Ninth Circuit Interprets "Call" under TCPA to Include Text Messages

Satterfield v. Simon & Schuster, Inc., ___F.3d___, 2009 WL 1708081
(9th Cir. June 19, 2009)

Facts:

• Plaintiff Laci Satterfield received an unsolicited commercial text message after becoming a registered user of Nextones.com ("Nextones").
• Plaintiff joined Nextones in order to receive a free ringtone for her son.
• The Nextones member sign-up process indicated that there would be no cost involved and that by checking "Yes," the member agreed to receive promotions from Nextones' affiliates and brands.
• Mobile Information Access Company ("MIA") was Nextones' exclusive agent for licensing the telephone numbers of Nextones subscribers.
• Simon & Schuster outsourced its promotional campaign for the Stephen King novel "Cell" to ipsh!, which in turn, obtained a list of 100,000 cell phone numbers from MIA.
• ipsh! sent the subject text message out on behalf of Simon & Schuster to the plaintiff.
• Plaintiff, individually and on behalf of others similarly situated, brought an action against Simon & Schuster for transmitting an unsolicited text message to her cell phone by an Automatic Telephone Dialing System ("ATDS") in violation of the Telephone Consumer Protection Act ("TCPA").
• Simon & Schuster moved for summary judgment arguing, among other things, that plaintiff had not received a "call" within the meaning of the TCPA.

District Court:

• The court granted summary judgment, holding that defendants did not use an ATDS and that plaintiff consented to receiving the message.
• The court failed to address defendants' argument that a text message is not a "call" under the TCPA.
• Plaintiff appealed.

Ninth Circuit Court of Appeals:

• The Court of Appeals reversed the decision and held that "it is reasonable to interpret ‘call' under the TCPA to include both voice calls and text messages."
• The court also concluded that Simon & Schuster is not an affiliate or brand of Nextones and, as such, plaintiff did not expressly consent to receive this text message from Simon & Schuster.
• Further, regarding whether defendants used an ATDS (a requirement for liability under the TCPA), the court held that there is a genuine issue of material fact concerning whether the equipment used by Simon & Schuster has the capacity to both: (1) store or produce numbers to be called using a random or sequential number generator; and (2) dial such numbers.

Summary:

• Marketing via text messaging is an emerging industry showing signs of rapid growth; more and more advertisers are seeking to benefit from the tremendous wireless industry.
• Now that the Ninth Circuit interpreted a "call" under the TCPA to include a text message, you can be sure that this decision will lead to more text messaging lawsuits for violation of the TCPA.
• Text message advertising must be done in accordance with accepted industry practices and standards that are evolving on a regular basis. Beware of the fact that in this environment, proceeding with text messaging marketing absent a specific opt-in to the receipt of such messages from the actual sending party is a risky proposition that can result in regulatory investigation and/or litigation.

Google Revises Ad Text Trademark Policy to Allow Certain Trademark Use

Google, Inc. Announcement
May 14, 2009

New Ad Text Trademark Policy:

• In the United States, Google has liberalized its policy to permit use of third-party trademarks in some text ads.
• Google provides criteria under which a trademark may be used in ads without first obtaining explicit approval from the trademark owner.

General Criteria:

A trademark may be used in ad text in the following circumstances:

• Ads which use the term in a descriptive or generic way, and not in reference to the trademark owner or the goods or services corresponding to the trademarked term.
• Ads which use the trademark in a nominative manner to refer to the trademark or its owner, specifically:
  1. Resale of the trademarked goods or services;
  2. Sale of components, replacement parts or compatible products corresponding to a trademark; and
  3. Informational sites.

Why Change the Policy?

• Google indicates that the change was the result of an effort to improve ad quality and user experience.
• According to Google, the new policy will facilitate the creation of more narrowly-targeted ad text.
• Google reasons that the change will help both users and advertisers by reducing the number of overly generic ads that appear across United States networks.

