. • A lottery has three elements: (1) prize, (2) chance, and (3) consideration. • Costs incurred as a result of using a mobile device to enter a promotion (e.g., texting fees) may constitute consideration.

20. American Idol/Deal or No Deal Cases • In 2007, class action cases challenged the text message games in TV shows Deal or No Deal, American Idol, 1 vs. 100, and America’s Got Talent • Audience members could enter the game via text message, but would incur a $0.99 premium text message fee. They could enter for free via the Internet. • GA Supreme Court held that state gambling law was not violated because the participant did not compete against the game sponsor, there was no “winner,” and there was not a wager on the outcome. • Hardin v. NBC Universal, Inc. et al., 660 S.E.2d 374 (Ga. 2008) • CA cases are still pending. They challenge the established proposition that an alternative method of entry eliminates the element of consideration from promotional games. They also raise the question of whether the Internet can be relied on as a free alternative method of entry. • Bentley v. NBC Universal, Inc., No. 2:07-CV-03647 (C.D. Cal.); Herbert v. Endemol USA, Inc., No. 2:07-CV-03537 (C.D. Cal.); and Cunningham v. Endemol USA, Inc., No. 2:07-CV-3643 (C.D. Cal.)

21. Text Message Promotions • Text message promotions should include a free AMOE that will not require consumers to pay text messaging fees or otherwise incur any costs. • The California class action raises questions as to whether even a free AMOE will be sufficient. • Until the California case is resolved, companies should at minimum (a) avoid any method of entry that has a premium cost associated with it unless there is some value associated with the charges (a ringtone, a t-shirt, etc.) and (b) ensure the availability of a free AMOE.

22. Disclosure of Prize Promotion Terms and Conditions/Registration • As with all promotions, must disclose Official Rules prior to entry; disclosure is complicated by medium (smaller screen, etc.) • At minimum, need link to complete rules from ads on mobile screen. • Ads in other media should make more complete disclosures. • Promotion sponsors may wish to require registration online for more complicated promotions.

23. False Advertising Under the Lanham Act • Section 43(a) of the Lanham Act prohibits false statements made in commercial advertisements that are likely to deceive consumers and likely to cause injury to the plaintiff.

24. Elements of a Lanham Act/False Advertising Claim • Defendant made a false or misleading statement of fact in a commercial advertisement about a product; • Statement either deceived or had the capacity to deceive a substantial segment of potential consumers; • Deception is material, in that it is likely to influence the consumer’s purchasing decision; • Product is in interstate commerce; and • Plaintiff has been or is likely to be injured as a result of the statement. Clorox Co. Puerto Rico v. Procter & Gamble Commercial Co., 228 F.3d 24, 33 (1st Cir. 2000).

25. Advocacy Issues • Some advocacy groups have expressed opinions in the mobile marketing/privacy space. (ACLU, Center for Digital Democracy, Electronic Frontier Foundation, Consumers Union, Privacy Rights Clearinghouse) • In 2010, the Wall Street Journal began running a series of articles called ‘What They Know’ http://online.wsj.com/public/page/what-they-know-digital-privacy.html • The series addressed the collection of personal data on websites and on-line ads, online behavioral advertising and GPS tracking technology in cell phones.

26. Advocacy Issues • Since the article, 17 consumer advocacy groups sent a letter to the Chairman of the FTC asking the Commission to propose a comprehensive statutory and regulatory solution to address the deficiencies in American’s privacy rights. • In August, 6 organizations sent letters to the Chair and Ranking Member of both the House and Senate Commerce Committees asking them to investigate Microsoft Corp. and to hold hearings on consumer privacy issues.