Download word-of-mouth marketing

THE DOWNLOAD
DEVELOPMENTS IN E-COMMERCE, PRIVACY, MARKETING, AND INFORMATION SERVICES LAW AND POLICY
VOLUME
2,
NUMBER
JANUARY 10, 2007
1
Editors
In this issue:
Alisa M. Bergman
202-344-4611
[email protected]
•
Task Force Seeks Comments on I.D. Theft Issues (page 1)
Emilio W. Cividanes
•
FTC Issues Staff Opinion on Word-of-Mouth Marketing Regarding
Disclosure of Paid Relationships (page 4)
•
FTC to Host One-Day Workshop Analyzing Negative Option Marketing
(page 6)
202-344-4414
[email protected]
Stuart P. Ingis
202-344-4613
[email protected]
„
Task Force Seeks Comments on I.D. Theft Issues
Washington, D.C.
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(202) 344-4000
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NEW YORK
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New York, NY 10174
(212) 307-5500
Los Angeles
2049 Century Park East
Los Angeles, CA 90067
(310) 229-9900
The Federal Identity Theft Task Force (Task Force), chaired by Attorney
General Gonzales and co-chaired by Federal Trade Commission (FTC) Chairman
Majoras, is seeking public comment on ways to improve the effectiveness and
efficiency of federal government efforts to reduce instances of identity theft.
Policymakers are likely to rely upon these recommendations as guidance in
developing legislation and regulations for the private sector. Comments are due
Friday, January 19, 2007. See
http://www.ftc.gov/speeches/majoras/061221PublicNoticeFinal.pdf.
By way of background, this Task Force was created by an Executive Order
signed by the President on May 10, 2006 to strengthen efforts to combat identity
theft. Comprised of 17 federal agencies and departments, its purposes are to
improve the federal government’s protection of personal data, improve public
outreach to educate the public about identity theft, consider the development of
appropriate safeguards for the private sector, and encourage more aggressive law
enforcement action against perpetrators of identity theft. The Task Force was to
provide to the President by November 10, 2006 a coordinated strategic plan for
improving the federal government’s activities in identity theft awareness, prevention,
detection, and prosecution. By further Executive Order, this time frame was
amended to require submission of the strategic plan no later than February 9, 2007.
On September 19, 2006, the Task Force published interim
recommendations. Although there is no requirement to formally solicit public
comment, the Task Force has decided to do so to obtain the benefit of additional
research, analysis, and recommendations on these issues. The request for public
comment notes that it is not expected that the Task Force will respond directly to
particular suggestions or comments. Rather, it will use the information to supplement
its work.
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The work of the Task Force has been focused in the following four areas:
I.
II.
III.
IV.
Enhanced security and consumer education to help keep
sensitive data out of the hands of identity thieves;
Preventing misuse of consumer data—making it more difficult for
identity thieves to use information to steal identities;
Victim recovery; and
Law Enforcement: greater ID theft deterrence through more
aggressive prosecution and punishment.
The recommendations under consideration that would have the greatest
impact on the private sector are consideration of a national data security standard
and breach notification requirement; issues related to both government and private
sector uses of social security numbers (SSNs), including a request for comment on
alternative identifiers for SSNs; and public private partnerships efforts to combat
identity theft.
Following is a summary of the key issues and questions on which the Task
Force is inviting comments:
I.
Maintaining Security of Consumer Data
Building on the interim recommendation that called for an examination by
federal agencies of their collection and use of SSNs, the Task Force is considering
whether the following types of additional measures should be taken as well as
comments on the following issues:
•
Government Use of SSNs
o Ways to achieve reduced reliance on SSNs by federal, state and
local government, including steps to eliminate unnecessary use
and display of SSNs
o Comments on any available substitutes for SSNs
•
Private Sector Use of SSN
o Whether to recommend an investigation into and analysis of how
SSNs are currently used in the private sector
•
National Data Security Standards for Commercial Entities
o Whether to recommend national data security requirements for all
commercial entities that maintain sensitive consumer information
ƒ Comments on essential elements of such a requirement,
variations for small businesses, costs associated with such
a requirement
•
Breach Notification Requirement for Private Sector
o Whether to recommend a national breach notification requirement
o Deficiencies in current protocols regarding breach notification
o Comments on essential elements of such a requirement
•
Education of private sector and consumers regarding data safeguards
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II.
