Restraining Order Issued Against Companies Involved in
Selling Limited-Use Online Shopping Cards

The Alleged Activity

• Numerous defendants used telemarketing and online advertising to target consumers with poor or no credit.
• Defendants portrayed their limited-use shopping cards as general-use credit cards and claimed that consumers would receive access to a line of credit that could be used for cash advances.
• Defendants used checking account information provided by third-party payday loan brokers to withdraw fees from consumers' bank accounts without authorization.
• Consumers were falsely informed that the three (3) major credit bureaus would receive reports concerning the consumers' payment histories.
• The defendants charged an up-front fee of up to $250 (which was debited from the consumers' bank accounts), but failed to properly disclose that the up-front fee was non-refundable.
• Only after the up-front fee was debited did consumers learn of the limitations associated with the online shopping cards.
• Consumers where required to make considerable cash down payments on purchases (up to 80% in some instances) using the limited-use shopping cards.

The Complaint

• The complaint was filed on February 2, 2009 in the US District Court for the Middle District of Florida.
• On the same day that the complaint was filed, a judge issued a restraining order against the defendants and temporarily froze the defendants' assets.
• The Federal Trade Commission ("FTC") claims that the defendants' telemarketing of their online shopping cards and the selling of them via the Internet was deceptive and in violation of the FTC Act.
• The complaint also alleges that, because of the lack of adequate disclosures, debiting of money from consumers' bank accounts was unauthorized and, therefore, "unfair."
• The defendants were also charged with violating the Telemarketing Sales Rule ("TSR") for misrepresentations and omissions in their telemarketing sales pitches and by calling consumers listed on the Federal Do-Not-Call Registry.

Keep in Mind

• If you are charging a non-refundable up-front fee, this must be disclosed in all marketing materials.
• Do not promote limited-use shopping cards as general-use cards that can be used to make purchases in department stores and other retail establishments.
  
  

Google Revises its Mobile Ad Policy

February 2009

New Policy - New Requirements

• Google Inc. ("Google") recently revised its policy for both online and mobile paid search advertising.
• Google is now requiring mobile content text and image advertisers to display their pricing and billing intervals in all ad text.
• Google's new policy will require ad text that contains the word "free" or any synonyms thereof to inform consumers what they need to do (including incurring costs) in order to get the "free" merchandise.

Florida Attorney General - Standards

• Google's revised policy is in line with Florida State Attorney General Bill McCollum's (the "AG") recent stance on this type of advertising.
• The AG has recently reached settlements with several mobile marketing entities in an effort to enforce its standards requiring companies to disclose the cost of ringtones and other content in all online and mobile advertising.
• According to the AG's standards, when advertisers offer a product or service for "free," the ad must also disclose, in immediate proximity to the word "free," the price of the product or service if receiving the item would be contingent upon the consumer making a purchase.

Summary

• Google, with its huge Internet presence, is making a statement by announcing and implementing this new policy for mobile content advertising.
• Mobile marketers take heed: displaying pricing and billing intervals in ad text has become industry standard.
• For more information on Google's AdWords policy, contact us or visit google.com
  
  

Mobile Content Marketer Settles Dispute with Florida AG for $1 Million

Mobile Messenger Americas, Inc. ("MMA")

• MMA, a Los Angeles-based company, is in the business of marketing mobile content, including subscription-based text messaging products.

Complaints Led to Investigation

• The Florida State Attorney General's Office (the "AG") alleged that it had received numerous customer complaints relating to the billing of charges for unauthorized mobile content downloads that customers believed would be free or complimentary.
• After receiving the complaints, the AG's CyberFraud Section of the Economic Crimes Division conducted an investigation.
• The investigation revealed that MMA's advertising of these subscription text products "often failed to clearly and conspicuously describe the price and terms of the subscription service."
• As a result, the AG alleged that "consumers were unwittingly being signed up for costly monthly subscriptions."

Settlement Agreement

• MMA agreed to pay $1 million to the AG in order to settle allegations related to improper billing of mobile content.
• The settlement also requires MMA and its affiliates to comply with the AG's guidelines on specific disclosure of pricing and subscription terms in the online and wireless marketing of mobile content.
• Specifically, the price of mobile content and/or services and other material terms of purchase must be conspicuously disclosed on all transaction screens.
• According to the AG, these marketing guidelines will help ensure that consumers see and understand the terms and conditions of the subject offers prior to signing up for services.

Summary

• Mobile marketers beware: the Florida AG has set forth industry guidelines on disclosure, pricing and subscription terms for the marketing of mobile services.
• In light of this settlement, companies may want to review their marketing materials to ensure compliance with these emerging guidelines and standards.
  