Relevant Court Decisions Pending:

In Rescuecom Corp. v. Google, Inc., ___F.3d___, 2009 WL 875447 (2d Cir. April 3, 2009), advertisers purchased Rescuecom's trademark as a search term through Google's AdWords program. Rescuecom brought suit against Google. The court vacated the lower court's dismissal of the action against Google, but specifically pointed out that it cannot say whether or not Rescuecom can prove that Google's AdWords program results in a likelihood of confusion or mistake among consumers. For more information, refer to our May 2009 Newsletter where we discussed the decision in detail.

In John Beck Amazing Profits, LLC v. Google, Inc., 2:2009-cv-00151 (E.D. Tex.), filed on May 14, Firepond, creator of sales management software, brought action against Google for selling keywords referencing trademarked terms to a competitor.

Summary:

• It is surprising that Google liberalized its AdWords trademark policy in light of the recent litigation mentioned above.
• We will keep a close eye on the courts' treatment of the issues and will report back with any relevant updates.

FTC Announces Crackdown on Alleged "Scammers"

Federal Trade Commission Press Release
July 1, 2009

"Operation Short Change":

• The Federal Trade Commission ("FTC") announced a law enforcement crackdown on companies seeking to capitalize on the economic downturn by, among other things:

  promising non-existent jobs;
  promoting overhyped get-rich-quick plans;
  offering fake government grants;
  offering non-feasible debt-reduction services; and
  placing unauthorized charges on consumers' credit and debit cards.

• The sweep includes 15 FTC cases, 44 law enforcement actions by the Department of Justice, and actions by as many as 13 states and the District of Columbia.

David Vladeck, Director of the FTC's Bureau of Consumer Protection, stated that:

1. Companies are "exploiting the economic downturn;" and
2. "Their scams may promise job placement, access to free government grant money, or the chance to work at home. In fact, the scams have one thing in common -- they raise people's hopes and then drive them deeper into a hole."

FTC Cases:

• The FTC has brought eight (8) new cases against companies in addition to the seven (7) cases brought earlier this year.
• In each new case, the FTC has alleged that the defendants' practices were deceptive or unfair; additional charges were brought for making illegal electronic funds transfers or violating the Telemarketing Sales Rule.
• For a summary of the current pending actions, see www.ftc.gov.

Help for Consumers:

• The FTC created a new consumer video exhibiting how to avoid becoming a victim of fraud.
• The video may be viewed at www.ftc.gov or at www.YouTube.com/ftcvideos.

Unauthorized Purchase of Trademark As a Search Engine Keyword is "Use" under the Lanham Act

Hearts on Fire Co. v. Blue Nile, Inc.,
2009 WL 794482 (D. Mass. March 27, 2009)

Facts:

• Plaintiff sells trademarked diamonds and jewelry to authorized retailers, many of whom resell the diamonds online.
• "Hearts on Fire" is plaintiff's registered trademark.
• Defendant is an online retailer of diamonds and jewelry; it is not an authorized dealer of plaintiff's trademarked diamonds and, therefore, consumers cannot purchase them at defendant's website.

Alleged Infringement:

• Plaintiff alleged that defendant purchased its "Hearts on Fire" mark as a search engine keyword to trigger the display of sponsored links to defendant's website.
• In effect, users who clicked the sponsored link would reach defendant's website which contains an internal search engine that searches exclusively within defendant's site.
• Plaintiff further alleged that such use of the mark constitutes infringement under the Lanham Act and common law, and violates the Massachusetts Unfair and Deceptive Practices Act.
• Specifically, plaintiff claimed that defendant's use of the "Hearts on Fire" trademark confuses consumers, diverting potential Internet customers from their original intent to buy plaintiff's diamonds and, instead, directing them to defendant's website.
• Defendant moved to dismiss the action.

Central Issue for Review:

• Whether this diversion, achieved through the purchase of sponsored links, triggered by the trademarked phrase, constitutes trademark infringement.
• The court reviewed two (2) items: (1) whether the purchase of the mark to trigger sponsored ads constituted a "use in commerce" under the Lanham Act; and (2) whether this "use" caused a likelihood of confusion -- specifically, "initial interest confusion" as the plaintiff alleged.