Preventing Misuse of Consumer Data
Building on the interim recommendation to hold a workshop or series of
workshops on authentication issues (which will begin in early 2007) to develop and
promote more reliable methods of authentication to make it harder for identity thieves
to open new accounts or access existing ones, the Task Force is seeking comment
on any additional measures to prevent the misuse of consumer data.
III.
IV.
Victim Recovery
•
Improving victim assistance (e.g., educational materials for first
responders, law enforcement training, victim statement of rights)
•
Developing a national identification document for authentication
purposes
•
Gathering data on effectiveness of victim recovery efforts (e.g., FTC
surveys, assessment of state credit freeze laws)
Law Enforcement
To further the Executive Order's policy of increased aggressive law
enforcement, among other measures, the Task Force is considering:
•
Establishing a National I.D. Theft Law Enforcement Center
•
Enhancing law enforcement's ability to receive information from private
sector
o DOJ discussions with private sector to increase awareness by
victims of rights to receive I.D. theft-related documents
o DOJ discussions with credit reporting agencies regarding possible
measures to make it more difficult for identity thieves to obtain
credit base on access to a victim's credit report
o Investigation of I.D. thieves resident in foreign countries
•
Amendments to federal statutes and guidelines used to prosecute
identity theft-related offenses
o Amending 18 U.S.C. § 1030 by eliminating current requirement
that key-logging or malicious spyware actions must cause damage
to computers, and that the loss caused must exceed $5,000
o Enacting legislation that would make it a felony for data brokers
and telephone company employees to knowingly and intentionally
sell or transfer customer information without prior written
authorization from the customer, with exceptions for law
enforcement
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FTC Issues Staff Opinion on Word-of-Mouth Marketing Regarding
Disclosure of Paid Relationships
The Federal Trade Commission (FTC) actively has been monitoring the
evolution of new marketing techniques, including word-of-mouth or “buzz” marketing,
product placement, and marketing via cell phone as outlined among the priorities in
remarks by Lydia Parnes, Director of the Bureau of Consumer Protection, in January
at the 2006 Annual Advertising Law & Business Conference of Association of
National Advertisers. In a recent staff opinion letter, the FTC has now addressed the
issue of word-of-mouth marketing—the practice of marketing by encouraging
consumers to endorse a product among other consumers. As the Commission
indicates that it will start to bring enforcement actions against word-of-mouth
marketing that it considers deceptive, any such campaign should be reviewed
carefully prior to execution.
In particular, word-of-mouth marketing involving payment to the consumer in
return for product endorsements should include a disclosure of this relationship. With
respect to non-monetary compensation (such as free samples, reward points, swag,
etc.), marketers should consult the FTC guidelines on Endorsement, as well as the
industry best practices set forth in the Word-of-Mouth Marketing Association
(WOMMA) ethics code, which requires disclosure regardless of payment. In addition,
special attention should be focused on any campaigns targeted at children,
particularly those that take place online and that are directed to children under the
age of 13, given the children’s privacy requirements that may be triggered.
I.
The Opinion Letter
The FTC issued its December 7, 2006 letter in response to an October 18,
2005 petition submitted by the consumer group Commercial Alert. Commercial Alert
had requested that the Commission issue guidelines to govern word-of-mouth
marketing and bring enforcement actions against marketers who use it deceptively.
The Commission declined to issue guidelines, stating that existing standards
concerning deceptive advertising would be sufficient. The Commission stated,
however, that it would bring enforcement actions on a case-by-case basis against
those who use deceptive word-of-mouth marketing.
II.
Standards Described in the Letter
According to the letter, Commission staff believe that it would be deceptive
for a marketer to pay consumers to endorse the marketer’s product without disclosing
this relationship. The letter suggests that consumers are likely to place more
credence in another consumer’s endorsement of a product based on the appearance
that he or she is independent of the seller. If the endorsing consumer is not actually
independent, the letter explains, this mistaken enhancement of trust renders the
practice deceptive.
Commercial Action’s petition raised specific concerns about word-of-mouth
marketing to children. In response, the Commission noted that it already takes steps
to protect children from deceptive advertising, evaluating deceptiveness from the
standpoint of an ordinary child. The Commission agreed with the petitioner that
marketers also must comply with the Children’s Online Privacy Protection Act
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(COPPA).