  

Internet Betting Exchange Did Not Violate State Gambling Statute

Internet Cmty. & Entm't Corp., v. Washington, ___P.3d___, 2009 WL 313336 (Wash. 2d Cir.) (Feb. 10, 2009)

Betcha.com

• Beginning on June 8, 2007, appellant Betcha.com operated a website that provided a person-to-person betting platform.
• Registered Betcha.com users with funded accounts could offer betting propositions to other users via the Betcha.com website and accept same by paying nominal fees to Betcha.com for providing its platform and facilitating the wagering.
• Betcha.com indicated in its "Terms of Service" ("Terms") that users (bettors) were not required to pay if they lost a bet.
• Specifically, in order to access and use the website, users were required to first agree that all bets were "non-binding."
• Within its Terms, Betcha.com also indicated that bets placed via its website were governed by the "honor system."
• Further information on the website described the "Honor Rating System," which allows users to provide negative feedback regarding a bettor who does not pay on his/her losses.

Washington State Gambling Commission

• After visiting Betcha.com's Seattle offices on June 21, 2007, the Washington State Gambling Commission (the "Commission") determined that the company was engaged in providing an illegal professional gambling forum.
• In early July, 2007, the Commission searched Betcha.com's offices and seized computer equipment and documents.
• Betcha.com later notified the Commission that it had shut down its operations.

Betcha.com's Complaint

• On July 10, Betcha.com filed a complaint seeking a declaratory judgment that its website does not violate the State Gambling Act of 1973 (chapter 9.46 RCW).
• Specifically, Betcha.com sought a determination that social wagering on its website was not "gambling" within the meaning of the Act and that Betcha.com's facilitation of such wagering for a fee was not "professional gambling" or "bookmaking" as defined under the Act.
• The State filed a cross-motion for summary judgment.

Lower Court Decision

• The Thurston County Superior Court granted summary judgment in favor of the State, ruling that Betcha.com's Internet gambling operations violated the statute.
• The statute defines "gambling" in pertinent part as: "staking or risking something of value upon the outcome of a contest of chance or a future contingent event not under the person's control or influence, upon an agreement or understanding that the person or someone else will receive something of value in the event of a certain outcome."
• Betcha.com appealed the lower court decision, arguing that the plain language of the statute is not met because there can be no understanding that a bettor will receive something of value where the website stresses that all bets are non-binding.

Appellate Court Decision

• The appellate court held that the statutory definitions of gambling and bookmaking had not been met. Therefore, the court found that the trial court had erred in ruling that Betcha.com's activities amounted to "professional gambling" under the statute.
• The court applied legal concepts of "strict construction" and the "rule of lenity" in rendering its decision and ruled that "[t]here is no logical basis for concluding that bettors have either an agreement or understanding that winners will be paid."

Summary

• Under this statute and this limited set of facts, the court held that Betcha.com's Internet gambling website was not in violation of the law.
  
  

Claim against Yahoo! for "False Designation of Origin," "Passing Off" Fails

Heartbrand Beef, Inc. v. Lobel's of New York, LLC, 2009 WL 311087 (S.D. Tex. Feb. 5, 2009)

Background

• Heartbrand Beef, Inc. ("Heartbrand") sells Akaushi beef -- meat from Akaushi cattle raised in Japan.
• The company believes that it is the only provider of this type of beef in the United States.
• In its complaint, Heartbrand alleged that one of the defendants, Worldwide Media, operated a website with a URL of akaushisteaks.com.
• While the website contained no real content, it did provide various links, some of which included the term "Akaushi."
• In clicking any of the "Akaushi" links, a user would be redirected to lobels.com -- a seller of beef, but not Akaushi beef.

The Complaint Against the Defendants¹

• Heartbrand alleged that the four (4) defendants engaged in a "bait and switch" scheme concerning the advertising and sale of "Akaushi" beef.
• Specifically, plaintiff claimed that defendants violated the Lanham Act, as well as Texas' law of unfair competition, in the marketing of non-Akaushi beef products.

Specific Claims Against Yahoo! (at issue here)

• When Internet users searched for "Akaushi" on yahoo.com, the first "paid listing" to appear was "lobels.com."
• Heartbrand claimed that Yahoo! Inc. ("Yahoo!") inappropriately sold to Lobels the right to have lobels.com featured as the first paid search result for the keyword "Akaushi."
• Heartbrand brought claims against Yahoo! for "false designation of origin," otherwise known as "passing off" or "reverse passing off," and for common law unfair competition.

Court Decision

• In reviewing the false designation of origin claim, the court applied the Fifth Circuit's five-prong test to determine whether plaintiff had stated a claim under 15 U.S.C. Section 1125(a)(1)(A) or (B).
• The court described "passing off" or "reverse passing off" as a situation where: "a defendant markets and sells its product under the trade name or dress of a competitor (to capitalize on the good will and brand loyalty the competitor has built up) or markets and sells the competitor's products under defendant's trade name and dress . . . ."
• The court needed only to review the first element (whether the defendant made a false or misleading statement of fact about its product or service) in dismissing the claim for false designation of origin, finding that Heartbrand failed to identify that any statement had been made by Yahoo! or that Yahoo! had made a statement about its own products or services.
• While the court dismissed the first claim, it upheld the state law claim of unfair competition, as Yahoo! had failed to provide grounds for dismissal of that claim.