Court Findings:

• The court denied defendant's motion to dismiss and reviewed the following factors:

  Use in Commerce:

  • The court noted that there is a split among the circuits that have dealt with the issue of whether the purchase of a trademarked keyword to trigger a sponsored link constitutes a "use."
  • Here, the court found that "[t]he purchase of a competitor's trademark to trigger search-engine advertising is precisely such a use in commerce, even if the trademark is never affixed to the goods themselves."
  • The court pointed out that "one company has relied on its competitor's trademark to place advertisements for its own products in front of consumers searching for that exact mark."

  Initial Interest Confusion:

  • The court's main concern was whether consumers were misdirected and whether that misdirection created the potential for confusion sufficient to state a claim under the Lanham Act.
  • Here, the court pointed out that the main question is one of degree: "whether the consumer is likely confused in some sustained fashion by the sponsored link and the defendant's website, or whether the link serves instead as a benign and even beneficial form of comparison shopping."
  • The court concluded that plaintiff stated a claim for trademark infringement, even where defendant's sponsored links did not display the protected mark.

Court Looks Ahead:

• The court identified eight (8) criteria that should be reviewed when determining whether a trademark use is likely to confuse a significant number of consumers:

  similarity of the marks; similarity of the goods; relationship between their channels of trade; relationship between their advertising; classes of their prospective purchasers; any evidence of actual confusion among Internet consumers; defendant's subjective intent in using the mark; and overall strength of the mark.

• Further, the court pointed out that the content and context of what the consumer saw on the screen will impact whether there was a likelihood of confusion.

  Content and context criteria includes:

  overall mechanics of web browsing and Internet navigation; mechanics of the specific consumer search at issue; content of the search results webpage; downstream content on the defendant's website; Internet sophistication of potential customers; specific context of a consumer who has deliberately searched for the mark; and duration of any resulting confusion.

Summary:

• Many courts have held that the purchase of a trademark as a search engine keyword to trigger sponsored ads constitutes a "use" under the Lanham Act.
• Here, the court concluded that initial interest confusion can support a claim, but only where the plaintiff has sufficiently alleged that consumers were confused, and not simply diverted.
• According to the decision, in determining the likelihood of confusion, courts should analyze the content and context of Internet advertisements triggered by a registered mark.

Obama Passes Federal Gift Card Regulations

Credit Card Act of 2009 amends The Electronic Funds Transfer Act

When Does The Law Take Effect?

• In late May, 2009, President Obama passed the Credit Card Act of 2009 (the "Law"), amending the Electronic Funds Transfer Act.
• The Law goes into effect on August 21, 2010.

What Do the Provisions Regulate?

• The new provisions regulate general-use pre-paid cards, gift certificates and store gift cards.
• The amendments cover three (3) significant items:
  1. dormancy fees, inactivity charges and service fees;
  2. expiration dates; and
  3. how the Law relates to state laws (and any associated preemption issues).

What is Prohibited?

• Dormancy fees, inactivity charges and service fees are prohibited unless there has been no card use for twelve (12) months, and where allowed under the Law, no more than one fee may be charged per month.
• Under these regulations, certain fee disclosure requirements must be met and indicated prior to purchase.
• Expiration dates of less than five (5) years are also prohibited - and must be clearly and conspicuously disclosed.

Excluded from the Prohibition:

• Gift certificates issued via an award, loyalty or promotional program through which no money or other consideration or value is exchanged.
• Excluded from the definition of general-use pre-paid cards, gift certificates and store gift cards:

  An electronic promise, plastic card, or payment code device that is --

  1. used solely for telephone services;
  2. re-loadable and not marketed or labeled as a gift card or gift certificate;
  3. a loyalty award or other promotional gift card;
  4. not marketed to the general public; or
  5. issued in paper form only.

Effect of State Laws:

• The new federal Law does not preempt state laws that provide greater consumer protection.