1
Related to this, the Children’s Advertising Review Unit (CARU) has issued guidelines regarding the use of
endorsements with respect to children’s advertising, which also are instructive. See
http://www.caru.org/guidelines/index.asp.
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III.
Types of Compensation Covered by the Letter
The FTC letter focuses primarily on payments of money in return for
endorsements, which it condemns as deceptive when there is no disclosure of the
connection between consumer endorser and marketer. However, the letter also
notes that some marketers “provide consumers with product samples, coupons,
‘inside’ information about new products, the ability to influence marketing campaigns,
or similar incentives.”
Commission staff do not state definitively that they consider such incentives
to be equivalent to monetary payments for purposes of the policy announced in the
letter. Instead, they emphasize the standard set out in the Commission’s
Endorsement Guides, considering “whether the connection between the seller and
the endorser is likely to have a material effect on the weight or credibility of the
endorsement.” See 16 C.F.R. § 255.5. Under the relevant guideline, a material
connection is defined as one that is not reasonably expected by the audience. To
illustrate this standard, the letter cites cases in which endorsers were presented as
being independent, but in fact were business associates or relatives of the marketer.
Thus, the deciding factor for the FTC in evaluating deceptiveness will be
whether the incentive undermines the independence that the consumer appears to
possess. Even a non-monetary incentive that has this effect presumably would be
considered deceptive.
IV.
Conclusion
The opinion letter establishes that the Commission is likely to take
enforcement action against marketers who pay consumers to endorse their products
without disclosing this fact. Accordingly, where the proposed marketing activity
involves the payment of money to a consumer in return for his or her endorsement,
this relationship should be disclosed.
The opinion letter is less clear with respect to other types of incentives—
discounts, coupons, product samples, and similar compensation—given to
consumers in return for endorsements, but the letter implies that the Commission will
pay close attention to these consumer relationships as well. If the Commission
believes that other consumers trust the word-of-mouth endorsement due to a
perception of independence, and that the incentive given to the endorsing consumer
makes this perception inaccurate, the Commission considers the practice to be
deceptive. For this reason, when providing non-monetary incentives to consumers in
return for their endorsements, these activities also should be reviewed carefully and
the safest course of action would be to disclose these relationships as well.
Venable attorney Chris Diamond contributed to this article.
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FTC to Host One-Day Workshop Analyzing Negative Option Marketing
The FTC has announced that it will hold a workshop on January 25, 2007
focusing on "negative option offers" over the Internet. According to the FTC notice
announcing the workshop, negative option offers are the offer by a business of a
product or an initial provision of services, coupled with the continuing option to
receive the product or services in the future if the customer does not cancel such
further receipt. The key factor that makes an offer a "negative option," according to
the FTC notice, is the fact that the customer's silence or failure to take an affirmative
action to reject goods or services or cancel the agreement is treated as acceptance
of the offer.
The workshop will analyze three types of negative option offers:
•
Prenotification Negative Option Plans—Plans where businesses send
notices to customers regarding products or services that the customer
will receive unless the customer tells the business within a set amount of
time that they do not want to receive the product or service.
•
Continuity Plans—Plans where customers regularly receive products or
services until they cancel the agreement.
•
Trial Conversions—Plans where customers agree ahead of time to
receive products or services for a trial period and, unless the customer
cancels after the trial period, the delivery of the product or service will
continue. These are often "free to pay" conversions where the customer
is not charged for the trial offer and begins to be charged after the trial
period.
The FTC has indicated that it will explore the following questions at the
workshop:
1. What are the pros and cons of negative option marketing?
2. How do consumers behave when viewing and responding to marketing
offers online?
3. How can marketers meet the clear and conspicuous standard for
advertising disclosures when making negative option offers online?
4. How can advertisers make negative option offers with effective
disclosures that are compatible with the advertising message?
One area that is expected to receive significant discussion is the interplay
between contract law and the FTC's clear and conspicuous standards. The
workshop is open to the public and will be held in Washington, DC. The FTC will also
accept written comments until February 26, 2007.
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THE DOWNLOAD is published by the privacy team at the law firm of Venable LLP. Internet address:
http://www.venable.com. It is not intended to provide legal advice or opinion. Such advice may only be
given when related to specific fact situations. Copyright Venable LLP 2007.
Issue Editor: Stuart P. Ingis
Associate Editor: Katharine A. Pauley
Questions and comments concerning information in this newsletter should be directed to Stuart Ingis at
[email protected].
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