Summary

• The court definitively stated that Yahoo! does not fit into either of the "passing off" situations because the search engine is not in the business of selling beef.
• Add Texas to the list of jurisdictions open to allowing keyword search engine use of third-party trademarks.
  
  

¹Yahoo! is the only remaining defendant. The other three (3) defendants settled with Heartbrand and have since been dismissed from the case.

Court Upholds FCC Order Requiring Carriers to Obtain "Opt-In" Consent from Customers Prior to Sharing CPNI

Nat'l Cable & Telecomm. Ass'n v. FCC ___F.3d.___, 2009 WL 348811 (D.C. Cir. Feb. 13, 2009)

The Telecommunications Act of 1996

• The 1996 Act defined "customer proprietary network information" ("CPNI") as information relating to the "quantity, technical configuration, type, destination, location, and amount of use of a telecommunications service subscribed to by any customer of a telecommunications carrier."
• CPNI includes particular calling plans, special features, pricing, terms of contracts for such services and details about who and when customers are calling.
• Such information is often used to conduct "targeted marketing."

FCC 1998 Order

• The 1998 order implemented the confidentiality mandate of the 1996 Act.
• The Federal Communications Commission ("FCC") determined that customers had to consent, affirmatively and explicitly ahead of time -- the "opt-in" method -- to those "uses" outside of the customers' existing relationship with their carriers.

10th Circuit Decision

• In 1999, the court in U.S. West, Inc. v. FCC, 182 F.3d 1224 (10th Cir. 1999), held that the 1998 order's opt-in consent requirement amounted to an unconstitutional restriction on the carrier's First Amendment right to speak to their customers.
• Thereafter, the FCC began requiring only "opt-out" approval for the sharing of customer information between a carrier and its affiliates for communications-related purposes.

The FCC 2007 Order -- At Issue Here

• After altering its requirements over the past 10 years (changing from "opt-in" to "opt-out"), the FCC yet again issued an order requiring that carriers return to obtaining "opt-in consent from a customer before disclosing that customer's [CPNI] to a carrier's joint venture partner or independent contractor for the purpose of marketing communications-related services to that customer."
• The FCC distinguished joint venture partners and independent contractors from affiliates.
• Basically, the FCC determined that information shared with third-party marketers is subject to a greater risk of loss once it is out of the carrier's control.
• Further, the FCC decided that those third party marketers would not likely be subject to the proscribed confidentiality requirements because they are not carriers.

Petitioner's Action

• The National Cable & Telecommunications Association alleged that the 2007 order violates the First Amendment and/or violates the Administrative Procedure Act.
• Both parties conceded that the government has a substantial interest in protecting the privacy of customer information and that requiring customer approval advances that purpose.

The Court Decision

• The court pointed out that the "opt-in consent scheme presumes that consumers do not want their information shared unless they expressly indicate otherwise; an opt-out scheme, which is what the petitioners want, presumes the opposite."
• Under the standards set forth in Central Hudson Gas & Elec. Corp. v. Pub. Serv. Comm'n, 447 U.S. 557 (1980), the court found that an opt-in consent requirement directly and materially advanced the interests in protecting customer privacy and in ensuring customer control over the information.
• The court held that the order was not an unconstitutional regulation of commercial speech under the First Amendment and that the FCC provided a reasoned analysis required to reverse its previous policy (opt-out).

Summary

• According to the FCC, before carriers may now share customer information with third party marketing companies, customers will have to expressly consent to such sharing.
• The FCC stated that it has chosen to return to a limited opt-in consent requirement as a result of increased customer data broker activity.
  
  

Massachusetts Revised ID Theft Regulations Effective January 1, 2010

The Office of Consumer Affairs and Business Regulation
February 12, 2009

KZR 12/08 Newsletter

• We reported on the Massachusetts Mandatory Encryption law which was to take effect on January 1, 2009.
• The law requires organizations to adopt comprehensive, written information security programs.
• Organizations are required to encrypt all transmitted records and files containing sensitive personal information that will travel across public networks, and encrypt all personal information (even non-sensitive information) to be transmitted wirelessly.

Revised ID Theft Regulations

• The regulations have been revised and will now take effect on January 1, 2010.
• Under the revised provisions, personal information -- a combination of a name along with a Social Security number, bank account number or credit card number -- must be encrypted when stored on portable devices, or transmitted wirelessly or via public networks.
• Further, by the January 1, 2010 deadline, the State will require encryption of personal information on portable devices (such as laptops, PDAs and flash drives) carrying identity data.
• Part of the revised regulations apply to a company's responsibility for data security oversight of its third party service providers by eliminating the requirement for written compliance certification by these vendors. It is believed that this change will reduce a business' administrative burden.
• In pushing back the deadline for complying with the new law, the State took into account the "sharp change in the business climate, along with the business community's increased understanding of what is required to protect their customers' identity[ies]."

Summary

• Compliance with these new regulations requires careful thought and preparation.
• Other states, including Michigan and Washington, are now considering similar regulations.
• As reported in our December 2008 Newsletter, Nevada has already implemented its own set of data security regulations.