Summary:

• Keep in mind that state laws that impose stricter requirements are not preempted by the federal Law.
• Therefore, companies need to remain abreast of any applicable state law gift card regulations.
• Marketers should also be aware of the types of cards that are excluded from the Law's reach.

Internet Search Engines Prohibited from Accepting Deceptive Mortgage Assistance Advertisements

FTC v. One or More Unknown Parties Misrepresenting Their Affiliation With the Making Home Affordable Program,
D. D.C., No. 1:09-cv-00894, 5/15/09

Facts:

• In response to the sinking housing market, earlier this year President Obama announced the "Making Home Affordable" program to help eligible homeowners refinance or modify their mortgages.
• Eligible homeowners may visit the government site "MakingHomeAffordable.gov" to seek assistance with their mortgages from qualified staff at no cost.

The Federal Trade Commission ("FTC") Alleged:

• The defendants deceptively diverted consumers who searched online for the free government assistance program to its commercial websites that offer loan modification services for a fee
• The defendants have not been identified because of the anonymity often afforded by the Internet.

How Did They Do It?

• According to the FTC, defendants purchased "sponsored links" in order to advertise their services on the "search results" pages of various Internet search engines.
• A consumer's search for the terms "making home affordable" or such similar phrases, would reveal defendants' advertisements displaying the website address "MakingHomeAffordable.gov."
• Clicking on the associated links would not take consumers to the official government website, but rather to defendants' commercial websites that offer loan modification services for a fee.
• The FTC pointed out that these sites are not affiliated with the United States government and require consumers to provide personally- identifying and confidential financial information.

FTC Sought Court Order:

• The FTC filed an emergency request for a temporary restraining order ("TRO") barring defendants from using the "MakingHomeAffordable.gov" search term or making it appear as if they are affiliated with the U.S. government.

Court Order:

• A federal district court issued the TRO to stop the Internet-based operation from allegedly misrepresenting that it operates or is affiliated with MakingHomeAffordable.gov.
• The Order requires the specific search engine providers to identify the entities who paid them to place the ads, and also to prospectively refuse to place paid ads that contain active hyperlinks that are labeled "MakingHomeAffordable.gov" or any other domain name referencing ".gov."

Summary:

• It is somewhat surprising that defendants thought that they could reference the government's official website, divert consumers to commercial sites, and not get caught.
• Under the TRO, Internet marketing companies are barred from using any .gov domain names, and operators of search engines are prohibited from accepting ads that contain such links.

New York Bill Would Amend Data Breach Notice Law

S. 3760 - Filed March 31, 2009

Existing Law:

• The Information Security Breach and Notification Act (Chapters 442 and 491 of the Laws of 2005) was enacted to require businesses and State agencies to provide notification to New York residents whose private information has been compromised by a breach in the security of computerized data.

Reasons to Change the Law:

• According to the drafters, it seems that certain terms are not adequately defined, other terms are not used consistently, and some provisions of the Act are capable of a variety of interpretations.
• This has made it difficult for businesses and State agencies to implement the Act consistently and effectively.

The Bill:

• The new law would require businesses and State agencies to:

  Implement and maintain reasonable security safeguards, appropriate to the nature of the information, to prevent unauthorized access to or unauthorized destruction, use, modification or disclosure of private information.

Amendments Include:

• A definition of "encrypted." If information is "encrypted" under the law, the person or business would be exempt from the breach notification requirements.
• Clarification of the term "private information." The definition would be amended to eliminate the requirement that account numbers and credit or debit card numbers be disclosed in combination with the codes or passwords necessary to permit access to an account.
• Clarification of the definition "breach of the security of the system" and the exception for "good faith acquisition" of private information.
• Revision to the definition of "consumer reporting agency."
• Requirement that private information be protected with reasonable security procedures and practices.
• Revision of the requirements applicable to a person or business maintaining computerized data not owned by such person or business.

Summary:

• The proposed amendments are intended to further reduce the risk of harm from security breaches, including identity theft.
• Bill S.3760 has been sent to the Senate Consumer Protection Committee for review.